 May
10, 2007 UBS Leveraged Finance Conference Filed by Hercules Offshore, Inc. Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934 Subject Company: TODCO Commission File No.: 1-31983 |
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Forward-looking Statements This presentation will contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements, which include any statement that does not relate strictly to historical facts, use terms such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “position,” “predict,” “project,” or “strategy” or the negative connotation or other variations of such terms or other similar terminology. In particular, statements, express or
implied, regarding future results of operations or ability to generate
revenues, income or cash flow or to make acquisitions are
forward-looking statements. These forward-looking statements are based on management’s current plans, expectations, estimates, assumptions and beliefs
concerning future events impacting Hercules Offshore, Inc.
(“Hercules”) and therefore involve a number of risks and uncertainties, many of which are beyond management’s control. These risks and
uncertainties are further described in Hercules’ annual report on Form 10-K and its most recent periodic reports and other documents filed with the Securities and Exchange Commission which are available
free of charge at the SEC’s website at www.sec.gov or the company’s website at
www.herculesoffshore.com. The
forward-looking statements involve risks and uncertainties that affect Hercules’ operations and financial performance. All forward-looking statements attributable to Hercules’ representatives are expressly qualified in their entirety by this cautionary statement.
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$9.2 $10.8 $13.9 $24.0 $29.1 $33.7 $42.9 $47.3 $46.8 $24.9 $26.3 $28.2 $24.0 $27.0 $42.6 $54.3 $67.4 $63.7 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 1Q07 Liftboats Drilling $4.2 $4.6 $5.8 $11.7 $16.8 $20.7 $26.7 $24.5 21.7 $12.5 $12.6 $13.8 $11.3 $14.1 $26.8 $33.7 $44.0 40.2 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 1Q07 Liftboats Drilling Hercules Offshore Overview Note: See Explanatory Information slide. Division Adjusted EBITDA does not include corporate
G&A and other income/expenses. Quarterly Revenue Quarterly Adjusted EBITDA ($ in millions) ($ in millions) Unique business mix within the oil services industry Tremendous growth since inception in mid 2004 Experienced management team Proven track record of strong return on capital |
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Pending TODCO Acquisition Highlights On March 19 th , Hercules entered into a definitive agreement to acquire TODCO for $2.3 billion with average per share consideration of: – 0.979 Hercules shares ($1.3 billion in equity) – $16.00 in cash ($930 million in cash) Cash portion to be funded with existing cash on hand and a senior secured term loan facility Closing expected mid-2007 – Subject to: – HSR approval – Hercules and TODCO shareholder approval – Other customary closing conditions Post-transaction Board of Directors to include seven Hercules and three TODCO nominees |
     4 A Gulf of Mexico Leader. . . With Global Reach A New Leader in Jackup Drilling A Leader in Barge Drilling A Leader in Liftboats |
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Creates Value for Stakeholders in Near and Long-term Accretive to earnings and cash flow per share Opportunity to enhance future returns with lower cost of capital Diversifies Hercules’ asset and customer base 1Q’07 pro forma trailing 12 month revenue of $1.4 billion and EBITDA of $630
million Revenue (1) ($mm) EBITDA (1) ($mm) (1) PF HERO represents Hercules plus TODCO financials per SEC filings, no accounting
adjustments have been made. $223 $630 0.0 250.0 500.0 750.0 HERO PF HERO $399 $1,369 0.0 500.0 1,000.0 1,500.0 HERO PF HERO |
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Acquisition-related debt allows Hercules to optimize its capital
structure Enhanced credit quality due to increased scale and scope Free cash flow expected to significantly exceed debt coverage needs Pro Forma Capital Structure as of 3/31/07 Total Debt/Total Capitalization Total Debt as a Multiple of LTM EBITDA (1) (1) For comparison purposes, EBITDA = Revenue – Operating Expenses – SG&A Competitor ratios based on 1Q07 reported earnings. 1.7x 1.6x 1.4x 0.9x 0.6x 0.5x 0.4x 1.6x 0.0x 0.4x 0.8x 1.2x 1.6x 2.0x RIG PF HERO PDE SPN RDC NE GSF DO 48% 34% 34% 33% 21% 19% 18% 12% 0.0% 20.0% 40.0% 60.0% SPN PF HERO RIG PDE RDC NE DO GSF |
