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Article by DailyStocks_admin    (10-08-08 07:21 AM)

Hercules Offshore Inc. CEO John T Rynd bought 20000 shares on 9-26-2008 at $16.19

BUSINESS OVERVIEW

Overview

We provide shallow-water drilling and marine services to the oil and natural gas exploration and production industry in the U.S. Gulf of Mexico and internationally. We provide these services to major integrated energy companies, independent oil and natural gas operators and national oil companies.

In July 2007, we furthered our strategic growth initiative by completing the acquisition of TODCO for total consideration of approximately $2,397.8 million, consisting of $925.8 million in cash and 56.6 million shares of common stock. TODCO, a provider of contract drilling and marine services, owned and operated 24 jackup rigs, 27 barge rigs, three submersible rigs, nine land rigs, one platform rig and a fleet of marine support vessels. The TODCO acquisition positioned us as a leading shallow-water drilling provider as well as expanded our international presence and diversified our fleet. In December 2007, we sold the nine land rigs for proceeds of $107.0 million.

We historically reported our business activities in four business segments, Domestic Contract Drilling Services, International Contract Drilling Services, Domestic Marine Services and International Marine Services. In connection with the acquisition of TODCO, we conducted a review of our segments. Our historical operating divisions have been combined with the businesses of TODCO and now operate as six divisions: (1) Domestic Offshore, (2) International Offshore, (3) Inland, (4) Domestic Liftboats, (5) International Liftboats and (6) Other. Domestic Offshore includes our legacy Domestic Contract Drilling Services business and TODCO’s domestic offshore rigs operating in the U.S. Gulf of Mexico, while International Offshore includes our legacy International Contract Drilling Services and TODCO’s offshore rigs operating internationally. Inland includes the former TODCO U.S. inland barge business. Domestic Liftboats includes our legacy Domestic Marine Services business, while International Liftboats includes our legacy International Marine Services business. Our Other segment includes Delta Towing and, prior to the December 2007 divestiture, the activities of our land rigs. The following describes our operations for each reporting segment:

Domestic Offshore — operates 24 jackup rigs and three submersible rigs in the U.S. Gulf of Mexico that can drill in maximum water depths ranging from 85 to 250 feet.

International Offshore — operates nine jackup rigs and one platform rig outside of the U.S. Gulf of Mexico. We have one jackup rig working offshore in each of the following international locations: Qatar, India, Angola, Cameroon and Trinidad. This segment operates two jackup rigs and one platform rig in Mexico. In addition, this segment has one jackup rig currently undergoing reactivation in Southeast Asia and one jackup rig currently undergoing contract preparation work and customer acceptance in India.

Inland — operates a fleet of 12 conventional and 15 posted barge rigs that operate inland in marshes, rivers, lakes and shallow bay or coastal waterways along the U.S. Gulf Coast.

Domestic Liftboats — operates 47 liftboats in the U.S. Gulf of Mexico.

International Liftboats — operates 18 liftboats offshore West Africa, including five liftboats owned by a third party and one undergoing refurbishment.

Other — our Delta Towing business operates a fleet of 33 inland tugs, 17 offshore tugs, 34 crew boats, 45 deck barges, 17 shale barges and four spud barges along and in the U.S. Gulf of Mexico. Our land rig operations, which were sold in December 2007, included one land rig in Trinidad, two land rigs in the United States and six land rigs in Venezuela.

Our Fleet

Jackup Drilling Rigs

Jackup rigs are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established to support the drilling platform. Once a foundation is established, the drilling platform is jacked further up the legs so that the platform is above the highest expected waves. The rig hull includes the drilling rig, jackup system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, helicopter landing deck and other related equipment.

Jackup rig legs may operate independently or have a lower hull referred to as a “mat” attached to the lower portion of the legs in order to provide a more stable foundation in soft bottom areas, similar to those encountered in certain of the shallow-water areas of the U.S. Gulf of Mexico. Mat rigs generally are able to more quickly position themselves on the worksite and more easily move on and off location than independent leg rigs. Twenty-six of our jackup rigs are mat-supported and seven are independent leg rigs.

Our rigs are used primarily for exploration and development drilling in shallow waters. Twenty-two of our rigs have a cantilever design that permits the drilling platform to be extended out from the hull to perform drilling or workover operations over some types of preexisting platforms or structures. Eleven rigs have a slot-type design, which requires drilling operations to take place through a slot in the hull. Slot-type rigs are usually used for exploratory drilling rather than development drilling, in that their configuration makes them difficult to position over existing platforms or structures. Historically, jackup rigs with a cantilever design have maintained higher levels of utilization than rigs with a slot-type design.

As of February 20, 2008, 17 of our jackup rigs were operating under contracts ranging in duration from well-to-well to three years, at an average contract dayrate of approximately $78,816. In the following table, “ILS” means an independent leg slot-type jackup rig, “MC” means a mat-supported cantilevered jackup rig, “ILC” means an independent leg cantilevered jackup rig and “MS” means a mat-supported slot-type jackup rig.

Other Drilling Rigs

A submersible rig is a mobile drilling platform that is towed to the well site where it is submerged by flooding its lower hull tanks until it rests on the sea floor, with the upper hull above the water surface. After completion of the drilling operation, the rig is refloated by pumping the water out of the lower hull, so that it can be towed to another location. Submersible rigs typically operate in water depths of 14 to 85 feet. Our three submersible rigs are suitable for deep gas drilling.

A platform drilling rig is placed on a production platform and is similar to a modular land rig. The production platform’s crane is capable of lifting the modularized rig crane that subsequently sets the rig modules. The assembled rig has all the drilling, housing and support facilities necessary for drilling multiple production wells. Most platform drilling rig contracts are for multiple wells and extended periods of time on the same platform. Once work has been completed on a particular platform, the rig can be redeployed to another platform for further work. We have one platform drilling rig. In the following table, “Sub” means a submersible rig and “Plat” means a platform drilling rig. The following table contains information regarding our other drilling rig fleet as of February 20, 2008.

Barge Drilling Rigs

Barge drilling rigs are mobile drilling platforms that are submersible and are built to work in seven to 20 feet of water. They are towed by tugboats to the drill site with the derrick lying down. The lower hull is then submerged by flooding compartments until it rests on the river or sea floor. The derrick is then raised and drilling operations are conducted with the barge resting on the bottom. Our barge drilling fleet consists of 27 conventional and posted barge rigs. A posted barge is identical to a conventional barge except that the hull and superstructure are separated by 10 to 14 foot columns, which increases the water depth capabilities of the rig. Most of our barge drilling rigs are suitable for deep gas drilling.

Liftboats

Our liftboats are self-propelled, self-elevating vessels with a large open deck space, which provides a versatile, mobile and stable platform to support a broad range of offshore maintenance and construction services throughout the life of an oil or natural gas well. Once a liftboat is in position, typically adjacent to an offshore production platform or well, third-party service providers perform:


• production platform construction, inspection, maintenance and removal;

• well intervention and workover;

• well plug and abandonment; and

• pipeline installation and maintenance.

Unlike larger and more costly alternatives, such as jackup rigs or construction barges, our liftboats are self-propelled and can quickly reposition at a worksite or move to another location without third-party assistance. Our liftboats are ideal working platforms to support platform and pipeline inspection and maintenance tasks because of their ability to maneuver efficiently and support multiple activities at different working heights. Diving operations may also be performed from our liftboats in connection with underwater inspections and repair. In addition, our liftboats provide an effective platform from which to perform well-servicing activities such as mechanical wireline, electrical wireline and coiled tubing operations. Technological advances, such as coiled tubing, allow more well-servicing procedures to be conducted from liftboats. Moreover, during both platform construction and removal, smaller platform components can be installed and removed more efficiently and at a lower cost using a liftboat crane and liftboat-based personnel than with a specialized construction barge or jackup rig.

