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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (47661)	7/9/1999 12:50:00 PM
From: jbe	Read Replies (1) \| Respond to of 95453

I presume you all have seen this REUTERS item, but just in case: Second quarter seen as nadir for oil service firms Reuters 07-09-99 11:31 AM EST By Andrew Kelly HOUSTON, (Reuters) - Earnings of diversified oilfield service firms are expected to hit a low in the second quarter of 1999 but then embark on a gradual recovery, analysts said. Drilling contractors are also expected to report another down quarter for earnings, with recent oil price strength taking somewhat longer to work its way through to their bottom line. After slumping to below $11 a barrel last year, benchmark U.S. crude oil prices have recently edged up towards $20. North American benchmark U.S. natural gas prices have also been firmly in the comfort zone at well over $2.00 per thousand cubic feet (mcf) for most of the second quarter and many industry insiders are bullish about the outlook for the rest of the year. Improved commodity prices are expected to support an increase in oil company exploration and production (E&P;) budgets, much of which will flow to service companies and drillers. Houston-based investment bank Simmons & Co. is predicting that E&P; spending will rise by 15 percent in both 2000 and 2001. Geoff Kieburtz of Salomon Smith Barney said that after clearing the hurdle of a weak second quarter, the oilfield services industry was poised for recovery. ''Most of the evidence points to us being in the early stages of a multi-year growth phase with low double-digit (revenue) growth for a three- to four-year period,'' he said. Analysts say Canada and the U.S. Gulf of Mexico are already showing signs of a revival in drilling activity and predict that this will spread slowly to other markets around the world. In addition to a gradual improvement in revenues, oilfield service companies' profit margins are expected to improve as a result of deep cost-cutting during the recent industry downturn. Service companies, such as Halliburton Co. (HAL) and Schlumberger Ltd. (SLB), which provide anything from drill bits to seismic data, are expected to show a modest sequential improvement in earnings from the third quarter of this year. Analysts say their earnings should start to show year-over-year increases by late 1999 or early 2000. Drillers, who rent out drilling rigs and crews to oil companies for a daily fee, are generally expected to see a sequential rise in earnings from early next year with year-over-year increases expected from late 2000 to early 2001. The picture varies from company to company, however, because contract lengths vary from a few weeks to several years and companies have different market exposures. Global Marine Inc. (GLM) and Noble Drilling Corp. (NE) are both active in the shallow-water Gulf of Mexico market which is expected to be among the first to recover. Santa Fe International (SDC) Corp. and Transocean Offshore Inc. (RIG) are more geared to international and deepwater drilling markets and their earnings are expected to take somewhat longer to ride out the downturn and pick up again. After soaring along with crude oil prices in March and April, oilfield service and drilling shares have been more or less flat since then and remain well below the highs they reached in 1997. Fred Mutalibov of Southwest Securities (SWS) said he expected a further round of share price appreciation for the sector, but only when there was hard evidence of increases in exploration and production spending and company earnings. ''The next major run in the stocks will be when there is an actual recovery, not just anticipation,'' he said. The following table shows analysts' consensus estimates of earnings per share for selected oilfield service and contract drilling firms, as compiled by First Call Corp. COMPANY Q2 99 Q2 98 Date Global Marine $0.14 $0.42 July 15 Santa Fe International $0.36 $0.56 July 21 Halliburton $0.17 $0.55 July 22 Schlumberger $0.25 $0.69 July 22 Noble Drilling $0.14 $0.38 July 22 Baker Hughes (BHI) $0.06 $0.36 Aug 2 ^REUTERS@ Reut11:31 07-09-99 morningstar.net