Gulf of Mexico

Fed up with Wall Street analyst's inability to recognize an offshore oil boom when it drives rig utilization past 100%, Noble Drilling recently joined Tidewater and Transocean in what has become a popular move. The company decided to buy back 10 million of its own common shares.

Jun 1st, 1997
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The Aker Maritime, Proffshore mid-water completion system, named Atlantis.


Drillers can't wait for Wall Street

Fed up with Wall Street analyst's inability to recognize an offshore oil boom when it drives rig utilization past 100%, Noble Drilling recently joined Tidewater and Transocean in what has become a popular move. The company decided to buy back 10 million of its own common shares.

This means the contractors know their stock is undervalued. Guess what - they are not alone. Analysts have been saying for months that the entire offshore oil service sector is currently a huge bargain. With little debt and no inclination to build or upgrade on speculation, these contractors, manufacturers, and service companies are putting their money where they know it will grow.

While Wall Street refuses to look at anything but the price of crude when evaluating these companies. They miss the point that the market is so hot right now some companies are delaying equipment upgrades. Bob Rose, president of Diamond Offshore, said ongoing demand means mobile rigs can make so much money where they are, it does not make economic sense to take them out of service long enough to be refitted. "The kind of rates we're getting today means you don't want to take a rig out of service," he said.

Industry investment banker Matt Simmons, of Simmons & Co., said growth in the oil service companies is inevitable because of the stagnant price of oil and the steady increase in demand. He said the newbuilds will not be financed with a company's cash, but with money borrowed against a guaranteed long-term contract.

Will this latest move be the start of a trend? Simmons said the ball is already rolling as other oil service companies, fed up with Wall Street's end-of-its-nose analysis, charge in to grab huge chunks of their own stock while it's cheap. If the Noble stock buyback does not wake up traders then, Simmons said he expects similar buybacks by other well-positioned companies such as Global Marine, Diamond Offshore, Falcon, and Atwood.

Regardless of whether this becomes an industry-wide trend, it is a sure sign that a boom is on. A company knows its books better than anyone, and if a contractor is willing to invest more than $200 million in its own stock, that's a sign there is money to be made.

Artificial seabed in the deepwater Gulf

Conoco and Reading & Bates might want to talk to Senior Consultant Olav Taustad at Proffshore before moving much further on a second $200 million ultradeep drillship deal. (Incidentally, industry insiders believe the final price could be low by $150 million.). The Atlantis mid-water completion unit, now being tested offshore Norway, could take conventional semisubmersible drilling units beyond 10,000 ft water depths, while eliminating the challenges of weight and pressure on the Ultra Deep Challenge (as this project is called).

Using the Exploration version of a mid-water artificial seabed, a company can raise its effective seabed to around 1,000 ft, which is still deep but hardly the challenge faced by those currently working on conventional designs for these ultradeep leases.

By adjusting the ballast of the unit, Taustad says a conventional rig can operate well beyond current limits, and certainly past the 10,000 ft barrier with no need for topside upgrades. The only change would be in the mooring system. In addition to its versatility, the Atlantis unit also will be ready much sooner than the new drillships and cost a fraction of the half-billion-dollar estimate Conoco and R&B have quoted for the Ultra Deep Challenge.

Taustad said Proffshore and Aker have a deal to use the exploration prototype for a drilling project on the Voering Plateau offshore Norway in August of 1998. He said specific applications in the Gulf of Mexico would mean a study of currents in the area. But he did collect data on this situation at the recent Offshore Technology Conference in Houston which could lead to just such an analysis.

Could this be the technological paradigm shift sought by the industry? If so, then the Western Gulf Lease Sale coming up in August, which involves some of the deepest acreage yet offered, may take drilling vessels far deeper than ever imagined.

Once bitten, twice shy

"Lord, if you'll just give me a second chance I promise I won't blow it this time." While the irony of this tired US bumper sticker has long since gone stale, it could function well as the mission statement on several annual reports this year. Oil companies, suddenly flush with cash from the now year-old upsurge in offshore E&P, are quietly funneling that money into retiring debt and improving capital positions.

Virtually no one is building anything on speculation and even salaries are flat. Couple this with conservative oil price speculation and its safe to say that the industry has learned its lesson. Russell Luigs, president of Global Marine seemed to sum it up when, speaking at this year's Offshore Technology Conference in Houston he said "the worst thing that could happen to us is $40 oil.".

Copyright 1997 Oil & Gas Journal. All Rights Reserved.

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