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Parker Drilling Company (PKD) |
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WIKI ANALYSIS
Parker Drilling Company (NYSE: PKD) contracts out its drilling rigs and equipment to companiesexploring for oil and natural gas. As of December 31, 2009 PKD had 11 rigs in the Africa-Middle East region, ten rigs in the Americas region, eight rigs in Asia Pacific, and thirteen barges in the U.S. Gulf and Mexico region.[1] The concentration of rigs in the Gulf of Mexico positions the company to benefit from an increase in oil production at depths greater than 1000 feet.
As Parker Drilling operates on a contract basis, the company is exposed to unforeseen weather such as hurricanes, which have wreaked havoc in regions such as the Gulf of Mexico. Contracts with E&P companies often contain clauses that protect these customers from natural disasters, and Parker Drilling depends on weather forecasts to price and draft contracts.
The company has benefited from a worldwide increase in demand for energy, which has been driven by growing economies such as China. As demand for oil and natural gas has skyrocketed, so has the demand for drilling rigs.
Company Overview
Parker Drilling makes money by contracting out its drilling rigs and equipment.
Business Financials
In 2009, PKD earned a total of $753 million in total revenues. This was a decline from its 2008 total revenues of $830 million. This had a negative impact on PKD's net income. Betwee 2008 and 2009, PKD's net income declined from $26 million in 2008 to $9 million in 2009.[2]
Business Segments
Parker Drilling breaks down its business into three segments:
United States barge and land drilling: The company has three land rigs within the U.S. and nineteen barge drilling rigs in the U.S. Gulf of Mexico.
International land drilling and offshore barge drilling: PKD owns eight land rigs in the Commonwealth of Independent States, nine in the Asia Pacific, three in Latin America, one in the Middle East, and one barge rig in the Caspian sea.
Drilling related rental tools: Parker Drilling contracts out not only its drilling services but also its equipment depending on the opportunity cost associated with company or second party use.
Key Trends and Forces
Weather Conditions Dictate Feasibility of Contracts
Parker Drilling makes money through contracts, which often hold clauses to protect clients from unforeseen climate changes. Additionally, the terms of these drilling contracts depend on the forecasted weather patterns of a given area. Thus, the variability of weather patterns and events such as hurricanes plays a major role in the the number of annual drilling contracts drafted and executed, which translates into an invariability on operational income through domestic and international drilling segments.
Benefits from Increased Natural Gas and Oil Prices
PKD generally benefits from higher natural gas and oil prices, as consumers have proven to be relatively inelastic to price increases and the world's appetite for energy is increasing (see China's Energy Appetite). However, rising prices for these resources may also work as a double edged sword, as increased prices mean:
- More contracts for Parker Drilling because of the increased number of oil processing companies contracting Parker Drilling to excavate, which stimulates operational revenue.
- Increased competition as companies find contract drilling to be financially lucrative. Parker Drilling’s established presence in international offshore and land drilling have allowed its revenues to grow exponentially despite increased competition.
Drilling in Ever-Deeper Waters
The company contracts out several offshore rigs in the Gulf of Mexico as well as the Caspian Sea. As the increasing demand for energy has bolstered higher prices for oil and natural gas, oil exploration and production companies are digging deeper in the ocean for oil. Parker Drilling is one of several companies with the tools and rigs needed for deepwater exploration.
Dynamic Environmental and Other Regulations
Environmental regulations with respect to standards associated with natural gas and oil drilling operations and transportation, can translate into higher fixed costs and limited access to potential markets. As the drilling industry itself requires significant physical capital investment, any tightening of environmental policy will have a significant impact on short term and long term revenues.
Competition
Parker Drilling is one of the two most actively employed international drilling companies. However, the oilwell service companies listed below have more diversifed operations than Parker and are also larger in terms of market capitalization.
Historically, there have been only a small number of corporations in the international drilling industry because of the remoteness of some drilling locations and complexity involved with drilling in deep water. However, with the rising natural gas and oil prices, it is becoming more and more attractive for national companies to initiate drilling operations.
Some of the competitors within the domestic and international drilling services industry are:
- Transocean (RIG), as the name implies, is the biggest U.S. provider of rigs, platforms and services for offshore drilling. The company acquired Santa Fe International (GSF) in late November 2007, creating the second largest oilfield services company overall, behind only Schlumberger N.V. (SLB) (based on market capitalization). Given that GSF also specializes in offshore drilling, the company in effect doubled down on deepwater drilling.
- Diamond Offshore Drilling (DO) is a leader in the offshore drilling industry. DO owns one of the largest drilling fleets in the world, a total of 44 ships, including 30 semisubmersibles, 14 jack-ups and one drillship. DO contracts these rigs to “operators”, or oil companies to find new oil or gas deposits, or to prepare existing deposits for production.
Others include:
- Noble (NE) (INT)
- Hercules Offshore (HERO) (USA)
- Pride International (PDE) (INT)
References
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