Dow Jones Newswires -- April 9, 1998
Oil-Service Cos.' 1Q Net Seen Higher, But
Growth Slows
By LOREN FOX
Dow Jones Newswires
NEW YORK -- A dramatic slide in world oil prices took some
momentum out of the exploration and production industry. It slowed, but
didn't stop, the profit growth for the booming oil-services business.
Analysts expect another strong performance in the recent quarter from the
companies that rent drilling rigs, evaluate rock, make drill bits, and
provide the whole array of products and services that make the oilfield
work.
On average, equipment makers' earnings are expected to have risen at
least 25% and drillers' earnings to have risen at least 50%.
While that's still good news, the mood on Wall Street was darkened by
the steady drop in oil prices.
"A clear departure from the last two years was the fact that earnings
estimates were reduced - not raised - as the quarter progressed," said
Daniel Pickering, head of research at Simmons & Co., an oil-services
investment bank.
Oil prices in the quarter were roughly 30% lower than the previous year.
Several oil companies have trimmed their spending plans in response, but
most observers still expect 1998 spending on oil services to surpass last
year's levels.
Earnings growth was likely to moderate anyway, unable to sustain the
breakneck pace seen in 1997, said Salomon Smith Barney Inc. analyst
Geoff Kieburtz. But the additional burden of low oil prices "(has) taken
some of the punch out of quarterly earnings," Keiburtz said.
The drop in oil prices hurt land drilling most, as some low-profit wells
were shut down, said Lehman Brothers Inc. analyst Paul Chambers.
Earnings grew, but more slowly, for the companies that rent out onshore
drilling rigs.
Nabors Industries Inc. (NBR), the world's largest land driller, is expected
to report first-quarter earnings of 37 cents a share, up from 21 cents a
year earlier, according to First Call Corp., which tracks analysts'
estimates. Nabors changed its fiscal year, so the year-ago period was then
its second quarter.
The oil-price drop had little effect on offshore drilling, where contracts
are longer term, and the markets once again saw a rise in the rates at
which operators leased rigs. For example, a "jackup" rig - which floats out
and extends legs to the ocean floor - drilling in 300 feet of water in the
Gulf of Mexico commanded $65,000 to $73,000 a day in March 1998.
That's up from $44,000 to $51,000 a year earlier, according to Offshore
Data Services, a research firm.
Wall Street expects Global Marine Inc. (GLM), an offshore driller with
many jackup rigs, to post first-quarter earnings of 39 cents a share, That's
up from operating earnings, which exclude one-time items, of 29 cents a
year ago.
Drilling rigs can't work without drill bits, steel tubing and other
equipment. And the rising demand that has buoyed oil-services companies
for the past two years continued to support higher prices for oilfield tools
and services.
One beneficiary is Cooper Cameron Corp. (RON), which supplies
equipment for both onshore and offshore drilling. The company is
expected to report first-quarter earnings of 60 cents a share, up from
operating earnings of 36 cents a year ago, adjusted for a 2-for-1 stock
split in June.
Schlumberger Ltd. (SLB), the world's largest and most diversified
oil-services company, is expected to report third-quarter earnings of 68
cents a share, up 33% from 51 cents a year earlier.
Schlumberger is a leader in drilling rigs and oilfield software, both of
which should help drive earnings. The company should also record gains
from its high-technology offerings, such as wireline logging systems, which
evaluate underground rock formations.
Low oil prices have been fostering uncertainty in the industry, which has
accelerated consolidation among oil-services providers. Nothing marked
that trend better than the February news that Halliburton Co. (HAL),
another diversified oil-services company, would acquire Dresser Industries
Inc. (DI) in the largest oil-services merger ever, The $8 billion stock swap
is expected to close in the second half of the year.
Halliburton is expected to report first-quarter earnings of 44 cents a share,
up from 33 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.
Dresser Industries, a leader in steerable drills and in drilling fluids, is
expected to report fiscal second-quarter earnings of 50 cents a share, up
from operating earnings of 42 cents a year earlier.
Baker Hughes Inc. (BHI), one of the industry's "Big Four" with
Schlumberger, Halliburton and Dresser, has said its earnings growth was
damped by the low oil prices. This led to delays in some oil-related
projects, such as well workovers. Wall Street expects Baker to report
fiscal second-quarter earnings of 45 cents a share, up from 38 cents in the
previous year.
- Loren Fox; 201-938-5267; loren.fox@cor.dowjones.com
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