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

To: marc chatman who wrote (18802)	4/12/1998 3:49:00 PM
From: Douglas V. Fant	Respond to of 95453

mark, No, a company would not lock in rig rates before it wins a bid in the US or is awarded a concession overseas. (So no sunk costs related to rigs). That is because there are many steps and permits to acquire (and a length of time) before you actually "turn to the right" (I.e., industry slang for start drilling a well). However a company will make an estimate of rig rates/costs before bidding, since the total cost package includes rig costs. Assume two 45 day wells necessary to confirm a prospect. At $60,000/day that is $2.7mm rig costs/well- enough to influence what you bid for the prospect. So rotary drill rates are already figured into most prospects slated to be drilled for the next 6 months- but note when revenue estimates drop, then you need to rerun your economics on the costs side too.... Sincerely, Doug F.