Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Lizard King's Trading Swamp -- Ignore unavailable to you. Want to Upgrade?

To: TATRADER who wrote (4072)	1/22/1998 11:25:00 PM
From: LzzrdKing	Read Replies (2) \| Respond to of 7396

Nightly Business Report: 01/22/98 SUZANNE PRATT: Oil prices slipped below $16 a barrel in intraday trading today for the first time in nearly 4 years. Experts say prices have fallen on an oversupply of crude in the U.S., plus worries about demand for oil in Southeast Asia. And the lower oil prices dragged down shares of oil and oil services companies. One such company is Global Marine, based in Houston. Global Marine's main business is leasing its rigs for offshore oil drilling. Last week the company posted record full year and fourth quarter earnings, beating Wall Street estimates. Joining us now to talk about this year's outlook for the company is Global Marine's chairman and CEO, Russell Luigs. Welcome to the program Mr. Luigs. RUSSELL LUIGS, CHAIRMAN & CEO, GLOBAL MARINE: Thank you very much. Glad to be here. PRATT: With oil prices at such low levels, what does that mean for your business in 1998? LUIGS: Well frankly based on our backlog, based on our inquiry rates, based on our most recent contracts, I think it means, means very little. We, we as you mentioned, turned in a record year last year and have every expectation of turning in a significantly better year this year. PRATT: But how can drilling activities say, stay so strong if oil remains in the $16 a barrel range? LUIGS: So long as oil remains above the threshold of profitability for the producer, the activity in the oil service industry is driven by the demand for oil. That is the volume. And if you look at that, oil consumption has been growing at about 3 percent a year. And you not only have to provide for that, but you have to provide for about another 3 percent of depletion from existing sources. And that's growing strongly. And as a result, the, the expenditures of the oil companies, for instance we go back to the beginning of this decade were about 45 billion a year on the upstream or the exploration production area, they had grown to 85 billion in 1987. And indications are they'll grow about another 10 percent or so this year. PRATT: So are you not seeing an evidence that lower oil prices are causing oil companies to change or reduce their drilling budgets? LUIGS: No we're not because the drilling is driven by the need for the product and that's the only way you get the product. Now, for a number of years the demand growth was met by opening up valves to bring back on stream oil that had been shut-in in the early to mid- 80's in an effort to sustain an artificially high price of around $30 a barrel. So we had over 1/3 of the world's ability to produce oil shut-in. Today that number's about 2 percent. And again, with a 3 percent growth rate and probably that much depletion, if you stop drilling, you'd have an oil shortage in a matter of a few months. PRATT: So how far would oil prices have to fall to materially affect your business? LUIGS: I think if oil prices fell, and it depends company by company, I mean there are a lot of oil companies reporting record profits because technology has gone up, their costs have gone down. Also the concession agreements, the production sharing agreements that they're now able to negotiate in various countries around the world are much better than they used to be because there's a lot of competition among nations now that the world is moving away from the centrally planned economic model to market based economies. So ... PRATT: So you're not going to give me an actual number though? LUIGS: An actual number on what? PRATT: On how far oil prices would have to fall before there would be an impact to your business. LUIGS: It would depend company by company. The better companies, the bigger companies with the better prospects and so forth, I suspect that number is $3 or $4 below where we are now. And, but it isn't just a matter of interday trading that matters. Oil has been $19 a barrel now since the beginning of the decade. And there is a trading range and it's plus or minus $2. It rarely goes up. PRATT: All right, we're going to have to, we're going to have to leave it there. LUIGS: Okay. PRATT: Thank you very much. LUIGS: You're welcome. PRATT: Russell Luigs, chairman and CEO of Global Marine. Nightly Business Report transcripts are available on-line post-broadcast. The program is transcribed by FDCH. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc. Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c)1998 Community Television Foundation of South Florida, Inc. Transmitted: 01/22/98 20:42 (N0122983)