|
Service firms anticipate Gulf drilling rebound
Petroleum News Houston Staff
Drillers and other service companies are beginning to smell a recovery in the Gulf of Mexico which despite a surge in commodity prices and a healthy demand for natural gas has lagged far behind the North American land rig market. Client inquiries for work in the Gulf are on the rise and contractors are starting to push for rate increases, John Marshall, chief operating officer for big offshore driller GlobalSantaFe, said in an April 23 conference call on first-quarter earnings.
“We do see some signs of encouragement,” he said. “Land rigs are up and that typically precedes an increase in Gulf of Mexico rig utilization.”
Oilfield service company Baker Hughes says it is “cautiously optimistic” about the Gulf’s future, despite a 10 percent decline in the region’s rig count between the 2002 fourth quarter and 2003 first quarter.
“In North America we expect the land base to be strong and activity in the Gulf to improve during the year,” Michael Wiley, Baker Hughes’ chief executive officer, told analysts in its first-quarter conference call.
BJ Services, another large service company, also added words of encouragement in its quarterly call.
“We feel the market is tightening ... and we expect continued improvement in the U.S. marketplace as we move into the summer,” said Bill Stewart, BJ’s chief executive officer.
High demand for gas The high demand for natural gas and resulting low storage levels, coupled with relatively high commodity prices, also bode well for a recovery in the Gulf, analysts said.
But the Gulf rig count as reported by monitor Baker Hughes stood at just 101 on April 17, up four rigs from the previous week and up only two rigs compared to the same day a year earlier. While an improvement, the Gulf still trailed far behind the land rig count on a percentage basis. Land rigs rose to 870, up 11 rigs from the previous week and up a healthy 240 rigs from a year earlier.
Analysts believe that given the shaky economy and other concerns, exploration and production companies are avoiding the high risk associated with offshore drilling. But there is a silver lining.
Oilfield service companies have noted the high participation in recent Gulf oil and gas lease sales, particularly in the relatively shallow waters of the continental shelf where geologically deep natural gas plays are abundant and supported by federal incentives to drill.
A prime example was last month’s Central Gulf of Mexico Lease Sale 185. For the first time in years, the shelf drew the heaviest competition and some of the largest bids for a Gulf lease sale, including a sale-high $8.2 million for a single block. In fact, four of the 10 highest single bids in the entire sale, totaling more than $22 million, were placed on shelf blocks. Applications for drilling permits reportedly are on the increase. Offshore exposure hurt drillers For the most part, drillers and service companies with high exposure to the offshore have been hurt financially by market slowdowns, particularly in the North Sea and Gulf of Mexico. In some cases, labor strikes in Venezuela and civil unrest in Nigeria have compounded the problem.
Rowan lost more than $17 million in its worst first-quarter results in eight years, while Diamond Offshore lost nearly $26 million. Both companies also missed Wall Street consensus on earnings per share.
Baker Hughes reported first-quarter net income of $44.5 million but that was down from $33.3 million earned in last year’s first quarter. Operating profit also fell to $47.4 million from $70.6 million a year earlier.
GlobalSantaFe’s net income also was down to $45.9 million in the first quarter from $77.1 million in last year’s first quarter.
BJ ran against the tide, largely because of strong drilling activity in the U.S. and Canadian land markets. For the second quarter of Fiscal Year 2003, the company reported a profit of $44.8 million, up 34 percent from the prior quarter’s $33.5 million and up about 15 percent from the previous year’s $39 million in net income.
| 