RE: Land Drillers reporting a slowing in dayrates:
(Hey, i just copy and paste. i have no idea if this is true or not)
Top Stories: Oil Companies See Lower Land-Drilling Rates
By Mavis Scanlon
Staff Reporter
1/29/98 6:06 PM ET
Call it seasonality, postponement due to overspending in
1997, or just blame it on the drop in commodity prices. No
matter what the reason, dayrates for land-drilling companies
are dropping, and oil companies are seeing more land-drilling
rigs available than they have seen in a long time.
At an industry conference in New York this week, two
independent oil company CEOs reported that they've booked
rigs in recent weeks at rates lower than they had seen just a
month or two ago. Nabors Industries (NBR:AMEX) was
mentioned specifically as dropping certain rates to get a
contract, while Patterson Energy (PTEN:Nasdaq) was cited
as having idle rigs in storage in West Texas. In the
equipment-tight drilling market, such reports are seen as
signs of a softening in the land-drilling market.
"Rig rates are coming down," said Jeff Clarke, CEO of Coho
Energy (COHO:Nasdaq), a Dallas-based oil and gas
company that operates primarily in Mississippi and South
Louisiana. Clarke was among the presenters at the
Jefferies & Co. Second Annual Independent Producers
Conference. "Availability is absolutely no problem," he
added. Clarke cited a dayrate bid of $8,300 for a well his
company is drilling in Mississippi; the rate had been at
$9,800 in December.
But Glenn Patterson, president of driller Patterson Energy,
says just the opposite. In a telephone interview Thursday, he
said he was just working on a contract at a rate about a
dollar higher per foot for one particular well. He prefers to
charge customers on a per-foot-of-well-drilled rate as
opposed to a dayrate, saying he can make more money that
way.
"We are not going to drop rates. We'll stack 'em before we
drop our rates," he says, using driller slang for storage of
rigs not in service. Out of the hundred or so operable rigs
Patterson has right now, about 10 or 12 are stacked, he
said, but the company is putting more back to work every
day. A Nabors spokesman was unavailable for comment.
Robert L.G. Watson, CEO of Abraxas Petroleum
(AXAS:Nasdaq), related a tale similar to Clarke's. Abraxas
contracted a rig from Nabors to drill an 18,000-foot well in
South Texas at a dayrate of $7,900 for a period of 45 days --
$2,000 less than the company saw 120 days ago. In a later
phone call he added: "They wanted to get it to work."
Soft rates in December would have meant only that yearly
budgets had been drilled up, said Watson at Tuesday's
conference. "But since then it's continuing; 1998 budget
money is being reduced because of cash-flow expectations."
When bringing a well online, the first few days are the most
profitable, Watson explained after his presentation. So if
there is a choice of whether or not to bring that well online in
a low-priced environment, why not wait a few days or a few
weeks until the price firms up?
Any decline in dayrates could have a significant impact on
investor outlook toward the much-maligned drilling niche of
the oilfield service sector. Land-drilling projects are by nature
much shorter and typically less complicated than offshore
projects, and although the past year has seen a boom in
land, or onshore, drilling, over time this niche has seriously
lagged the growth seen offshore.
Land drilling rates are literally peanuts in comparison with
the rates garnered by the big boys in the deepwater drilling
sector. Companies such as Transocean Offshore
(RIG:NYSE), Sedco Forex (Schlumberger's (SLB:NYSE)
drilling unit), and Diamond Offshore (DO:NYSE) will
contract their rigs out to oil companies for extended periods
of time -- recent contracts are going for three to five years --
at huge dayrates, up to $180,000 to $200,000 per day. Oil
companies pay exorbitant rates to lock in scarce deepwater
drilling equipment. Long-term contracts at high rates
essentially lock in earnings and revenue growth for the
driller, which investors like. Falling dayrates are a harbinger
of decreasing revenue and earnings, fear of which
precipitated the massive selloffs in the drilling and service
sectors in recent months.
Now the evidence of dropoffs is coming out. So how will
falling dayrates affect earnings? "It's obviously not positive
for land drillers," says Rob Shoss, a senior analyst with Aim
Capital Management. "Growth rates and cash flow have to
come down." As far as the effect that lower dayrates might
have on an oil company's finding costs, or the cost it takes
to produce one barrel of oil, "It would cost them less money
but it would not significantly affect finding costs unless the
trend were to continue for a reasonable length of time,"
Shoss says.
Analyst Matthew Conlan, who follows Nabors for Prudential
Securities in Houston, believes that Nabors will continue to
grow its earnings. In a recent research note, Conlan pointed
out that although the company saw some seasonal
weakness in its rig-utilization rates, profitably per rig actually
grew in the quarter ended Dec. 31 (reported as a "stub"
quarter by Nabors due to a fiscal year change).
Conlan writes that the weakness was due to "the
postponement of discretionary projects until 1998 by
producers who had already overspent their 1997 budgets by
year-end," as well as partially due to the fall in commodity
prices. But the investment thesis is still solid, he writes, as
dayrates will continue to rise over the coming five years.
Though Prudential has done underwriting for land drillers, it
hasn't done any for Nabors. |