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Summary of Strategic Rationale Enhances position in Gulf of Mexico and increases operational flexibility Provides asset and geographic diversity Expands international footprint for future growth Creates larger, more diverse jackup fleet Timely combination in a fragmented jackup market Combines leaders in barge drilling and liftboats Potential to realize meaningful synergies – Economies of scale – Procurement of materials, insurance, employee benefits – Operational synergies and redundant public company expenses |
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Provides Asset Diversity 1Q 2007 Revenue Segmentation Analysis Pre-Transaction $110 MM Post-Transaction $352 MM GOM Contract Drilling 39% Domestic Liftboats 30% International Contract Drilling 19% International Liftboats 13% Domestic Liftboats 9% Inland Barge Drilling 18% International Contract Drilling 20% International Liftboats 4% GOM Contract Drilling 42% Delta Towing 6% |
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1Q 2007 Geographic Revenue Analysis Provides Geographic Diversity Pre-Transaction $110 MM Post-Transaction $352 MM We expect international contribution to represent a greater portion of our revenues in the future Middle East 6% US GOM 68% India 13% West Africa 13% US GOM, 58% Inland US, 18% Latin America, 13% West Africa, 5% India, 4% Middle East, 2% |
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A Global Footprint with Significant Expansion Potential (1) Pro forma for TODCO’s announced THE 208 relocation. (2) Includes Hercules Rig 26, marketing internationally. Mexico Jackup Rigs 2 Platform Rig 1 West Africa Jackup Rig 1 Liftboats 17 Middle East Jackup Rig 1 Malaysia (1) Jackup Rig 1 U.S. Gulf Coast Inland Barges 27 Land Rigs (TX) 2 Trinidad Jackup Rig 1 Land Rig 1 Brazil Jackup Rig 1 Venezuela Land Rigs 6 U.S. Gulf of Mexico Jackup Rigs 25 Submersible 3 Liftboats 47 India Jackup Rig 1 Global Summary Liftboats 64 Jackup Rigs 33 Inland Barges 27 Land Rigs 9 Submersible 3 Platform Rigs 1 (2) |
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44 43 40 33 27 25 24 20 16 13 11 10 9 0 5 10 15 20 25 30 35 40 45 ESV GSF NE PF HERO PDE RIG THE RDC NBR DO COSL Nat'lHERO Drilling 24 18 14 11 9 9 8 6 3 3 0 5 10 15 20 25 PF HERO THE ESV PDE DO NBR RDC HERO Blake GSF Fourth Largest Global Jackup Fleet Current Global Jackup Landscape Current Gulf of Mexico Jackup Landscape (1) Source: ODS-Petrodata (1) Excludes rigs that have announced mobilization out of the GOM, including Hercules Rig 26 and Pride Mississippi |
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A Leading Player in US Gulf Coast Inland Barge Rigs Source: Company estimates based on public information. 27 13 4 2 2 1 0 5 10 15 20 25 30 PF HERO PKD Axxis Tetra Coastal NBR |
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A Leading Provider of Liftboat Services Source: Company estimates based on public information. (1) Denotes cold-stacked or abandoned vessels. Current Gulf of Mexico Liftboat Landscape Current West Africa Liftboat Landscape 47 27 15 6 6 4 3 3 2 1 0 10 20 30 40 50 HERO SPN Aries Montco OL Laredo AMC OMC Seahorse CS Liftboats 17 3 2 1 1 0 5 10 15 20 HERO Zumax (1) Zukus (1) NV De Brandt Shoreline |
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August 2005 Acquired the Whale Shark liftboat from CS Liftboats June 2005 Acquired Rig 16 from Transocean and 17 liftboats from Superior Energy October 2004 Acquired 22 liftboats from Global Industries August 2004 Acquired five jackup rigs from Parker Drilling Successful integration of 12 asset acquisitions since formation – Integrated several large fleets, operations and employees Opportunistic acquisition strategy Focus on return on capital employed Successful Acquisition Track Record February 2006 Acquired Rig 26 from Aries Offshore Partners Ltd. November 2005 Acquired seven liftboats from Danos & Curole September 2005 Acquired Rig 31 from Hydrocarbon Capital II LLC June 2006 Acquired six liftboats from Laborde Marine Lifts November 2006 Acquired eight liftboats and assumed rights to operate five additional liftboats from Halliburton January 2005 Acquired Rig 25 from Parker Drilling and Rig 30 from Porterhouse Offshore, L.P. March 2007 Entered into a definitive merger agreement to acquire TODCO |
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Transaction is Consistent With Hercules’ Strategy Grow the Company – Merger expedites growth initiative – Utilize critical mass and financial strength to enhance future growth Quickly integrate and deploy newly acquired assets – Identify and implement operational best practices – Past successes of effectively integrating acquisitions Maintain Financial Discipline – Pro forma debt level of 1.6x LTM EBITDA is within industry range Diversify asset base and geographic footprint – Leverage combined operational and management depth to continue and accelerate international expansion |
