Oilfield service companies were not nearly as lucky as their oil producing counterparts. While net income in the oil producing industry was up over the 1998 third-quarter, oilfield service companies were still feeling the pain of the low oil prices from earlier in the year.
While the stock market - the global business measuring stick - has generally been positive on the offshore oilfield sector throughout much of the year, there has been a relapse of sorts in October, as uncertainty surrounding OPEC output quotas has largely dampened the year's progress. In fact, a major tracker of offshore industry stocks, Warburg Dillon Read, in mid-October cut its ratings of four oilfield equipment and services companies.
Among individual factors, Warburg cited expectations of flat oil rig demand everywhere except the Gulf of Mexico.Global Marine Inc. was cut to "hold" from "buy," based on delays in the construction of two new drillships, the CR Luigs and Jack Ryan, and the resulting rising costs, Global's high 71 percent debt-to-equity ratio and the probability of negative cash flow in 2000 produced the downgrade; R&B Falcon Corp. cut to "hold" from "buy," due to the company's share price, the 2000 outlook for jackup and deepwater rig demand in Brazil, the North Sea, West Africa and the Gulf of Mexico and R&B Falcon's leveraged balance sheet; Transocean Offshore Inc.
was cut to "hold" from "buy" with a 12-month price target of $32 a share after its proposed merger with Sedco Forex, with the expectation the deal will close by the end of the year; and Diamond Offshore Drilling Corp. was cut to "hold" from "buy," with a 12-month price target of $35.
And, although many CEOs don't necessarily see the remainder of 1999 being highly lucrative, the outlook for the year 2000 is quite positive.
ENSCO Announces Net Loss in 3Q
ENSCO International Incorporated reported a net loss for the three months ended September 30, 1999 of $11 million on revenues of $76.4 million, compared to net income of $59 million on revenues of $179.8 million for the three months ended September 30, 1998.
ENSCO had a net loss of $0.8 million on revenues of $283.5 million for the first nine months of 1999, compared to net income of $226.8 million for the first nine months of 1998.
The average day rate for the company's jackup rig fleet was approximately $20,500 for the third quarter of 1999, compared to approximately $51,600 in the third quarter of 1998. Utilization of the company's jackup fleet decreased to 74 percent in the most recent quarter, from 80 percent in the prior year quarter.
In the marine transportation segment, average day rates in the third quarter of 1999 for the company's fleet of oilfield support vessels decreased to approximately $4,100, compared to $7,000 in the year earlier quarter. Average utilization for the company's marine fleet was 63 percent in the third quarter of 1999, compared to 76 percent in the third quarter of 1998.
"As expected, our third quarter results reflect the difficult market conditions that have prevailed during 1999, and we do not expect any significant improvement over the remainder of this year," said Carl Thome, chairman and CEO. "That said, we are beginning to see some strengthening in the Gulf of Mexico drilling market, both in terms of activity levels and day rates. International markets remain soft, however, and we currently believe that meaningful recovery in these markets will lag recovery in the Gulf of Mexico by nine to twelve months."
Noble Drilling Reports Lower Net Income
Noble Drilling Corporation reported net income for the third quarter of 1999 of $25.2 million on operating revenues of $176.8 million, compared to net income of $32.6 million on operating revenues of $195 million for the third quarter of 1998.
Net income for the nine months ended September 30, 1999, excluding the effects of non-recurring items, was $78.8 million on operating revenues of $532.4 million, compared to net income of $129.2 million on operating revenues of $600.3 million for the nine months ended September 30, 1998.
"We are beginning to witness renewed confidence by our clients as oil and natural gas prices remain robust. Clearly we are pleased with the results which have exceeded market expectations," said James C. Day, chairman and CEO.
Utilization of the company's active rigs in the U.S. Gulf of Mexico averaged 72 percent for the third quarter of 1999 compared to 64 percent for the third quarter of 1998 and 66 percent for the second quarter of 1999. International offshore utilization averaged 64 percent for the third quarter of 1999 compared to 89 percent for the third quarter of 1998 and 76 percent for the second quarter of 1999.
Day emphasized, "Regions of the world that should witness improved activity near term will be the U.S. Gulf of Mexico and Brazil and longer term, West Africa. Obviously we are encouraged by the early signs of a recovery in the sector."
Halliburton Sees Net Income Gain
Halliburton Company (HAL)
reported the company's 1999 third quarter net income was $58 million compared to a loss of $527 million in the 1998 third quarter. The year earlier quarter was impacted by a $722 million after-tax special charge related to the company's merger with Dresser Industries, Inc. and other restructuring activities.
Halliburton's consolidated revenues totaled $3.5 billion in the 1999 third quarter, approximately four percent below 1999's second quarter and 16 percent below the year ago quarter.
Landmark Graphics Corporation signed a major contract with BP Amoco to standardize its drilling, reservoir engineering, geology and geophysics applications utilizing Landmark's extensive integrated and open suite of software applications during the third quarter.
Additionally, Halliburton Energy Services deployed a new, state-of-the-art $35 million vessel (MV Cape Hawk) to Carmen, Mexico to enhance its well stimulation contract with PEMEX.
