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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Broken_Clock who wrote (18673)	4/10/1998 4:03:00 PM
From: wggm	Read Replies (4) \| Respond to of 95453

Simmons report on softening day rates (released on first call and DJN on Thursday): "While we remain bullish on the offshore drillers and the long-term fundamentals which support our views, day rates will likely remain soft over the near term as E&P companies adjust their shallow water Gulf of Mexico spending plans in the face of weak oil prices. Oil company spending trends along with recent new contracts and bids indicate that day rates for 350' IC jack-ups in the GOM are likely to decrease from the low $70k's to the low $60k's. The fleet of 300'IC jack-ups are predicted to decline from the mid $60k's to the mid $50k's. These short-term changes slightly reduce our 1998 and 1999 earnings estimates. However, the have little impact on our price targets which were driven by replacement cost earnings assumptions. We have adjusted our earnings estimates for nine of the offshore drilling contractors in our research universe. The average impact to our 1998 earnings estimates is a decrease of 3%. We believe that day rates will rise again in late 1998 and in 1999, but will be lower than previously assumed. The impact to our 1999 estimates is also a decrease of 3%.... Our adjustments were based in the following day rate assumptions for the various classes of jack-up rigs in the GOM. 350' IC Q2-$62.5, Q3-$62.5, Q3-$67.5, 1999-$75 300' IC Q2&Q3-$55, Q4-$60, 1999-$65 250' IC Q2&Q3-$47, Q4-$52, 1999-$57 200' IC and smaller: day rates not to exceed those assumed for 250' IC rigs. Three points are worth noting. First, in many cases, rigs have contracts that extend through Q2'98 or Q3'98.... Second, we believe that day rates will be flat through Q3'98, then rise in Q4'98 and in 1999. Third, while day rates for the high-end jack-up rigs are softening, we believe that day rates for the shallow rigs will continue to increase slightly. This is a function of cost/value tradeoff. In the shallower waters of the GOM where rig demand remains strong, oil companies will be less willing to pay higher rates for relatively small incremental value of a high-end jack-up rig, especially on with a significant day rate differential. Obviously, day rate improvements for shallow jack-up rigs will be limited be the pricing set by the high-end jack-up rigs. However, we do not expect high-end jack-up rates top fall far enough to depress shallow water rig rates.... Our analysis is based on the assumptions that the current softness in day rates is short lived (three to six months) and that it is contained to the GOM.... We remain bullish, etc, etc." No change in estimates re: RIG, SDC, PDE, or CDG. Re: DO, drops 98 estimates by .03 and 99 by -.11. RE: ESV, 98 by .21 and 99 by .37 RE: GLM, .12 and .14. RE: MDCO, .11, .03. RE: NE, .05 and .06. RE: RDC, .15 and .15. I would appreciate reading any comments to the above. Also, it would be nice if someone would repost this on AOL's oil and gas board (I don't know how).