NO FEAR: Dow Jones Newswires -- January 16, 1998
Global Marine CEO Luigs Sees Net, Dayrates Up In 1998
By Loren Fox
NEW YORK (Dow Jones)--Offshore driller Global Marine Inc. (GLM)
isn't worrying about the recent drop in oil prices.
Oil may have declined to $16.50 a barrel from $20 in October, but the
Houston company, whose main business is leasing its rigs for oil and
natural-gas drilling, is still getting more offers than it can meet.
"If you wanted to hire one of our rigs, maybe we could scare something up
in three or four months ... if you're not choosy," Chairman and Chief
Executive Russell Luigs told Dow Jones.
Investors have worried in recent months that the drop in oil prices may
endanger the two-year upturn in the oil services industry, which provides the
rigs, drill bits and other support for oilfield work.
"As far as we can tell, 1998 is a strong market for oil service," said Luigs,
whose company is one of the best-known offshore drillers in the world. He
added that this year couldn't be the peak of the oil-services boom, given that
the capacity to build new rigs is constrained.
On Thursday, Global Marine reported fourth-quarter operating earnings,
excluding one-time charges, of $84 million, or 49 cents a diluted share, up
from $40 million, or 24 cents, a year earlier.
The earnings of 49 cents surpassed the 47 cents that had been expected,
according to First Call Corp., which tracks analysts' estimates.
The earnings growth was propelled by rising daily rental rates for its rigs.
Most are jackup rigs, which drill in 200 to 400 feet of water by floating out
to a site and extending support legs to the ocean floor. As drilling activity has
risen, Global Marine has seen its "dayrates" - the daily rates at which the
company leases a rig - soar. The company's average dayrate during the
quarter for its 30-rig fleet was $62,100, up 46% from a year earlier.
Luigs said jackup dayrates are continuing to rise in the first quarter. He
admits that there has been some moderation in the pace of increases
industry-wide, but forecasts that Global Marine's dayrate growth this year
will match 1997's pace.
The main reason is Global Marine's two new semisubmersible rigs, which
float half-submerged and can drill in 3,000 or more feet of water. Both will
start working in the Gulf of Mexico on long-term contracts later in 1998,
and will command dayrates that are double those of jackup rigs.
Global Marine has a backlog of $1.1 billion of contract drilling work, half of
it for 1998. Luigs said Global Marine should report earnings in 1998 that are
at least one-third higher than 1997's $1.58 a share. That would put 1998
earnings in the area of $2.10 a share, or about 3 cents above Wall Street's
expectations.
In addition to falling oil prices, another concern roiling the investment
community is whether demand will slow for jackup rigs as oil companies
shift their focus to deeper waters. Global Marine Chairman Luigs calls that
concern exaggerated.
"Probably at the moment, there's a shift toward deeper water," Luigs
conceded. But he added that deepwater remains just a small part of offshore
drilling, although it is growing - nearly all of the new rigs being built are
deepwater.
Global Marine, which has been viewed on Wall Street mainly as a jackup
company, is paying attention to that trend. In addition to the two
semisubmersibles starting work later this year, the company is upgrading
several of its rigs to work in deeper waters, and is buying other deepwater
drilling vehicles.
"We don't get all that concerned about deep water versus shallow water.
We look at return on capital," said Luigs, noting that the company's ROC in
1997 was 28.1%.
That focus has also made Luigs happy with Global Marine's "turn-key"
drilling business. That unit handles all aspects of drilling a well on an
outsource basis for oil companies, including hiring rigs from other
contractors.
Turn-key drilling generates much narrower profit margins than contract
drilling, which some on Wall Street believe has hurt Global Marine's stock
price. But Luigs said that because the business requires no capital, it is
attractive to Global Marine.
It also serves as a leading indicator for demand in the oil patch. And Luigs
said he has seen no signs of softness in turn-key drilling demand; the
company's backlog of work for 1998 is $100 million.
Lower oil prices haven't caused oil companies to change or reduce their
drilling budgets, and Luigs said it would take sustained prices of $14 a barrel
to have a real impact. "Is it probable that it'll come down long enough to
matter? No," he said.
Actually, Luigs wouldn't like to see oil rise too far either. "We'd get hurt if oil
went to $14 or to $40 a barrel," he said, because at the higher price, oil
companies wouldn't have to drill as much to make a profit.
He believes oil will bounce back into the $17-to-$21 range it's held
throughout the 1990s, because demand for oil and gas is growing, even with
Southeast Asia's financial crisis. "The budgets of the oil and gas companies
are driven by the demand for oil and gas, not the price," he said.
-Loren Fox; 201-938-5267; loren.fox@cor.dowjones.com |
