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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number: 1-13289
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PRIDE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
76-0069030
Louisiana (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
5847 San Felipe, Suite 3300
Houston, Texas 77057
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (713) 789-1400
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
<S> <C>
Common Stock, no par value New York Stock Exchange
Rights to Purchase Preferred Stock New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at June 12, 2000, based on the closing price on the New York
Stock Exchange on such date, was $1.3 billion. (The officers and directors of
the registrant are considered affiliates for the purposes of this
calculation.)
The number of shares of the registrant's Common Stock outstanding on June
12, 2000 was 65,215,216.
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Pride International, Inc. hereby amends Items 1, 7 and 7A of its Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 (SEC File No.
1-13289) to read in their entirety as follows:
Item 1. Business
In this Annual Report on Form 10-K, we refer to Pride International, Inc.
and its subsidiaries as "we," the "Company" or "Pride," unless the context
clearly indicates otherwise.
General
Pride is a leading international provider of contract drilling and related
services, operating both offshore and on land. In recent years, we have
focused our growth strategy on the higher margin offshore and international
drilling markets. Offshore and international markets generally have greater
profit potential than domestic land-based markets, primarily as a result of
less competition, higher utilization rates and stronger demand resulting from
a general trend by oil and gas companies to shift expenditures to exploration
and development activities offshore and abroad. Currently, we operate a global
fleet of 291 rigs, including two ultra-deepwater drillships, three
semisubmersible rigs, 18 jackup rigs, six tender-assisted rigs, three barge
rigs, 21 offshore platform rigs and 238 land-based drilling and workover rigs.
We operate in more than 20 countries and marine provinces. The significant
diversity of our rig fleet and areas of operation enables us to provide a
broad range of services and to take advantage of market upturns while reducing
our exposure to sharp downturns in any particular market sector or geographic
region.
Most recently, we have focused on increasing the size of our fleet capable
of drilling in deeper waters. The deepwater market generally supports longer-
term, higher-rate contracts, and we believe that our experience in deepwater
markets positions us to compete effectively in this sector. We have recently
completed or are participating in the following additional offshore rig
acquisition and construction projects:
. Amethyst 1 Purchase. In October 1998, we purchased for $85 million the
Amethyst 1, a dynamically positioned, self-propelled semisubmersible
drilling rig capable of working in water depths of up to 4,000 feet. The
Amethyst 1 is currently working offshore Brazil under a charter and
service contract that expires in 2001.
. Drillship Joint Ventures. We have a 51% interest in joint ventures that
own and operate the ultra-deepwater drillships Pride Africa and Pride
Angola. The drillships, which are capable of operating in water depths of
up to 10,000 feet, are contracted to work for Elf Exploration Angola for
initial terms of five and three years, respectively. The Pride Africa
commenced operations in October 1999 and operated for 10 days until
certain of its drilling equipment was damaged. The damaged equipment has
been replaced and the Pride Africa is expected to resume operations in
June 2000. The Pride Angola commenced operations in May 2000. Financing
for approximately $400 million of the drillships' total construction cost
of $470 million was provided by a group of banks. The loans with respect
to the Pride Africa are nonrecourse to the joint venture participants,
and the loans with respect to the Pride Angola will become nonrecourse
upon the transfer of the ownership of the rig from Pride to the joint
venture, which is expected to occur in June 2000. Our total equity
investment in the ventures is approximately $38 million.
. Amethyst Joint Venture. We have a 26.4% equity interest in a joint
venture company organized to construct, own and operate four Amethyst-
class dynamically positioned semisubmersible drilling rigs. The rigs will
be larger, enhanced versions of the Amethyst 1. Two of the rigs, the
Pride Brazil and the Pride Carlos Walter, have been constructed in South
Korea and are now undergoing equipment commissioning and testing. These
rigs are expected to be delivered by the shipyard in the third quarter of
2000, subject to satisfactory completion of testing and resolution of
outstanding construction contract matters. The other two rigs, the
Amethyst 4 and Amethyst 5, are under construction in the U.S.; however,
in early January 2000, the shipyard notified the joint venture that
construction of the rigs was being suspended because of alleged delays in
receiving detailed engineering work and the joint venture's
1
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previous rejection of the shipyard's requests for extensions of the
construction contract delivery dates. In May 2000, the joint venture and
the shipyard entered into an amendment to the construction contracts
providing for, among other things, (1) new delivery dates for the
Amethyst 4 and Amethyst 5 of September 2001 and December 2001,
respectively, (2) an increase in the construction contract price of $3.0
million per rig, (3) a bonus of up to $6.4 million per rig, payable upon
delivery, for timely completion, (4) liquidated damages for late delivery
of up to $4.2 million per rig and (5) a waiver of all material claims
between the parties. The shipyard has resumed construction of the
Amethyst 4 and Amethyst 5. The joint venture was formed to build, own and
operate its four rigs under charter and service contracts with Petroleo
Brasilerio S.A. ("Petrobras") having initial terms of six to eight years.
Petrobras has threatened to cancel those contracts for late delivery of
the rigs, and the joint venture has obtained a preliminary injunction in
a Brazilian court against that cancellation. Based on Petrobras'
announced deepwater drilling program and related rig requirements, we
believe that Petrobras likely will employ all of the joint venture's rigs
upon completion; however, there can be no assurance that any of the four
rigs will be chartered to Petrobras or to any other customer.
We have made aggregate equity contributions in the Amethyst joint venture
of approximately $47.3 million as of March 31, 2000. The total estimated
cost to construct, equip and mobilize the four rigs is approximately $750
million, excluding late delivery penalties. Approximately $665 million of
that amount is being provided by separate credit facilities for each of
the four rigs and the issuance by the joint venture of senior secured
notes. We have provided direct guarantees of the repayment of up to $88.9
million of these obligations, $68.4 million of which relates solely to
the Pride Brazil and Pride Carlos Walter. For additional information
regarding our contingent obligations with respect to the Amethyst joint
venture, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" in item 7 of
this annual report.
We intend to continue to pursue expansion of our operations through
acquisitions, rig upgrades and redeployment of assets to active geographic
regions, as well as through participation in strategic new projects such as
those described above. On April 6, 2000, our wholly owned subsidiary, Twin
Oaks Financial Ltd., acquired all the outstanding capital stock of Servicios
Especiales San Antonio S.A. from Perez Companc S.A. San Antonio provides a
variety of oilfield services to customers in Argentina, Venezuela, Bolivia and
Peru. The purchase price was $61 million, consisting of $35 million in cash
and a $26 million promissory note of Twin Oaks guaranteed by San Antonio and
payable in monthly installments over not less than three years based on the
level of San Antonio's revenues from services provided by it to Perez Companc.
Interest on the outstanding balance of the note is payable quarterly at LIBOR
plus 2.75% per annum. Perez Companc also is entitled to four "earn-out"
payments of up to $3.0 million each at the end of each of the first four
anniversary dates of the closing if San Antonio's revenues from services
provided to Perez Companc and its affiliates exceed $40 million during the 12
calendar months ending immediately prior to the relevant anniversary date.
Upon completion of the earn-out payments and repayment of the $26 million
note, neither Twin Oaks nor San Antonio will have any obligation to make
further payments to Perez Companc. In addition to the consideration for San
Antonio's capital stock, Twin Oaks provided $17 million in cash at closing for
the repayment of a portion of San Antonio's outstanding debt.
To finance the San Antonio acquisition and to improve our overall
liquidity, we capitalized Twin Oaks with 4.5 million shares of our common
stock, and Twin Oaks, in turn, sold those shares to a fund managed by First
Reserve Corporation for $72 million in cash. First Reserve is a private equity
firm specializing in the energy industry. In 1999, two First Reserve funds
purchased 5.7 million shares of common stock for $37.5 million in cash and the
delivery of approximately $77 million principal amount at maturity of our Zero
Coupon Convertible Subordinated Debentures due 2018 that the funds had
previously acquired. The First Reserve funds also invested an additional $12.5
million in cash in the common equity of the Amethyst joint venture company,
which is exchangeable after three years (or earlier in certain events) at
their option for an additional 1.0 million shares of our common stock. As a
result of the sale of 4.5 million shares, First Reserve funds currently own a
total of 10.2 million shares of our common stock, or approximately 15.7% of
our total shares outstanding.
2
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We are a Louisiana corporation with our principal executive offices located
at 5847 San Felipe, Suite 3300, Houston, Texas 77057. Our telephone number at
such address is (713) 789-1400.