 Business Outlook |
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Strong Outlook for Oil Prices . . . OPEC Surplus Capacity & Utilization OPEC surplus capacity is minimal Sustained upward pressure on prices Encourages investment in projects previously considered uneconomic Source: US DOE, EIA Global Oil Production versus Drilling & Completion Spending Source: EIA, Spears & Associates Production 10yr CAGR 1% Spending 10yr CAGR 15% 0 3 6 9 12 0% 3% 6% 9% 12% 15% Excess capacity Capacity Utilization 30 40 50 60 70 80 90 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 40 80 120 160 200 240 Production Spending |
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. . . and for US Natural Gas Decline Rates Are Rising Production Rates Are Falling An ever increasing number of wells are needed to maintain production As a result of long term deliverability issues, gas storage is becoming a less
important determinant of price 0.35 0.55 0.75 0.95 1.15 1.35 1.55 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E 2007E Initial First Year Production per New Well Source: EOG Resources, Raymond James First Year US Gas Well Decline Rates 35.0% 40.0% 45.0% 50.0% 55.0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E |
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Jackup Market has been Bifurcated Since Mid-2006 Jackup Avail. Supply 0 20 40 60 80 100 120 140 160 $0 $20 $40 $60 $80 $100 $120 Contracted Stacked Ready Dayrate Contracted GOM Jackup Market in a Trough International Jackup Markets at Peak, but Demand Remains Strong Jackup Avail. Supply 0 20 40 60 80 100 120 140 160 180 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 Contracted Stacked Ready Dayrate Contracted Dayrate Dayrate Current GOM demand for 62 jackups against marketed supply of 72 jackups, leaving 10 rigs hot-stacked International jackup utilization is still effectively at 100% Source: ODS-Petrodata, Jefferies & Company |
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0 50 100 150 200 250 300 350 400 450 500 $- $25 $50 $75 $100 $125 $150 $175 $200 0 50 100 150 200 250 300 $- $25 $50 $75 $100 $125 Source: ODS-Petrodata. West Africa dayrates are used to approximate average market rates
for worldwide jackup rigs. Solid Backlog of Work Globally Business visibility has increased substantially over the past six years, but has
weakened considerably in the US Gulf of Mexico over the last several
months Current Worldwide Jackup Backlog Current GOM Jackup Backlog Jan 1999 187 Days Apr 2007 434 Days West Africa 300’ IC 200’ MC Jackups in GOM Jan 2004 32 Days Apr 2007 118 Days Backlog Dayrate |
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156 ??? ??? ??? 74 (4) 6 72 87 (15) 0 30 60 90 120 150 180 156 87 (15) 72 6 (4) 74 ??? ??? ??? GOM Supply Continues Downward Trend June 2001 Jackup Supply Less: Cold Stacked/ Shipyard (2) Marketed Supply Less: Jackups Leaving GOM Plus: Jackups in Yard (non- contracted) Visible Marketed Supply Less: Future Jackup Deployments Plus: Newbuilds Plus: Reactivation of Cold Stacked (9) Current Jackup Supply (1) (1) Excludes 1 GSF rig severely damaged in Hurricane Katrina (2) Includes only rigs that are not contracted. Source: ODS-Petrodata as of 5/4/07, and company disclosure. Rigs Departing the GOM Rig Name Destination Rig Name Destination Hercules 26 TBD Ben Avon (Songa Tellus) West Africa Mexico Pride Mississippi Rigs in Shipyard Rig Name Blake 202 Pride Wyoming Hercules 26 Ensco 83 GSF Adriatic VII Ben Rinnes (Songa Neptune) West Africa Ocean King |
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Inland Barge Update Largest operator in US Gulf Coast – 72 total barges of which 23 are workover only – Of 49 drilling barges, TODCO owns 27, Parker owns 14 (84% of supply) TODCO holds excess supply with 17 operating and 10 cold stacked Average Backlog 122 days (1) TODCO fleet as of April 30, 2007 and Hercules estimates Latest Contracted Dayrates Marketed Rigs Working Rigs Avg High –Conventional <2000hp 1 1 32,000 $ 32,000 $ –Conventional 2000hp 2 2 35,000 35,000 –Conventional 3000hp 3 2 38,500 42,000 –Posted 2000hp 3 1 68,000 68,000 –Posted 3000hp 8 8 47,500 58,000 17 14 44,786 $ 51,286 $ (1) |
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Liftboat Update Return to more typical seasonality in GOM – During 2006 demand was extremely robust given the hurricane repair work and operators were willing to pay for liftboats while waiting out the weather – Following a seasonal decline in utilization in the GOM during the winter months,
