My thoughts on the contract extension announced by Transocean today:
( biz.yahoo.com )
Feb 19 (Reuters) - Norwegian offshore services company Transocean Offshore Inc. (NYSE:RIG - news; RIG.OL) said on Thursday the contract for its ultra-deep drillship Discoverer 534 had been extended by a minimum one-year by oil company Amoco (AN - news).
The extension is expected to begin in mid-February, 1999, with associated revenues to be generated of about $74.8 million.
We all know that Driller's earnings are not directly related to the price of oil, they are related to supply and demand for rigs. We have all read numerous releases from Drillers and E&P companies that stated the oil industry plans projects over the long term and that exploration would continue unless oil prices stayed very low for a long period of time (Below $15 for six months has been used as an example, one company said something like $10-12). Other than a few second hand reports of oil bears on CNBC (the National Inquirer of the financial world.), i haven't seen any report from anyone that is qualified to comment on such matter believes that major projects are going to be canceled or postponed.
One way to judge is to look at what major oil companies (the guys that lease our rigs) are doing. Just the other day, Amoco was crying poverty and saying that rig dayrates should be tied to the price of oil. Global Marine put a stop to that demented logic by basically
saying that if you don't like the rates cancel the contract, there are people standing in line to lease rigs and we won't even consider cutting prices.
Did Amoco cancel any contracts today? Are they cutting back on any projects? NO! Instead they extended a contract that wasn't scheduled to end for a year from today.
"The extension is expected to begin in mid-February, 1999, with associated revenues to be generated of about $74.8 million." (What's that, about $205,000 per day?) Wall Street is acting like rigs are going to be stacked next week, but Amoco is making sure they will still have one in the year 2000. Look at NE's EVA conversion program: They had 3-5 year contracts for 5 semisubs before they even started the conversions. Seems pretty clear that Big Oil is planning to be drilling for a while and knows that if you don't get a rig now you won't be able to find an available one then. FGII can't build 'em fast enough to meet demand.
Someday, stock prices will reflect earnings growth of these companies.
Then again, i could be wrong about everything. Wouldn't be the first time<g>
(Beebledude, this post wasn't ment for you. Selling at the low to buy out of the money calls on tech stocks with PEs of 60+ that ran up 20+% in a month is a great idea. Why didn't i think of that?) |
