Drilling Sector May Have Missed Chance For Consolidation

Friday, October 01, 1999
Despite the announcement of a large offshore drilling merger this summer, the fragmented industry may have missed its chance for further consolidation due to a recent swift cyclical upswing, according to analysts. Shlumberger Ltd.'s announcement in July that it would merge its offshore drilling unit, Sedco Forex, with Transocean Offshore Inc., to form the world's largest offshore driller, was expected to set off a wave of consolidation in the industry, matching some of the activity among oil majors. But analysts now say a rebound in crude oil prices has closed the window of opportunity by prompting companies to hold out for wider operating margins. "We're too far along in the upward cycle to expect any significant new consolidation (in the offshore drilling industry)," said Clay Brethour of Dain Rauscher Weiss. "Companies that were vulnerable to consolidation are looking at the thickening margins and digging in their heels." A deep depression in crude oil prices, which hit rock-bottom last winter, started a round of consolidation among oil majors leading to the planned mergers of BP Amoco/Arco and Exxon Mobil, as well as numerous refining and retail alliances, but due to peculiarities of the offshore drilling business the action there remained relatively muted. "Part of the reason is that offshore drilling companies don't realize substantial savings from mergers, like in other aspects of the energy industry," said Fred Mutalibov of Southwest Securities. "The cost of a single drilling contract remains the same no matter how many rigs you operate, so there have to be other circumstances involved." But the planned formation of Transocean Sedco Forex will work, experts say, because the drilling industry was depressed enough at the time to allow for a relatively cheap acquisition of assets through Wall Street. It also allowed Schlumberger to focus on its less volatile core services to oil and gas companies. Since then, crude oil prices have reached new highs, more than doubling from lows of around $11 per barrel in December 1998 to the current $24.00 per barrel, leading offshore drilling companies to expect wider margins within the coming months. As a result, analysts say any future mergers would be based primarily on the aspiration to achieve 'critical mass' - the ability to afford debt, raise money on Wall Street, and control a larger part of the market - as opposed to operational costs saving. Most offshore drilling companies have already achieved 'critical mass,' though there are a few exceptions, according to analysts, including Marine Drilling and Atwood Oceanic - the smaller players in the patch. "I expect that one or both of these companies will consolidate within the next six to 12 months," said Mutalibov. "But the ripest time for consolidation would have been earlier in the cycle." Atwood and Marine Drilling's stocks have jumped between 50 and 62 percent since their lows this winter on speculation of a merger, compared to a 41 percent jump since winter in the oil services field as a whole. Mutalibov said the offshore drilling industry's cycle bottomed out in April and that recovery in the industry traditionally takes between 18 and 20 months. A standard indicator of the cycle is the percentage of rigs under contract, he said, with 85 percent near the top. Current rig use worldwide is at roughly 74 percent, up from around 60 percent in April.
Maritime Reporter June 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Legal

Cause of S.Korea Ferry Businessman's Death Remains Unknown

Yoo's body too badly decomposed to determine cause of death; mystery surrounding final days of de-factor owner of doomed ferry deepens. Yoo's son arrested in latest capture of family members.

House Subcommittee Hearing Highlights “Dismal State” of U.S. Icebreaking Capability

At the July 23, 2014, hearing of the House Subcommittee on Coast Guard and Maritime Transportation on “Implementing U.S. Policy in the Arctic” the committee chairman, Rep.

Iraqi Kurdish Oil Nears US Port Despite Concern in Washington

A tanker carrying crude oil from Iraqi Kurdistan is just one day away from arriving at a U.S. port, according to ship tracking satellites, despite Washington's

Offshore

Study: An Arctic Oil Well Blowout Could Spread More Than 1,000km

Oil from a spill or oil well blowout in the Arctic waters of Canada's Beaufort Sea could easily become trapped in sea ice and potentially spread more than 1,000 kilometres to the west coast of Alaska,

Westermeerwind Wind Farm Construction Begins

Mammoet announced today that Westermeerwind BV has reached financial close on July 25 for the turnkey construction of the Westermeerwind wind farm in Ijsselmeer,

Gas Prices Help Offset Statoil's Output Drop

Statoil's second quarter 2014 net operating income was NOK 32 billion, a decrease of NOK 2.3 billion compared to the second quarter of 2013. Adjusted earnings were NOK 32.

 
 
Maritime Careers / Shipboard Positions Maritime Standards Naval Architecture Navigation Offshore Oil Pipelines Pod Propulsion Ship Electronics Ship Simulators Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1132 sec (9 req/sec)