The chief executive of Hornbeck Offshore Services is bullish on the Gulf of Mexico’s long-term prospects.
The active deepwater rig count in the U.S. Gulf today is 40 units. That is moving in the right direction, and with additional rigs on the way, “We see no reason to believe we won’t see about 50 units in the Gulf of Mexico by year-end,” said Todd Hornbeck, the company's CEO.
Hornbeck delivered his positive long-term outlook during yesterday’s second-quarter earnings call. For the Covington, La.-based OSV operator, it was a positive quarter, with earnings per share of 85 cents, beating the street by 36 cents. Hornbeck also posted second-quarter revenue of $171.1 million, an increase of $34.5 million, or 25%, over the first quarter.
Other highlights included:
- Second-quarter utilization of its 56-vessel new generation OSV fleet of 86% compared to 88% a year-ago and 73% sequentially, and an MPSV effective utilization of 100% compared to 99% a year-ago and 85% sequentially.
- On the new construction side, the first nine high-specification HOSMAX OSVs have been placed in-service with three more deliveries expected by the end of the third quarter. Hornbeck’s fifth OSV newbuild program consists of four 300-class OSVs, five 310-class OSVs, 10 320-class OSVs and five 310-class MPSVs. As of July 30, Hornbeck has placed nine vessels in-service under the program including two in July. Eleven of the 15 remaining vessels under this 24-vessel domestic newbuild program are expected to be delivered by the first quarter of 2015.
The company saw solid growth across its fleet compared to the first quarter, but the “MVP for the quarter was clearly our MPSVs, where we had 100% utilization and average effective day rates well in excess of $100,000 per day across those four vessels,” said Hornbeck. This was made possible by high spot day rates. The company also saw across-the-board improvement in day rates and utilization in the second quarter for its core fleet of 56 new generation OSVs. Average day rates improved to nearly $33,000 per day for its high-spec OSVs, up $600 from the prior quarter.
“We firmly believe that we are transitioning into a sustained up cycle,” said Hornbeck. “We have seen a considerable amount of opportunity in the specialty market supporting field development and other projects in the Gulf of Mexico which also drove utilization improvement.”
Hornbeck said that since its first-quarter earnings call in May four incremental deepwater drilling units have begun drilling in the U.S. Gulf and that has pushed the active deepwater rig count up to 40 units.
Hornbeck said that when the Gulf hits 50 rigs, it should help address the current “choppiness” in the spot market. “When we settle into a 50-plus unit working environment, excess OSV capacity should quickly be absorbed.” Hornbeck estimated that this might occur in early 2015 instead of late 2014.
At the 50-rig level, Hornbeck expects the market to be at equilibrium or slightly undersupplied. “The Gulf of Mexico is a premium deepwater basin in one of the most politically stable regions of the world … we see no evidence to suggest that 50-plus drilling rigs won’t operate in the deepwater Gulf of Mexico in the foreseeable future.”
