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Gold/Mining/Energy : Ensco International Inc. (ESV)
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To: Grommit who wrote (1021)4/7/1998 2:34:00 PM
From: Czechsinthemail  Read Replies (1) of 2005
 
Grommit,

Rig utilization figures are the key indicators, because as long as they remain close to 100% you're not likely to see a major drop in dayrates. The concern with boats has been that there would be a significant addition to the boat fleet that would surpass the aggregate demand. There is no comparable threat, in the near to intermediate term at least, for the offshore drillers. And as some have pointed out, what construction is happening is not happening in the jackup market -- it is concentrated in the deep floaters and harsh environment rigs. So unless demand dries up, you're not likely to see any kind of serious offshore rig surplus. So far, even with low oil prices, there has been no clear indication of any significant drop in demand for offshore drilling.

Before that happens, you can bet that land drilling will go through an extreme cutback.

As for the hypothetical numbers, clearly with fairly fixed operating costs the drillers thrive on rising rates that beef up their margins. But what I think gets missed is the big picture that Doug and others keep trying to remind people of: the long-term need to find more oil and gas to replace reserves. Regardless of what oil prices do in the short run, this need to find more oil will remain. In an overall market context of virtually no-growth, the drilling companies continue to stand out with their exceptional growth performance.

Baird
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