Operations
South America
Through a series of acquisitions and the deployment of underutilized
domestic assets, we have significantly expanded our South American operations
and now operate two semisubmersible rigs, three jackup rigs, two floating
barge rigs and 223 land-based rigs in the region.
Brazil. In September 1997, our semisubmersible rig Nymphea began drilling
offshore Brazil for Petrobras. The rig is working under a contract expiring in
2001. The Amethyst 1, a dynamically positioned, self-propelled semisubmersible
rig we acquired in October 1998, is equipped to provide offshore drilling,
subsea well intervention, well tie-back and related construction services, and
is currently working offshore Brazil under a charter and service contract that
expires in 2001.
Venezuela. Our offshore fleet in Venezuela includes three jackup rigs and
two barge rigs operating on Lake Maracaibo. Two of the jackup rigs that we
operate are owned by Petroleos de Venezuela, S.A. ("PDVSA"). The contracts for
the rigs expire in 2000, and upon expiration, we will seek renewal or
extension of them. The other jackup rig is owned by us and operates under a
contract expiring in 2003. In 1995, we placed two floating barge rigs into
service on Lake Maracaibo that are working under ten-year contracts with
PDVSA. Our land-based fleet in Venezuela currently consists of 48 rigs, of
which 11 are drilling rigs and 37 are workover rigs.
Argentina. In Argentina, we currently operate 140 land-based rigs, which we
believe represent approximately 50% of the land-based rigs in the Argentine
market. Of these rigs, 39 are drilling rigs and 101 are workover rigs.
Argentine rig operations are generally conducted in remote regions of the
country and require substantial fixed infrastructure and operating support
costs. We believe that our established infrastructure and scale of operations
provide us with a competitive advantage in this market.
Colombia. In Colombia, we currently operate 12 land-based drilling rigs and
nine land-based workover rigs under contracts with major international oil
operators and with the national oil company. We believe we are well positioned
to capitalize on new opportunities in Colombia.
Bolivia. Demand for rig services has increased in Bolivia in recent years
as a result of the privatization of components of the Bolivian national oil
company, as well as significant sales of exploration blocks to private-sector
operators. In addition, exploration activity for natural gas in Bolivia has
increased as a result of the construction of a major gas pipeline from Bolivia
to markets in Brazil. We currently operate seven land-based drilling rigs and
seven land-based workover rigs in Bolivia.
Gulf of Mexico
In May 1997, we acquired 13 mat-supported jackup rigs, 11 of which are
currently located in the Gulf of Mexico. The remaining two rigs are located in
West Africa and Southeast Asia. This acquisition positioned us as the second
largest operator in the Gulf of Mexico of mat-supported jackup rigs capable of
operating in water depths of 200 feet or greater. We also operate a fleet of
21 offshore modular platform rigs in the Gulf of Mexico. We believe our
platform rig fleet is one of the most technologically advanced fleets in the
industry. Most of our mat-supported jackup rigs and platform rigs operate
under short-term or well-to-well contracts.
The declines experienced in 1999 in the offshore drilling markets had their
greatest impact on demand for our platform and jackup fleets in this region.
3
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Other International
Offshore. Our two ultra-deepwater drillships, the Pride Africa and Pride
Angola, are owned by joint ventures in which we have a 51% interest. The
drillships are contracted to work offshore West Africa for Elf Exploration
Angola for initial terms of five and three years, respectively. Our
semisubmersible rig, the South Seas Driller, is currently operating offshore
South Africa under a contract extending through June 2000. We are in
negotiations to secure a new contract for this rig at the end of its current
contract. We operate four jackup rigs in the eastern hemisphere, including the
Pride Pennsylvania, which is working offshore India under a contract that
expires in 2001, the Pride California and Pride Utah, which are currently
stacked in Singapore and Nigeria, respectively, and the PB XI, which we have
agreed to acquire and which is currently working offshore Angola under a
short-term contract. We will complete the acquisition of the PB XI through our
51%-owned joint venture that owns the Pride Africa and Pride Angola once the
rig completes its current contract. The joint venture expects to enter into a
new multi-year contract with a major oil company for the rig to work offshore
Angola. We also operate six tender-assisted rigs. The Ile de Sein is under
contract in Indonesia and will begin work under a new two-year contract in May
2000. The Barracuda is expected to commence operations offshore Angola in July
2000 under a six-month contract with a three-month option. The Alligator is
contracted until June 2000, and we are in negotiations to extend the contract
for an additional year. The remaining three tender-assisted rigs, the Piranha,
the Al Baraka I and the Comorant, do not currently have contracts. We also own
one swamp barge rig, the Bintang Kalimantan, which is available in Nigeria.
Land. We currently operate five land-based rigs in North Africa, three in
the Middle East and one in Europe.
Rig Fleet
Offshore Rigs
The table below presents information about our offshore rig fleet as of May
31, 2000:
OFFSHORE RIGS
<TABLE>
<CAPTION>
Built/
Upgraded
or Water Drilling
Expected Depth Depth
Rig Name Rig Type/Design Completion Rating Rating Location Status
-------- -------------------------- ---------- ------ -------- -------------- --------
(feet) (feet)
<S> <C> <C> <C> <C> <C> <C>
Drillships--2
Pride Africa(1) Gusto 10,000 1999 10,000 30,000 Angola (2)
Pride Angola(1) Gusto 10,000 1999 10,000 30,000 Angola Working
Semisubmersible Rigs--7
Nymphea F&G Pacesetter 1987 1,500 25,000 Brazil Working
South Seas Driller Aker H-3 1977/1997 1,000 20,000 South Africa Working
Amethyst 1(3) Amethyst Class 1989 4,000 20,000 Brazil Working
Amethyst 4(4) Amethyst Class 2001 5,000 25,000 Mississippi Shipyard
Amethyst 5(4) Amethyst Class 2001 5,000 25,000 Mississippi Shipyard
Pride Brazil(4) Amethyst Class 2000 5,000 25,000 Korea Shipyard
Pride Carlos Walter(4) Amethyst Class 2000 5,000 25,000 Korea Shipyard
Jackup Rigs--18
Pride Pennsylvania Independent leg cantilever 1973/1998 300 20,000 India Working
Ile du Levant Independent leg cantilever 1991 270 20,000 Venezuela Working
PB XI(5) Independent leg cantilever 1982 300 25,000 Angola Working
GP-19(6) Independent leg cantilever 1987 150 20,000 Venezuela Working
GP-20(6) Independent leg cantilever 1987 200 20,000 Venezuela Working
Pride Alabama Mat-supported cantilever 1982 200 25,000 Gulf of Mexico Working
Pride Alaska Mat-supported cantilever 1982 250 25,000 Gulf of Mexico Working
Pride Arkansas Mat-supported cantilever 1982 200 25,000 Gulf of Mexico Working
Pride Colorado Mat-supported cantilever 1982 200 25,000 Gulf of Mexico Working
Pride Kansas Mat-supported cantilever 1999 250 25,000 Gulf of Mexico Working
</TABLE>
4
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<TABLE>
<CAPTION>
Built/Upgraded Water Drilling
or Expected Depth Depth
Rig Name Rig Type/Design Completion Rating Rating Location Status
-------- ------------------------ -------------- ------ -------- -------------- ---------
(feet) (feet)
<S> <C> <C> <C> <C> <C> <C>
Pride Mississippi Mat-supported cantilever 1990 200 25,000 Gulf of Mexico Working
Pride New Mexico Mat-supported cantilever 1982 200 25,000 Gulf of Mexico Working
Pride Texas Mat-supported cantilever 1999 300 20,000 Gulf of Mexico Working
Pride California Mat-supported slot 1997 250 20,000 Singapore Stacked
Pride Louisiana Mat-supported slot 1981 250 25,000 Gulf of Mexico Working
Pride Oklahoma Mat-supported slot 1996 250 20,000 Gulf of Mexico Stacked
Pride Wyoming Mat-supported slot 1976 250 25,000 Gulf of Mexico Working
Pride Utah Mat-supported slot 1990/1998 45 20,000 Stacked
Tender-Assisted Rigs--6
Alligator Self-erecting barge 1992/1998 330 20,000 Angola Working
Barracuda Self-erecting barge 1992 330 20,000 Angola Available
Al Baraka I(7) Self-erecting barge 1994 650 20,000 UAE Available
Ile de Sein Self-erecting barge 1990/1997 450 16,000 Indonesia Working
Piranha Self-erecting barge 1978/1998 600 20,000 Brunei Available
Cormorant Converted ship 1991 300 16,400 Angola Stacked
Barge Rigs--3
Pride I Floating cantilever 1995 150 20,000 Venezuela Working
Pride II Floating cantilever 1995 150 20,000 Venezuela Working
Bintang Kalimantan Posted swamp barge 1995 N/A 16,000 Nigeria Available
Platform Rigs--21
Rig 1501E Heavy electrical 1996 N/A 25,000 Gulf of Mexico Working
Rig 1502E Heavy electrical 1998 N/A 25,000 Gulf of Mexico Working
Rig 1002E Heavy electrical 1996 N/A 20,000 Gulf of Mexico Available
Rig 1003E Heavy electrical 1996 N/A 20,000 Gulf of Mexico Working
Rig 1004E Heavy electrical 1997 N/A 20,000 Gulf of Mexico Working
Rig 1005E Heavy electrical 1998 N/A 20,000 Gulf of Mexico Available
Rig 750E Heavy electrical 1992 N/A 16,500 Gulf of Mexico Available
Rig 751E Heavy electrical 1995 N/A 16,500 Gulf of Mexico Available
Rig 650E Intermediate electrical 1994 N/A 15,000 Gulf of Mexico Available
Rig 651E Intermediate electrical 1995 N/A 15,000 Gulf of Mexico Working
Rig 653E Intermediate electrical 1995 N/A 15,000 Gulf of Mexico Working
Rig 951 Heavy mechanical 1995 N/A 18,000 Gulf of Mexico Available
Rig 952 Heavy mechanical 1995 N/A 18,000 Gulf of Mexico Stacked
Rig 100 Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico Stacked
Rig 110 Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico Stacked
Rig 130 Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico Stacked
Rig 170 Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico Stacked
Rig 200 Intermediate mechanical 1993 N/A 15,000 Gulf of Mexico Available
Rig 210 Intermediate mechanical 1996 N/A 15,000 Gulf of Mexico Available
Rig 220 Intermediate mechanical 1995 N/A 15,000 Gulf of Mexico Available
Rig 14 Light mechanical 1994 N/A 10,000 Gulf of Mexico Working
</TABLE>
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(1) These rigs are owned by joint ventures in which we have a 51% interest.