utilization has rebounded significantly GOM Dayrate outlook stable – Dayrates likely to remain flat during 2007 West Africa remains strong – Increased spot market prices by 30% during December – May mobilize additional vessels into West Africa |
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Hercules’ Liftboat Fleet Starfish Class 140’ Liftboat Swordfish Class 200’ Liftboat (1) Within the liftboat industry, the terms leg-length and liftboat class are used
interchangeably. Note: Utilization is defined as the total number of operating days in the period as a percentage of the total
number of calendar days in the period our liftboats were actively marketed. Dayrates
include reimbursements from customers under relevant contracts. 69% Leg - Length / Liftboat Class (1) Number of Mar-06 Mar-07 Y-o-Y 2007 (Feet) Vessels Dayrate Dayrate % Change Utilization Gulf of Mexico 260' 1 $29,638 $33,514 13% 91% 230' 3 $23,579 28,269 20% 37% 190-215' 6 18,736 22,179 18% 83% 170' 2 NA 19,627 NA 18% 140-150' 6 8,583 10,293 20% 82% 120-130' 14 7,321 8,702 19% 62% 105' 15 5,669 7,136 26% 63% Domestic Total 47 $10,040 $12,748 27% 65% West Africa All Vessels 17 $9,934 $11,485 16% 79% |
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Credit Highlights Successful History of Growth Leading Market Position Diversification by Assets, Geography, and Customers Experienced Management Team Favorable Industry Fundamentals Strong Financial Profile |
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Explanatory Information Adjusted EBITDA is calculated as net income before interest expense, taxes, depreciation and amortization, gain on disposal of assets and loss on early retirement of debt. Adjusted EBITDA is included in this presentation because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, some of which present EBITDA and Adjusted EBITDA when reporting their results. We regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates by using Adjusted EBITDA. In addition, we utilize Adjusted EBITDA in evaluating acquisition targets. Management also believes that Adjusted EBITDA is a useful tool for measuring our ability to meet our future debt service, capital expenditures and working capital requirements, and Adjusted EBITDA is commonly used by us and our investors to measure our ability to service indebtedness. Adjusted EBITDA is not a substitute for the GAAP measures of earnings or of cash flow and is not necessarily a measure of our ability to fund our cash needs. In addition, it should be noted that companies calculate EBITDA and Adjusted EBITDA differently and, therefore, Adjusted EBITDA as presented for us may not be comparable to EBITDA and Adjusted EBITDA reported by other companies. Adjusted EBITDA has material limitations as a performance measure because it excludes interest expense, taxes, depreciation and amortization, gain on disposal of assets and loss on early retirement of debt. The following tables reconcile Adjusted EBITDA with net income. Note: Reconciliations for Drilling and Liftboats do not include corporate adjustments.
EBITDA Reconciliation ($ in millions) Drilling Liftboats 1Q 05 2Q 05 Q3 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 1Q 05 2Q 05 Q3 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 Net Income $9.5 $7.6 $10.5 $0.5 $25.6 $15.6 $19.1 $27.2 $25.7 $2.5 $1.5 $2.5 ($1.6) $7.5 $9.3 $12.6 $12.7 $7.8 Plus: Interest Expense 1.8 1.8 1.9 1.5 1.3 1.4 1.7 2.3 1.4 0.5 0.6 0.9 0.8 0.7 0.8 0.9 1.4 0.8 Plus: Income Tax Expense – – – 6.9 15.1 7.5 10.5 10.0 9.3 – – – 8.9 4.4 5.5 7.6 4.7 5.3 Plus: Depreciation and Amortization 1.3 1.3 1.4 1.5 1.7 2.3 3.5 4.0 3.9 1.2 1.5 2.3 3.2 4.3 5.2 5.6 5.7 7.8 Plus: Loss on Early Retirement of Debt – 1.8 – 0.8 – – – – – – 0.9 – 0.5 – – – – – Less: Gain on Disposal of Assets – – – – 29.6 – 1.1 – – – – – – – – – – – Adjusted EBITDA $12.5 $12.6 $13.8 $11.3 $14.1 $26.8 $33.7 $43.5 $40.2 $4.2 $4.6 $5.8 $11.7 $16.8 $20.7 $26.7 $24.5 $21.7 |
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Explanatory Information (cont.) For comparison purposes we have calculated pro forma EBITDA combining Hercules Offshore and TODCO. EBITDA is calculated as total revenues less direct operating expenses less general & administrative expenses not including depreciation and amortization. The pro forma represents Hercules plus TODCO financials per SEC filings. No accounting adjustments have been made. The following table calculates pro forma EBITDA. Note: Reconciliations for Drilling and Liftboats do not include corporate adjustments.