Sperry Sun and Baroid, in conjunction with Diamond Offshore Team Solutions, Inc., participated in the successful drilling of the world's deepest water-depth turnkey well, drilled in more than 7,200 ft. of water in the Gulf of Mexico.
Dick Cheney, Halliburton Company's CEO, said, "Significantly higher crude oil and natural gas prices have lifted customers' cash flows considerably, and they are now beginning to increase spending in certain geographic areas, particularly in North America. I am optimistic that as our customers' year 2000 spending budgets are finalized, we will see further activity increases throughout the world."
Transocean's Net Income Down
Transocean Offshore Inc. announced net income for the three months ended September 30, 1999 was $46.9 million on revenues of $204.3 million. Comparative net income for the corresponding three months in 1998 was $84.4 million, excluding a non-recurring after tax gain of $8.5 million, relating to the sale of certain non-core assets and surplus drilling components. Revenues in the prior year period were $269.0 million.
For the nine months ended September 30, 1999, net income totaled $188.5 million on revenues of $746.2 million. Comparative net income for the nine months ended September 30, 1998 was $217.7 million exclusive of non-recurring, after tax gains totaling $22.4 million relating to the sale of non-core assets and surplus drilling components referred to above, and the settlement of a dispute with Global Marine Inc. Revenues during the initial nine months of 1998 were $778.9 million.
Utilization of the company's 26 fully owned and operational mobile offshore drilling rigs was 80 percent during the three months ended September 30, 1999, including a utilization level of 86 percent for the company's 20 semisubmersibles and drillships.
The utilization measures compare to levels of 81 percent and 87 percent, respectively, during the three months ended June 30, 1999 and 98 percent and 99 percent, respectively, during the corresponding three months in 1998. At September 30, 1999, five of the company's mobile offshore drilling units were idle, including three semisubmersibles and two jackups.
"Quarterly results were better than external expectations due in part to a stable fleet utilization level, which was down only slightly from the level experienced during the second quarter of 1999," said J. Michael Talbert, chairman and CEO. "Two previously idle rigs returned to work during the quarter while existing contracts on two other rigs did not expire during the quarter as expected.
"Also, mobile rig operating costs continued to trend lower, due to cost containment efforts. The average dayrate for our 20 floating rigs declined to $116,200 during the third quarter of 1999, down from $128,100 and $124,800 during the second quarter of 1999 and the corresponding three months in 1998, respectively.
"This average dayrate measure is expected to continue to decline into 2000 as contracts on several floating rigs, which were signed prior to the onset of weakening market conditions, expire and new contracts are negotiated."
Talbert added, "Opportunities for new drilling programs are limited at present, especially in the deepwater segment of our business. Drilling assignments awarded by customers tend to be short-term in duration, with recent industry contract signings in Brazil being a welcome exception. These market conditions tend to keep rig availability and competitive forces high. The timing of any recovery in the floating segment of the offshore industry is unpredictable, but several factors may indicate a firming fundamental base, including resilient commodity prices, stronger OPEC resolve to adhere to production quotas and a declining production base, particularly in the U.S."
Operating Revenue Down 23 Percent
Schlumberger Limited reported 1999 third quarter operating revenue of $2.25 billion was 23 percent below third quarter 1998. Net income was $139 million, 60 percent lower than the same period last year before the 1998 third quarter charge.
Oilfield Services revenue decreased 28 percent year over year as the rig count declined 16 percent. Compared with the second quarter of 1999, revenue increased 2 percent. In North America, quarterly revenue of $375 million increased 18 percent sequentially and declined 23 percent year over year as the rig count declined 11 percent.
The Sedco Forex Offshore rig utilization rate was 76.4 percent compared with 94.2 percent in the third quarter of 1998. The semisubmersible utilization rate decreased from 95 percent to 72.2 percent, while the jackup utilization declined from 100 percent to 90 percent. The industry offshore rig utilization was 69 percent versus 88 percent in the third quarter last year.
At the end of September, the Sedco Forex Offshore fleet consisted of 24 semisubmersibles, 10 jackups, 2 drillships, 4 tenders, 6 swamp barges and 2 land rigs. In addition, 3 semisubmersibles and 1 jackup are under construction. Sedco Forex Offshore revenue and pretax operating income in the quarter were $165 million and $29 million, respectively, compared with $292 million and $132 million, respectively, last year.
The merger transaction in which the offshore contract drilling business of Schlumberger will be spun off and combined with Transocean Offshore is expected to be completed by year-end 1999.
Parker Drilling Revenues Decline
Parker Drilling Company reported unaudited revenue of $80.1 million, and net income of $1.33 million for the three months ended September 30, 1999. The prior year's results for the same quarter reflect total revenue of $116.6 million and a net loss of $3.7 million.
Third quarter 1999 results include the gain on the sale of the company's lower-48 land rigs, as well as several non-recurring and non-cash expense items. Adjusting the third quarter 1999 results for those special items results in a net loss of approximately $15.0 million.
"Based on the increased activity we are seeing in our Gulf of Mexico barge and jackup rig markets, we are encouraged that the third quarter will be the trough for our company," said Robert L. Parker, Jr., president and CEO. "We are highly leveraged to natural gas drilling activity in the Gulf of Mexico with our fleet of barge, jack-up and platform rigs, and our rental tool company, Quail Tools."