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In 1999, revenues for the contract drilling segment decreased by $405.9
million, or 55%, and operating margin decreased by $336.7 million, or 76%, as
compared to 1998. The decrease in revenues and operating margin is primarily due
to a 55% decrease in the average day rates of the Company's jackup rigs and a
decrease in the utilization of the Company's drilling rig fleet, to 65% in 1999
from 90% in 1998. Operating expenses for the contract drilling segment decreased
$69.2 million, or 24%, from the prior year due to reduced utilization and the
impact of cost savings measures, which included, among other things, reductions
in personnel and decreases in performance based compensation and benefits.
In 1998, revenues for the contract drilling segment increased by $12.6
million, or 2%, while operating margin decreased by $5.6 million, or 1%, from
1997. The increase in revenues is due primarily to a 5% increase in average day
rates for the Company's jackup rigs, and a 33% increase in average day rates for
the Company's platform rigs. In addition, the acquisition of the ENSCO 100
jackup rig, in December 1997, increased revenues by $14.2 million in 1998. These
increases were offset in part by a decrease in utilization for the Company's
jackup rigs, to 88% in 1998 from 93% in 1997, and the sale of four barge rigs in
Venezuela in October 1998. The contract drilling operating margin was negatively
impacted by an $18.2 million, or 7%, increase in operating expenses. The
increase in operating expenses is due primarily to higher wages and benefits and
increased oilfield equipment and materials costs.
North America Jackup Rigs
In 1999, revenues for the North America jackup rigs decreased by $187.7
million, or 58%, and operating margin decreased by $172.2 million, or 86%, as
compared to 1998. The decrease in revenues and operating margin is primarily
attributable to a 58% decrease in average day rates in 1999. Operating expenses
decreased $15.5 million, or 13%, from the prior year due primarily to cost
savings measures.
In 1998, revenues for the North America jackup rigs decreased by $33.8
million, or 9%, and operating margin decreased by $39.9 million, or 17%, as
compared to 1997. The decrease in revenues and operating margin is due primarily
to an approximate 7% decrease in average day rates and a decrease in utilization
to 93% in 1998 from 96% in 1997. In addition to the decrease in revenues,
operating margin was negatively impacted by a $6.1 million increase in operating
expenses in 1998, due primarily to higher wages and benefits and increased
oilfield equipment and materials costs.
Europe Jackup Rigs
In 1999, revenues for the Europe jackup rigs decreased by $156.9 million,
or 72%, and operating margin decreased by $129.0 million, or 83%, as compared to
1998. The decrease in revenues and operating margin is primarily attributable to
a 46% decline in average day rates and to a decrease in utilization, to 48% in
1999 from 97% in 1998. Operating expenses decreased $27.9 million, or 45%, from
the prior year due primarily to cost savings measures and substantially lower
utilization.
In 1998, revenues for the Europe jackup rigs increased by $43.6 million,
or 25%, and operating margin increased by $38.0 million, or 32%, as compared to
1997. The increase in revenues and operating margin is due primarily to a 20%
increase in average day rates in 1998 as compared to 1997 and the addition of
the ENSCO 100 jackup rig, in December 1997, which added revenues of $14.2
million in 1998. These increases in revenues were offset in part by a decrease
in utilization to 97% in 1998 as compared to 100% in 1997. Operating margin was
negatively impacted by a $5.6 million increase in operating expenses in 1998,
due primarily to higher wages and benefits and increased oilfield equipment and
materials costs.
Asia Pacific Jackup Rigs
In 1999, revenues for the Asia Pacific jackup rigs decreased by $29.3
million, or 37%, and operating margin decreased by $19.6 million, or 55%, as
compared to 1998. The decrease in revenues and operating margin is primarily
attributable to a 16% decline in average day rates and to a decrease in
utilization, to 46% in 1999 from 61% in 1998. Operating expenses decreased $9.7
million, or 23%, from the prior year due primarily to cost savings measures and
lower utilization.
In 1998, revenues for the Asia Pacific jackup rigs decreased by $1.7
million, or 2%, and operating margin decreased by $.5 million, or 1%, as
compared to 1997. The decrease in revenues is due primarily to a decrease in
utilization, to 61% in 1998 as compared to 79% in 1997, offset in part by a 25%
increase in average day rates. The decrease in utilization is due to shipyard
downtime and additional idle time resulting from the slowdown in drilling
activity in Southeast Asia.
South America Barge Rigs
In 1999, revenues for the South America barge rigs decreased by $19.0
million, or 27%, and operating margin decreased by $9.6 million, or 28%, as
compared to 1998. The decrease in revenues and operating margin is primarily
attributable to reduced utilization. Four of the ten barge rigs that operated
during the prior year were sold in October 1998, and the remaining six barge
rigs were idle for the majority of 1999 after experiencing early contract
terminations in January 1999. The decrease in revenues and operating margin
attributable to these ten barge rigs was partially offset by the operating
results of three newly constructed barge rigs that commenced operations in
March, April and June of 1999, and by lump-sum early contract termination
payments totaling $18.4 million in January 1999. Operating expenses decreased
$9.4 million, or 26%, from the prior year, as cost reductions attributable to
cost savings measures, the four barge rigs sold in October 1998 and the reduced
utilization of the remaining six barge rigs that operated during the prior year
were only partially offset by the costs associated with the three newly
constructed barge rigs.
