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Mixed bag for offshore drillers Third-quarter earnings reflect continuing struggles in Gulf of Mexico, North Sea Petroleum News
Offshore drillers Diamond Offshore, Noble and Ensco International have checked in with a mixed bag of earnings for the 2003 third quarter, but all have the same headache when it comes to troublesome rig markets in the Gulf of Mexico and North Sea.
Diamond, which suffered a third consecutive quarterly earnings loss, plans to reduce capital spending to help offset continuing weak regional markets, as well as slash its stock dividend by roughly half “to help maintain the company’s strong liquidity position in light of recent declines,” Larry Dickerson, Diamond’s chief operating officer, said Oct. 16.
For the 2003 third quarter, Diamond reported a loss of $11.5 million or 9 cents per share on revenues of $189.9 million, compared to losses of $21.6 million in the first quarter and $16.7 million in the second quarter. In the year-ago third quarter, the company earned $21.7 million or 16 cents per share.
In addition to soft drilling markets in the North Sea and deepwater Gulf, non-operating factors contributed to the company's third-quarter loss, Diamond said. Lower interest rates yielded a decline in interest income, while the sale of fixed income securities produced losses, the company added.
“Diamond is aggressively seeking out new markets and to control costs, but we’re all waiting for the market to improve,” Dickerson said in a conference call with analysts.
He said Diamond next year intends to chop its typical $100-million a year rig maintenance program by 40 to 50 percent, as well as curtail operating, administrative and other expenses. The company said it also will save roughly $100 million next year on rig upgrades completed this year.
The company said it also plans to sell two older generation semi-submersible drilling rigs, the Ocean Century and the Ocean Prospector. The rigs have been cold stacked in the Gulf of Mexico for several years.
Dickerson said that in spite of three consecutive quarterly losses, the company's financial situation is improving. He noted that Diamond’s earnings losses have steadily decreased since the 2003 first quarter. Noble lashes out at analysts Noble, which beat expectations with a 2003 third-quarter profit that exceeded both the prior and year-ago quarters, opted to lash out at Wall Street in its Oct. 21 conference call, blaming analysts for its “languishing” stock price this year.
“Here the company has increased earnings, reduced debt and is trading at a multiple that is less than others going in the other direction,” said James Day, Noble’s chief executive officer.
Noble reported a third-quarter net income of $53 million or 40 cents per share, compared to profits of $43.7 million or 33 cents a share in the previous quarter and $49.2 million or 37 cents per share for the same period a year earlier.
Day also criticized “those” analysts who “fixated” on the Gulf of Mexico and “jumped on the bandwagon a year ago and said everything is going great guns. Well it hasn’t.”
Noble moved rigs out of the gulf this year in search of more lucrative markets in Mexico and abroad. “We can’t sit on our hands and hope for better times,” he said, adding that Noble likes the international market because it is “much more sustained, has higher returns and is not as volatile.” He said that while the gulf rig market is improving, “I would never say it’s accelerating.”
Day said that while Noble expects some improvement in the North Sea, “we don’t see that market being real robust. We believe the North Sea market will continue at current levels.”
Noble also was hurt by weak market conditions in West Africa, Day said.
However, “we are witnessing the initial recovery in West African operations and anticipate this market firming up over the next 24 months,” he added. Ensco: day rates should improve Ensco ended the 2003 third quarter with net income of $27.8 million or 19 cents per share, below net income of $31.1 million or 21 cents per share in the previous quarter and net income of $30.5 million or 21 cents in last year’s quarter.
Carl Thorne, Ensco’s chief executive officer, said that while day rates should continue to improve in the Gulf of Mexico, Latin America, India and the Middle East, rig rates for the North Sea have softened and “little improvement” is expected until next year.
GlobalSantaFe’s revenues also felt the cold bite of the North Sea, as well as lower rig utilization in West Africa and deepwater markets in general.
The company said Oct. 22 that its 2003 third-quarter profit plummeted to $15.1 million or 6 cents per share from $75 million or 32 cents per share in the year-ago quarter.
“While the worldwide jackup market appears to be strengthening, we expect to see continued softness in the mid-water depth floater markets and a marginal over supply in the deepwater markets,” said Jon Marshall, GlobalSantaFe’s chief executive officer.
For the third quarter, the company’s drilling management services segment reported operating income of $5.5 million on revenues of $128.8 million, compared to operating income of $7.3 million on revenues of $117.6 million for the same period last year. The company attributed that performance specifically to lower margins on projects in the North Sea.
However, the overall decline in third-quarter net income can be attributed mainly to the decline in revenues from contract drilling, GlobalSantaFe said. Operating income of $28.8 million was down from $97.2 million in the year-ago quarter, the company said.
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