(2) The Pride Africa is expected to resume operations in June 2000.
(3) In February 1999, we completed a transaction in which we sold the rig to a
third party and leased the rig back under a charter expiring in 2012.
(4) Currently under construction. These rigs will be owned by a joint venture
in which we have a 26.4% interest.
(5) We have entered into an agreement to purchase this rig for approximately
$25 million, which is expected to close in June 2000.
(6) Operated but not owned by us.
(7) Owned by a joint venture in which we have a 12.5% interest.
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Drillships. The Pride Africa and Pride Angola are ultra-deepwater self-
propelled drillships that can be positioned over a drill site through the use
of a computer-controlled thruster (dynamic positioning) system. Drillships are
suitable for deepwater drilling in remote locations because of their mobility
and large load-carrying capacity.
Semisubmersible Rigs. Our semisubmersible rigs are floating platforms that,
by means of a water ballasting system, can be submerged to a predetermined
depth so that a substantial portion of the lower hulls, or pontoons, are below
the water surface during drilling operations. The rig is "semisubmerged,"
remaining afloat in a position where the lower hull is about 60 to 80 feet
below the water line and the upper deck protrudes well above the surface. This
type of rig maintains its position over the well through the use of either an
anchoring system or a computer-controlled thruster system similar to that used
by our drillships.
Jackup Rigs. The jackup rigs we operate are mobile, self-elevating drilling
platforms equipped with legs that can be lowered to the ocean or lake floor
until a foundation is established to support the drilling platform. The rig
legs may have a lower hull or mat attached to the bottom to provide a more
stable foundation in soft bottom areas. Independent leg rigs are better suited
for harsher or uneven seabed conditions. Jackup rigs are generally subject to
a maximum water depth of approximately 350 to 400 feet, while some jackup rigs
may drill in water depths as shallow as ten feet. The length of the rig's legs
and the operating environment determine the water depth limit of a particular
rig. A cantilever jackup has a feature that allows the drilling platform to be
extended out from the hull, allowing it to perform drilling or workover
operations over a pre-existing platform or structure. Certain cantilever
jackup rigs have "skid-off" capability, which allows the derrick equipment to
be skidded onto an adjacent platform, thereby increasing the operational
capacity of the rig. Slot type jackup rigs are configured for drilling
operations to take place through a slot in the hull. Slot type rigs are
usually used for exploratory drilling because their configuration makes them
difficult to position over existing platforms or structures.
Tender-Assisted Rigs. Our tender-assisted rigs are generally non-self-
propelled barges moored alongside a platform and containing crew quarters, mud
pits, mud pumps and power generation systems. The only equipment transferred
to the platform for drilling or workover operations is the derrick equipment
set consisting of the substructure, drillfloor, derrick and drawworks. As a
result, tender-assisted rigs are less hazardous and allow smaller, less costly
platforms to be used for development projects. Self-erecting tenders carry
their own derrick equipment set and have a crane capable of erecting the
derrick on the platform, thereby eliminating the cost associated with a
separate derrick barge and related equipment.
Barge Rigs. We operate barge rigs on Lake Maracaibo, Venezuela that have
been designed to work in a floating mode with a cantilever feature and a
mooring system that enables the rig to operate in waters up to 150 feet deep.
In Nigeria, we operate a posted swamp barge rig. This rig is held on location
by legs or posts that are jacked down into the sea floor before commencement
of work.
Platform Rigs. Our platform rigs consist of drilling equipment and
machinery arranged in modular packages that are transported to and assembled
and installed on fixed offshore platforms owned by the customer. Fixed
offshore platforms are steel, tower-like structures that stand on the ocean
floor, with the top portion, or platform, above the water level, providing the
foundation upon which the platform rig is placed. Two of our platform rigs are
capable of operating at well depths of up to 25,000 feet. Our platform rigs
are often used to provide drilling and horizontal reentry services using top
drives, enhanced pumps and solids control equipment for drilling fluids, as
well as for workover services.
6
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Land-Based Rigs
The table below presents information about our land-based rig fleet as of
May 31, 2000:
LAND-BASED RIGS
<TABLE>
<CAPTION>
Country Total Drilling Workover
------- ----- -------- --------
<S> <C> <C> <C>
South America--223
Argentina............................................ 140 39 101
Venezuela............................................ 48 11 37
Colombia............................................. 21 12 9
Bolivia.............................................. 14 7 7
Africa/Middle East--8
Algeria.............................................. 3 3 --
Libya................................................ 2 1 1
Oman................................................. 2 2 --
Bahrain.............................................. 1 1 --
Other--7............................................... 7 4 3
--- --- ---
Total Land-Based Rigs............................... 238 80 158
=== === ===
</TABLE>
A land-based drilling rig consists of engines, drawworks, a mast
substructure, pumps to circulate the drilling fluid, blowout preventers, drill
string and related equipment. The engines power a rotary table that turns the
drill string, causing the drill bit to bore through the subsurface rock
layers. Rock cuttings are carried to the surface by the circulating drilling
fluid. The intended well depth and the drilling site conditions are the
principal factors that determine the size and type of rig most suitable for a
particular drilling job.
A land-based well servicing rig consists of a mobile carrier, engine,
drawworks and derrick. The primary function of a well servicing rig is to act
as a hoist so that pipe, rods and down-hole equipment can be run into and out
of a well. All of our well servicing rigs can be readily moved between well
sites and between geographic areas of operations.
Most of our land-based drilling and land-based workover rigs operate under
short-term or well-to-well contracts.
Services Provided
Drilling Services
We provide contract-drilling services to oil and gas exploration and
production companies through the use of mobile offshore and land-based
drilling rigs. Generally, land-based rigs and offshore platform rigs operate
with crews of six to 17 persons while jackup rigs, tender-assisted rigs and
barge rigs operate with crews of 15 to 25 persons and semisubmersible rigs and
drillships operate with crews of 25 to 50 persons. We provide the rig and
drilling crew and are responsible for the payment of operating and maintenance
expenses.
Maintenance and Workover Services
Maintenance services are required on producing oil and gas wells to ensure
efficient, continuous operation. These services consist of mechanical repairs
necessary to maintain production from the well, such as repairing parted
sucker rods, replacing defective downhole pumps in an oil well or replacing
defective tubing in a gas well. We provide the rigs, equipment and crews for
these maintenance services, which are performed on both oil and gas wells but
which are more often required on oil wells. Many of our rigs also have pumps
and tanks that can be used for circulating fluids into and out of the well.
