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Offshore Rig Count Declines -- Jan 14 2002
by Rick Olivere, CFA
With uncertainties about the impact of the linkage between demand for oil and natural gas and the economic consequences of the terrorists attacks on 9/11, we are again publishing our weekly rig count review in an abbreviated format to provide an update for investors following the trends of rig counts. In the near term, we continue to believe investors are now awaiting announcements by OPEC and non-OPEC producers about implementing production cuts following the December 28th announcement that OPEC would reduce production by 1.5m b/d for six months, along with other producers' reductions of 0.462m b/d.
At the same time, last week's inventory data, showing higher heating oil supplies and lower natural gas stocks, lead to mixed conclusions about the current high level of inventories resulting from the global economic slowdown amid signs of improved demand for crude oil both from arrival of winter temperatures in the Northeast and Midwest and a cyclical economic recovery. We continue to believe the confluence of these events in coming months is likely to result in upward pressure on crude oil and natural gas prices to support future drilling activity to address the long-term imbalance between production and consumption of oil and natural gas. For investors who share this view and recognize the price risk of day-to-day news events, we reiterate our buy recommendations of selected energy and energy service shares listed at the end of this review. A brief summary of developments with Mexico, Norway, Russia, Iraq and statements by Saudi oil minister Ali al-Naimi about oil price targets and January export volumes are outlined in our January 7 Rig Count Review.
<BR>The worldwide offshore rig count, for the week of January 11, increased by 1-net rig, from a month ago, to 531 and decreased by 25-net rigs, from a year ago, with notable increases outside the Gulf of Mexico (GOM). With the GOM rig fleet declining to 200 rigs from 213 on September 7th, rig utilization in this sector seems to be stabilizing at approximately 60%. We believe Q4 conference calls (discussed below) are likely to provide visibility of drilling plans for 1H:02. The rig count for the US fell by 51-net rigs to 856, during the past month, 33.8% below the July 2001 peak of 1293. The rig count in Canada rose 138-net rigs to 427, during the past month.
The Weekly Mobile Offshore Rig Count survey by ODS-Petrodata Group shows rigs under contract for the week ended January 11th fell 1-net rig in the GOM to 121. This follows last week's fourth week-to-week increase since May 4th. The GOM rig fleet declined 1-net rigs to 200 last week, with 13-net rigs leaving the GOM since September 7th for work in other offshore drilling markets. Rigs under contract fell 1-net rig in Europe to 96 and were unchanged in the rest of the world (ROW) -- outside the GOM and Europe -- at 314 last week. The number of rigs (314) now working in the ROW compares with 309 five weeks ago and 289 a year ago. Worldwide, the number of rigs under contract fell 2-net rigs to 531.
Current utilization of the GOM fleet rose slightly to 60.5% from 59.1% a month ago. This compares with peak utilization of 91.0% in the week ended May 4th when 192 rigs were under contract and the GOM rig fleet numbered 211. With the aforementioned movement of rigs out of the GOM, we continue to believe scrutiny of rig counts in the next few weeks is likely to intensify.
Current utilization of the Europe/Mediterranean Sea fleet fell to 91.4% from 94.2% a month ago. This reflects the increase of the rig fleet by 3-net rigs to 105 from two weeks ago, including a new semisubmersible rig beginning work off Norway and a newbuild jackup enroute to the North Sea from the GOM, and the decline of 1-net rig under contract over the past four weeks.
Current utilization of the rig fleet in the ROW rose slightly to 90.2% from 89.7% a month ago. This partially reflects the addition of 8-net rigs to the fleet since November 23rd, with five rigs commencing work under contracts. Including the addition of a newly constructed semisubmersible drilling rig beginning work off the coast of Angola seven weeks ago, the rig fleet in this region has increased 12-net rigs since September 7th. As rigs commence work under contracts, we expect the utilization number to increase in coming weeks.
Current utilization of the worldwide offshore rig fleet fell slightly to 81.1% from 81.2% a month ago. Over the past 12 months, the worldwide fleet has increased 8-net rigs to 655, with four rigs retired and 12 newly built rigs entering the fleet, including the aforementioned newbuild jackup enroute to the North Sea from the GOM.
Rowan [RDC: NYSE] will release earnings on Tuesday, January 15th. Current consensus estimates, according to First Call, are for a loss of $0.08 per share. This compares with earnings per share of $0.29 in Q4:00 and $0.22 in Q3:01. With 22 rigs operating in the GOM, we believe this recommendation of Halliburton, we are unable to evaluate the magnitude or likelihood of potential liabilities related to asbestos and related impact on Halliburton's finances or earnings and continue to recommend investors unable to withstand market volatility related to the uncertainties of asbestos-related events to avoid HAL shares.
Baker Hughes' [BHI: NYSE] rig count survey, for the week ending January 11, shows the number of rigs working in the US decreased 27-net rigs from the week prior to 856. The rigs drilling for natural gas in the US fell by 25-net rigs, last week, to 719, as compared with 886, a year ago. The number of rigs working in Canada rose by 134-net rigs to 427, following a decline of 119-net rigs in the previous week, and comparing with 546 a year ago. <BR>
Our purchase recommendations of energy producers include the following: BP [BP: NYSE], Burlington Resources [: NYSE], ChevronTexaco [: NYSE], Forest Oil [: NYSE], and Occidental Petroleum [: NYSE]. In a period of market volatility and the current level of market interest rates, we continue to believe the shares of large, international oil and natural gas producers BP, CVX, and OXY are likely to be supported by current dividend yields of 2.95%, 3.20%, and 3.94%, respectively. These compare with a dividend yield of 1.37% for the benchmark S&P 500, based on an indicated dividend of $15.67 and a closing price of 1145.60 on Friday, January 11th.'
Our purchase recommendations of energy service companies include the following: Baker Hughes [BHI: NYSE], Cooper Cameron [: NYSE], Diamond Offshore [: NYSE], Grey Wolf [: ASE], Nabors Industries [&type=Quote" type="text/html">NBR: ASE], Parker Drilling [: NYSE], Pride International [: NYSE], Rowan [RDC: NYSE], Global Santa Fe International [GSF: NYSE], Transocean Sedco [: NYSE], and Varco International [: NYSE]. <BR> <BR> |
