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.

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

To: marc chatman who wrote (18742)	4/11/1998 12:38:00 PM
From: JZGalt	Respond to of 95453

marc, I would think you would need to do quite a bit of digging to come up with an answer to that. Merrill Lynch came out a while back and warned about the smaller land based E&P companies being unable to continue to drill if the price of oil remained low. It has to do with their current debt loads as well as the cash flow generation projections to service the debt. In the simplest terms those companies with deep pockets and solid credit lines will have no problem continuing to drill, but some of the smaller players (particularly on land) will be in trouble. If you want to look at the impact on offshore drilling you would have to know the players and if or when they might not be able to come up with the money to continue to drill. I don't know for sure, but I have my doubts that there will be any significant impact on the offshore drillers in this regard epswise. The problem may come from the problem we have had in this industry for the past several months. The media paints all drilling related services with the same brush. Dollars to donuts when you see weakness in the land drillers and warnings of cutbacks, some idiot on CNBC or an analyst or two will extend this to the offshore boys as well. For the most part this group is still glued together at the hip.

To: marc chatman who wrote (18742)	4/11/1998 10:36:00 PM
From: Douglas V. Fant	Read Replies (2) \| Respond to of 95453

marc chatman, You asked how "rig negotiations" work. More important is to understand the step before rig negotiations and that is assessment of a potentially drillable prospect. There are about 20 economic factors that go into an assessment of a prospect- and just one is drilling rates. A potential bidder will consider what royalty rate to offer the governing body; and if a national oil company is involved (often just poorboy shadow companies) how much of the national companies' costs to carry before he/she goes it on their own nickel; how many platforms will be necessary if successful in development; whether to barge or pipeline crude to shore; weather considerations in development; geopolitical factors; types of crude or natural gas that wil be produced; rates of production and markets; whether to build onsite processing facilities; presence of adjacent development, etc. All of these factors roll into one economic package. That is if you pay a little more to get a rig over to drill a prospect at a certain time, then you cut costs elsewhere in the project so that your total overall project costs and estimated rate of return remain the same. So to a certain degree rig rates are inelastic especially in international concessions- so long as you know what you will pay for the rig rate, then you can adjust other expected costs inorder to keep the entire project economic... As to actual rig negotiations they are always difficult for oil companies since you do not know beforehand whether you have a "dud" or a "barnbuster" for a project. That is you do not know whether to "lock in" a drilling rig for one or say three wells. That's why when options are not renewed on a drilling rig, do not just assume that demand for rigs is fading. It is just as likely that the first well drilled "condemned" the prospect as "uneconomic"... Workover Operations. Now in established operations that bring out a rig to do e.g., a workover job on an existing well will fight day rates more vigorously since that company is just focusing on that one job..... Sincerely, Doug F.