Deepwater drillers making a comeback

Ray Tyson

Petroleum News Houston Correspondent

Big offshore contract drillers Transocean and Diamond Offshore turned in respectable profits for the 2003 fourth quarter, but some deepwater rigs are experiencing too much idle time. Still, a light can be seen at the end of the tunnel.

“The company expects continued difficulty in its international and U.S. floater contract drilling services business segment in the near-term, with encouraging signs of improvement for this segment during the second half of this year and into 2005,” Transocean said in a Feb. 3 conference call with analysts. Despite the more positive long-term outlook for its premium deepwater rigs, the company’s other floaters, consisting largely of second and third generation semi-submersibles with conventional capabilities, are encountering a business environment “characterized by excess capacity on a global scale,” Transocean said.

Transocean said that while it expects “intermittent idle time” on some of its deepwater rigs through the first half of 2004, it has seen an increase in bid opportunities for long-term contracts starting in the second half of 2004 and into 2005.

However, for example, the Millennium, Pathfinder and Cajun Express, which are all capable of drilling in up to 10,000 feet of water, are currently working on short-term jobs in the Gulf of Mexico, Transocean said.

As for the shallower international jack-up market, Transocean added, “excess capacity” continues in West Africa, “although global demand for these jack-up rigs remains strong and is expected to improve in 2004.”

Transocean’s fleet utilization for the final three months of last year declined to 68 percent from 71 percent compared to the previous quarter, due primarily to lower business activity among floating rigs in the Gulf of Mexico and North Sea. Utilization was 74 percent during the 2002 fourth quarter.

Transocean reported overall fourth-quarter 2003 net income of $5.5 million or 2 cents per share. Excluding special items, the driller earned $22.9 million or 7 cents per share, surpassing Wall Street’s consensus of 3 cents per share. That compares to fourth-quarter 2002 net income of $101.5 million or 32 cents per share before special items.

Transocean’s floater segment, including high-specification semi-submersibles and drillships, earned $316.4 million, down from $375.1 million the year before. International jack ups earned $104.6 million in the 2003 period, against $114.5 million the year before, while Gulf of Mexico jackups took in $30.4 million in 2003, up from $19.9 million in the 2002 quarter.

Diamond rig upgrades paying off

It appears Diamond’s recent rig upgrades are paying off and should keep driving up revenues with the improvement in global rig markets, the company said. Diamond attributed the gain partly to the $400 million in conversions on two semi-submersibles and two jackups.

Diamond’s semi-submersibles Ocean Rover and Ocean Baroness were transformed into fifth-generation rigs capable of working in 7,500 feet of water. As fourth-generation rigs, they were rated to work in no more than 3,500 feet of water.

Also upgraded were the jackups Ocean Titan and Ocean Tower, two former slot rigs that could work in 300 feet of water. They are now cantilever jackups with more positioning flexibility and can work in 350 feet of water. The rigs also can drill down to 30,000 foot measured depths, a requirement as explorers drill increasingly deeper wells on the geologically deep continental shelf of the Gulf of Mexico.

Diamond has 14 jackups, seven of them independent-leg cantilevers capable of drilling in 300 feet of water. Three others are 250-foot independent-leg cantilever jackups, and there are two 200-foot mat slot rigs, which must drill vertically.

Transocean’s Todco spun off into publicly traded company to reduce debt separately

Ray Tyson

Petroleum News Houston correspondent

Because Transocean was offering the shares, Todco will receive no proceeds from the sale. After the initial public offering, which was to conclude around Feb. 10, Transocean was to own all of Todco’s outstanding class B stock and 95 percent of the voting power of all the outstanding common stock. Transocean offered 12 million shares of the new company, which is being traded on the New York Stock Exchange under the TODCO symbol.

Todco shares, in their market debut Feb. 5, rocketed 14 percent above the IPO price of $12 per share.

Transocean will continue to provide oil and gas drilling services, but will have no U.S. inland marine or Gulf of Mexico shallow water jackup operations, Todco said, adding that Todco’s main business is to contract its 70 drilling rigs and work crews to independent oil and gas companies, as well as to major international and government-owned companies.

Todco underwriters were Morgan Stanley, Banc of America Securities, Citigroup, Credit Suisse First Boston, and Simmons & Co. The underwriters have been granted an option by Transocean to purchase up to an additional 1.8 million shares to cover any over allotments.