Pro forma HERO EBITDA Calculation ($ in millions) 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 LTM Hercules Revenue $56.1 $76.3 $97.2 $114.7 $110.5 $398.7 TODCO Revenue $183.6 $226.1 $242.3 $260.1 $241.9 $970.4 Pro forma Revenue $239.7 $302.4 $339.5 $374.8 $352.4 $1,369.1 Hercules Operating Expense 21.9 26.3 33.2 42.7 41.5 143.7 TODCO Operating Expense 107.3 140.6 129.2 133.1 114.7 517.6 Less: Pro forma Operating Expenses 129.2 166.9 162.4 175.8 156.2 661.3 Hercules General & Administrative 6.6 6.6 7.2 9.4 9.2 32.4 TODCO General & Administrativ 9.7 10.7 10.8 10.1 13.3 44.9 Less: Pro forma G&A Expenses 16.3 17.3 18.0 19.5 22.5 77.3 Hercules EBITDA 27.6 43.4 56.8 62.5 59.8 222.6 TODCO EBITDA 66.6 74.8 102.3 116.9 113.9 407.9 PF HERO EBITDA $94.2 $118.2 $159.1 $179.4 $173.7 $630.5 |
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Risk Factors Risks with respect to the combination of Hercules Offshore and TODCO, as well as other
recent and future acquisitions, include the risk that we will not be able to
close the transaction, as well as difficulties in the integration of the
operations and personnel of the acquired company, diversion of management's attention away from other business concerns, and the assumption of any
undisclosed or other liabilities of the acquired company. We expect to
incur substantial transaction and merger related costs associated with
completing the merger with TODCO, obtaining regulatory approvals, combining
the operations of the two companies and achieving desired synergies. Additional unanticipated costs may be incurred in the integration of the businesses of
Hercules Offshore and TODCO. Expected benefits of the merger may not
be achieved in the near term, or at all. Hercules Offshore will have a
significant amount of additional debt as a result of the merger. This debt will require us to use cash flow to repay indebtedness, may have a material
adverse effect on our financial health, and may limit our future
operations and ability to borrow additional funds. For additional
information regarding the risks associated with the TODCO acquisition, please read the risk factors section in the joint proxy statement/prospectus included in Hercules Offshore’s registration statement on Form S-4 (No. 333-142314) |
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Important Information to be Filed In connection with the TODCO acquisition, Hercules Offshore has filed with the SEC a
registration statement on Form S-4 that contains a joint proxy
statement/prospectus. Investors and security holders of Hercules Offshore
and TODCO are urged to read the registration statement and definitive joint
proxy statement/prospectus (if and when they become available) and any other relevant documents filed with the SEC, as well as any amendments or supplements to those
documents, because they contain and will contain important information about
Hercules Offshore, TODCO and the merger. A definitive joint proxy
statement/prospectus will be sent to security holders of Hercules Offshore
seeking their approval of the issuance of shares of common stock in the acquisition. Investors and security holders may obtain these documents free of charge at the SEC's website at www.sec.gov. In addition, the documents filed with the SEC by Hercules Offshore may be obtained free
of charge from our website at www.herculesoffshore.com or by calling our investor relations department at (713) 979-9300. The documents filed with the SEC by TODCO may be obtained free of
charge from TODCO's website at www.theoffshoredrillingcompany.com or by calling TODCO's investor relations department at (713) 278-6000. Investors and security holders are urged to read the joint proxy statement/prospectus and the other relevant materials when they become available before
making any voting or investment decision with respect to the proposed
merger. Hercules Offshore, TODCO and their respective directors, and
executive officers may be considered participants in the solicitation of
proxies in connection with the proposed transaction. Information about the
participants in the solicitation is set for in the registration statement on Form S-4 and will be set forth in the joint proxy statement/prospectus when it becomes available.
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