A Positive article in the Wall Street Urinal, guess we'll be down again tomorrow:
Dow Jones Newswires -- January 12, 1998
Oil-Services Cos. To Post Big Earnings Gains In 4Q
By Loren Fox
NEW YORK (Dow Jones)--Despite declines in oil and natural-gas prices
during the recent quarter, oil companies continued to pump up their
exploration and production spending.
And that was good news for the companies that rent drilling rigs, help flush
more oil out of wells, make drill bits, generate geological information and
provide the whole array of products and services that make the oilfield
work.
Wall Street expects another strong quarterly performance from the
oil-services sector, with equipment makers' earnings up at least 30% and
drillers' earnings up at least 80%.
When companies start reporting earnings in coming days, they will face a
skeptical investment community. Investors have sent oil-services stocks
down 25% to 50% over the past two months, as slipping oil and gas prices
raised the concern that growth rates may slow. No such slowdown was
evident in the fourth quarter, observers said. "The quarter looks quite solid,
and we should maintain the growth rates we've seen," said Geoff Kieburtz,
an analyst at Salomon Smith Barney Inc.
The robust demand was most evident among contract drillers, which have
been able to continue raising the rates at which they lease rigs, a trend that
has been going on for nearly two years.
For example, a premium "jackup" rig - which floats out to an offshore site
and extends legs to the ocean floor - drilling in 300 feet of water could be
rented in the Gulf of Mexico for $42,000 to $46,000 a day in December
1996. But one year later, that same rig commanded $63,000 to $73,000 a
day, according to Offshore Data Services, a research firm.
Wall Street expects Global Marine Inc. (GLM), one of the larger specialists
in shallow-water jackups, to report fourth-quarter earnings of 47 cents a
share, up from 23 cents the previous year, according to First Call, which
tracks analysts' estimates.
The largest deepwater rig operator, Diamond Offshore Drilling Inc. (DO), is
expected to report fourth-quarter earnings of 57 cents a share, up from
operating earnings, which exclude extraordinary items, of 31 cents a share a
year ago, adjusted for a 2-for-1 stock split in August.
Onshore drilling companies also did well in the quarter as they finally started
to enjoy demand growth similar to offshore drillers. Nabor Industries Inc.
(NBR), the largest land-based driller, is expected to report fiscal
first-quarter earnings of 40 cents a share, up from 21 cents a share a year
earlier. This will be a stub quarter for Nabors, which is moving to a calendar
year starting next quarter.
Drilling rigs can't work without equipment. And strong demand has enabled
companies to raise prices in the quarter for equipment ranging from drill bits
to pipe to systems for measuring rock structures from within the well.
In addition, increased volumes for oilfield equipment means better profit
margins, as fixed costs are spread out, said Schroder & Co. analyst James
Stone.
One beneficiary is Cooper Cameron Corp. (RON), which supplies the
valves and wellheads used for onshore drilling and the subsea systems used
offshore. The company is expected to report fourth-quarter earnings of 83
cents a share, up from operating earnings of 50 cents a share a year ago,
adjusted for a 2-for-1 stock split in June.
Schlumberger Ltd. (SLB), the world's largest oil-services company, is
expected to report fourth-quarter earnings of 75 cents a share, up 44% from
52 cents a share a year earlier, adjusted for a 2-for-1 stock split in June.
Schlumberger is a leader in drilling rigs and oilfield information, both of
which should help drive earnings. Profit margins also have risen at its seismic
survey and well-measurement businesses.
At Halliburton Co. (HAL), another of the biggest oil-services companies,
fourth-quarter earnings should come in at 55 cents a share, up from 43 cents
a year ago, adjusted for a July 2-for-1 stock split. Halliburton is a leader in
well completion and in pressure-pumping, which is used to flush more oil
and gas from a well and has enjoyed sharply rising prices in recent months.
While Schlumberger and Halliburton's substantial businesses not related to
oil services have lately slowed the companies' growth, oil-services represent
about 90% of revenue at Baker Hughes Inc. (BHI).
Baker is a market leader in tools for working inside the wellbore and in
directional drilling, which allows drilling in directions other than straight
down. After digesting several acquisitions, the company has finally enjoyed
price hikes in most product lines, said John Lovoi, an analyst at Morgan
Stanley Dean Witter Inc. Wall Street expects Baker to report fiscal
first-quarter earnings of 44 cents a share, up from operating earnings of 35
cents a share a year ealier.
Among other large, diversified equipment companies, Dresser Industries Inc.
(DI) is expected to report fiscal first-quarter earnings of 40 cents a share, up
from 30 cents a year earlier, and Weatherford Enterra Inc. (WII) is
expected to report fourth-quarter earnings of 62 cents a share, up from 42
cents a share in 1996's fourth quarter.
-Loren Fox; 201-938-5267; loren.fox@cor.dowjones.com |