The length of the legs is the principal measure of capability for a liftboat, as it determines the maximum water depth in which the liftboat can operate. The U.S. Coast Guard restricts the operation of liftboats to water depths less than 180 feet, so boats with longer leg lengths are useful primarily on taller platforms. Ten of our liftboats in the U.S. Gulf of Mexico have leg lengths of 190 feet or greater, which allows us to service approximately 83% of the approximately 4,000 existing production platforms in the U.S. Gulf of Mexico. Liftboats are typically moved to a port during severe weather to avoid the winds and waves they would be exposed to in open water.

As of February 20, 2008, we owned 47 liftboats operating in the U.S. Gulf of Mexico and 13 liftboats operating in West Africa. In addition, we operated five liftboats owned by a third party in West Africa. The following table contains information regarding the liftboats we operate as of February 20, 2008.

Competition

The shallow-water businesses in which we operate are highly competitive. Domestic drilling and liftboat contracts are traditionally short term in nature whereas international drilling and liftboat contracts are longer-term in nature. The contracts are typically awarded on a competitive bid basis. Pricing is often the primary factor in determining which qualified contractor is awarded a job, although technical capability of service and equipment, unit availability, unit location, safety record and crew quality may also be considered. Many of our competitors in the shallow-water business have greater financial and other resources than we have and may be better able to make technological improvements to existing equipment or replace equipment that becomes obsolete.

Customers

Our customers primarily include major integrated energy companies, independent oil and natural gas operators and national oil companies. Chevron Corporation accounted for 21% and 35% of our consolidated revenues for the years ended December 31, 2007 and 2006. Chevron and Bois d’Arc Energy accounted for 31% and 12%, respectively, of our consolidated revenues for the year ended December 31, 2005. No other customer accounted for more than 10% of our consolidated revenues in any period.

Contracts

Our contracts to provide services are individually negotiated and vary in their terms and provisions. In general, dayrate drilling contracts provide for payment on a dayrate basis, with higher rates while the unit is operating and lower rates for periods of mobilization or when operations are interrupted or restricted by equipment breakdowns, adverse weather conditions or other factors.

A dayrate drilling contract generally extends over a period of time covering the drilling of a single well or group of wells or covering a stated term. These contracts typically can be terminated by the customer under various circumstances such as the loss or destruction of the drilling unit or the suspension of drilling operations for a specified period of time as a result of a breakdown of major equipment or due to events beyond the control of either party. In addition, customers generally have the right to terminate our contracts with little or no prior notice, and without penalty. The contract term in some instances may be extended by the customers exercising options for the drilling of additional wells or for an additional term, or by exercising a right of first refusal. To date, most of our contracts in the U.S. Gulf of Mexico have been on a short-term basis of less than six months. Our contracts in international locations have been longer-term, with contract terms of up to three years. For contracts over six months in term we may have the right to pass through certain cost escalations.

A liftboat contract generally is based on a flat dayrate for the vessel and crew. Our liftboat dayrates are determined by prevailing market rates, vessel availability and historical rates paid by the specific customer. Under most of our liftboat contracts, we receive a variable rate for reimbursement of costs such as catering, fuel, oil, rental equipment, crane overtime and other items. Liftboat contracts in the U.S. Gulf of Mexico generally are for shorter terms than are drilling contracts. However, most of our liftboat contracts in West Africa have initial contract terms of two years plus a renewal option, with a few others for shorter terms similar to the U.S. Gulf of Mexico contracts.

On larger contracts, particularly outside the United States, we may be required to arrange for the issuance of a variety of bank guarantees, performance bonds or letters of credit. The issuance of such guarantees may be a condition of the bidding process imposed by our customers for work outside the United States. The customer would have the right to call on the guarantee, bond or letter of credit in the event we default in the performance of the services. The guarantees, bonds and letters of credit would typically expire after we complete the services.

Contract Backlog

The following table reflects the amount of our contract backlog by year as of February 20, 2008. Backlog is indicative of the full contractual dayrate. The amount of actual revenue earned and the actual periods during which revenues are earned will be different than the amounts and periods shown in the tables below due to various factors including shipyard and maintenance projects, other downtime and other factors that result in lower applicable dayrates than the full contractual operating dayrate, as well as the ability of our customers to terminate contracts under certain circumstances. Our contract backlog is calculated by multiplying the contracted operating dayrate by the number of days remaining in the firm contract period, excluding revenues for mobilization, demobilization and contract preparation.

Employees

As of December 31, 2007, we had approximately 3,300 employees. We require skilled personnel to operate and provide technical services and support for our rigs, barges and liftboats. As a result, we conduct extensive personnel recruiting, training and safety programs. As of December 31, 2007, certain of our employees in West Africa and Venezuela were working under collective bargaining agreements. Additionally, efforts have been made from time to time to unionize portions of the offshore workforce in the U.S. Gulf of Mexico. We believe that our employee relations are good.

CEO BACKGROUND

F. Gardner Parker,
age 66, director since 2005
From 1970 until 1984, Mr. Parker worked at Ernst & Ernst (now Ernst & Young LLP), an accounting firm, and was a partner at that firm from 1978 until 1984. Mr. Parker has been Managing Outside Trust Manager with Camden Property Trust, a real estate investment trust, since 1998. He serves as a director of Carrizo Oil and Gas, Inc., Pinnacle Gas Resources, Inc. and Sharps Compliance Corp.

John T. Reynolds,
age 37, director since 2004
Mr. Reynolds has served as Chairman of our Board of Directors since November 2005 and was Chairman of the Board of Managers of our private predecessor company from August 2004 to November 2005. Mr. Reynolds is co-founder and a managing director of Lime Rock Management LP, an energy-focused private equity firm. Prior to co-founding Lime Rock Management in 1998, Mr. Reynolds was a Vice President at Goldman Sachs & Co., an investment banking firm. He was a senior analyst for oil services in the investment research department at Goldman Sachs, where he worked from 1992 to 1998.

Thomas N. Amonett,
age 64, director since 2007
Mr. Amonett served as a director of TODCO from May 2004 until TODCO’s acquisition by Hercules Offshore in July 2007. He was appointed lead independent director of TODCO in October 2004 and was appointed Chairman of TODCO in February 2005. He has been President and Chief Executive Officer of Champion Technologies, Inc., a manufacturer and distributor of specialty chemicals and related services, since 1999. From November 1998 to June 1999, he was President, Chief Executive Officer and a director of American Residential Services, Inc., a company providing equipment and services relating to residential heating, ventilating, air-conditioning, plumbing, electrical and indoor air quality systems and appliances. From July 1996 until June 1997, Mr. Amonett was Interim President and Chief Executive Officer of Weatherford Enterra, Inc., an oilfield services and manufacturing company. Mr. Amonett also serves as a director and member of the audit committee of Orion Marine Group, Inc., a marine contractor, and a director and member of the executive compensation committee and the audit committee of Bristow Group Inc., a global provider of helicopter services.

Randall D. Stilley,
age 54, director since 2004
Mr. Stilley has served as our Chief Executive Officer and President since October 2004. Prior to joining Hercules Offshore, Mr. Stilley was Chief Executive Officer of Seitel, Inc., an oilfield services company, from January 2004 to October 2004. From 2000 until he joined Seitel, Mr. Stilley was an independent business consultant and managed private investments. From 1997 until 2000, Mr. Stilley was President of the Oilfield Services Division at Weatherford International, Inc., an oilfield services company. Prior to joining Weatherford in 1997, Mr. Stilley served in a variety of positions at Halliburton Company, an oilfield services company. He is a registered professional engineer in the state of Texas and a member of the Society of Petroleum Engineers.


