ALL: This is huge! (IMHO)
Today, after the close, thestreetdotcom had an article by someone named Mavis that basicly stated that in spite of reporting better than expected earnings, GLM, MAVK and PKD went down and there are still too many questions in the sector.
The following is my email to them and their reply. The big thing is that i just checked and the story is gone! That's right, it is no longer and the current page or the arcives. (Too bad i didn't save the original article.)
[to Teddy]
thanks for the note. i'll pass this on to mavis, and i'll look into it
myself. i think it is fair to say that this group is in the middle of much
debate. after a powerful 1996 and most of 1997 they have struggled to deal
with falling oil prices.
as her earnings summary made clear, there were positive comments coming
from these companies. i think taken in the full context of both stories
that she wrote on the subject she covered these issues well.
i appreciate your constructive comments.
best,
dave
At 07:24 PM 1/16/98 -0500, you wrote:
>The story "Bearish Open to Earnings Week in Oil Patch" by Mavis Scanlon,
>posted 1/16/98 5:38 PM ET needs a little work. Not only did these stocks
>jump 6 - 7% today, but every "fear" that he mentioned had already been
>addressed the day before his article was posted.
>
>If you have the time, you might find it interesting to compare Scanlon's
>article with this one from today's Wall Street Journal:
>
>"Global Marine CEO Luigs Sees Net, Dayrates Up In 1998
>
> By Loren Fox
>
> NEW YORK (Dow Jones)--Offshore driller Global Marine Inc. (GLM)
> isn't worrying about the recent drop in oil prices.
>
> Oil may have declined to $16.50 a barrel from $20 in October, but the
> Houston company, whose main business is leasing its rigs for oil and
> natural-gas drilling, is still getting more offers than it can meet.
>
> "If you wanted to hire one of our rigs, maybe we could scare something
>up
> in three or four months ... if you're not choosy," Chairman and Chief
> Executive Russell Luigs told Dow Jones.
>
> Investors have worried in recent months that the drop in oil prices may
> endanger the two-year upturn in the oil services industry, which
>provides the
> rigs, drill bits and other support for oilfield work.
>
> "As far as we can tell, 1998 is a strong market for oil service," said
>Luigs,
> whose company is one of the best-known offshore drillers in the world.
>He
> added that this year couldn't be the peak of the oil-services boom,
>given that
> the capacity to build new rigs is constrained.
>
> On Thursday, Global Marine reported fourth-quarter operating earnings,
> excluding one-time charges, of $84 million, or 49 cents a diluted
>share, up
> from $40 million, or 24 cents, a year earlier.
>
> The earnings of 49 cents surpassed the 47 cents that had been expected,
> according to First Call Corp., which tracks analysts' estimates.
>
> The earnings growth was propelled by rising daily rental rates for its
>rigs.
> Most are jackup rigs, which drill in 200 to 400 feet of water by
>floating out
> to a site and extending support legs to the ocean floor. As drilling
>activity has
> risen, Global Marine has seen its "dayrates" - the daily rates at which
>the
> company leases a rig - soar. The company's average dayrate during the
> quarter for its 30-rig fleet was $62,100, up 46% from a year earlier.
>
> Luigs said jackup dayrates are continuing to rise in the first quarter.
>He
> admits that there has been some moderation in the pace of increases
> industry-wide, but forecasts that Global Marine's dayrate growth this
>year
> will match 1997's pace.
>
> The main reason is Global Marine's two new semisubmersible rigs, which
> float half-submerged and can drill in 3,000 or more feet of water. Both
>will
> start working in the Gulf of Mexico on long-term contracts later in
>1998,
> and will command dayrates that are double those of jackup rigs.
>
> Global Marine has a backlog of $1.1 billion of contract drilling work,
>half of
> it for 1998. Luigs said Global Marine should report earnings in 1998
>that are
> at least one-third higher than 1997's $1.58 a share. That would put
>1998
> earnings in the area of $2.10 a share, or about 3 cents above Wall
>Street's
> expectations.
>
> In addition to falling oil prices, another concern roiling the
>investment
> community is whether demand will slow for jackup rigs as oil companies
> shift their focus to deeper waters. Global Marine Chairman Luigs calls
>that
> concern exaggerated.
>
> "Probably at the moment, there's a shift toward deeper water," Luigs
> conceded. But he added that deepwater remains just a small part of
>offshore
> drilling, although it is growing - nearly all of the new rigs being
>built are
> deepwater.
>
> Global Marine, which has been viewed on Wall Street mainly as a jackup
> company, is paying attention to that trend. In addition to the two
> semisubmersibles starting work later this year, the company is
>upgrading
> several of its rigs to work in deeper waters, and is buying other
>deepwater
> drilling vehicles.
>
> "We don't get all that concerned about deep water versus shallow water.
> We look at return on capital," said Luigs, noting that the company's
>ROC in
> 1997 was 28.1%.
>
> That focus has also made Luigs happy with Global Marine's "turn-key"
> drilling business. That unit handles all aspects of drilling a well on
>an
> outsource basis for oil companies, including hiring rigs from other
> contractors.
>
> Turn-key drilling generates much narrower profit margins than contract
> drilling, which some on Wall Street believe has hurt Global Marine's
>stock
> price. But Luigs said that because the business requires no capital, it
>is
> attractive to Global Marine.
>
> It also serves as a leading indicator for demand in the oil patch. And
>Luigs
> said he has seen no signs of softness in turn-key drilling demand; the
> company's backlog of work for 1998 is $100 million.
>
> Lower oil prices haven't caused oil companies to change or reduce their
> drilling budgets, and Luigs said it would take sustained prices of $14
>a barrel
> to have a real impact. "Is it probable that it'll come down long enough
>to
> matter? No," he said.
>
> Actually, Luigs wouldn't like to see oil rise too far either. "We'd get
>hurt if oil
> went to $14 or to $40 a barrel," he said, because at the higher price,
>oil
> companies wouldn't have to drill as much to make a profit.
>
> He believes oil will bounce back into the $17-to-$21 range it's held
> throughout the 1990s, because demand for oil and gas is growing, even
>with
> Southeast Asia's financial crisis. "The budgets of the oil and gas
>companies
> are driven by the demand for oil and gas, not the price," he said."
>
>Cramer knows a little about this industry: liked the stocks for years.
>He talked about paring back to a few favorites a few weeks ago. Last
>week on Yahoo Chat he said he was buying them.
>
>Is Scanlon behind the times or is Luigs lieing? Other than this one
>misunderstanding, I generally find TSC very useful.
>
>Best wishes,
>[my name]
>eddiel@mdc.net
>
**********************
dave kansas
editor-in-chief
"http://www.thestreet.com"
2 Rector Street
New York, NY 10006
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