Day Rates Deteriorate for Global Marine

To offset the decline, the company has drastically cut spending.
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Global Marine

(GLM)

sees further deterioration in day rates for rigs drilling in the Gulf of Mexico and the North Sea, two of the world's most important drilling markets.

Global's fleet in the Gulf of shallow-water rigs, known as jackups, is working at about $20,000 per day, with one exception. But as these rigs roll into new contracts, Global sees that average rate falling to the $17,000 range, an amount at which some smaller jackups are already working. Fierce competition for market share due to continued low oil prices keeps the threat of low-ball bids in full force.

To combat the drastic cuts in oil company spending -- an issue the entire drilling and services industry is dealing with -- Global has curtailed spending on all but essential items, instituted hiring and wage freezes and taken two rigs off the market, a move called cold stacking, which is considered drastic for drillers. The two rigs are in west Africa.

Global's fourth-quarter earnings, reported earlier Friday, reflected the poor conditions in the market; both net income and earnings per share fell sharply. Net income for the quarter fell 36% to $34.5 million, or 20 cents per share, on revenues of $258.9 million. In the year-ago period, Global saw net income of $54.3 million, or 31 cents per share on revenues of $319.3 million. The year-earlier quarter included a $70 million credit to deferred taxes, a $25 million tax-related charge and a $4.5 million charge for debt retirement.

Global's total net income for 1998 was $223.3 million, or $1.27 per share, on revenues of $1.2 billion. For 1997, Global posted net income of $270.1 million, or $1.53 per share, on revenues of $1.1 billion. The 1997 figures include the fourth quarter special items.

Global missed Street estimates for the quarter by 2 cents, yet its shares spent much of the day in positive territory. Global closed at 9 1/8, down 1/8.

Still, Global posted record revenues in 1998 and posted its second-highest annual net income ever, after 1997. But fully 62% of 1998's operating revenue was posted in the first half of the year, before the full impact of low oil prices hit the contract drilling industry.

Its drilling management division,

ADTI

, which utilizes third-party rigs, suffered significant losses in 1998's second half because GLM was paying for several third-party rigs that had no work. That number will be down to three at the end of the month from over a dozen in the fourth quarter, and by the quarter's end Global expects a more normal operating scenario. The division is important -- it accounted for 36% of 1998's total revenue. Without the burden of long-term contracts, and with a 1999 activity level similar to 1998's, Global expects the division to return to profitability.

ADTI is drilling eight wells. Bob Rose, Global's president and chief executive officer, said on the company's conference call Friday that it is seeing a tremendous pickup in activity. This pickup bucks the trend of declining drilling plans, which are filed weekly with

Minerals Management Service

. This federal agency oversees all drilling and leasing activity in the Gulf. ADTI drilled 77 wells last year, down from 107 the year before.