Steven A. Webster,
age 56, director since 2005
Mr. Webster has been President and Co-Managing Partner of Avista Capital Partners LP, a partnership which he co-founded that focuses on private equity investments in energy, media, healthcare and other industries, since June 2005. From 2000 to June 2005, he served as Chairman of Global Energy Partners, an affiliate of Credit Suisse’s private equity business. From 1998 to 1999, he served as President and Chief Executive Officer of R&B Falcon Corporation, a marine contract drilling company. From 1988 to 1997, Mr. Webster was Chairman and Chief Executive Officer of Falcon Drilling Company Inc., a company he founded. Mr. Webster has been a financial intermediary since 1979 and an active investor since 1984 in the energy sector. He serves as Chairman of Carrizo Oil & Gas Inc., Basic Energy Services, Inc., Solitario Resources Corporation and Pinnacle Gas Resources, Inc. He is also a trust manager of Camden Property Trust and a director of Geokinetics Inc., Grey Wolf, Inc., SEACOR Holdings Inc. and Encore Bancshares, Inc.

Suzanne V. Baer,
age 60, director since 2007
Ms. Baer served as a director of TODCO from May 2005 until TODCO’s acquisition by Hercules Offshore in July 2007. Ms. Baer served as Executive Vice President and Chief Financial Officer of Energy Partners Ltd., an independent oil and natural gas exploration and production company focused on the shallow-to-moderate depth waters of the Gulf of Mexico, from April 2000 until her retirement in April 2005. From July 1998 until March 2000, Ms. Baer was Vice President and Treasurer of Burlington Resources Inc., an independent oil and natural gas exploration and production company, and, from October 1997 to July 1998, was Vice President and Assistant Treasurer of Burlington Resources. Ms. Baer also serves as a director and member of the audit committee of Lufkin Industries, Inc.

Thomas R. Bates, Jr.,
age 58, director since 2004
Mr. Bates has been a managing director at Lime Rock Management LP, an energy-focused private equity firm, since October 2001. From February 2000 through September 2001, Mr. Bates was a business consultant. From June 1998 through January 2000, Mr. Bates was President of the Discovery Group of Baker Hughes Incorporated, an oilfield services company. From June 1997 to May 1998, he was President and Chief Executive Officer of Weatherford/Enterra, Inc., an oilfield services company. From March 1992 to May 1997, Mr. Bates was President of Anadrill at Schlumberger Limited, an oilfield services company. Mr. Bates was Vice President of Sedco Forex at Schlumberger from February 1986 to March 1992. Mr. Bates serves on the board of directors of NATCO Group Inc. and T3 Energy Services, Inc.

Thomas M Hamilton,
age 64, director since 2007
Mr. Hamilton served as a director of TODCO from May 2004 until TODCO’s acquisition by Hercules Offshore in July 2007. He served as the Chairman, President and Chief Executive Officer of EEX Corporation from January 1997 until his retirement in November 2002. From 1992 to 1997, Mr. Hamilton served as Executive Vice President of Pennzoil Company and as President of Pennzoil Exploration and Production Company. Mr. Hamilton was a director of BP Exploration, where he served as Chief Executive Officer of the Frontier and International Operating Company of BP Exploration from 1989 to 1991 and as the General Manager for East Asia/Australia/Latin America from 1988 to 1989. From 1985 to 1988, he held the position of Senior Vice President of Exploration at Standard Oil Company, prior to its being merged into BP. Mr. Hamilton is also a director and member of the audit committee of FMC Technologies Inc. and is a member of the board of directors of Methanex Corporation.

Thomas J. Madonna,
age 61, director since 2005
Mr. Madonna has been Chief Financial Officer of Menil Foundation, Inc., a major art museum, since July 2007. From November 2002 until July 2007, he served as the Manager of Finance of Menil Foundation, Inc. From 1969 until December 2001, Mr. Madonna worked at PricewaterhouseCoopers LLP in a number of roles, including as Assurance Partner from 1982 until his retirement in 2001.

Thierry Pilenko,
age 50, director since 2006
Mr. Pilenko has been Chairman and Chief Executive Officer of Technip, a provider of engineering, technologies and construction services for the oil, gas and petrochemical industries, since April 2007. From March 2004 to January 2007, Mr. Pilenko was Chairman and Chief Executive Officer of Veritas DGC Inc. From 2001 to March 2004, Mr. Pilenko served as managing director of SchlumbergerSema, a Schlumberger Ltd. company located in Paris. From 1998 to 2001, he was president of Geoquest, another Schlumberger Ltd. company located in Houston, Texas. Mr. Pilenko was employed by Schlumberger Ltd. and its affiliated companies in various parts of the world, beginning in 1984, in a variety of progressively more responsible operating positions.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW

We provide shallow-water drilling and marine services to the oil and natural gas exploration and production industry in the U.S. Gulf of Mexico and internationally. We provide these services to major integrated energy companies, independent oil and natural gas operators and national oil companies.

In July 2007, we furthered our strategic growth initiative by completing the acquisition of TODCO for total consideration of approximately $2,397.8 million, consisting of $925.8 million in cash and 56.6 million shares of common stock. TODCO, a provider of contract drilling and marine services in the U.S. Gulf of Mexico and international markets, owned and operated 24 jackup rigs, 27 barge rigs, three submersible rigs, nine land rigs, one platform rig and a fleet of marine support vessels. The TODCO acquisition positioned us as a leading shallow-water drilling provider as well as expanded our international presence and diversified our fleet. In December 2007, we sold our land rigs for proceeds of $107.0 million.

We historically reported our business activities in four business segments, Domestic Contract Drilling Services, International Contract Drilling Services, Domestic Marine Services and International Marine Services. In connection with the acquisition of TODCO, we conducted a review of our segments. Our historical operating divisions have been combined with the acquired businesses and now operate as six divisions: (1) Domestic Offshore, (2) International Offshore, (3) Inland, (4) Domestic Liftboats, (5) International Liftboats and (6) Other. Domestic Offshore includes our legacy Domestic Contract Drilling Services businesses and TODCO’s domestic offshore rigs operating in the U.S. Gulf of Mexico, while International Offshore includes our legacy International Contract Drilling Services and TODCO’s offshore rigs operating internationally. Inland includes the acquired U.S. inland barge business. Domestic Liftboats includes our legacy Domestic Marine Services business, while International Liftboats includes our legacy International Marine Services business. Our Other segment includes Delta Towing and the activities of our land rigs. We sold the land rigs in December 2007. The following describes our operations for each reporting segment:

Domestic Offshore — operates 24 jackup rigs and three submersible rigs in the U.S. Gulf of Mexico that can drill in maximum water depths ranging from 85 to 250 feet.

International Offshore — operates nine jackup rigs and one platform rig outside of the U.S. Gulf of Mexico. We have one jackup rig working offshore in each of the following international locations: Qatar, India, Angola, Cameroon and Trinidad. This segment operates two jackup rigs and one platform rig in OVERVIEW

We provide shallow-water drilling and marine services to the oil and natural gas exploration and production industry in the U.S. Gulf of Mexico and internationally. We provide these services to major integrated energy companies, independent oil and natural gas operators and national oil companies.

In July 2007, we furthered our strategic growth initiative by completing the acquisition of TODCO for total consideration of approximately $2,397.8 million, consisting of $925.8 million in cash and 56.6 million shares of common stock. TODCO, a provider of contract drilling and marine services in the U.S. Gulf of Mexico and international markets, owned and operated 24 jackup rigs, 27 barge rigs, three submersible rigs, nine land rigs, one platform rig and a fleet of marine support vessels. The TODCO acquisition positioned us as a leading shallow-water drilling provider as well as expanded our international presence and diversified our fleet. In December 2007, we sold our land rigs for proceeds of $107.0 million.