Typically, maintenance jobs are performed on a series of wells in geographic
proximity to each other, take less than 48 hours per well to complete and
require little, if any, revenue-generating equipment other than a rig.
7
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In addition to periodic maintenance, producing oil and gas wells
occasionally require major repairs or modifications, called "workovers."
Workover services include the opening of new producing zones in an existing
well, recompletion of a well in which production has declined, drilling out
plugs and packers and the conversion of a producing well to an injection well
during enhanced recovery operations. These extensive workover operations are
normally performed by a well servicing rig with additional specialized
accessory equipment, which may include rotary drilling equipment, mud pumps,
mud tanks and blowout preventers, depending upon the particular type of
workover operation. Most of our rigs are designed and equipped to handle the
more complex workover operations. A workover may last from a few days to
several weeks.
Engineering and Other Services
We employ a technical staff dedicated to industry research and development
and to designing specialized drilling equipment to fulfill specific customer
requirements. The engineering staff has designed and managed the fabrication
of several of the rigs in our offshore rig fleet and has been actively
involved in our newbuild projects. We also provide turnkey, project management
and other engineering services, which enhance our contract drilling services.
With the acquisition of Servicios Especiales San Antonio S.A. in early April
2000, we now provide a wide variety of additional oilfield services to
customers in Argentina, Venezuela, Bolivia and Peru, including directional
drilling, coiled tubing services, cementing and well stimulation. The purchase
also positions us to offer our customers a package of services and to provide
comprehensive project management at the well site.
Competition
Competition in the international markets in which we operate ranges from
large multinational competitors offering a wide range of drilling services and
well servicing to smaller, locally owned businesses. We believe that we are
competitive in terms of pricing, performance, equipment, safety, availability
of equipment to meet customer needs and availability of experienced, skilled
personnel in the international areas in which we operate.
Drilling contracts are generally awarded on a competitive bid basis and,
while an operator may consider quality of service and equipment, intense price
competition is the primary factor in determining which contractor, among those
with suitable rigs, is awarded a job. Certain of our competitors have greater
financial resources than us, which may enable them to better withstand periods
of low utilization, to compete more effectively on the basis of price, to
build new rigs or to acquire existing rigs.
Customers
We work for large multinational oil and gas companies, government-owned oil
companies and independent oil and gas producers. In 1999, we had one customer,
PDVSA, that accounted for more than 10% of our consolidated revenues.
Contracts
Our drilling contracts are awarded through competitive bidding or on a
negotiated basis. The contract terms and rates vary depending on competitive
conditions, the geographical area, the geological formation to be drilled, the
equipment and services to be supplied, the on-site drilling conditions and the
anticipated duration of the work to be performed.
Oil and gas well drilling contracts are carried out on a dayrate, footage
or turnkey basis. Under dayrate contracts, we charge the customer a fixed
charge per day regardless of the number of days needed to drill the well. In
addition, dayrate contracts usually provide for a reduced day rate (or lump
sum amount) for mobilizing the rig to the well location and for assembling and
dismantling the rig. Under dayrate contracts, we ordinarily bear no part of
the costs arising from down-hole risks (such as time delays for various
reasons, including a stuck or broken drill string or blowouts). Most of our
contracts are on a dayrate basis. Other contracts provide for
8
<PAGE>
payment on a footage basis, whereby we are paid a fixed amount for each foot
drilled regardless of the time required or the problems encountered in
drilling the well. We may also enter into turnkey contracts, whereby we agree
to drill a well to a specific depth for a fixed price and to bear some of the
well equipment costs. Compared to dayrate contracts, footage and turnkey
contracts involve a higher degree of risk to us and, accordingly, normally
provide greater profit potential.
In international offshore markets, contracts generally provide for longer
terms than contracts in domestic offshore markets. When contracting abroad, we
are faced with the risks of currency fluctuation and, in certain cases,
exchange controls. Typically, we limit these risks by obtaining contracts
providing for payment in U.S. dollars or freely convertible foreign currency.
To the extent possible, we seek to limit our exposure to potentially
devaluating currencies by matching our acceptance thereof to our expense
requirements in such local currencies. There can be no assurance that we will
be able to continue to take such actions in the future, thereby exposing us to
foreign currency fluctuations that could have a material adverse effect upon
our results of operations and financial condition. Currently, foreign exchange
in the countries where we operate is carried out on a free-market basis. We
can give no assurances, however, that the local monetary authorities in these
countries will not implement exchange controls in the future. Please read
"Quantitative and Qualitative Disclosure About Market Risks" in item 7A of
this annual report.
Seasonality
In general, our business activities are not significantly affected by
seasonal fluctuations. Our rigs are located in geographical areas that are not
subject to severe weather that would halt operations for prolonged periods.
Employees
As of March 31, 2000, we employed approximately 5,900 employees.
Approximately 1,000 of the employees were located in the United States and
4,900 were located abroad. Hourly rig crewmembers constitute the vast majority
of our employees. None of our U.S. employees are represented by a collective
bargaining unit. Many of our international employees are subject to industry-
wide labor contracts within their respective countries. Management believes
that our employee relations are good.
Segment Information
Information with respect to revenues, earnings from operations and
identifiable assets attributable to our industry segments and geographic areas
of operations for the last three fiscal years is presented in note 16 to our
consolidated financial statements included in item 8 of this annual report.
Risk Factors
Low oil and gas prices negatively affected our financial results in 1999,
resulting in a loss for that year; depressed market conditions may continue to
affect our results in 2000 and beyond.
Depressed market conditions may adversely affect our results of operations
and our liquidity. The profitability of our operations depends significantly
upon conditions in the oil and gas industry and, specifically, the level of
ongoing exploration and production expenditures of oil and gas company
customers. The demand for contract drilling and related services is directly
influenced by many factors beyond our control, including:
. oil and gas prices and expectations about future prices
. the cost of producing and delivering oil and gas
. government regulations
. local and international political and economic conditions
. the ability of the Organization of Petroleum Exporting Countries (OPEC)
to set and maintain production levels and prices
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<PAGE>
. the level of production by non-OPEC countries
. the policies of various governments regarding exploration and development
of their oil and gas reserves
Despite recent improvement in oil and gas prices, both offshore drilling
activity, particularly in the U.S. Gulf of Mexico, and international land-
based activity have been relatively depressed. During 1999, a significant
number of companies exploring for oil and gas curtailed or canceled some of
their drilling programs, thereby reducing demand for drilling services. This
reduction in demand significantly eroded daily rates and utilization of our
rigs, particularly in our offshore Gulf of Mexico and onshore South American
operations. This erosion in daily rates and utilization had a negative impact
on our financial results in 1999. In addition, there are a number of deepwater
rigs currently under construction, a few of which are not under contract. If
demand for deepwater drilling services does not increase to meet this
increased capacity, we could face competition from these and other rigs for
future deepwater contracts.
Our EBITDA (consisting of earnings before interest, taxes, depreciation and
amortization) in 1999 was insufficient to cover our interest expense in that
year, and our earnings (consisting of earnings before income taxes plus fixed
charges less capitalized interest) were insufficient to cover our fixed
charges (consisting of interest expense, capitalized interest and that portion
of operation lease rental expense deemed to represent the interest factor) for
the year. Industry conditions will adversely affect results of operations for
at least the near term, substantially reducing our revenues, cash flows,
EBITDA and earnings and may result in losses in future quarters. In addition,
earnings in future quarters may be insufficient to cover fixed charges in
those quarters, and further deterioration in market conditions may result in
EBITDA being insufficient to cover interest expense in those quarters.
International events may hurt our operations.
We derive a significant portion of our revenues from international
operations. In 1999, we derived approximately 67% of our revenues from
operations in South America and approximately 11% of our revenues from
operations in West Africa and the Middle East. Our operations in these areas
are most subject to the following risks:
. foreign currency fluctuations and devaluations
. restrictions on currency repatriation
. political instability
. war and civil disturbances
We limit the risks of currency fluctuation and restrictions on currency
repatriation by obtaining contracts providing for payment in U.S. dollars or
freely convertible foreign currency. To the extent possible, we seek to limit
our exposure to potentially devaluating currencies by matching our acceptance
of local currencies to our expense requirements in those currencies. We may
not be able to continue to take these actions in the future, thereby exposing
us to foreign currency fluctuations that could have a material adverse effect
upon our results of operations and financial condition. Although foreign
exchange in the countries where we operate is currently carried out on a free-
market basis, we can give no assurance that local monetary authorities in
these countries will not implement exchange controls in the future.
