Big
See Mavis's piece today on DO ? Sounds like very significant revenue
losses. Think it will affect the deepwater sector ? Has to cost a
bundle to move it from the North Sea to the GOM.
By Mavis Scanlon
Staff Reporter
11/11/98 8:42 PM ET
The drilling industry is all ears, waiting for a new contract announcement from
Diamond Offshore (DO:NYSE) for its semisubmersible rig Ocean Alliance. The
rig, a newer, fourth generation semisubmersible, has just completed a drilling
contract with Shell, a division of Royal Dutch/Shell (RD:NYSE), and British
Petroleum (BP:NYSE) in the North Sea.
To have a rig of this size and capability -- it can drill in 5,000 feet of water -- idle
for any period of time will surely be a blow to the thesis that low oil prices and
spending cuts won't touch deep-water drilling. And if rigs like the Alliance set a new,
lower standard for rates in its class, the ripple effects could further erode day
rates in all rig classes. It also could hurt Diamond's revenues.
"We have a multitude of opportunities," says Caren Steffes, a Diamond
spokeswoman. "We do plan to announce it when we get a firm contract."
The Alliance had been working for $140,000 per day, according to Steffes.
A rumor has been going around that Diamond is working on a contract in Brazil,
says Matt Conlan, who follows Diamond at Prudential Securities in Houston.
Word is that the Alliance could begin a three-year contract in June at a day rate of
about $150,000, he says. Bonus incentives could bring the total day rate of
$160,000 to $165,000. Conlan has an accumulate rating on Diamond, and
Prudential has no underwriting relationship with Diamond.
Other analysts in Houston and New York, who asked not to be quoted, have
mentioned Chevron (CHV:NYSE) and Statoil as possible operators. Chevron
declined to comment; Statoil couldn't be reached.
In the meantime, the Alliance would have to find work, and the rates it could garner
in today's market are said to be $110,000 to $120,000 a day. In his earnings
model, Conlan figures the rig will be idle until mid-February.
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