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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 (21951)	5/13/1998 5:55:00 PM
From: Czechsinthemail	Read Replies (1) \| Respond to of 95453

5/13/98 Rowan Expects Oil Rig Lease Rates To Grow, But At Slower Pace HOUSTON -(Dow Jones)- Rowan Cos. expects the daily rates at which it leases its offshore drilling rigs to continue to grow this year, but at a slower pace than in the last few years. "Dayrates will go higher, but not faster than costs," Rowan Chairman and Chief Executive C.R. Palmer told Dow Jones. Similar to its peers, day rates for Rowan's (RDC) offshore rigs rose by 45% a year or more in 1996 and in 1997, far outpacing costs. But day-rate growth is slowing in the Gulf of Mexico, where Rowan has 14 of its 20 rigs. Despite continuing strong demand for rigs and drilling equipment, the industry has been dealt a small blow by the weakness in crude oil prices. This has created a drop in exploratory drilling in deeper waters, where reserves are mostly oil. As a result, deepwater rigs looking for work have moved to shallower waters, the province of Rowan's fleet. Rowan specializes in jackup rigs, which can drill in up to 350 feet of water by floating out to a site and extending legs to the ocean floor. In the Gulf of Mexico, some of Rowan's rigs are rolling over into new, cheaper contracts, while others are still experiencing rising day rates. Overall, Palmer said he expects average day rates among its Gulf rigs in the second quarter to be unchanged from the first quarter. Still, Palmer expects the company's overall fleet to see its average day rate in the second quarter rise about 5% from the $62,000 average day rate in the first quarter. The expected increase is due to rising rates in the North Sea, where Rowan has four rigs working. Palmer said the days of volcanic day-rate growth in the Gulf of Mexico may be over for long-legged jackup rigs. By his estimation, day rates among those rigs have reached 85% of what is needed to finance replacing them. "That's historically where rates peak," he said, because companies begin building new rigs, increasing supply. Palmer, however, is sticking to his projection - made last September, before oil prices started falling - that Rowan will earn $2.50 a share in 1998 and $3.50 in 1999. In 1997, the Houston-based company reported operating earnings of $1.76 a diluted share. And Wall Street is fairly confident that Rowan will meet its projections, Palmer noted, judging by earnings estimates. The mean estimate of analysts surveyed by First Call is that Rowan will earn $2.47 in 1998. One of the reasons for Palmer's optimism is the rollout of its first "Super Gorilla" jackup rig in the fourth quarter. An enhanced version of Rowan's Gorilla class jackup rigs, the Super Gorilla is designed to work in up to 400 feet of water in the harsh environment of the North Sea. Costing roughly $185 million to build and at least as big as the Houston Astrodome, the Super Gorilla will command higher day rates than the company's other rigs. Rowan plans to roll out a second Super Gorilla rig in 1999 and a third in 2000. One of the company's chief strengths is its leading share of the harsh-environment jackup market, Palmer said, with its three existing Gorilla rigs and its planned Super Gorillas. That is why he has no interest in copying other jackup rig operators that have added floating rigs, which can work in the deep waters of 1,000 feet or more. The company is also benefiting from its nonrig businesses. Rowan owns LeTourneau, the leading designer and kit maker of jackups; the division designed all of Rowan's rigs. To maintain a steady workload, about 60% of LeTourneau's business is designing and making equipment for the logging and mining industries. Rowan also owns Era Aviation, which provides helicopter and airplane flights between shore and offshore rigs. But Era's main business is fighting forest fires, a business Palmer said is improving this year from last year. Some on Wall Street have urged Rowan to divest its nonrig businesses in order to make the stock a purer drilling play. But Palmer is intent on keeping those units, which provide some 20% of Rowan's cash flow, in order to remain somewhat diversified for the long run. Palmer said these businesses helped Rowan weather the 15-year downturn in drilling that ended in 1995. "You need some source of protective cash flow," he explained. The main source of growth for the company in the next few years will be the Gorilla and Super Gorilla rigs, and LeTourneau. Palmer isn't worried about Rowan's stock price, which, like those of other drillers, have fallen significantly since autumn.