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

To: isopatch who wrote (75051)	9/29/2000 10:04:18 AM
From: Big Dog	Respond to of 95453

From Dain Rauscher this morning: CONTINUED IMPROVEMENT IN OFFSHORE DRILLER PERFORMANCE EXPECTED The recovery of offshore drilling worldwide continues to be led, of course, by the shallow water in the U.S. Gulf of Mexico. We continue to observe steadily improving rig utilization in all geographic and asset market segments with the distinct exception of the mid-water U.S. Gulf semisubmersible play that continues to languish at 57%. Overall U.S. Gulf jack-up utilization is in excess of 93% across rigs of all capabilities and at 100% for premium assets. Domestic jack-up dayrates are currently 30%-60% greater than they were at the equivalent point in the last cycle. International jack-up markets are gradually improving, and we have observed upward dayrate movement, precipitated by tightening supply, in West Africa and Southeast Asia particularly. Overall jack-up utilization in both regions is approximately 85%, the threshold at which we expect notable increases in rate fixtures. Overall floater utilization in Southeast Asia remains low at less than 40% but is a healthy 94% offshore Africa. North Sea bidding is surprisingly active, particularly for work scheduled to start in early spring. Transocean Sedco Forex (NYSE: RIG; B-Avg; $57.89) announced a contract with Statoil on the Sovereign Explorer for almost $165,000/day to commence in April 2001. Although the rig is available when it completes it current contract in October, we interpret this announcement as being demonstrative of a palatable concern among operators regarding availability of deepwater-capable assets next year. Currently North Sea semi utilization is approximately 83%, with 8 rigs likely idle until spring. Jack- up utilization in the region is more than 90%. We look for more high-dayrate announcements on premium drilling equipment in the near future. Brazil remains strong with utilization of both floaters and semis at 100%, by definition, drillers are typically not permitted to stack rigs in the region. We estimate a need for between three to five additional deepwater assets in this market during the next 12-18 months. Regarding floater new builds, we are aware of some isolated discussions regarding new building in anticipation of needs in regions like the Caspian. Certainly, nearly every driller has designs on the shelf for future use. There is some minor speculative upgrading taking place but no sign of any destructive, undisciplined behavior. We believe that excess capacity on the new generation of deepwater assets is gradually drying up (gaps in operators programs are being filled) and that operator concern regarding availability will become more and more obvious in the form of increasing rates and chatter regarding new construction. We have had no indication that drillers will undertake new building without a contract. Jack-ups will be built on speculation, although there are currently only six under construction and at least one is built to a contract. We see no immediate cause for concern in this area. Both land and offshore drilling activity in the United States is very strong, with natural gas drilling at its highest levels since data started being tracked in 1988. Offshore drilling is at its highest level in almost 15 years. At this time, we see nothing to suggest that current strength of the recovery is waning. Extremely favorable hydrocarbon pricing and the endemic imbalance of demand and supply should sustain keen interest and activity in deepwater and shallower gas provinces. A disappointment, and somewhat of a concern, is the absence of the expected acceleration in spending by the major oil companies. At mid-year, we observed that the majors had significantly underspent announced capital budgets. It was expected that they would increase spending and play 'catch up' in the second half of the year. Oil companies basically confirmed this on the June- quarter conference calls and even indicated levels of increased spending and budgets for next year. However, the operating/asset groups at most oil companies have not yet begun to increase spending. At the recent DRW Energy Conference companies noted that, while there has been some increase in bidding activity, it has yet to be followed with actual orders. It is becoming an increasing concern as to whether the major oil companies will, in fact, spend there allocated budgets this year. Clearly, commodity prices justify and warrant the spending of these budgets but the continued integration and restructuring in these companies appears to be continuing longer than expected. Overall, we anticipate a good quarter for the drillers, with a couple of exceptions, and have no indication that there will be any unpleasant surprises. We have provided a quick comparison of our 3Q00 estimates versus consensus for our offshore driller universe (DRW/Consensus): Atwood Oceanics, Inc.: (NYSE: ATW; N; $40.30) - $0.48/$0.47 (Atwood's fiscal fourth quarter) Diamond Offshore Drilling, Inc.: (NYSE: DO; N; $41.00) - $0.05/$0.07 ENSCO International, Inc.: (NYSE: ESV; N; $38.06) - $0.20/$0.20 Global Marine Inc.: $36 (NYSE: GLM; B-Avg; $29.88) - $.16/$.16 Marine Drilling Companies, Inc.: (NYSE: MRL; N; $28.00) - $0.25/$0.24 Noble Drilling Corporation: $51 (NYSE: NE; B-Avg; $49.50) - $0.33/$0.33 Pride International, Inc.: $32 (NYSE: PDE; SB-Agg; $25.75) - $0.00/$0.01 Rowan Companies, Inc.: $41 (NYSE: RDC; SB-Agg; $27.88) - $0.25/$0.26 Santa Fe International Corporation: $44 (NYSE: SDC; SB-Avg; $43.88) - $0.23/$0.23 R&B Falcon Corporation: 32.50 (NYSE: FLC; B-Agg; $27.47) - ($0.09)/($0.09) Transocean Sedco Forex Inc.: $65 (RIG; Buy-Avg) - $0.20/$0.20