We historically reported our business activities in four business segments, Domestic Contract Drilling Services, International Contract Drilling Services, Domestic Marine Services and International Marine Services. In connection with the acquisition of TODCO, we conducted a review of our segments. Our historical operating divisions have been combined with the acquired businesses and now operate as six divisions: (1) Domestic Offshore, (2) International Offshore, (3) Inland, (4) Domestic Liftboats, (5) International Liftboats and (6) Other. Domestic Offshore includes our legacy Domestic Contract Drilling Services businesses and TODCO’s domestic offshore rigs operating in the U.S. Gulf of Mexico, while International Offshore includes our legacy International Contract Drilling Services and TODCO’s offshore rigs operating internationally. Inland includes the acquired U.S. inland barge business. Domestic Liftboats includes our legacy Domestic Marine Services business, while International Liftboats includes our legacy International Marine Services business. Our Other segment includes Delta Towing and the activities of our land rigs. We sold the land rigs in December 2007. The following describes our operations for each reporting segment:

Domestic Offshore — operates 24 jackup rigs and three submersible rigs in the U.S. Gulf of Mexico that can drill in maximum water depths ranging from 85 to 250 feet.

International Offshore — operates nine jackup rigs and one platform rig outside of the U.S. Gulf of Mexico. We have one jackup rig working offshore in each of the following international locations: Qatar, India, Angola, Cameroon and Trinidad. This segment operates two jackup rigs and one platform rig in RESULTS OF OPERATIONS

On July 11, 2007, we completed the acquisition of TODCO for total consideration of approximately $2,397.8 million, consisting of $925.8 million in cash and 56.6 million shares of common stock. Our 2007 results include activity from this acquired business from the date of acquisition. The acquisition significantly impacts the comparability of the 2007 period with the other periods presented.

Domestic industry conditions were generally weaker for jackup rigs during 2007 compared to 2006, as evidenced by our lower dayrates and utilization. Despite a continued reduction in supply, jackup dayrates in the U.S. Gulf of Mexico generally peaked in early summer of 2006 and have since declined due to a decline in drilling activity. Demand for jackup rigs reached a low of 47 rigs in October 2007. International industry conditions remained strong throughout 2006 and 2007. Liftboat dayrates increased throughout 2007 in the United States and West Africa.

Our domestic liftboat operations generally are affected by the seasonal weather patterns in the U.S. Gulf of Mexico. These seasonal patterns may result in increased operations in the spring, summer and fall periods and a decrease in the winter months. The rainy weather, tropical storms, hurricanes and other storms prevalent in the U.S. Gulf of Mexico during the year affect our domestic liftboat operations. During such severe storms, our liftboats typically leave location and cease to earn a full dayrate. Under U.S. Coast Guard guidelines, the liftboats cannot return to work until the weather improves and seas are less than five feet. Demand for our domestic rigs may decline during hurricane season as our customers may reduce drilling activity. Accordingly, our operating results may vary from quarter to quarter, depending on factors outside of our control.

2007 Compared to 2006

Revenues

Consolidated. Total revenues for 2007 were $766.8 million compared with $344.3 million for 2006, an increase of $422.5 million, or 123%. This increase resulted primarily from revenues generated from TODCO acquired in July 2007. Total revenues included $15.4 million in reimbursements from our customers for expenses paid by us in 2007 compared with $7.5 million in 2006.

Domestic Offshore. Revenues for our Domestic Offshore segment were $241.5 million for 2007 compared with $160.8 million for 2006, an increase of $80.7 million, or 50%. Revenues for 2007 include approximately $119.4 million from TODCO. Excluding the revenue from TODCO, revenue decreased by $38.7 million, of which $23.7 million was due to fewer operating days and $15.0 million was due to lower average dayrates for our fleet. Average utilization was 65.9% in 2007 compared with 94.9% in 2006 primarily due to the stacking of rigs in 2007 and our customers’ lower drilling activity. Average revenue per rig per day was $73,952 in 2007 compared with $81,480 in 2006. Lower revenue per day also reflects our customers’ lower drilling activity. Revenues for our Domestic Offshore segment included $2.4 million and $1.1 million in reimbursements from our customers for expenses paid by us in 2007 and 2006, respectively.

International Offshore. Revenues for our International Offshore segment were $144.8 million for 2007 compared with $30.5 million for 2006, an increase of $114.3 million, or 375%. Revenues for 2007 include approximately $65.1 million from TODCO. Excluding the impact of the acquisition, revenue increased by $49.2 million, of which $46.2 million was due primarily to additional operating days resulting from Hercules 258 being in service the entire period in 2007. Included in our revenues for the International Offshore segment is a total of $3.2 million and $2.6 million related to amortization of deferred mobilization revenue and contract specific capital expenditures reimbursed by the customer for the year ended December 31, 2007 and 2006, respectively. In addition, revenues for our International Offshore segment included $1.5 million and $0.2 million in reimbursements from our customers for expenses paid by us in 2007 and 2006, respectively.

Inland. Revenues for our Inland segment were $107.1 million in 2007, with 2,279 operating days and average revenue per rig per day of $46,994. Revenues for our Inland segment included $0.7 million in reimbursements from our customers for expenses paid by us in 2007. Prior to our acquisition of TODCO in July 2007, we did not have an Inland segment.

Domestic Liftboats. Revenues for our Domestic Liftboats segment were $137.7 million for 2007 compared with $133.9 million in 2006, an increase of $3.8 million, or 3%. This increase resulted primarily from higher average dayrates, which contributed $11.5 million of the increase, and partially offset by fewer operating days, which contributed $7.7 million of a decrease. Operating days decreased to 11,265 in 2007 from 11,895 in 2006 due primarily to 264 days of severe weather in 2007 as compared to 2006. Average utilization also declined to 67.3% in 2007 from 77.2% in 2006 as customers’ repair and maintenance activities declined. Average revenue per vessel per day was $12,228 in 2007 compared with $11,259 in 2006. Revenues for our Domestic Liftboats segment included $5.6 million and $4.8 million in reimbursements from our customers for expenses paid by us in 2007 and 2006, respectively.

International Liftboats. Revenues for our International Liftboats segment were $63.3 million for 2007 compared with $19.1 million in 2006, an increase of $44.1 million, or 230%. This increase is primarily due to an acquisition in the fourth quarter 2006 which resulted in an increase in operating days from 1,765 days in 2006 to 5,077 days in 2007. Average revenue per liftboat per day was $12,464 in 2007 compared with $10,857 in 2006, with average utilization of 82.6% in 2007 compared with 87.9% in 2006. Revenues for our International Liftboats segment included $4.7 million and $1.4 million in reimbursements from our customers for expenses paid by us in 2007 and 2006, respectively.

Other. Revenues for our Other segment were $72.4 million in 2007 and included $0.5 million in reimbursements from our customers for expenses paid by us in 2006. Prior to our acquisition of TODCO in July 2007, we did not have an Other segment.

Operating Expenses

Consolidated. Total operating expenses for 2007 were $376.5 million compared with $124.1 million in 2006, an increase of $252.3 million, or 203%. This increase is further described below.

Domestic Offshore. Operating expenses for our Domestic Offshore segment were $122.1 million in 2007 compared with $51.8 million in 2006, an increase of $70.3 million, or 135%. Operating expenses for 2007 include approximately $67.9 million associated with the TODCO acquisition. Available days increased to 4,958 in 2007 from 2,078 in 2006. Average operating expenses per rig per day were slightly lower; $24,633 in 2007 compared with $24,957 in 2006. On a per day basis, average operating expenses per rig decreased primarily due to lower labor and insurance costs; partially offset by higher repairs and maintenance costs.

