Newspaper article THE JOURNAL RECORD

Growth Slows in Oil Services

Newspaper article THE JOURNAL RECORD

Growth Slows in Oil Services

Article excerpt

NEW YORK -- A dramatic slide in world oil prices since last fall has stunned the exploration and production industry. As a result, profit growth slowed, but didn't stop, in the oil-services business.

Analysts expect another strong performance in the recent quarter from the companies that rent drilling rigs, evaluate rock, make drill bits and provide the whole array of products and services that make the oilfield work.

Industry profits are expected to show a roughly 35 percent rise from last year, said Schroder & Co. analyst James Stone.

While that is good news, growth has slowed from last year's robust pace and even from earlier this year. The culprit is oil, which has been lingering at $14 to $15 a barrel, well below the $18-to-$21 range considered typical.

"The oil price has been lower than expected for longer than expected, so people are cutting their budgets," said Ken Sill, an analyst at Credit Suisse First Boston.

A survey released this month by Salomon Smith Barney concluded that 1998 spending on oilfield services will rise just 6.2 percent to about $90 billion, instead of the 11 percent increase projected in January.

The oil-price drop was most damaging to U.S. onshore drilling, a market with lots of marginal wells that can be shut down on short notice. Nabors Industries, the world's largest land driller, is expected to report second quarter earnings of 33 cents a share, up from 29 cents a year earlier, according to First Call, which tracks analysts' estimates. Nabors changed its fiscal year, so the year-ago was then its third quarter.

The oil-price drop was less of a blow to offshore drilling, where contracts are longer term, but demand has been weakening for shallow- water drilling rigs. In the Gulf of Mexico, the biggest and most developed shallow-water market in the world, rates for some rigs have fallen for the first time in years.

For example, a "jackup" rig -- which floats out and extends legs to the ocean floor -- drilling in 300 feet of water in the Gulf of Mexico commanded $47,500 to $62,000 a day in June 1998. That's up slightly from $44,000 to $60,000 a year earlier, but down a bit from rates in March, according to Offshore Data Services, a research firm.

Wall Street expects Global Marine, a driller with many jackup rigs, to post second quarter earnings of 43 cents a share. That's up from operating earnings, which exclude one-time items, of 35 cents a year ago.

On the other hand, deepwater drilling -- in 1,000 feet or more -- has yet to be hurt by the low oil prices, mostly because those projects tend to be longer-term and promise greater returns. Diamond Offshore Drilling, one of the largest deepwater drillers, is expected to report second-quarter earnings of 70 cents a share, up from 45 cents a year ago, adjusted for a 2-for-1 stock split in August. …

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