Oil, gas firms predict technology to drive more drilling in Gulf of Mexico

The best years for oil and gas production in the Gulf of Mexico could still lie ahead.

That was the message presented at last week's fourth annual Louisiana Energy Conference at the Windsor Court Hotel. Nearly 100 Wall Street investment professionals heard presentations from 17 energy

What's great about this business is that it's so cyclical, said Terry Hall, chief executive of Harvey-based Superior Energy Services. Things get bad for a while but you know eventually it's going to get good again.

The conference, organized by Al Petrie Media and Investor Relations and sponsored by the participating companies, gave energy executives a chance to lay out company prospects to brokers and analysts in hopes they will recommend the company stock to investors.

Drilling technology improvements and a move to deeper water will drive production in the Gulf of Mexico, many conference presenters said.

Imagine the type of computer you had on your desk in 1984 and compare it to the one on your desk today, said Todd Hornbeck, CEO of Covington-based Hornbeck Offshore. That's a good representation of the technology shift change that is occurring.

The U.S. Department of the Interior's Minerals Management Service projects a 43 percent increase in oil production and a 13 percent increase in natural gas production in the Gulf of Mexico over the next decade. The MMS cited technological improvements and a move to deeper water in its forecast.

Hornbeck Offshore's stock price is up nearly 50 percent since the company went public in March. Hornbeck stock made its debut at $13 per share and hovered near $19 per share as of press time last Thursday.

Overall, the company stock prices for businesses attending the Louisiana Energy Conference have increased an average of 67 percent over the past year, conference organizers said. The Philadelphia Exchange Oil Service Index, an index of 15 oil service company stocks, increased 37 percent over the same period to 117.6 from 85.98 on Dec. 2, 2003.

Superior Energy Services has grown from a domestic company with fewer than 200 employees in 1996 to an international company with 3,200 employees and locations in eight countries, Hall said. The company's bundled-services strategy fueled the growth, he said.

We have been able to export our business model to other markets that mimic the conditions of the Gulf, Hall said. We've enjoyed a fair amount of success there.

The numbers back up Hall's faith in Superior's strategy. Superior's stock rose 62 percent this year to $14.20 last Thursday from $8.77 this time in 2003.

High oil prices and the lingering effects of Hurricane Ivan's damage to pipelines in the Gulf helped fuel the rise in oil service stocks. Although oil prices declined about 22 percent to $43.55 from an Oct. 25 high of $55.27, prices are still plenty high enough for companies to make money.

Every time the price of oil drops a few dollars the oil service stocks get all nervous, said Peter Ricchiuti, assistant dean of economics at Tulane University. In a way that's kind of ridiculous because the budgets being used by the oil companies are back around $30 (a barrel) so it's really not going to have a big effect.

Offshore supply vessel operator Tidewater of New Orleans will reap cash savings of between $8 million and $12 million from the American Jobs Creation Act of 2004, which will go into effect April 1, 2005. The law exempts certain international income from the current U.S. tax rate of 35 percent.

Prior to the law's passage in October, income earned by Tidewater in a foreign country was taxed at that country's rate, typically 18 or 19 percent. It was then taxed again by the U.S. government, which brought the total tax to 35 percent. In recent years, nearly all of Tidewater's income has been generated by its international operations.

The act will go a long way toward achieving the goal of putting worldwide competition for United States shipping companies on a level playing field by instituting a taxing scheme similar to that enjoyed by most of our international competitors, said Tidewater chairman and CEO Dean Taylor. Tidewater's stock increased 18.3 percent from $27.92 on Dec. 1, 2003, to $33.03 last week.