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Top Stories: Oil Notebook: Stock Swoons Aside, Drillers Are Doing Deals
By Mavis Scanlon
Staff Reporter
12/18/97 5:17 PM ET
The stock market may have had its doubts this week over the drillers, but the drillers themselves were busy doing deals. Here are some of the highlights:
Schlumberger's (SLB:NYSE) Sedco-Forex unit has contracted for its second new-build semisubmersible rig in as many weeks. SLB confirmed a contract between its highly regarded drilling unit and Texaco (TX:NYSE) for a new rig to drill in the Gulf of Mexico. Sedco's newly designed semisubmersible, the Express 2000, is capable of drilling in waters up to 7,500 feet.
Gulf of Mexico Newsletter, which first reported the deal, estimated day rates exceeding $175,000. (The companies confirmed the news Wednesday.) Last week Sedco announced it will begin a drilling program for the French oil company Elf Aquitaine offshore West Africa, an area becoming increasingly important in international drilling.
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On the other side of the world, Reading & Bates (RB:NYSE) is drilling for Mobil North Sea, a unit of Mobil (MOB:NYSE), and earlier this week announced an extension of a drilling contract for its semisubmersible rig, the Jack Bates.
The contract extension begins in the fourth quarter of 1998, an unusual time to be drilling in the harsh waters of the North Sea. But the Jack Bates is one of the few rigs in the world capable of drilling in this type of environment year-round. The total contract, which is for a two-year period or the completion of eight wells, will fetch Reading & Bates approximately $146.7 million.
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Union Pacific Resources (UPR:NYSE) fresh from avoiding Pennzoil's (P:NYSE) recent takeover attempt, announced the signing of a letter of intent -- a preliminary step before a contract is signed -- for a five-year contract with Noble Drilling (NE:NYSE). Noble will drill for UPR, who has partnered up with Amerada Hess for this project, in the deepwater Gulf of Mexico. UPR is committing significant resources to exploring its prospects in the Gulf of Mexico.
UPR also announced an agreement with Western Geophysical, the seismic arm of Western Atlas (WAI:NYSE), the company rumored in recent weeks to be a takeover target and whose hyperactive options activity last week drew the Big Board's attention. (When asked by the NYSE whether any corporate developments were affecting the stock, Western Atlas declined to comment, citing company policy.)
Western Geophysical will provide seismic data, proven to greatly increase drilling success rates, to UPR in 1,000 deepwater blocks in the Gulf.
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Global Marine (GLM:NYSE) is still negotiating over a new-build drillship. (The deepwater drillship would be the company's third.) Back in October, Global announced a bridging contract that saved them a slot in Belfast's Harland & Wolff shipyard. That bridging contract expired Dec. 1 and was extended until Dec. 16, but Tuesday morning a Global spokesman said the company is negotiating another extension. They are also looking at other international yards. Important factors in Global's decision are price, delivery, and "our confidence that price and delivery will be met," says Global's Vice President of Market Development Dave Herasimchuk.
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If rigs are being built, shipyards will benefit, but only if they have the capacity to take on new business. Shipyard owner and rig builder Freide-Goldman International (FGII:Nasdaq) is in the midst of expanding its building capacity. One of the IPO success stories of 1997, FGII is about 60% finished with a new shipyard that it is touting as the most modern facility in the world.
Building rigs takes a lot of space, and Freide management has a 50-year lease on 85 acres in Pascagoula, Miss. The company will basically be able to build rig components and outfit those components inside a 4,000 square foot fabrication area, then do the final assembling outside, as opposed to constructing the rig entirely outdoors.
Marine Drilling (MDCO:Nasdaq) is their only contracted customer so far for the new facility, but that $90 million new contract is on top of a $200 million backlog for equipment and refurbishment at their existing facility.
"Their backlog has gone from $65 million in the second quarter to $132 million in the third to $200 million at year end," says Karen Green, a research associate at Jefferies & Co. in Houston, which led the public offering in July. Green says additional contract announcements are "imminent."
Chairman and CEO of Freide, J.L. Holloway, concurs. "You should hear something in a day or two."
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