International Offshore. Operating expenses for our International Offshore segment were $59.6 million in 2007 compared with $13.4 million in 2006, an increase of $46.2 million, or 345%. Operating expenses for 2007 include approximately $30.2 million associated with the TODCO acquisition. Available days increased to 1,625 in 2007 from 321 in 2006. Average operating expenses per rig per day were $36,673 in 2007 compared with $41,673 in 2006. Included in operating expense is $2.8 million and $1.6 million in amortization of deferred mobilization expense for 2007 and 2006, respectively.

Inland. Operating expenses for our Inland segment were $56.6 million in 2007, with 2,941 available days and average operating expenses per rig per day of $19,257. Prior to our acquisition of TODCO in July 2007, we did not have an Inland segment.

Domestic Liftboats. Operating expenses for our Domestic Liftboats segment were $59.9 million in 2007 compared with $49.0 million in 2006, an increase of $10.9 million, or 22%. Available days increased to 16,749 in 2007 from 15,416 in 2006. Average operating expenses per vessel per day increased to $3,576 in 2007 compared with $3,180 in 2006, primarily from an increase in labor costs.

International Liftboats. Operating expenses for our International Liftboats segment were $31.9 million for 2007 compared with $9.9 million in 2006, an increase of $22.0 million, or 223%. The increase is primarily due to additional liftboats acquired in the fourth quarter of 2006. Average operating expenses per liftboat per day were $5,184 in 2007 compared with $4,915 in 2006. This increase was driven primarily by higher repairs and maintenance, fuel and travel costs.

Other. Operating expenses for our Other segment were $46.3 million in 2007. Prior to our acquisition of TODCO in July 2007, we did not have an Other segment.

Depreciation and Amortization

Depreciation and amortization expense in 2007 was $109.1 million compared with $32.3 million in 2006, an increase of $76.8 million, or 238%. This increase resulted primarily from additional depreciation of approximately $57.0 million related to assets acquired in the TODCO acquisition.

General and Administrative Expenses

General and administrative expenses in 2007 were $49.8 million compared with $29.8 million in 2006, an increase of $20.0 million, or 67%. The increase is primarily related to incremental general and administrative costs associated with TODCO, as well as a $10.9 million increase in corporate labor related costs, which includes $3.1 million in acquisition and severance related costs.

Interest Expense

Interest expense in 2007 was $36.1 million compared with $9.3 million in 2006, an increase of $26.8 million, or 289%. The increase was primarily due to interest on our borrowings under our new senior secured term loan.

Loss on Early Retirement of Debt

The loss on early retirement of debt in the amount of $2.2 million related to the write off of deferred financing fees in connection with repayment of term loan principal in April and July 2007.

Other Income

Other income in 2007 was $6.3 million compared with $4.0 million in 2006, an increase of $2.3 million. This increase primarily related to additional interest income earned in 2007.

Income Tax Provision

Income tax expense was $63.0 million on pre-tax income of $199.5 million during 2007, compared to $64.5 million on pre-tax income of $183.5 million for 2006. The effective tax rate decreased to 31.6% in 2007 from 35.1% in 2006. The decrease in the effective tax rate results from a higher percentage of pretax income being derived from our international operations where a portion of such earnings are permanently reinvested. The decrease also reflects a lower overall state income tax rate.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS
On July 11, 2007, we completed the acquisition of TODCO for total consideration of approximately $2,397.8 million, consisting of $925.8 million in cash and 56.6 million shares of common stock. Our results for the three and six months ended June 30, 2008 include activity from this acquired business. The acquisition significantly impacts the comparability of the 2008 periods with the corresponding 2007 periods. We are unable to provide certain information regarding our current period results excluding the impact of the TODCO acquisition due to the integration of this acquisition into our operations.

