Here are some notes that I took from Hercules Offshores conference call today along with a rough

stab at the value equity holders might receive in the asset sale. The Q&A is paraphrased. I think the interesting thing here is that this deal is a credit positive event. Taking a quick, cursory glance, the 10.5% Sr. Secured Notes due October 2017 at Hercules could be credit enhanced with more collateral (the 10.5% notes are pari I believe with bank debt with a later maturity [bank debt matures in '13], but are subject to a collateral release depending on certain conditions) and Hercules will have marginally improved cash flow. The last time I looked, the notes traded at 87, with a YTM of ~13.49%, and are callable above par at certain dates (see the companys 10-Q for more information). Thus, these notes could certainly be interesting from a credit perspective and may offer a better risk/reward scenario than Hercules common.

I. Hercules Offshore Conference Call Q&A Notes Q1: From regulatory perspective what does approval of deal look like?

Global market, with low barriers to entry, should be approved. Q2: How does cash flow situation work (said deal is immediately cash flow positive)? $40M in overhead from Seahawk cut, $5M or less in incremental overhead, so net positive of $35M in overhead cut. Q3: Credit amendment? Attractive to both sides, deal is credit enhancing. Cant talk too much about it because currently on- going process. Q4: Bankruptcy approval? Will be heard by bankruptcy court in 30-60 days, subject to closing conditions in asset purchase agreement. Q5: Current receivables & payables size? Fairly small- expect $4M in working capital. Accounts payable about $10M right now (according to one analysts question). Q6: Why do deal now in bankruptcy? They werent going away, felt that HERO would be best steward of assets and employees. Q7: Plans for rigs? Reactivating will be market driven. May continue to sell older assets, which sell for $5M/rig. Will cold stack 2 more rigs. All 13 cold stacked rigs candidates for disposition. Q8: Does scrapping rigs make sense at some point? Scrapping proceeds would be in region of $0-$3M/rig. Selling rigs would give proceeds between $4M-$10M/rig. There is small cost with keeping rigs and optionality. Q9: Could liability holders block deal? Deal structured as asset sale. All other legacy liabilities including Mexican Tax Liability and liability to Pride from spin excluded. Q10: Annual maintenance capex for 20 jack-ups? Anticipate $2M/rig per year.

Q11: Special surveys? 1 this year for Seahawks rigs, 3 scheduled in 2012. Q12: Qualities of rigs that allow them to retain premium day rates? 250 foot cantilever goes deeper (generally speaking, the deeper and newer a rig is, the more valuable it is). Q13: Regulatory status in GOM? Only 9 permits year to date. Permitting is in fits and starts. The demand/want is still there per conversations with customers. Natural gas at $4/mcf and regulatory environment major headwind, but GOM will still be around for years to come. II. What is the consideration worth to equity holders? I took a rough stab at the value equity holders might receive. According to the DIP agreement, there is $18.1M in debt currently outstanding. I also added in professional fees at 5% of the total DIP facility, as well as facility fees and interest expense. I also assumed that the company would need to draw another $6.9M on the facility for whatever reason. Note that the companys major liabilities will stay at Seahawk. This case is obviously complicated, and I may have made an error in my calculations, so if I am mistaken, please feel free to correct me.

Comments:

