True to industry forecasts, offshore contract drillers are beginning to report improved profits on escalating rig day rates fueled by strong commodity prices and increased exploration and development activity.
“We are encouraged by the positive trends occurring in our business,” declared Danny McNease, Rowan’s chief executive officer.
A Petroleum News survey conducted several weeks ago indicated that profits for 16 major drilling and oilfield service companies could increase an average 22 percent in the 2004 third quarter from the prior quarter and increase roughly 33 percent compared to last year’s third quarter.
Rowan income up
The first of the major drilling companies to weigh in with 2004 third-quarter earnings, Rowan’s net income jumped to $16.3 million or 15 cents per share, a hefty 41 percent increase compared to the $11.6 million or 12 cents per share earned in the year-ago period. Revenues increased 21 percent to $234 million from the prior quarter.
Rowan’s report excluded several charges, including a $6.4 million impairment associated with the planned sale of its Era Aviation subsidiary. Rowan has since agreed to sell Era to Seacor Holdings for $118.1 million in cash.
However, Rowan’s rig utilization and day rates improved across all markets. In the Gulf of Mexico, where the company maintains a fleet of 24 jack-up rigs, 97 percent of the company’s rigs were under contract in the 2004 third quarter vs. 88 percent in the previous quarter and 93 percent compared to the same period last year.
The company’s average day rate in the U.S. Gulf during the third quarter was $46,500, an increase of 10 percent or $4,300 compared to the year-ago period. McNease said virtually all of Rowan’s premium jack-up rigs are currently under contract.
“Worldwide demand for premium jack-ups has effectively caught up with the available supply,” he said, adding that all of the company’s jack-ups in the U.S. Gulf are currently deployed.
Rigs to be moved out of Gulf
Nevertheless, McNease said that despite improvements in the U.S. Gulf, where the overall offshore fleet is 77 percent utilized, he expects industry to move another seven or eight rigs out of the Gulf to other regions of the world over the next 12 to 18 months.
“However, as day rates and utilization continue to climb in the U.S. Gulf, migration to other markets could begin to taper off in the fourth quarter of 2004 and into 2005,” he said in an Oct. 14 conference call with industry analysts.
McNease cited a Lehman Brothers study projecting that some 60 percent of exploration and production companies surveyed planned to increase their spending in 2005. And of the those companies indicating an increase, more than 10 percent said they intended to raise spending more than 10 percent, while 18 percent planned to raise their budgets more than 20 percent.
Moreover, he added, “the energy price forecast for the remainder of 2004 and 2005 remains bullish. And U.S. Gulf companies continue to post record cash flows.”
Additionally, he said with 1,280 continental shelf leases in the Gulf set to expire over the next three years, companies will be encouraged to drill and that means more business.
Diamond out of the red
Meanwhile, Diamond Offshore Drilling dug itself out of the red in the 2004 third quarter, despite negative impacts during the period that included damage to three rigs in the U.S. Gulf caused by Hurricane Ivan.
The company reported net income of $2.9 million or 2 cents per share, compared to a loss of $11.5 million or 9 cents per share in the year-ago quarter. Revenues were $208.2 million vs. $183.9 million a year earlier.
Larry Dickerson, Diamond’s president and chief operating officer, said the deepwater or “floater” market in the U.S. Gulf is strengthening. He said the turnaround began in mid-July.
“We’ve had some really nice day rate renewals that continue to increase,” Dickerson told analysts in an Oct. 19 conference call. “We’re seeing ultra-deep and deepwater rates becoming very strong.”
He said the company has received contracts and letters of intent for nine of its semi-submersible rigs in the U.S. Gulf and the North Sea beginning in this year’s fourth quarter.
Commitments for Diamond’s fourth generation rigs have reached as high as $140,000 per day for work in the U.S. Gulf starting in 2005, Dickerson said. He said improving day rates were a factor in the company’s decision to reactivate the Ocean Voyager for the Gulf’s “mid-water” market. The rig is expected to begin work by the middle of December, he added.
Ensco encouraged by activity
Like Diamond, Ensco International’s 2004 third-quarter profit was impaired by Hurricane Ivan, which swept through the U.S. Gulf in September with winds of 165 miles per hour causing widespread damage to offshore facilities and pipelines.
Ensco reported net income of $25.8 million or 17 cents per share compared to net income of $27.8 million or 19 cents per share in last year’s third quarter. Revenues were $190.9 million vs. $197.3 million a year earlier.
Despite storm damage to two of its rigs in the U.S. Gulf, “we are encouraged by stronger global activity levels and day rates,” Carl Thorne, Ensco’s chief executive officer, said Oct. 19.
The average day rate for the company’s jack-up fleet was $54,800 during the 2004 third quarter, compared to $48,400 in the prior year quarter. However, excluding rigs in the shipyard for contract preparation, regulatory inspection, repair and upgrades, Ensco’s fleet was 91 percent utilized compared to 94 percent in the year-ago third quarter.
Still, Thorne emphasized that the company realized improvement in day rates in all three of its major jack-up markets, with a 33 percent increase in average day rates for its North American jack-ups “being the most significant.”
He also noted that all of Ensco’s North Sea jack-up rigs have returned to service, as well as the company’s deepwater semi-submersible rig in the U.S. Gulf, the Ensco 7500.
