Offshore Technology Conference: Global Marine's CEO Talks Turnkey and Other Topics

In this Q&A, Bob Rose discusses the future of his company and offshore drilling in general.
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HOUSTON -- A year ago, Bob Rose was hired as Global Marine's (GLM) president and chief executive. Throughout his nearly 40 years in the offshore drilling business, including a 13-year stint at Global between 1964 and 1976 and a six-year stint at Diamond Offshore (DO) - Get Report, he has seen four industry downturns.

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caught up with Rose at the Offshore Technology Conference here to get his views on a variety of topics including consolidation among the offshore drillers and rig rental rates.

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: On April 15, Global reported the 149 bid requests it received for

ADTI

, its turnkey, or drilling management division. It is a record number. Can you give us a status report?

Bob Rose

: This is one of the leading indicators of what is expected to happen in the Gulf of Mexico. ... We believe that the number bodes very well for the number of wells that will be drilled later. And to really augment that, we look at the number of drilling plans that have been processed through the

Minerals Management Service

. Those too have been very high. And about 80% of those translate to the wells that we drill, so if you take those two leading indicators you can really make a case that we're to have much better activity in the latter part of the year.

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: There's been a lot of talk of day rates for certain classes of jackup rigs doubling by the year 2000. Do you buy that theory? And if so, how will that impact Global Marine's revenues?

Rose

: Well, we hope that's true, however, I haven't quite signed on to that yet. We do have improved oil and gas prices. There's no question about that. And I think we need a period of probably six to nine months before most of the oil and gas companies are going to believe that this price is real, and it will also allow them to repair their balance sheets with the improved cash flows.

They'll then start looking at increasing their activity levels and, when activity levels increase, it takes about another three to six months before the day rates start moving up. That's because there is a lot of excess capacity, idle rigs, out there in the market. Those all have to go back to work, and you have to achieve about 85% to 90% utilization of the fleet in the Gulf before rates really start moving. So I think it may be a little premature to think we'll do that before the year 2000, but I certainly hope that's the case.

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: Shares of Global Marine have virtually doubled in a month's time. What are you telling shareholders?

Rose

: We think the market is anticipating improved financial performance for those of us that have jackup equipment. And I think that's probably appropriate to do. However as I just indicated, I think the financial performance is going to be 18 months to two years in the future before we start seeing really dramatic improvements in our financial results.

But the worst is behind us. Unquestionably that's true. We've reached the inflection point, and so I think things will continue to improve from here. Even though our stock is at 15 13/16, it's down from a high of more than 35 a share, so hopefully there's a tremendous amount of upside remaining in our stock price.

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: What will be different one year from now in the

oil company and drilling contractor relationship?

Rose

: What we believe will be different is the operators are going to rely more on service companies to do the actual well construction and by that we mean the total package. It won't be necessarily on a turnkey basis, although many of them will be on a turnkey basis -- but just more on the basis of drilling management where we can totally take over the responsibility of obtaining the permits and doing all the things that typically operators do. I think they are going to outsource more of the responsibility of well construction.

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: In January the

Houston Chronicle

reported that Global Marine was actively seeking a deal to expand its size and scope. Can you tell us the details?

Rose

: I can't talk about any specifics, but I will say we are looking for any way we can increase our size and increase shareholder value, both internally and externally.

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: Now that oil prices are flirting with $19 per barrel, has the consolidation opportunity window shut?

Rose

: I don't think it has shut. Bear in mind that the oil and gas companies have done a good job of consolidation as have the majors. The offshore drillers have not. One reason is that only about 2% to 4% of our cost is attributable to our general and administrative structure. So if you put two offshore drillers together, the transaction value would be about $5 billion and you can only save $20 million or $40 million a year. It's not a compelling reason to put together two corporations.

The second reason is that different companies are at different phases of the cycle in terms of their stock prices, so it's difficult from an evaluation standpoint to agree on what the relative values of the companies are. Third are the social issues -- no question those are big issues that have to be solved.

One of the things that people don't realize is that you can't afford to pay a premium in a combination because there are not a lot of synergies that you can have. The only way it's going to make sense for two drilling companies to come together would be an all-stock merger of equals. And in those kinds of transactions, accounted for on a pooling basis, some combinations make sense.