In addition, from time to time, certain of our foreign subsidiaries operate
in Libya and Iran. These countries are subject to sanctions and embargoes
imposed by the U.S. Government. Although these sanctions and embargoes do not
prohibit those subsidiaries from completing existing contracts or from
entering into new contracts to provide drilling services in such countries,
they do prohibit us and our domestic subsidiaries, as well as employees of our
foreign subsidiaries who are U.S. citizens, from participating in or approving
any aspect of the business activities in those countries. These constraints on
our ability to have U.S. persons, including all of our senior management,
provide managerial oversight and supervision may adversely affect the
financial or operating performance of such business activities.
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Our international operations are also subject to other risk, including
foreign monetary and tax policies, expropriation, nationalization and
nullification or modification of contracts. Additionally, our ability to
compete in international contract drilling markets may be adversely affected
by foreign governmental regulations that favor or require the awarding of
contracts to local contractors or by regulations requiring foreign contractors
to employ citizens of, or purchase supplies from, a particular jurisdiction.
Furthermore, our foreign subsidiaries may face governmentally imposed
restrictions from time to time on their ability to transfer funds to us.
Our customers may seek to cancel or renegotiate some of our drilling
contracts during depressed market conditions or if we experience operational
difficulties.
During depressed market conditions, a customer may no longer need a rig
that is currently under contract or may be able to obtain a comparable rig at
a lower daily rate. As a result, customers may seek to renegotiate the terms
of their existing drilling contracts or avoid their obligations under those
contracts. In addition, our customers may seek to terminate existing contracts
if we experience operational problems. The deepwater markets in which we
operate require the use of floating rigs with sophisticated positioning,
subsea and related systems designed for drilling in deep water. If this
equipment fails to function properly, the rig cannot engage in drilling
operations, and customers may have the right to terminate the drilling
contracts. The likelihood that a customer may seek to terminate a contract for
operational difficulties is increased during market downturns. The
cancellation of a number of our drilling contracts could adversely affect our
results of operations.
Our significant debt levels and debt agreement restrictions may limit our
flexibility in obtaining additional financing and in pursuing other business
opportunities.
As of December 31, 1999, we had approximately $1.2 billion in debt and
capital lease obligations. In addition, we have provided direct guarantees of
the repayment of up to $88.9 million of the obligations of our unconsolidated
subsidiaries. The level of our indebtedness will have several important
effects on our future operations, including:
. a significant portion of our cash flow from operations will be dedicated
to the payment of interest and principal on such debt and will not be
available for other purposes
. covenants contained in our existing debt arrangements require us to meet
certain financial tests, which may affect our flexibility in planning
for, and reacting to, changes in our business and may limit our ability
to dispose of assets, withstand current or future economic or industry
downturns and compete with others in our industry for strategic
opportunities
. our ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be
limited
Our ability to meet our debt service obligations and to reduce our total
indebtedness will be dependent upon our future performance, which will be
subject to general economic conditions, industry cycles and financial,
business and other factors affecting our operations, many of which are beyond
our control.
We are subject to hazards customary in the oilfield service industry and to
those more specific to marine operations. We may not have insurance to cover
all these hazards.
Our operations are subject to the many hazards customary in the oilfield
services industry. Contract drilling and well servicing require the use of
heavy equipment and exposure to hazardous conditions, which may subject us to
liability claims by employees, customers and third parties. These hazards can
cause personal injury or loss of life, severe damage to or destruction of
property and equipment, pollution or environmental damage and suspension of
operations. Our offshore fleet is also subject to hazards inherent in marine
operations, either while on site or during mobilization, such as capsizing,
sinking and damage from severe weather conditions. In certain instances,
contractual indemnification of customers or others is required of us.
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<PAGE>
We maintain workers' compensation insurance for our employees and other
insurance coverage for normal business risks, including general liability
insurance. Although we believe our insurance coverage to be adequate and in
accordance with industry practice against normal risks in our operations, any
insurance protection may not be sufficient or effective under all
circumstances or against all hazards to which we may be subject. The
occurrence of a significant event against which we are not fully insured, or
of a number of lesser events against which we are insured, but subject to
substantial deductibles, could materially and adversely affect our operations
and financial condition. Moreover, we may not be able to maintain adequate
insurance in the future at rates or on terms we consider reasonable or
acceptable.
Governmental regulations and environmental liabilities may adversely affect
our operations.
Many aspects of our operations are subject to numerous governmental
regulations that may relate directly or indirectly to the contract drilling
and well servicing industries, including those relating to the protection of
the environment. We have spent and could continue to spend material amounts to
comply with these regulations. Laws and regulations protecting the environment
have become more stringent in recent years and may in certain circumstances
impose strict liability, rendering us liable for environmental damage without
regard to negligence or fault on our part. These laws and regulations may
expose us to liability for the conduct of, or conditions caused by, others or
for acts that were in compliance with all applicable laws at the time the acts
were performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on us. In addition, the
modification of existing laws or regulations or the adoption of new laws or
regulations curtailing exploratory or development drilling for oil and gas
could have a material adverse effect on our operations by limiting future
contract drilling opportunities.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
You should read the following discussion and analysis in conjunction with
our consolidated financial statements as of December 31, 1999 and 1998, and
for the years ended December 31, 1999, 1998 and 1997, included in item 8 of
this annual report. The following information contains forward-looking
statements. Please read "Forward-Looking Statements" for a discussion of
certain limitations inherent in such statements.
General
Our operations have been, and our future results will be, significantly
affected by a series of strategic transactions that have transformed us from
solely a provider of land-based workover and related well services in the
United States into a diversified international drilling contractor operating
both offshore and on land. With the sale of our domestic land-based well
servicing operations in February 1997, we ceased to provide rig services
onshore in the United States.
Since 1996, we have completed several transactions that have significantly
expanded our international and offshore operations, including the following:
. Through three acquisitions completed in 1996, we significantly expanded
our South American operations, principally in Argentina, Venezuela and
Colombia. We have continued to expand these operations by deploying rigs
from our former U.S. land-based fleet and by acquiring other rigs in the
region.
. In February 1997, we completed the divestiture of our domestic land-based
well servicing operations, which included 407 workover rigs operating in
Texas, California, New Mexico and Louisiana.
. In March 1997, we completed the acquisition of the operating subsidiaries
of Forasol-Foramer N.V., adding two semisubmersible rigs, three jackup
rigs, seven tender-assisted rigs, four barge rigs and 29 land-based rigs
operating in various locations in South America, Africa, the Middle East
and Southeast Asia.
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. In May 1997, we purchased 13 mat-supported jackup drilling rigs, 11 of
which are currently located in the Gulf of Mexico, one of which is
located in West Africa and one of which is located in Southeast Asia.
. In July 1998, we acquired 60% of a Bolivian company, Compania Boliviana
de Perforacion S.A.M., in a joint initiative with the Bolivian national
oil company, Yacimientos Petroliferos Fiscales Bolivianos. CBP was
capitalized through the contribution of 13 land-based drilling and
workover rigs, oilfield trucks and other related drilling assets by YPFB
and $17 million in cash by us. We have recently agreed to acquire the
remaining 40% of CBP for $11.3 million in cash. We expect to conclude the
transaction in June 2000.
. In October 1998, we purchased the Amethyst 1, a dynamically positioned,
self-propelled semisubmersible drilling rig. The rig is currently working
offshore Brazil under a charter and service contract that expires in
2001.
Most recently, we have focused on increasing the size of our fleet capable
of drilling in deeper waters. We have a 51% ownership interest in joint
ventures that own and operate two ultra-deepwater drillships, the Pride Africa
and the Pride Angola, and we have a 26.4% interest in a joint venture engaged
in the construction of four fourth-generation Amethyst class semisubmersible
rigs. We also have expanded the range of services we provide to our customers
in South America with the acquisition in April 2000 of Servicios Especiales
San Antonio S.A. Please read "Business--General" in item 1 of this annual
report and "--Liquidity and Capital Resources" in this item 7.
Outlook
With market conditions improving as a result of the increases in oil and
gas prices since mid-1999, management anticipates continued increases in
utilization and dayrates through 2000. If commodity prices remain near their
current levels, we expect that our financial results will improve throughout
the year. However, due to the volatility of oil and gas prices, which affect
the demand for our drilling services, we cannot predict with any certainty
whether these improving conditions will continue to affect our financial
results positively or whether commodity prices, and demand for our services,
will decline substantially.
