George, since all the new "oil experts" on this thread hate me (and my old friends here love me for getting them out 50% ago), i will post a few small portions of my wicked smart gal pal's excellent article today that looks at RDC and points out just how bad this sector sucks. Teddy is not trying to be smart or mean, he just doesn't like to see people lose money for no reason and is way tired of seeing the same people here claim day after day that it is time to buy these stocks, they are a great value and if you don't jump in today you will miss out on the next 100% upside. Hey Slider, put a sock in it dude, this industry is in trouble. Big trouble and there is no reason to put one penny into a driller stock before the end of the year.
The full story can be found at thestreet.com
Top Stories: Rowan Earnings Slump; Industry Outlook Remains Cloudy
By Mavis Scanlon
Staff Reporter
10/13/98 5:37 PM ET
One important thing was missing from the news release announcing Rowan's (RDC:NYSE) third-quarter earnings.
C.R. Palmer, Rowan's chairman and chief executive, didn't address the question that looms large on investor's minds: What steps will the company take if industry conditions remain poor or deteriorate?.... ...Rowan kicked off earnings season for the offshore drilling contractors Tuesday, but with no conference call, investors have little more to go on than the company's news release.
And it was short. Rowan beat its (greatly reduced) consensus estimate for the quarter, yet investors responded
negatively...
Rowan peers expected to report earnings this week, including Global Marine (GLM:NYSE), Ensco (ESV:NYSE) and Diamond Offshore (DO:NYSE), all faltered as well.
Rowan earned $32.5 million, or 38 cents per share, on revenue of $183.5 million. Earnings per share were four cents better than the First Call consensus estimate of 33 cents, but down from the year ago period. In 1997's third quarter, Rowan earned $54.3 million, or 61 cents per share, on revenue of $195.5 million.
Oil price concerns still pervade thinking on the industry. And
with good reason: While the drillers are still profitable -- Rowan's First Call consensus estimate for the year is $1.55 -- for the group to increase earnings, it's crucial that oil prices return to the upper teens and stay there.
"If [oil] is at $15 per barrel for the next two years, the industry is in a slump," says Tom Marsh, an analyst and editor at Offshore Data Services, a Houston-based publisher that tracks the international and domestic rig markets. "If it's $17 or more and driven by demand and not by political situations," then drilling rig utilization levels will increase.
Where they stand now is not pretty -- utilization for the industry's 176 rig fleet in the Gulf of Mexico stood at 77.3%, according to the Oct. 12 issue of the Gulf of Mexico Newsletter, published by Offshore Data. If oil stays at or below the $15 level, that utilization could drop to 66% in the Gulf, Marsh says....
....Since oil prices show few signs of breaking out, investors want to know what companies will do over the next several quarters.
The most important thing to look for this earnings season is what management says the company is doing to increase rates of utilization and whether they talk about cold-stacking rigs, says Steve Schwartz, director of research at Circle T Partners, a New York-based hedge fund. Cold-stacking refers to the practice of taking a rig completely off the market, saving daily operating costs, which can run over $14,000 a day for jackup rigs....
....The slide in utilization and its effect on dayrates will be more pronounced in the fourth quarter for the industry. The lowest rate Offshore Data has seen for a new contract in the gulf is $15,600 per day for a smaller, older jackup. Rowan, on the other hand, has maintained an average dayrate for the quarter of $58,900, though that's falling, according to the company's release. Rowan's offshore rig utilization was at 84%, down from 99% in the year-ago quarter.
One reason for Rowan's healthy average dayrate is that many of the rigs working in the third quarter were working at rates contracted long ago. In addition, it commands top of the line rates for its three mega-drilling rigs....
...Also contributing to Rowan's positive surprise was a share buyback and an increase in revenue in its aviation division -- Era Aviation. For the quarter, Era's revenue was $43.2 million, up from $37.6 million in the year-ago quarter. A hot dry summer throughout much of the West and Southwest benefited Rowan because its helicopters are used in forest-fire fighting. |