For the Three Months Ended June 30, 2008 and 2007
Revenues
Consolidated. Total revenues for the three-month period ended June 30, 2008 (the “Current Quarter”) were $270.8 million compared with $99.0 million for the three-month period ended June 30, 2007 (the “Comparable Quarter”), an increase of $171.8 million, or 173%. This increase resulted primarily from revenues generated from assets acquired from TODCO (“Acquired Assets”) in July 2007. Total revenues included $3.9 million in reimbursements from our customers for expenses paid by us in the Current Quarter compared with $2.3 million in the Comparable Quarter.
Domestic Offshore . Revenues for our Domestic Offshore segment were $97.4 million for the Current Quarter compared with $28.3 million for the Comparable Quarter, an increase of $69.1 million, or 244%. Revenues for the Current Quarter include approximately $69.2 million from the Acquired Assets. Excluding the revenue from the Acquired Assets, revenue was in line with the Comparable Quarter. Average utilization was 79.6% in the Current Quarter compared with 68.7% in the Comparable Quarter. Average revenue per rig per day was $60,445 in the Current Quarter compared with $75,531 in the Comparable Quarter. Lower revenue per day reflects our customers’ lower drilling activity. Revenues for our Domestic Offshore segment include $0.3 million and $0.1 million in reimbursements from our customers for expenses paid by us in the Current Quarter and Comparable Quarter, respectively.
International Offshore . Revenues for our International Offshore segment were $74.2 million for the Current Quarter compared with $19.6 million for the Comparable Quarter, an increase of $54.5 million, or 278%. Revenues for the Current Quarter include approximately $49.4 million from the Acquired Assets. Excluding the impact of the Acquired Assets, revenue increased by $5.1 million, of which $4.4 million was due to higher average dayrates in the current period and $0.7 million was due to increased operating days. Average utilization was 87.7% in the Current Quarter compared with 98.4% in the Comparable Quarter. Average revenue per rig per day was $115,556 in the Current Quarter compared with $109,719 in the Comparable Quarter. Included in our Revenues for the International Offshore segment is a total of $4.2 million and $0.7 million related to amortization of deferred mobilization revenue and contract specific capital expenditures reimbursed by the customer for the Current Quarter and Comparable Quarter, respectively.
Inland. Revenues for our Inland segment were $40.3 million in the Current Quarter, with 1,017 operating days and average revenue per rig per day of $39,589. Revenues for our Inland segment included $0.5 million in reimbursements from our customers for expenses paid by us in the Current Quarter. Prior to our acquisition of TODCO in July 2007, we did not have an Inland segment.
Domestic Liftboats. Revenues for our Domestic Liftboats segment were $22.3 million for the Current Quarter compared with $37.2 million in the Comparable Quarter, a decrease of $14.9 million, or 40%. This decrease resulted primarily from lower average dayrates, which contributed $10.3 million of the decrease, and fewer operating days, which contributed $4.6 million of the decrease. Operating days decreased to 2,466 in the Current Quarter from 2,980 in the Comparable Quarter due primarily to lower customer activity in the Gulf of Mexico in the Current Quarter as compared to the Comparable Quarter. Average utilization also declined to 63.7% in the Current Quarter from 71.2% in the Comparable Quarter. Average revenue per vessel per day was $9,030 in the Current Quarter compared with $12,482 in the Comparable Quarter, a decrease of $3,452. Approximately $647 of the decrease in average revenue per vessel per day was due to mix of vessel class and approximately $2,805 was due to lower dayrates. Revenues for our Domestic Liftboats segment included $1.3 million in reimbursements from our customers for expenses paid by us in the Current Quarter compared with $1.5 million in the Comparable Quarter.
International Liftboats. Revenues for our International Liftboats segment were $20.3 million for the Current Quarter compared with $13.8 million in the Comparable Quarter, an increase of $6.4 million, or 46%. This increase resulted primarily from higher average dayrates, which contributed $5.2 million of the increase, and increased operating days, which contributed $1.2 million of the increase. Operating days increased to 1,331 days in the Current Quarter from 1,252 days in the Comparable Quarter. Average revenue per liftboat per day was $15,255 in the Current Quarter compared with $11,090 in the Comparable Quarter, with average utilization of 83.7% in the Current Quarter compared with 80.9% in the Comparable Quarter. Revenues for our International Liftboats segment included $1.6 million and $0.7 million in reimbursements from our customers for expenses paid by us in the Current Quarter and Comparable Quarter, respectively.
Other. Revenues for our Other segment were $16.4 million in the Current Quarter and included $0.1 million in reimbursements from our customers for expenses paid by us in the Current Quarter. Prior to our acquisition of TODCO in July 2007, we did not have an Other segment.
Operating Expenses
Consolidated . Total operating expenses for the Current Quarter were $158.9 million compared with $44.4 million in the Comparable Quarter, an increase of $114.5 million, or 258%. This increase is further described below.
Domestic Offshore . Operating expenses for our Domestic Offshore segment were $56.3 million in the Current Quarter compared with $13.9 million in the Comparable Quarter, an increase of $42.4 million, or 305%. Operating expenses for the Current Quarter include approximately $35.8 million associated with the Acquired Assets. Available days increased to 2,024 in the Current Quarter from 546 in the Comparable Quarter. Average operating expenses per rig per day were $27,804 in the Current Quarter compared with $25,455 in the Comparable Quarter. The increase was driven primarily by higher labor, workers compensation, repairs and maintenance, fuel and other costs, partially offset by lower insurance costs.
International Offshore. Operating expenses for our International Offshore segment were $37.3 million in the Current Quarter compared with $7.3 million in the Comparable Quarter, an increase of $30.0 million, or 409%. Operating expenses for the Current Quarter include approximately $20.8 million associated with the Acquired Assets. Available days increased to 732 in the Current Quarter from 182 in the Comparable Quarter. Average operating expenses per rig per day were $50,967 in the Current Quarter compared with $40,305 in the Comparable Quarter. The increase resulted primarily from higher rentals, contract labor, amortization of deferred mobilization and contract preparation expenses, partially offset by lower labor and insurance costs. Included in operating expense is $2.1 million in amortization of deferred mobilization expense in the Current Quarter compared with $0.4 million in the Comparable Quarter.
Inland. Operating expenses for our Inland segment were $31.3 million in the Current Quarter, with 1,486 available days and average operating expenses per rig per day of $21,067. Prior to our acquisition of TODCO in July 2007, we did not have an Inland segment.
Domestic Liftboats. Operating expenses for our Domestic Liftboats segment were $13.4 million in the Current Quarter compared with $15.6 million in the Comparable Quarter, a decrease of $2.2 million, or 14%. Available days decreased to 3,871 in the Current Quarter from 4,186 in the Comparable Quarter. Average operating expenses per vessel per day were $3,474 in the Current Quarter compared with $3,736 in the Comparable Quarter. This decrease is primarily due to lower repairs and maintenance and insurance costs, partially offset by higher fuel purchases due to lower utilization.
International Liftboats. Operating expenses for our International Liftboats segment were $9.9 million for the Current Quarter compared with $7.5 million in the Comparable Quarter, an increase of $2.4 million, or 32%. Average operating expenses per liftboat per day were $6,224 in the Current Quarter compared with $4,862 in the Comparable Quarter. This increase was driven primarily by costs accrued for a payment to a former owner, as well as increased labor and insurance costs.
Other. Operating expenses for our Other segment were $10.6 million in the Current Quarter. Prior to our acquisition of TODCO in July 2007, we did not have an Other segment.
Depreciation and Amortization
Depreciation and amortization expense in the Current Quarter was $47.3 million compared with $12.2 million in the Comparable Quarter, an increase of $35.1 million, or 287%. This increase resulted primarily from additional depreciation of approximately $33.7 million related to the Acquired Assets.
General and Administrative Expenses
General and administrative expenses in the Current Quarter were $24.0 million compared with $9.3 million in the Comparable Quarter, an increase of $14.6 million, or 157%. The increase is primarily related to incremental general and administrative costs associated with the Acquired Assets as well as $5.5 million in executive severance related costs.
Interest Expense
Interest expense increased $13.2 million, or 957%. The increase was primarily due to interest on our borrowings under our 2007 senior secured term loan.
Other Income
Other income in the Current Quarter was $0.1 million compared with $1.2 million in the Comparable Quarter, a decrease of $1.1 million. This decrease is primarily due to lower interest income due to decreased cash balances in the Current Quarter as well as the Comparable Quarter including a gain of $0.3 million related to the settlement of an interest rate swap.
Income Tax Provision
Income tax expense was $9.8 million on pre-tax income of $26.2 million during the Current Quarter, compared to $8.6 million on pre-tax income of $32.1 million for the Comparable Quarter. The effective tax rate increased to 37.2% in the Current Quarter from 26.9% in the Comparable Quarter. The increase in the effective tax rate reflects the impact of higher non-creditable foreign taxes and the impact of taxes on certain foreign earnings which management expects to repatriate in the future.

CONF CALL

Stephen Butz

Thank you, Carissa. Good morning, I would like to welcome everyone to our second quarter 2008 earnings conference call. Participating this morning from the Hercules Offshore management team are John Rynd, our Chief Executive Officer and President, and Lisa Rodriguez, our Senior Vice President and Chief Financial Officer. We issued our earnings results and filed an 8-K with the SEC this morning. The press release is available on our website at www.herculesoffshore.com.

Before John begins his remarks, I would like to remind everyone that this conference call will contain forward-looking statements, including our discussion regarding the outlook for 2008 and beyond. Our actual results may differ materially from those projected in the forward-looking statements.

There are a number of known and unknown risks and factors that may cause our actual results to differ from the results discussed in our forward-looking statements. You can obtain more information about these risks and factors in our filings with the SEC, which can be found on our website and the SEC's website www.sec.go.

John will begin the call with some general remarks, highlights and our view of the market and Lisa will detail second quarter financial results and provide some guidance for the balance of the year. We'll then open the call for question-and-answers.

Now, it's my pleasure to turn the call over to John.

John Rynd

Good morning and thank you for joining us on the call today. As Stephen mentioned, we reported our financial results earlier this morning. We recorded net income of $16.4 million or $0.18 per diluted share for the second quarter of 2008 compared with a net income of $4.5 million or $0.05 per diluted share for the first quarter of 2008.

Excluding separation and related expenses, we reported $0.23 per share in the second quarter of 2008. The second quarter largely progressed as we thought it would at the time of our last quarterly conference call with continued strong performance from our International segments, improving results from Domestic Offshore and Domestic Liftboats and unfortunately continued weakness in our Inland and other segments. I want to personally thank our 3,500 employees worldwide for their continued focus on providing injury-free, cost effective and reliable services to our customers. Our people are the most valuable asset.

One of the highlights in this quarter was the one year extension received on the Hercules 170 given us an additional $38.5 million of international offshore backlog. This comes on the heals of our two three year contracts for Saudi Aramco and several other significant extensions that we secured during the first quarter and two three year contracts with ONGC that we secured during the fourth quarter.

We have built a very solid international business in a short period of time. Our international backlog now stands at $956 million in an average of 619 days per rig. 67% and 47% of our available rig days for 2009 and 2010 are already contracted. This has been an important strategic goal of Hercules given the shorter term nature of the domestic market and I’m pleased with the progress, but expect this evolution to continue.

Even without any further mobilization of assets out of the Gulf of Mexico or any additional acquisitions at current market rates, we expect approximately 40% of our revenue to be derived internationally by the first quarter of 2009. Despite the significant new build order book of jackups, which stands at 85 rigs or 20% of the total existing fleet to be delivered over the next three years.