The depressed industry conditions over the latter part of 1998 and in 1999
led us to reduce our workforce significantly. In the first quarter of 1999, we
recorded charges of $28.9 million, net of income taxes, for current and future
cash expenditures related to a company-wide restructuring plan implemented to
address the dramatic decline in drilling and workover activity. We expect the
restructuring to result in annual cost savings in excess of $25 million.
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Results of Operations
The following table presents selected consolidated financial information by
operating segment for the periods indicated. Operating costs for the year
ended December 31, 1999 include restructuring charges.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1998 1999
-------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
United States land............ $ 16,485 2.4% $ -- --% $ -- --%
United States offshore........ 135,281 19.3 160,829 19.2 85,649 13.8
International land............ 385,590 55.1 401,899 48.1 263,110 42.5
International offshore........ 162,432 23.2 272,835 32.7 270,626 43.7
-------- ----- -------- ----- -------- -----
Total revenues.............. $699,788 100.0% $835,563 100.0% $619,385 100.0%
======== ===== ======== ===== ======== =====
Operating Costs:
United States land............ $ 12,776 2.8% $ -- --% $ -- --%
United States offshore........ 72,927 15.9 90,311 17.1 68,207 15.0
International land............ 276,185 60.2 293,073 55.3 206,953 45.5
International offshore........ 96,973 21.1 146,460 27.6 179,560 39.5
-------- ----- -------- ----- -------- -----
Total operating costs....... $458,861 100.0% $529,844 100.0% $454,720 100.0%
======== ===== ======== ===== ======== =====
Gross Margin:
United States land............ $ 3,709 1.5% $ -- --% $ -- --%
United States offshore........ 62,354 25.9 70,518 23.1 17,442 10.6
International land............ 109,405 45.4 108,826 35.6 56,157 34.1
International offshore........ 65,459 27.2 126,375 41.3 91,066 55.3
-------- ----- -------- ----- -------- -----
Total gross margin.......... $240,927 100.0% $305,719 100.0% $164,665 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
1999 Compared with 1998
Revenue. Revenue for 1999 decreased $216.2 million, or 26%, as compared to
1998. Of this decrease, approximately $138.8 million was the result of
significantly reduced rig utilization of our international land-based fleet,
including $64.5 million in Argentina, $7.6 million in Colombia and $66.7
million in Venezuela. Revenue from our United States offshore operations
decreased $75.1 million due to deterioration during the year in dayrates and
utilization for our Gulf of Mexico jackup and platform rigs.
Operating Costs. Operating costs decreased $75.1 million, or 14%, as
compared to 1998. Of this decrease, approximately $86.1 million was due to
lower rig utilization of our international land-based rigs and $22.1 million
was attributable to the lower dayrates and utilization of our domestic
offshore fleet, as discussed above. These lower operating costs were offset by
a $33.1 million increase in operating costs for international offshore
operations, of which $20.0 million was attributable to the operation of the
semisubmersible rig Amethyst 1 for a full year in 1999 versus three months in
1998, and $12.8 million was attributable to non-recurring restructuring
charges.
Depreciation and Amortization. Depreciation and amortization for 1999
increased $15.8 million, or 20%, compared to 1998, as a result of the
expansion of our deepwater fleet.
Selling, General and Administrative. Selling, general and administrative
costs in 1999 increased $17.8 million, or 21%, as compared to 1998. The
increase resulted from restructuring costs of $23.8 million offset by a
decrease of $11.7 million resulting from base consolidation and reductions in
administrative staff. Please read Note 7 of the Notes to Consolidated
Financial Statements included in item 8 of this annual report for more
information about our restructuring costs.
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Other Income (Expense). Other income (expense) increased $6.6 million, or
17%, in 1999 as compared to 1998. Of this increase, $15.2 million related to
increased interest expense due to increased borrowings to fund drillship
construction and other expansion projects, as well as to enhance liquidity.
Other income increased by $5.9 million due to an insurance gain of $7.4
million from the loss of a land-based drilling rig in Bolivia, partially
offset by losses totaling $1.5 million from currency transactions, sales of
assets and other miscellaneous items. Interest income increased by $2.7
million due to an increase in cash available for investment. During 1999 we
capitalized $29.6 million of interest expense in connection with construction
projects, as compared to $16.4 million in 1998.
Income Tax Provision (Benefit). Our consolidated effective income tax rate
for 1999 was approximately 29%, as compared to approximately 24% for 1998. The
increase was attributable to the 1999 losses being incurred in the United
States and foreign jurisdictions where we have higher effective rates.
1998 Compared with 1997
Revenue. Revenue for 1998 increased $135.8 million, or 19%, as compared to
1997. Of this increase, approximately $73.0 million was due to a full year of
operations for the assets acquired in the Forasol acquisition completed in
March 1997 and the 13 mat-supported jackup rigs acquired in May 1997. Also,
during 1998, we placed four previously idle jackup rigs into service
accounting for approximately $53.0 million of the increase. Additionally,
$28.0 million of the increase in revenue is related to increased contract
dayrates and utilization for two of our semisubmersible rigs. In South
America, we had a 29% increase in average dayrates, or approximately $10
million, offset by a 16% decrease in overall utilization, or approximately $8
million. Of the remaining amount, $16 million relates to the sale of our
domestic land-based well servicing operations in February 1997.
Operating Costs. Operating costs for 1998 increased $71.0 million, or 15%,
as compared to 1997. Of this increase, approximately $52.0 million was due to
a full year of operations for the assets acquired in the Forasol acquisition
completed in March 1997 and the 13 mat-supported jackup rigs acquired in May
1997. We also incurred charges of $3.8 million, net of income taxes, related
to workforce reductions primarily in response to decreased activity levels.
Also, during 1998, we placed four jackup rigs into service accounting for
approximately $20.0 million of the increase. These increases were partially
offset by $12.8 million in reduced costs due to the sale of our domestic land-
based well servicing operations.
Depreciation and Amortization. Depreciation and amortization for 1998
increased $21.3 million, or 36%, as compared to 1997, primarily as a result of
a full year of depreciation for the Forasol assets acquired in March 1997, the
13 mat-supported jackup rigs acquired in May 1997 and four jackup rigs placed
into service during 1998.
Selling, General and Administrative. Selling, general and administrative
costs in 1998 increased $10.9 million, or 15%, as compared to 1997, primarily
as a result of a full year of operations for the assets acquired in the
Forasol acquisition completed in March 1997 and the 13 mat-supported jackup
rigs acquired in May 1997. As a percentage of revenues, total selling, general
and administrative costs decreased to 10.2% for 1998 from 10.6% for 1997.
Other Income (Expense). Other income in 1998 decreased $76.6 million
compared to 1997. The decrease was primarily due to a pretax gain of $83.6
million on the divestiture of our U.S. land-based well servicing business in
1997. The gain was partially offset by non-recurring charges totaling $4.2
million, net of income taxes, relating principally to the induced conversion
of $28.0 million principal amount of our 6 1/4% convertible subordinated
debentures. Interest expense for 1998 increased $11.4 million, or 33%, as
compared to 1997. This increase is due to higher debt levels in 1998,
resulting primarily from the issuance of $230 million of Zero Coupon
Convertible Subordinated Debentures in April 1998 and from recognition of a
full year of interest expense in 1998 on $325 million of 9 3/8% Senior Notes
issued in May 1997. During 1998 we capitalized approximately $16.3 million in
interest expense related to capital projects, as compared to approximately
$5.7 million in 1997.
Income Tax Provision (Benefit). Our consolidated effective income tax rate
for 1998 was approximately 24%, as compared to approximately 33% for 1997. The
decrease was attributable to the significant increase in the portion of income
derived from foreign operations, which is taxed at lower statutory rates, and
the reduction
15
<PAGE>
in U.S. income, which is taxed at a higher statutory rate. In addition, the
effective tax rate for 1997 was significantly impacted by the gain from the
sale of our U.S. land-based well servicing operations, which was taxed at an
effective rate of 36%.
Liquidity and Capital Resources
We had net working capital of $132.7 million and $64.6 million at December
31, 1999 and 1998, respectively. Our current ratio, the ratio of current
assets to current liabilities, was 1.5 and 1.2 at December 31, 1999 and 1998,
respectively. The increases in the amount of working capital and the current
ratio were attributable to the net increase in cash, cash equivalents and
short-term investments from our capital transactions in 1999 described below,
and a decrease in short-term borrowings.
