Hercules Offshore (HERO) Says Hercules 185 Legs Damaged; Repair Unlikely

June 5, 2012 6:39 AM EDT
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On May 17, 2012, Hercules Offshore, Inc. (Nasdaq: HERO) reported that the Hercules 185 experienced damage to its legs during the oceanic voyage from the U.S. Gulf of Mexico to Angola.

After discovery of the damage to the Rig, the Company conducted a survey of the Rig’s legs above and below the water line. During the survey, the Company discovered extensive damage to various portions of the Rig’s legs. At this time, the Company believes that it is unfeasible to repair the damage and return the Rig to service. The Company has notified its customer regarding the condition of the Rig and the Company intends on negotiating with the customer regarding the appropriate resolution of the existing contract for the Rig. Additionally, the Company has notified its insurance underwriters of the additional damage and will make a claim under the Company’s insurance policies once the full extent of the damage has been identified.

While the Company believes that the damage is covered by its insurance policies, until a full investigation into the incident and the damage is completed, it is difficult to predict the amount of any insurance recovery.

The Rig has a net book value of $47 million. In addition, the Company has recorded an asset of approximately $5 million related to mobilization and contract preparation costs, and a liability of $3 million related to a lump-sum fee received from the Rig’s customer for contract-specific capital equipment.

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