Greasing the Skids

Record gas prices, OPEC solidarity and a U.S. administration doling out incentives for exploration and production all add up to good news for those companies conducting business in or profiting from the offshore market.

There is little doubt that the international offshore market, led by the Gulf of Mexico, is poised for a record rebound in the second half of 2001 and beyond.

The tandem of high crude prices — spurred by OPEC's seeming solidarity on controlling output — combined with the emphasis on expanding offshore production by the new U.S. administration seemingly provides the proverbial "win-win" for all companies that makes its living finding and recovering resources, or those companies that supply vessels, products and services to the offshore oil business.

Given the cyclical, sometimes unpredictable nature of the business, though, it is never a sure bet to celebrate prematurely. For instance, if the U.S. economic downturn extends beyond many analysts predictions, it could significantly reduce demand, thus helping to more quickly drive pricing down. In the latest Oil Market Report dated May 11, 2001 from the International Energy Agcncy (IEA), the organization notes that first quarter 2001 oil demand appears to have fallen short of expectations by more than a half million barrels of oil per day, yet still grew at 1.1 mb/d. Meanwhile, world oil production fell by 900 kb/d to 77.1 mb/d in April, with OPEC supply coming in 560 kb/d lower. Extraordinary gasoline prices made the headlines in late Spring, and the strong U.S. gas prices drew unusually high imports. Preliminary weekly statistics for April show that U.S. imports of gasoline blendstocks were 115 kb/d higher than a year earlier, an increase of 57 percent. The main concern in the U.S., besides of course high gasoline prices that are approaching $2 per gallon and starting to cause public outcry, is the availability of oil to meet peak summer demand, which because of a number of factors (North Sea maintenance, refinery shutdowns for unscheduled maintenance, etc.) is anything but certain.

Regardless, it appears that a strong oil market is here to stay, a situation that bodes well for the marine builders and suppliers, particularly in the Gulf of Mexico region. The recently concluded Offshore Technology Conference (OTC) in Houston was perhaps the most well attended and positive exhibition in years, as there were strong, positive vibes regarding the near term business prospects.

Dayrates To Hit 3-Year Highs Global Marine Inc. Chief Executive Bob Rose recently said in published reports that he expects dayrates for offshore oil and gas drilling rigs to surpass their highs of three years ago in 2001. Dayrates are currently running at about 74 percent of their 1997/98 highs. Rose said, with the West African and North Sea markets now showing signs of recovery as a longerestablished natural gas drilling boom continues in the U.S. Gulf of Mexico.

Global Marine's vice president of Investor Relations Michael Dawson welcomed energy proposals unveiled by President George W. Bush, saying proposed incentives for offshore oil and gas exploration were "a plus" but were unlikely to have much immediate impact on Global Marine, which he noted was already benefiting from a cyclical upswing in offshore drilling.

Rose said Global Marine is currently limiting the length of new contracts that it signs for its rigs so that it can benefit from the further increases in dayrates that it expects. The average dayrate for the company's rigs was $71,100 during the first quarter of 2001, up from $52,000 in the same period of 2000. The fleet utilization rate reached 100 percent last month for the first time since July 1988.

Rose said he expects some drilling rigs to be moved from the U.S. Gulf of Mexico to other markets, such as West Africa, this year, as international dayrates catch up with and overtake domestic rates.

Rose said he also expects rigs to be moved from the Gulf of Mexico to the North Sea, saying that market and West Africa are both improving "tremendously."