For anyone interested in oil sector from TheStreet.com
Global Marine (GLM:NYSE) recorded a quarterly record number of bids in the first quarter for its drilling-management services, a distinct sign that drilling activity in the Gulf of Mexico is rising.
Global Marine's ADTI unit, which bids one price to drill a well to a prespecified depth, saw 149 requests for bids, up from 139 in the fourth quarter and up 121 from a year earlier. The bidding is a leading indicator for future activity; generally the market lags by a month or two, the company said in a conference call Thursday. Historically, the company converts 20% to 25% of its bids to jobs. Last year, ADTI drilled more wells in the Gulf than any other oil company except Chevron (CHV:NYSE).
Shares of Global were up 5/8, or 5.8%, to 11 3/8 Thursday.
"I believe the worst is behind us," said Bob Rose, Global's president and chief executive.
Recent activity declines in natural-gas drilling, which has suppressed production and strengthened prices, is one driver for the optimistic outlook, Rose said. "However, it will be a while before it translates into increased usage for our fleet," he noted.
At the very least, Global's news, which dominated its first-quarter earnings conference call, is another signal that possibly the worst has passed for the offshore drilling group. But there's still plenty to worry about, from falling rental rates for big floating rigs to further activity declines in international markets such as the North Sea and West Africa.
However, a jump in activity in the important Gulf market would give a psychological boost to the entire industry. It would benefit the bottom lines of shallow-water drillers such as Rowan (RDC:NYSE), Ensco (ESV:NYSE) and Marine Drilling (MRL:NYSE) as well as certain offshore construction firms.
"I think [the increased number of bids] will be the primary driver of utilization in the second quarter as well as going forward," says Robert Trace, who follows the industry at SouthCoast Capital in Houston. (SouthCoast hasn't performed any underwriting for Global. Trace rates the company a hold.)
Utilization rates in the Gulf could feasibly pop up to as high as 80% by the second quarter's end from the current 67% level, he says. Before drillers can actually increase their rates, however, utilization has to climb to 90%, he notes. But when "you're talking about 80% close to the middle or last half of the second quarter, it really sets up [the market] for a very good second half," he adds.
In addition after wells are drilled, other infrastructure, including pipelines, must be put in place, he says. So companies such as DrilQuip, Cal Dive International (CDIS:Nasdaq) and Global Industries (GLBL:Nasdaq) may see more work.
Independent oil companies accounted for about 80% of the request for drilling-management, or turnkey, bids, according to Global Marine. Typically, independent operators contract for one or two well programs. Major oil companies will opt for longer-term projects. Certain oil companies are requesting turnkey bids in deeper water, according to Global Marine, an interesting twist since this type of drilling operation has historically been relegated to shallow water. This isn't a good sign for certain classes of deepwater semisubmersible rigs and drillships, which rely on long-term contracts at relatively high rental rates. Diamond Offshore (DO:NYSE), Transocean Offshore (RIG:NYSE) and R&B Falcon (FLC:NYSE) all have large fleets of deepwater rigs.
While the Gulf's shallow-water market may be improving, the North Sea market is not. Rose said that market may continue to erode until early next year, especially for midlevel, semisubmersible drilling rigs, which drill in 1,000 to 3,000 feet of water. In West Africa, six of Global's nine rigs have been taken off the market.
"The issue in West Africa is not a matter of rental rates, but one of activity," said Marion Woolie, president of contract drilling unit Global Marine Drilling "I don't see those rigs getting back into action this year." When major operators get into the 2000 budgeting cycle, that's when drilling activity may pick up in the region, he said.
Before the market opened, Global Marine reported first-quarter earnings of $36.8 million, or 21 cents per share, beating the First Call consensus estimate of 19 cents a share. In the year-earlier period, the company earned 68.2 million, or 39 cents a share. Revenue fell to $228 million from $275 million.
Its contract-drilling division generated revenue of $157 million, down 11% from $176.5 million a year ago.
ADTI, the drilling-management unit, drilled 18 wells in the first quarter, down from 23 in the year-ago period. Revenue for the division fell to $70 million from $97 million. Throughout most of the quarter, Global was paying for the use of nine rigs that it contracted from a third party under long-term contracts. Those contracts are mostly finished, easing Global's burden of paying above-market rates. |