During 1999 our capital expenditures consisted primarily of approximately
$254 million related to the construction of the Pride Africa and Pride Angola,
approximately $71 million attributable to other construction and refurbishment
projects begun in 1998 and approximately $60 million of other enhancement and
sustaining capital expenditures.
At December 31, 1999 we had a senior revolving bank credit facility under
which up to $50 million (including $30 million for letters of credit) was
available. The credit facility was terminated in March 2000. We currently have
senior bank credit facilities with foreign banks that provide aggregate
availability of up to $76.8 million. The credit facilities terminate between
March 2001 and December 2004. Borrowings under each of the credit facilities
bear interest at variable rates based on LIBOR plus a spread ranging from
0.35% to 1.25%. As of March 31, 2000, there were no advances outstanding under
these credit facilities.
We have a senior secured credit facility with a U.S. bank under which up to
$25 million of letters of credit may be issued. Outstanding letters of credit
issued under this credit facility are secured by our cash and cash equivalents
maintained at such bank. The letter of credit facility expires in March 2003.
As of March 31, 2000, there were $12.6 million of letters of credit issued
under this credit facility.
In connection with the construction of the Pride Africa and the Pride
Angola, we and the two joint venture companies in which we have a 51% interest
entered into financing arrangements with a group of banks that provided $400
million of the drillships' total construction cost of $470 million. The loans
with respect to the Pride Africa became non-recourse to the joint venture
participants in June 1999, and the loans with respect to the Pride Angola will
become non-recourse upon the transfer of the ownership of the rig from Pride
to the joint venture company, which is expected to occur in June 2000. As of
December 31, 1999, $176.0 million was outstanding under the non-recourse loan
for the Pride Africa and $180.5 million was outstanding under the construction
period loans for the Pride Angola.
Pride has a 26.4% equity interest in a joint venture company organized to
construct, own and operate four dynamically positioned, Amethyst-class
semisubmersible drilling rigs. Two of the rigs, the Pride Brazil and the Pride
Carlos Walter, have been constructed in South Korea and are now undergoing
equipment commissioning and testing. These two rigs are expected to be
delivered by the shipyard in the third quarter of 2000, subject to
satisfactory completion of testing and resolution of outstanding construction
contract matters.
The other two rigs, the Amethyst 4 and Amethyst 5, are under construction in
the U.S.; however, in early January 2000, the shipyard notified the joint
venture that construction of the rigs was being suspended because of alleged
delays in receiving detailed engineering work and the joint venture's previous
rejection of the shipyard's requests for extensions of the construction
contract delivery dates. In May 2000, the joint venture and the shipyard
entered into an amendment to the construction contracts providing for, among
other things, (1) new delivery dates for the Amethyst 4 and Amethyst 5 of
September 2001 and December 2001, respectively, (2) an increase in the
construction contract price of $3.0 million per rig, (3) a bonus of up to $6.4
million per rig, payable upon delivery, for timely completion, (4) liquidated
damages for late delivery of up to $4.2 million per rig and (5) a waiver of
all material claims between the parties. The shipyard has resumed construction
of the Amethyst 4 and Amethyst 5.
16
<PAGE>
The joint venture was formed to build, own and operate its four rigs under
charter and service contracts with Petrobras having initial terms of six to
eight years. Petrobras has threatened to cancel those contracts for late
delivery of the rigs, and the joint venture has obtained a preliminary
injunction in a Brazilian court against that cancellation. Based on Petrobras'
announced deepwater drilling program and related rig requirements, we believe
that Petrobras likely will employ all of the joint venture's rigs upon
completion; however, there can be no assurance that any of the four rigs will
be chartered to Petrobras or to any other customer.
If Petrobras were to successfully cancel the charters for the rigs, such
cancellation would constitute an event of default under the joint venture
company's financing arrangements that are providing substantially all of the
financing for construction of the rigs. Pride has provided the lenders
financing construction of the Pride Brazil and Pride Carlos Walter with
certain commitments and guarantees, the principal one being a guarantee for
repayment of up to $32.4 million of loans aggregating up to $340 million. In
November 1999, the joint venture issued $53 million of senior secured notes,
which are partially secured by a Pride guarantee of up to $30 million. The
$32.4 million Pride guarantee of borrowings under the credit facilities is
separate from, and in addition to, Pride's guarantee of up to $30 million of
the venture's senior secured notes. Pride's other commitments and guarantees
to the lenders under the credit facilities for the Pride Brazil and Pride
Carlos Walter include (a) a guarantee of the cost overruns of up to an
aggregate of $6 million; (b) a guarantee of the cost of the two rigs in excess
of related refund guarantees supporting their construction contracts and (c)
guarantees relating to the performance of our subsidiaries and affiliates
under their management agreements relating to the rigs.
If Petrobras accepts delivery of the joint venture's rigs under the
existing charters, it will be entitled to impose late delivery penalties
which, in the case of the Pride Brazil and Pride Carlos Walter, could be as
much as $17.2 million based on the dates those rigs are currently expected to
commence operations under their respective Petrobras charters. In connection
with the credit facilities for the Amethyst 4 and Amethyst 5, Pride has
guaranteed payment of up to $20.5 million of late delivery penalties that are
accruing and may be payable under the charters relating to those two rigs. If
the Amethyst 4 and Amethyst 5 are completed and delivered to Petrobras under
their existing charters, the maximum late delivery penalties Petrobras would
be entitled to impose for those rigs would be $56.6 million. Pride has no
direct or indirect obligation to pay more than $20.5 million of late delivery
penalties for any of the Amethyst rigs but may be called upon to advance its
share if the venture does not have or is unable to obtain funds to pay those
penalties or if Petrobras refuses to allow such penalties to be paid or
charged against charter payments over the terms of the charters, as it has
done in the past with offshore drilling rigs it has chartered from other
firms.
In 1994, we entered into long-term financing arrangements with two Japanese
trading companies in connection with the construction and operation of two
drilling/workover barge rigs. The limited-recourse term loans are
collateralized by the rigs and related charter contracts. At December 31,
1999, the outstanding balance of these loans was $26.7 million. The loans bear
interest at 9.61% per annum and are being repaid from the proceeds of the
related charter contracts in equal monthly installments of principal in the
amount of $0.3 million plus accrued interest through July 2004. In addition, a
portion of the contract proceeds is being held in trust to assure the timely
payment of future debt service obligations. At December 31, 1999, $2.4 million
of such contract proceeds are being held in trust as security for the lenders,
and are not presently available for use by us.
In May 1997, we issued $325 million of 9 3/8% Senior Notes due 2007. The
notes contain provisions that limit our ability and the ability of our
subsidiaries, with certain exceptions, to pay dividends or make other
restricted payments; incur additional debt or issue preferred stock; create or
permit to exist liens; incur dividend or other payment restrictions affecting
subsidiaries; consolidate, merge or transfer all or substantially all our
assets; sell assets; enter into transactions with affiliates and engage in
sale and leaseback transactions.
In April 1998, we completed a public sale of Zero Coupon Convertible
Subordinated Debentures. The debentures, which mature on April 24, 2018, are
convertible into our common stock at a conversion rate of 13.794 shares of
common stock per $1,000 principal amount at maturity. As of December 31, 1999,
the amortized aggregate amount payable at maturity under the debentures,
including accrued original issue discount, would be approximately $511.1
million.
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In October 1998, we purchased the semisubmersible rig Amethyst 1 for $85
million. The purchase price consisted of $63.7 million in cash, with the
balance financed by a $21.3 million senior note convertible into our common
stock at a conversion price of $28.50 per share for the first year and
decreasing $1.00 per share annually thereafter until maturity. The convertible
note bears interest at 6% per annum for the first year and escalates 1% per
annum annually commencing December 1, 1998. The note matures on September 1,
2001, and no principal payments are required until maturity.
In February 1999, we completed the sale and leaseback of the Amethyst 1,
pursuant to which we received $97 million in cash. The lease is for a maximum
term of 13.5 years, and we have options to purchase the rig exercisable at the
end of eight and one-half years and at the end of the maximum term. Annual
rentals for the rig range from $11.7 million to $15.9 million.
In May 1999, we issued $200 million principal amount of 10% Senior Notes
due 2009. The notes contain provisions that limit our ability and the ability
of our subsidiaries, with certain exceptions, to pay dividends or make other
restricted payments; incur additional debt or issue preferred stock; create or
permit to exist liens; incur dividend or other payment restrictions affecting
subsidiaries; consolidate, merge or transfer all or substantially all our
assets; sell assets; enter into transactions with affiliates and engage in
sale and leaseback transactions.