We believe the international outlook remains bright. We currently have tenders in-house for an incremental 10 jackups and over the next 12 months, we expect to see tenders for five to additional rigs. We believe PEMEX will come to the market for additional 46 jackups before year end and it appears at least four of these maybe incremental.

In addition the continued positive elements in the international contract status during the second quarter, the domestic offshore market steadily improved with an increase in our average days of backlog per rig to 78 from 62 at the time of our last call and we put additional rigs back to work.

Currently, U.S. Gulf of Mexico jackup demand stands at 64 on a supply of 79. Of the 15 rig excess capacity 11 are cold stacked and one is in the shipyard thus bringing the marketed rig count supply to 67. Three rigs are scheduled to leave the Gulf of Mexico and another three are like to leave based on recent bid announcements.

The mover of these three rigs even without further reductions will bring the marketed supply down to 62, 11 of which we believe will be supported by demand. This improvement in demand and backlog has led to an increasing leading hedge day rates to 85,000 per day for 200 mat cantilever jackups and 75,000 per day for 250 mat slot jackups from 72,565,000 respectively over the last three months.

With commodity prices at current levels driving attractive well economics and positive revisions to our customers' capital spending plans coupled with a flat to declining [Jackups] blend in the U.S. Gulf of Mexico. The Domestic Offshore outlook remains favorable. The near-term pullback in gas prices has not had impacted activity nor that we anticipated too. We'll have two incremental rigs to miss contracts this weekend. The Hercules 78, a submersible starts a 90-day contract to Century Offshore and Hercules 153, a 150 foot jackup will commence a two well plus options contract for Hall Houston.

This leaves us with one remaining offshore rig to bring back in the market and we expect to be able to put this unit back in the service later this year. We believe market rates will likely continue to improve. The Domestic Liftboat bid has also improved dramatically during the second quarter with utilization increasing to 64% from a low of 23% at an average of 38% during the first quarter driven mainly by return to normal weather.

Our current total utilization is recently range from 70% to 80% and is well above our expectation giving some of the new supply that is coming to the market. This probably reflects pent up demand from the first quarter as well as simply slightly more robust environment. That said, given the additional eight liftboats that are said to hit the market over the next year, representing a 6% increase in the fleet in an essentially a flat market. We remain cautious as to the outlook for utilization and day rates.

Given our relatively flat longer-term outlook on the Gulf of Mexico Liftboat business, we took the opportunity to mobilize two of our larger liftboats to the Middle East sending them on the same heavy lift vessels that mobilized our Hercules 261 and 262 jackups. The Whale Shark arrived in (inaudible) with the Hercules 261 on June 4 and is undergoing some modifications repairs and will be ready for service in the Middle East later this year. The Hercules 262 in the Amberjack was scheduled to arrive on August 4. We expect to have both liftboats on contract in the fourth quarter.

We view the Middle East as a strategic long-term location for Hercules for both the Drilling and Liftboat segments. We are optimistic about the long-term demand for liftboats in the region due to the ongoing expansion of the offshore infrastructure.

Our International Liftboats in West Africa continued to perform very well. We recently received an average rate increase of approximately 10% on 9 of our 18 vessels. We also secured an average rate increase of 7% to 8% on 5 other contracts starting in September. Our new 200 class Black Jack went into service at mid May at a rate in the mid to half 30s. You might recall that we acquired just previously stack vessel in Latin America last year and refurbished the vessel at a total capital cost of $16 million. This should generate attractive return for our investment.

As we moved on to this market in late 2005, we are extremely dependent upon one customer and while we still have a meaningful concentration and that customer is key to our success we have been very successful in expanding our customer base and our geographic reach from just Nigeria two years ago to Cameroon, Angola, Gabon and the Ivory Coast.

However, while most of our segments were strong and improving, unfortunately the Inland Barge business continued to lag in a recovery. While our Inland Barge business utilization improved meaningfully during the quarter the backlog is still weak at 29 days and it will premature down 10% year-to-date versus 2007 with almost 80% of the permitted wells at 15,000 foot or shallower.

There appeared to be a number of factors that play here. One thing the high level of interest in the resource plays, which have drawn capital out of the Inland market. Secondly, we have had some dislocation in our customer base, as we did the past few years in our Domestic Offshore business for various reasons. Three of our top barge customers from 2006 and 2007 have focused their efforts in other exploration plays not necessarily due to a lack of success, but a shift to funding due to other activities.

Two other significant customers sold their businesses. While some customers have had good success in the deeper prospects, which take longer to drill, these opportunities have been slow to develop. It may provide more of a pickup and demand next year rather than 2008. One thing I would like to make clear, we'll not sit ideally and watch the market deteriorate in any of our segments without reducing our cost structure.

As it is becomes evident to us the Inland utilization will likely to climb during the third quarter. We planned to warm stack three additional drilling barges. I'm sure you'll remember last fall we quickly warm stacked six of our offshore rigs and one drilling barge, when the market was weak.

As I mentioned, as demand dictated, we have already brought or have plans to bring back five of the six offshore rigs into the market. This warm stacking strategy was extremely effective in our Domestic Offshore business and helped us reduce our costs, while maintaining flexibility to quickly respond to improve your market versus cold stacking the rigs.

This move will leave us with 13 barges that we are actively marketing and three that are warm stacked. Obviously, we do not believe the Inland softness will plosive too long in this commodity price environment or we would have cold stacked these units. We expect to reduce our daily operating cost on these rigs to approximately $8,000 per day from over $20,000 per day within two months.

Giving Delta Towing significant support of the Inland business, its results are also below our expectations, although well improved from the first quarter results. On our last conference call, we mentioned that we are evaluating strategic alternatives for Delta Towing. That process remains ongoing. We hope to have a more detailed update for you at the time of our next conference call.

Now, I would like to provide you with a brief update on some of our shipyard projects. First, we completed the contract preparation shipyard work for the Hercules 260 and the Hercules 258 on April 23rd and June 4th respectively and both rigs commenced their three year contracts with ONGC. The Hercules 208 has experienced ongoing delays in the shipyard, while disappointing we had expected some in efficiencies in the shipyard, as the selection of the shipyard was driven by factors beyond our control including customer demands.

The refurbishment of this 200 foot mat cantilever jackup is now complete and we are undergoing acceptance, testing, commissioning. We expect the rig to enter service on or about August 21 and begin its three year contract at 110,000 a day. As mentioned earlier the Hercules 261 arrived in the UAE on June 4 and is expected to be completed by September 25 and the Hercules 262 is scheduled to arrive on August 4 and is expected to be completed by August 30th.

Now I would like to highlight some of our significant balance sheet related activities that occurred during the quarter. While our liquidity was adequate as we entered the second quarter, we made two moves that solidified our liquidity and put us in better position to capitalize on a smaller asset packages that may come to the market in the near-term without having to necessarily tap in to the capital markets.

First, we increased our revolving line of credit to $250 million from $150 million and other than letters of credit we do not have any balances outstanding. Secondly, we issued $250 million in convertible securities. Using the proceeds to purchase nearly $50 million or $1.45 million shares of common stock and repay $100 million that was outstanding on the revolver. The notes have a coupon of 3% and 3.8 % and a conversion premium of 47.5% so the closing price the day of the offering, which pushed the conversion price just over $50 a share.

Lastly, as you all know Randy Stilley, our former CEO and President recently stepped down from his post. Randy led this company from the $60 million domestic focus startup in late 2004 to a $4 billion global enterprise and industry leader in just under four years providing net company's initial shareholders return of 1140%. He will be missed and I want to partially and publicly thank him for leaving the company in such excellent shape.

With that, I'll hand the call over to Lisa.