TSIG says: February 14, 2011 at 9:39 pm Thanks for the analysis. Just some questions for you as I try to reconcile to your numbers. Looking at the Interim DIP Financing Budget, it appears the company plans to draw down a total of $32mm from the DIP facility through (and including) closing, which it appears the company believes will happen mid May. At HEROs closing price today, that implies total consideration of $118.4mm (20.2mm HERO shares after adjusting the share consideration for drawing down the DIP above $25mm plus $32mm cash). In terms of other sources of value, looks like HAWK has a memorandum of understanding to sell one of its rigs for $14.6mm. The deal hasnt closed to my knowledge, but lets assume it does and HAWK gets the $14.6mm. On the HAWK liabilities side, I net out $32mm for the DIP and $15.6mm due to Pride (number from bankruptcy filings). Heres the part where I get a little lost and Im hoping you can point me in the right direction. Looking at HAWKs 9/30 balance sheet, you have a few other liabilities to deal with. Accounts Payable should be assumed by HERO. The amount due to Pride weve addressed above and the revolver has been taken out by the DIP facility. The Accrued Expenses and Other Current Liabilities of $46.6mm is a mix of things. $23.7mm of that amount is Salvage Costs, which has a corresponding insurance receivable so Im assuming we can net those two. $7.3mm is a deferred gain and Im assuming this is non-cash and there are no tax liabilities associated with this gain. That leaves $15.6mm of other stuff, mostly accrued expenses. It was my read that HERO wont be assuming this amount. Any sense as to whats in there and whether it represents a real liability? There are also Other Long-Term Liabilities on the balance sheet at $13.6mm. Again, I have no sense of what these are and whether they are cash liabilities or not. Any ideas? On the tax front, where did you find the $14.1mm Hacienda liability? The only thing I dug up on taxes was from the Pride 10-Q. Language is as follows: Beginning on July 31, 2012, on each subsequent anniversary thereafter, and on August 24, 2015, Seahawk will be required to provide substitute credit support for a portion of the collateral guaranteed or indemnified by us, so that our obligations are terminated in their entirety by August 24, 2015. Pursuant to the tax support agreement, Seahawk is required to pay us a fee based on the actual credit support provided. On September 15, 2010, Seahawk requested that we provide credit support for four letters of credit issued for the appeals of four of Seahawks tax assessments. The amount of the request totaled approximately $48.1 million, based on exchange rates as of September 30, 2010. On October 28, 2010, we provided credit support in satisfaction of this request. Apart from this, I think HAWK mentions something about having provided a $2.5mm letter of credit to the Mexican Treasury for one of these tax cases. I am a bankruptcy novice and have no idea what the implications are for any of this in the bankruptcy process and what the ultimate liability may be.

In terms of overall HAWK value, if I take the $118.4mm deal consideration plus $14.6mm from the rig sale and then net out $32mm for the DIP, $15.6mm due to Pride, $15.6mm of Accrued Expenses and Other Liabilities, and $13.6mm of Other Long-Term Liabilities I get $56.2mm net to HAWK equity holders, or $4.70 per share. Ive included 100% of the liabilities I dont understand, so that may be a bit conservative; however, Ive also assumed the rig sale closes which isnt certain and Ive assumed there is no Hacienda liability, which Im far from certain about. Any guidance on where Ive messed up or missed things is appreciated. Thanks. Henry Singleton says: February 14, 2011 at 10:50 pm I think your thinking about this the right way and you make a lot of good points that I had overlooked. I would note that the rig sale agreement of the 2505 expires on Feb. 8ththere was a contingent agreement with Essar, which you can read about in the most recently filed 10-Q. The company only has 20 rigs including the 2505 so I think the 2505 is included with the rigs that HERO has agreed to purchase. I took the $14.1M tax liability from a readers comment in the post on HAWK just before this. Will double check the number. The $32M draw from the revolver seems in-line with what I had penciled in when you consider interest and fees on the facility, fees to professionals, and general liquidity needs. Im still trying to figure out what all the liabilities are that will stay behind at Seahawk. Is Hercules lumping other current liabilities into their working capital calculation? Im not sure. On the call today Hercules said that working capital would be a positive $4M, but didnt provide much detail. TSIG says: February 14, 2011 at 11:25 pm Youre right, now I see the 2505 rig is included in the 20 count. So that takes a fair amount off my valuation. On the other current liabilities, in thinking about it a bit more Id guess HERO is NOT assuming those liabilities. If they expect positive $4mm of NWC, you can get to roughly that amount by saying $2mm cash left at closing plus accounts receivable theyre buying less accounts payable according to the bankruptcy filings. If I were to include the other current liabilities, they would have negative working capital and would have to true it up. It may still be the case that some of those other current liabilities arent cash, though. Appreciate the help. I agree that HAWK disclosure leaves quite a bit to be desired here. kidchoi says: February 15, 2011 at 10:21 pm

Seeking Alpha posted an article: http://seekingalpha.com/article/253022-in-wake-ofseahawk-s-asset-sale-to-hercules-investors-eyeing-both-companies?source=yahoo What I dont understand is where the author gets the Pride tax liability of $49M from? Is that correct? jdr says: February 17, 2011 at 4:40 am I think the $49 million is referring to the recent substitution of a Pride letter of credit of $46mm for surety bonds related to the Mexican tax assessments. This is noted in the recent Q under Off-Balance Sheet Arrangements as well as on the call. This is also mentioned in the 8-K filed on the 14th under Other Events. Also of note is a retained claim against Pride listed on Schedule 2.2(k) in the court filing (docket #19) titled Claim against Pride International, Inc (estimated book value: $50,000,000 or more, plus additional causes of action. IMO, this dispute is what recovery hinges on.