Here's the transcript of the GLM CEO interview:
Will Oil Prices Continue To Slide Downward?
SUZANNE PRATT: Oil prices slipped below $16 a barrel in intraday trading
today for the first time in nearly 4 years. Experts say prices have fallen on an
oversupply of crude in the U.S., plus worries about demand for oil in Southeast
Asia. And the lower oil prices dragged down shares of oil and oil services
companies. One such company is Global Marine, based in Houston. Global
Marine's main business is leasing its rigs for offshore oil drilling. Last week the
company posted record full year and fourth quarter earnings, beating Wall Street
estimates. Joining us now to talk about this year's outlook for the company is
Global Marine's chairman and CEO, Russell Luigs. Welcome to the program Mr.
Luigs.
RUSSELL LUIGS, CHAIRMAN & CEO, GLOBAL MARINE: Thank you
very much. Glad to be here.
PRATT: With oil prices at such low levels, what does that mean for your business
in 1998?
LUIGS: Well frankly based on our backlog, based on our inquiry rates, based on
our most recent contracts, I think it means, means very little. We, we as you
mentioned, turned in a record year last year and have every expectation of turning
in a significantly better year this year.
PRATT: But how can drilling activities say, stay so strong if oil remains in the $16
a barrel range?
LUIGS: So long as oil remains above the threshold of profitability for the
producer, the activity in the oil service industry is driven by the demand for oil.
That is the volume. And if you look at that, oil consumption has been growing at
about 3 percent a year. And you not only have to provide for that, but you have
to provide for about another 3 percent of depletion from existing sources. And
that's growing strongly. And as a result, the, the expenditures of the oil
companies, for instance we go back to the beginning of this decade were about
45 billion a year on the upstream or the exploration production area, they had
grown to 85 billion in 1987. And indications are they'll grow about another 10
percent or so this year.
PRATT: So are you not seeing an evidence that lower oil prices are causing oil
companies to change or reduce their drilling budgets?
LUIGS: No we're not because the drilling is driven by the need for the product
and that's the only way you get the product. Now, for a number of years the
demand growth was met by opening up valves to bring back on stream oil that
had been shut-in in the early to mid- 80's in an effort to sustain an artificially high
price of around $30 a barrel. So we had over 1/3 of the world's ability to
produce oil shut-in. Today that number's about 2 percent. And again, with a 3
percent growth rate and probably that much depletion, if you stop drilling, you'd
have an oil shortage in a matter of a few months.
PRATT: So how far would oil prices have to fall to materially affect your
business?
LUIGS: I think if oil prices fell, and it depends company by company, I mean
there are a lot of oil companies reporting record profits because technology has
gone up, their costs have gone down. Also the concession agreements, the
production sharing agreements that they're now able to negotiate in various
countries around the world are much better than they used to be because there's
a lot of competition among nations now that the world is moving away from the
centrally planned economic model to market based economies. So ...
PRATT: So you're not going to give me an actual number though?
LUIGS: An actual number on what?
PRATT: On how far oil prices would have to fall before there would be an
impact to your business.
LUIGS: It would depend company by company. The better companies, the
bigger companies with the better prospects and so forth, I suspect that number is
$3 or $4 below where we are now. And, but it isn't just a matter of interday
trading that matters. Oil has been $19 a barrel now since the beginning of the
decade. And there is a trading range and it's plus or minus $2. It rarely goes up.
PRATT: All right, we're going to have to, we're going to have to leave it there.
LUIGS: Okay.
PRATT: Thank you very much.
LUIGS: You're welcome.
PRATT: Russell Luigs, chairman and CEO of Global Marine.
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