Lisa Rodriguez

Thank you, John. I'll provide a little more detail with respect to our financial results for the second quarter as well as provide cost and capital spending guidance for the remainder of 2008. After excluding the $3.6 million net of tax the separation related costs from the second quarter result, the company generated earnings of $0.22 per share versus $0.05 per share during the first quarter.

The $0.17 increase in sequential quarterly diluted earnings per share was primarily driven by improving business conditions in Domestic Offshore and Domestic Liftboats offset by a decline in international offshore. Domestic Offshore contributed an incremental $0.18 in the second quarter. The increase was top line driven with increasing utilization accounting for approximately 90% of the revenue increase and the higher day rates accounting for 10%.

Domestic Liftboats realized a $0.05 improvement due fully to higher utilization. International offshore declined by $0.06 as a result of a slight decline in operating days coupled with costs incurred on Hercules 258 jackup, while between contracts and those cost associated with the startup of Hercules 250.

Now I’ll walk through some of the segment highlights. First, our Domestic Offshore segment experienced a very strong recovery in the second quarter with operating income of $23.6 million up from an operating loss of $1.9 million in the first quarter. As I mentioned, this was largely a result of higher activity levels. Utilization increased by nearly 25% quarter-over-quarter to just under 80% resulting in a 47% increase in operating days.

Average revenue per day per rig increased, while modestly by approximately $3600 to $60,400. However, as we repriced the majority of our fleet at higher current market rigs during the third quarter, we expect a more significant sequential increase to an average of approximately $70,000 per day per rig.

We experienced an increase of approximately $4000 in average operating cost per day per rigs to $27,800. This was largely due to startup costs that were incurred on the Hercules 350 as well as the reactivation of several warm stacked rigs coupled within an 11% average wage increase that went into effect on June 1.

Next, our International Offshore segment generated operating income of $27.4 million, down from $34.4 million in the first quarter. While, our average revenue per day per rig increased to $115,600 from $99,900 in the first quarter and a slight decline in operating days. Average operating expense per rigs pay day increased to $51,000 from $32,100. This increase in operating cost to $37.3 million was essentially as expected. As you remember, our guidance for the second quarter was $36 million.

On a per day basis, startup costs associated with the Hercules 260 and costs incurred on the Hercules 258, while it's the twin contracts accounted for approximately $6500 per day of the increase with mobilization and rebillable expenses contributing an additional $5,500 per day. Additionally during the first quarter operating costs were well below normal. As we discussed on the last call, the first quarter costs were reduced during the transit time on the Hercules 156 and during standby time on the Hercules 205.

Our Inland segment reported an operating loss of $2.9 million versus a loss of $1.9 million in the first quarter due to the market weakness that John has already discussed. While operating days increased slightly, our average daily revenue decreased from $39,600 from $42,900. Our daily operating costs were up slightly to $21,100 from $20,600 largely due to the aforementioned wage increase.

Our Domestic Liftboat segment generated $3 million of operating income. This was up from an operating loss of $4.6 million in the first quarter. As the weather offshore improve throughout the second quarter, average utilizations increased to 64% in the second quarter versus only 38% in the first quarter. Our utilization for the month of June was up to 77%.

Nonetheless, as day rates declined substantially towards the end of the first quarter, our average revenue per day per vessel for the second quarter came in just over $9000, whereas in the first quarter, it was nearly $10,000. This was better than we expected as we guided to the $8,000 to $8,500 range in our last call due to the pricing we saw in the market at that time but it has improved.

Average operating expense per day for the second quarter increased to approximately $3,500 from $3,300 in the first quarter. The operating cost for the second quarter came in below our guidance of $3,700 to $3,800 per day, partly due to the warm stacking of poor idle vessels. We have since brought one of these vessels back into the market due to the improving demand.

While we are pleased with the current levels of utilization on our Domestic Liftboats segment, we would not be surprised to see them slip as the year progresses barring an active hurricane season due to the additional capacity expected to enter the market. We'll continue to seek opportunities to mobilize our liftboats to international market.

Our International Liftboat segment reported operating income of $6.8 million in the second quarter compared with operating income of $8.1 million in the first quarter due to an increase in operating cost to $9.9 million from $7.2 million. Average revenue per liftboat per day increased to $15,300 from $15,000 and operating days increased by 9%, which led to a $2 million increase in revenue.

However the revenue growth was more than offset by the higher costs. The increase in operating cost resulted from a number of factors, which included the 200 class Black Jack entering the service in mid May and repair and maintenance expenses returning to normal levels. Repair and maintenance was abnormally low during the first quarter of 2008, while we had the Black Jack in our yard.

Our Other segment consisting of Delta Towing and the results associated with winding down our onshore business, which we sold in the fourth quarter improved during the second quarter with the segment generating operating income of $2.3 million, which was up from an operating loss of $1.3 million in the first quarter.

General and administrative expenses were $18.5 million in the second quarter after removing the aforementioned separation related cost. The increase from $16.4 million in the first quarter is a result of several factors including training related to our ERP implementation and the final retention payments that were related to the TODCO acquisition. Depreciation and amortization increased to $47.3 million from $43.6 million, due largely to the startup of operations on the Hercules 260, 350 and the Black Jack vessel.

Now I'd like to provide with you some cost guidance for the balance of the year. We anticipate our daily operating cost per rig for domestic offshore to be the end or low $28,000 range per day for the third and fourth quarters, which reflects the impact of the full quarter of the wage increase.

International offshore operating cost should increase to $40 million to $42 million range in the third quarter due to the startup of the Hercules 208 in Malaysia and the full quarter impact and the Hercules 260 startup in India. Cost should increased further in the fourth quarter till about $46 million to $48 million due to the startup of Hercules 261 and 262 in Saudi Arabia and the fully impact of the Hercules 208 in the fourth quarter.

In our inland segment, we expect daily operating cost per rig remain relatively flat in the third quarter and then decline to the $20,000 range in the fourth quarter, due to the warm stacking of the three additional rigs, and our expectation that we can reduce daily expenses on these rigs to the $8,000 range within two months.

In our Domestic Liftboat Segment, we expect daily operating cost per vessel to remain relatively flat for the remainder of 2008. We anticipate daily operating cost per vessel for international liftboats to average approximately $5,700 per day in the third quarter, increasing slightly in the fourth quarter, due to the startup operations in the Middle East and a slight mix shift towards the larger cost vessels.

General and administrative expenses are expected to be in the $17 million to $18 million range in the third and fourth quarter of 2008. Depreciation and amortization will increase again in the second half due to startup of several rigs in the international location. We expect depreciation and amortization to be approximately $51 million in the third quarter, increasing to $56 million to $57 million in the fourth quarter. Interest expenses will likely increase in the third quarter to $16 million due to the full quarter impact of the $250 million convertible senior note.

Moving into 2009, barring any acquisitions, cash interest expense should decline with the repayment of debt. We expect our tax rate will remain at the 36% to 37% for the duration of the year. Cash taxes for the second half of 2008 are expected to be approximately $20 million due to the usage of our NOL.

I would also like to make a few brief comments on our balance sheet and capital expenditures. As of June 30, we had cash and cash equivalents of approximately $100 million, total debt of slightly less than $1.2 billion and stockholders equity of $2 billion. Net debt capitalization was just under 35%.

Capital expenditures for the second quarter were $179 million, of which approximately $50 million related to our international rig upgrades including mobilization and contract preparation and $90 million went to the acquisition of the Hercules 262. We anticipate capital expenditures for the remaining quarters of 2008 to be approximately $140 million, which includes maintenance capital expenditures as well as contract specific upgrades.

In closing, we are continuing to generate strong operating cash flow and the outlook remains bright for continued growth and improvement in our domestic offshore and our international segment. We are taking aggressive measures to reduce the impact of the continued softness in the inland barged segment and we do expect it to recover in 2009 with the renewed focus on deeper gas targets.

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