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Bull Run: Oil Drillers, Equipment Concerns Continue to Shine
By Mavis Scanlon
Staff Reporter
10/22/97 11:03 AM ET
The strong performance in oil stocks continued Tuesday and the group is continuing to show strength into Wednesday's trading. The group remains one of the hot sectors in the stock market.
Here are some highlights:
Varco International Inc. (VRC:NYSE) shot up 5.7% to close at 55 5/8 Tuesday after announcing record-breaking revenues and earnings for the third quarter. Gains continued on Wednesday. Net income increased 86% over the comparable quarter in 1996, to $13.4 million, or 41 cents per share, from $7.2 million, or 22 cents per share. Revenue increased 43%, to $140.4 million from $98.1 million in 1996.
Varco supplies the drilling equipment packages, or the machinery used on rigs to handle drilling operations. Varco's customers are the offshore drillers -- Global Marine, (NOI:NYSE) Transocean (RIG:NYSE) and Noble Drilling (NE:NYSE) -- who are furiously plying the deep waters of the Gulf of Mexico. The equipment supplied by Varco are configured especially for each customer. Richard Kertson, CFO of Varco, says the company garners between $20 million and $40 million per rig.
Varco also faces limited competition. National Oilwell (NOI:NYSE) and Cooper Cameron (RON:NYSE) compete with Varco for a small number of products, and increased rig conversion due to more E & P spending drove third quarter orders to $266.5 million, more than double the $128 in the similar period last year.
Camco International Inc.'s (CAM:NYSE) third quarter revenues, announced Tuesday, were boosted 26%, to $239.1 million from the $190.2 million recorded in the similar period of '96 mainly as a result of international operations. They provide specialized products like drill bits, tubes and pumps - all the things needed to complete an oilwell -- to drilling companies worldwide. Their net income rose 55%, to $27 million, or 70 cents per share, from $17.5 million, or 46 per share in the third quarter of 1996. Camco is one of the few oilfield service firms that pays a dividend to its shareholders - this quarter its dividend was 5 cents a share, unchanged from third quarter 1996.
Tom Kerr, a portfolio manager at Los Angeles-based money management firm Reed Conner & Birdwell, has seen signs that the oilfield service sector is topping out, but Camco is one of the companies he likes because of its focused management. Camco inched up a quarter of a percent in Tuesday's trading to close at 77 3/8.
Marine Drilling Companies (MDCO:Nasdaq) jumped up 5.9% to close at 33 6/8 after releasing its best quarterly earnings report in the company history. Net income was $16.3 million, more than double the net income of $6.7 million reported in the year-earlier quarter. Earnings per share of 32 cents beat analysts expectations by 2 cents, according to Baseline data, and doubled the earnings per share of 15 cents in the year-ago quarter. Revenue shot up to $51.2 million from $29.8 million in third quarter 1996.
Marine Drilling operates 12 rigs in the shallower waters of the Gulf of Mexico and four in international waters. They received an average dayrate of $39,338 this quarter, up from the second quarter average of $35,500 and more than double the average rate of $24,000 they got in third quarter '96. Can they keep it up?
They are drilling for some of the larger independent E &P companies - companies like Burlington Resources, Seagull Energy and Triton - and have a contracts on their rigs for 5,422 days, according to Joan Smith, Vice President and Controller of the company. Divide that by 365 days and 16 rigs, and they have contract work through 1998. By 1999, Smith expects MDCO to be reeling in rig rentals of between $60,000 and $65,000. Marine may also be looking to enter the deepwater fray in the Gulf of Mexico, Smith said, with either a new acquisition or the conversion of a rig they acquired in May. Look for an announcement sometime in fourth quarter.
Tidewater, Inc., (TDW:NYSE), servicing the rigs that drill around the world also rents their vessels by the day. At dayrates upwards of $9,000 for some of their 700 offshore rig service vessels, Tidewater has a healthy market. TDW closed at 68 6/8, up 5% on their strong earnings and news of steadily improving dayrates. After a one-time charge, the company reported net income of $64.3 million for their fiscal second quarter, or $1.05 per share on revenues of $298 million. In the corresponding quarter of 1996, the company reported net income of $32.9 million, or 53 cents per share on revenues of $193.9 million.
On land, UTI Energy Corp's (UTI:NYSE) 89 rigs are drilling in the active West Texas region, Oklahoma, and the Northwest. The company has had record earnings for seven quarters straight. Third quarter revenue was up 92% over last year -- it shot up to $50.3 million from $26.3 million. Net income grew to $3.9 million from $1.6 million for the third quarter of 1996, and earnings per share were 25 cents compared to the 14 cents per share reported in third quarter 1996. Analyst Mike Carver at New York-based hedge fund WPG Farber Partners likes the earnings potential of land-drillers.
"The fundamentals are playing out like deep-water a few years ago," he says. Land-drilling companies "are in a much earlier inning of the ball game." UTI gained 1.8% to close at 44 9/16.
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