In 1998, revenues for the South America barge rigs decreased by $11.7
million, or 14%, and operating margin decreased by $14.1 million, or 29%, as
compared to 1997. The decrease in revenues and operating margin is due primarily
to the sale of four barge rigs in October 1998 whose initial contract periods
expired during the second quarter of 1998.
In October 1998, the Company sold four barge rigs to Petroleos de
Venezuela ("PDVSA") in connection with contractual purchase options exercised by
PDVSA. At the date of sale, the Company received cash proceeds of $49.4 million,
and the Company and PDVSA reached a reservation of rights agreement for the
resolution of certain contractual disputes relating to additional consideration
the Company believed it was entitled to receive in connection with the sale.
Based on the cash proceeds received, the Company recognized an insignificant
gain in the fourth quarter of 1998 after taxes and a required payment of $4.8
million to ENSCO's minority interest holder. In December 1999, the Company
reached a settlement with PDVSA for additional consideration and recognized a
gain of $6.8 million, or approximately $5.2 million net after taxes and minority
interest (see Note 2 to the Company's Consolidated Financial Statements).
Platform Rigs
In 1999, revenues from the platform rigs decreased by $13.0 million, or
31%, and operating margin decreased by $6.3 million, or 33%, as compared to
1998. The decrease in revenues and operating margin is primarily attributable to
a 9% decline in average day rates and to a decrease in utilization, to 51% in
1999 from 89% in 1998. Operating expenses decreased $6.7 million, or 28%, from
the prior year due primarily to cost savings measures and lower utilization.
In 1998, revenues for the platform rigs increased by $16.2 million, or
61%, and operating margin increased by $10.9 million, or 136%, as compared to
1997. The increase in revenues is due to an increase in utilization, to 89% in
1998 from 63% in 1997, and a 33% increase in day rates. The increase in
utilization is due primarily to less shipyard downtime in 1998 as compared to
1997 and reduced idle time due to increased demand. Operating margin was
negatively impacted by a $5.3 million increase in operating expenses. The
increase in operating expenses is due primarily to the additional operating days
in 1998.
Marine Transportation.
At December 31, 1999, the Company had a marine
transportation fleet of 35 vessels, consisting of six anchor handling tug supply
("AHTS") vessels, 23 supply vessels and six mini-supply vessels. Three of these
vessels, including one AHTS vessel and two mini-supply vessels, were sold during
the first quarter of 2000. The Company also sold two mini-supply vessels during
the fourth quarter of 1999 (see Note 2 to the Company's Consolidated Financial
Statements). During the third quarter of 1999, the Company added a 196-foot,
6,000 horsepower AHTS vessel to its fleet. The AHTS vessel is being leased, and
the Company has an option to purchase the vessel beginning February 2001.
In September 1998, one of the Company's large AHTS vessels sank while
supporting drilling operations for a customer in the Gulf of Mexico. The vessel
was fully insured and the Company recognized a gain on the loss of the vessel
(see "Other Income (Expense)" and Note 2 to the Company's Consolidated Financial
Statements). All of the Company's marine transportation vessels are located in
the Gulf of Mexico.
In 1999, revenues for the marine transportation segment decreased by
$43.6 million, or 55%, and operating margin decreased by $34.5 million, or 90%,
as compared to 1998. The decrease in revenues and operating margin is primarily
attributable to a 40% decline in average day rates and to a decrease in
utilization, to 62% in 1999 from 81% in 1998. Operating expenses decreased $9.1
million, or 22%, from the prior year due primarily to cost savings measures and
lower utilization.
In 1998, revenues for the marine transportation segment decreased by
$14.5 million, or 15%, and operating margin decreased by $18.7 million, or 33%,
as compared to 1997. The decrease in revenues and operating margin is due
primarily to a decrease in utilization, to 81% in 1998 from 91% in 1997, and a
5% decrease in average day rates. In addition, revenues decreased due to the
loss of a vessel in September 1998. Operating expenses increased $4.2 million,
or 11%, due primarily to increased drydocking expense and higher personnel
costs.
Depreciation and Amortization.
Depreciation and amortization expense in
1999 increased $14.7 million, or 18%, as compared to 1998. The increase is due
primarily to rig enhancement projects that were completed in 1998 and
construction of the three new barge rigs that commenced operations in 1999,
offset in part by the sale of four barge rigs in October 1998.
In 1998, depreciation and amortization expense decreased by $21.3
million, or 20%, due primarily to a change in the estimated useful lives of the
Company's drilling rigs and marine vessels effective January 1, 1998. Based on
an engineering and economic study of the Company's asset base completed in the
fourth quarter of 1997, the depreciable lives of the Company's drilling rigs and
marine vessels were extended by an average of five to six years. The effect of
this change on the Company's financial results for the year ended December 31,
1998 was to reduce depreciation expense by $35.2 million, or $.25 per basic and
diluted share. The decrease in depreciation expense caused by the increase in
the estimated useful lives was offset in part by the increase in the Company's
asset base resulting from acquisitions in 1997 and capital additions to drilling
rigs and marine vessels during 1997 and 1998.
General and Administrative.
General and administrative expense decreased
$4.2 million, or 27%, in 1999 as compared to 1998. The decrease is due primarily
to a reduction of performance-based compensation and other cost savings
measures.
In 1998, general and administrative
expenses increased by $1.1 million,
or 8%, as compared to 1997. The increase in general and administrative expenses
is due primarily to increased professional fees and higher personnel costs.
Other Income (Expense). Other income (expense) for each of the three years
in the period ended December 31, 1999, is as follows (in millions):
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