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Low Gulf of Mexico activity puzzles firms Energy service firms in Gulf suffering from low activity rates; rig count down from 2000-01 levels The Associated Press
Despite strong commodities prices, natural gas exploration and production activity in the Gulf of Mexico has failed to rebound and energy services companies have seen their business decline.
Energy service companies historically have benefited from high energy prices as oil producers and independents sought to produce more oil and gas.
Tidewater Inc. of New Orleans waited for part of last year and well into this one for a turnaround.
But as Tidewater waited, it bled cash. With many of its ships and crew workers sidelined, Tidewater lost $8 million from its Gulf operations during the quarter that ended in June.
That forced the company to cut 50 ship-based and shore-side jobs and demote 160 other employees, reducing their salaries because of the lack of work.
“We had to do something to right-size our capacity,” said J. Keith Lousteau, Tidewater’s chief operating officer. “We waited as long as we could.
The rate of use for supply vessels in the Gulf was just 59 percent in September, Citigroup Smith Barney reports, citing the most recent data. That’s compared with rates of 68 percent in September 2002 and 80 percent in September 2001. The recent use rate is the lowest since the late 1980s. Service industry challenged The industry cannot understand what’s happening.
“It’s very difficult to say,” McMoRan Exploration Co. Co-chairman James ‘Jim Bob’ Moffett said.
Bill Walker, president of Howard Weil Labouisse Friedrichs Inc., a New Orleans investment bank, said the near future does not look promising.
“Service companies are going to be extremely challenged,” he said.
Although Walker said he disagrees with doomsayers who suggest the Gulf of Mexico is on the verge of becoming a dead sea, he said the Gulf is undergoing a fundamental shift.
“The Gulf of Mexico we have grown up with is over,” he said.
In 2000 and 2001, business in the Gulf was booming. On average in 2000, 136 rigs were operating there. That number rose to 148 on average in 2001, according to Baker Hughes.
The activity reflected oil prices that averaged $30.29 a barrel in 2000 and gas prices that averaged $4.02 per thousand cubic feet in 2001, according to the U.S. Department of Energy.
But in 2002, as oil prices dipped to about $26 a barrel and natural gas to less than $3 per thousand cubic feet, rig counts dropped to an average of 109.
Then came 2003. Signaling another potential boom, oil prices have again risen, trading at times well above $30 a barrel. Gas prices have also surged, with futures trading at more than $6 per thousand cubic feet during the summer.
So far this year, though, average rig counts have hovered around 104, about the same levels as 2002. MMS also puzzled “The bottom line is, I don’t know what’s going on either,” said Chris Oynes, who oversees the Gulf Region for the U.S. Interior Department’s Minerals Management Service. “I’m just as bewildered as everyone else.”
While Tidewater and similar oil-service firms are sputtering, some companies that drill for oil and gas are surfing the wave of high prices.
Energy Partners Ltd. of New Orleans, for instance, has benefited from rising natural gas prices and has been plowing its newfound cash back into the Gulf.
For the first nine months of this year, Energy Partners’ revenue increased to $170 million from $100 million during the same period in 2002. Net income for the period was $28.5 million, compared with a net loss of $7.9 million in the first nine months of 2002.
The company began 2003 with a capital investment budget of $90 million and increased it to $110 million as cash flow increased. The company’s directors approved a capital expense budget of $125 million for next year, and executives have said it could rise if commodities prices remain strong.
“Typically what you hear is that the Gulf of Mexico is a dead sea, that there aren’t any opportunities out there,” said Richard Bachmann, Energy Partners’ founder, chairman and chief executive. “We clearly disagree with that.”
Likewise, McMoRan Exploration has been exploring for so-called “deep gas,” located deep underground in the shallow waters of the Gulf. Recent discoveries have helped send the company’s stock from less than $3.50 per share a year ago to $18.95 Dec. 5.
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