In June 1999, we issued 4.7 million shares of common stock to two funds
managed by First Reserve Corporation for $25 million in cash and the delivery
of approximately $77 million principal amount at maturity of our Zero Coupon
Convertible Subordinated Debentures due 2018 that the First Reserve funds had
previously acquired. Those debentures had an accreted value of approximately
$31.8 million. In connection with the cancellation of the debentures, we
recognized an extraordinary gain of $3.9 million, net of income taxes. In July
1999, we issued an additional 1.0 million shares to the two funds for $12.5
million in cash. In September 1999, the two funds invested an additional $12.5
million cash in the common equity of the Amethyst joint venture company, which
is exchangeable after three years (or earlier in certain events) at the funds'
option for an additional 1.0 million shares of Pride's common stock. Pride
will have the option to purchase the stock of the affiliate for cash or shares
of Pride's common stock once the affiliate stock becomes exchangeable for
Pride's common stock.
In September 1999, we issued a redemption notice relating to all
outstanding 6 1/4% Convertible Subordinated Debentures. Holders of an
aggregate of $51.7 million principal amount of such debentures converted such
debentures into 4.2 million shares of common stock.
In April 2000, our wholly owned subsidiary, Twin Oaks Financial Ltd.,
acquired all the outstanding capital stock of Servicios Especiales San Antonio
S.A. from Perez Companc S.A. The purchase price was $61 million, consisting of
$35 million in cash and a $26 million promissory note of Twin Oaks guaranteed
by San Antonio and payable in monthly installments equal to the lesser of (1)
25% of the revenues of San Antonio for the relevant month from services
provided by it to Perez Companc and its affiliates or (2) $722,222. Interest
on the outstanding balance of the note is payable quarterly at LIBOR plus
2.75%, which was 9.28% as of May 31, 2000. Perez Companc is also entitled to
four "earn-out" payments of up to $3.0 million each at the end of each of the
first four anniversary dates of the closing if San Antonio's revenues from
services provided to Perez Companc and its affiliates exceed $40 million
during the 12 calendar months ending immediately prior to the relevant
anniversary date. Upon completion of the earn-out payments and repayment of
the $26 million note, neither Twin Oaks nor San Antonio will have any
obligation to make further payments to Perez Companc. In addition to the
consideration for San Antonio's capital stock, Twin Oaks provided $17 million
in cash at closing for the repayment of a portion of San Antonio's outstanding
debt.
To finance the San Antonio acquisition and to improve our overall
liquidity, we capitalized Twin Oaks with 4.5 million shares of our common
stock, and Twin Oaks, in turn, sold those shares to a fund managed by First
Reserve for $72 million cash. As a result of this transaction, First Reserve
funds currently own a total of 10.2 million shares of our common stock, or
approximately 15.7% of our total shares outstanding.
At December 31, 1999, we had approximately $1.2 billion of debt and capital
lease obligations. We do not expect that our level of total indebtedness will
have a material adverse impact on our financial position, results
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of operations or liquidity in future periods. Please read "Risk Factors--Our
significant debt levels and debt agreement restrictions may limit our
flexibility in obtaining additional financing and in pursuing other business
opportunities" in item 1 of this annual report.
Management believes that the cash and cash equivalents on hand, together
with the cash generated from our operations, the remaining net proceeds from
the March 2000 First Reserve transaction and borrowings under our credit
facilities, will be adequate to fund normal ongoing capital expenditures,
working capital and debt service requirements for the foreseeable future.
From time to time, we may review possible expansion and acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. From time to time,
we have one or more bids outstanding for contracts that could require
significant capital expenditures and mobilization costs. We expect to fund
acquisitions and project opportunities primarily through a combination of
working capital, cash flow from operations and full or limited recourse debt
or equity financing.
Accounting Matters
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued by
the Financial Accounting Standards Board ("FASB"). SFAS 133 requires that,
upon adoption, all derivative instruments (including certain derivative
instruments embedded in other contracts) be recognized in the balance sheet at
fair value, and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings
effects of the hedged items; effects of certain changes in fair value are
reordered in Other Comprehensive Income pending recognition in earnings. SFAS
133, as amended, is effective for fiscal years beginning after June 15, 2000.
The impact of SFAS 133 on our financial statements will depend on a variety of
factors, including future interpretive guidance from the FASB, the future
level of actual foreign currency transactions, the extent of our hedging
activities, the types of hedging instruments used and the effectiveness of
such instruments. We are evaluating the effect of adopting SFAS 133.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks arising from the use of financial
instruments in the ordinary course of business. These risks arise primarily as
a result of potential changes in the fair market value of financial
instruments that would result from adverse fluctuation in interest rates and
foreign currency exchange rates as discussed below. We entered into these
instruments other than for trading purposes. Please read Note 6 of the Notes
to Consolidated Financial Statements included in item 8 of this annual report.
Interest Rate Risk. We are exposed to interest rate risk through our
convertible and fixed rate long-term debt. The fair market value of fixed rate
debt will increase as prevailing interest rates decrease. The fair value of
our long-term debt is estimated based on quoted market prices where
applicable, or based on the present value of expected cash flows relating to
the debt discounted at rates currently available to us for long-term
borrowings with similar terms and maturities. The estimated fair value of our
long-term debt as of December 31, 1999 was approximately $1.17 billion, which
is less that its carrying value of $1.21 billion. A hypothetical 10% decrease
in interest rates would increase the fair market value of our long-term debt
by approximately $48 million.
We enter into interest rate swap and cap agreements to manage our exposure
to interest rate risk. As of December 31, 1999, we held interest rate swap
agreements covering $438 million, fixing our interest payments on related debt
at 7.30%. The weighted average interest rate incurred on the related debt in
1999 excluding the swap agreements was 6.52%. As of December 31, 1999, we held
interest rate cap agreements covering $11 million, capping our interest rate
at 7.00%. The interest incurred on related capital lease obligations in 1999
was 6.79%. The fair market value of our interest rate swap and cap agreements
is determined based upon discounted expected future cash flows using the
market interest rate at year end. The estimated fair value of our interest
rate swap and cap agreements as of December 31, 1999 was a loss of
approximately $1.7 million. A hypothetical
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10% decrease in interest rates would decrease the fair market value of our
interest rate swap and cap agreements by approximately $8.3 million. The
change in the cash flows from the interest rate swap and cap agreements would
be offset by a corresponding change in interest expense on the related debt.
Foreign Currency Exchange Rate Risk. We operate in a number of
international areas and are involved in transactions denominated in currencies
other than U.S. dollars, which expose us to foreign exchange rate risk. We
utilize forward exchange contracts, local currency borrowings and the payment
structure of customer contracts to selectively mitigate our exposure to
exchange rate fluctuations in connection with monetary assets, liabilities and
cash flows denominated in certain foreign currencies. A hypothetical 10%
decrease in the U.S. dollar relative to the value of all foreign currencies as
of December 31, 1999 would result in an approximate $4.0 million decrease in
the fair value of our forward exchange contracts. We do not hold or issue
forward exchange contracts or other derivative financial instruments for
speculative purposes.
FORWARD-LOOKING STATEMENTS
This annual report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements, other than statements of historical
facts, included in this annual report that address activities, events or
developments that we expect, project, believe or anticipate will or may occur
in the future are forward-looking statements. These include such matters as:
. future capital expenditures and investments in the construction,
acquisition and refurbishment of rigs (including the amount and nature
thereof and the timing of completion thereof)
. repayment of debt
. expansion and other development trends in the contract drilling industry
. business strategies
. expansion and growth of operations
. utilization rates and contract rates for rigs
. future operating results and financial condition
We have based these statements on assumptions and analyses made by our
management in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate in the circumstances. These statements are subject to a number
of assumptions, risks and uncertainties, including:
. general economic and business conditions
. prices of oil and gas and industry expectations about future prices
. foreign exchange controls and currency fluctuations
. the business opportunities (or lack thereof) that may be presented to and
pursued by us
. changes in laws or regulations
Most of these factors are beyond our control. Please read "Business--Risk
Factors" in item 1 of this annual report. We caution you that forward-looking
statements are not guarantees of future performance and that actual results or
developments may differ materially from those projected in these statements.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on June 16, 2000.
PRIDE INTERNATIONAL, INC.
/s/ PAUL A. BRAGG
By: _________________________________
Paul A. Bragg
President and Chief Executive
Officer
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