June 17, 1998
Stocks for Dad

To Dad from Sharon
by Sharon Wagner (TMF Spirit)

Global Marine Inc.
777 N. Eldridge Parkway
Houston, Texas 77079-4493
http://www.glm.com
$18 1/8 as of June 15, 1998

Dear Dad,

Remember I said I was going to find you an offshore driller for Father's Day? Well, here it is, one of the pioneers of the industry and still going strong.

Global Marine Inc. engages in offshore contract drilling, turnkey drilling, and oil and gas exploration and production. Worldwide offshore contract drilling services are provided through a fleet of about 30 mobile offshore rigs -- mostly jack-up rigs, but also North Sea semisubmersibles and deepwater drill ships. (Click on "Drilling Company" then "Rig Description" at the Global website to see photos of the rigs). The fleet is deployed in major offshore oil and gas operating areas including the Gulf of Mexico, the North Sea, and offshore West Africa. Customers include major oil companies such as Unocal, Pennzoil, Amerada Hess, Conoco, Chevron, Texaco, and Mobil. Competitors include Diamond Offshore, Helmerich & Payne, and R&B Falcon.

In 1997, Global Marine became the industry leader by generating over one billion dollars in offshore drilling revenues. Contract drillers often receive a percentage of the production of the wells they bring in. The company owns interests in 81 wells in the Gulf of Mexico and on the Gulf Coast that hold proven reserves of 8.9 billion cubic feet of gas and 682,000 barrels of oil.

Global Marine's watchwords are "Growth and Opportunity." Currently, the best new opportunities are to expand their services in the rapidly emerging deepwater market. Many industry experts believe that the some of largest undiscovered petroleum reserves will be located in the deep water of the Gulf of Mexico. Over the past two years Global has extended the water depth capabilities of two of its rigs and increased the size of its deep-water fleet from three rigs to eight. Global Marine's dynamically positioned drillship, "Glomar Explorer," is presently on-site in the Gulf of Mexico, drilling a well in the record-breaking water depth of one and one-half miles! In 1997, the company experienced 99% utilization of its rigs in the Gulf of Mexico and 100% in the North Sea and off of West Africa.

"What the heck is a dynamically positioned drill ship?!" you say. Well, Pop, these are rather large ships, some over 800 feet in length, that are able to maintain a precise location at sea to drill oil wells in very deep water in all weather conditions. "Must take some kinda anchors, huh?" Not so. These vessels are not tethered to the ocean floor by any means, which isn't feasible at the depths these ships operate in; the only thing connected to the sea bed is the drill "string" itself. "Why, it seems like they would twist that "string " right off in heavy seas," you say. Uh huh, these vessels are high-tech marvels that can maintain a constant static position on the ocean's surface, within a few feet. By utilizing satellite navigation and computer controlled thrusters these ships stay on the spot as steady as a rock and keep right on drillin' under almost any conditions.

To continue this steady growth, the company plans to invest at least $1 billion over the next three years, including a $660 million investment in two dynamically positioned deep water drillships ordered from a Northern Ireland shipyard earlier this year. The rigs will be able to drill in 12,000-foot water depths. Delivery of the first rig is scheduled for late 1999 with the second following in early 2000.

Dayrates for drillships amount to megabucks; this is how they are calculated: The industry uses what is called the SCORE factor, which is presently about $700 per day for each million dollars invested in equipment. If one of these two new drillships being built costs $330 million, that comes to $231,000/day or $6.93 million/month. Added to the SCORE factor is the daily cost of operating the vessel and drilling operations. Pretty high rent, eh?

Global Marine shares have traded as high as $36 13/16 and as low as $18 1/4 in the past 52 weeks. Earnings estimates according to Zacks are $1.99 per share for 1998 and $2.50 per share for 1999. The P/E on the 1998 calendar year is 11 and the PEG for 1998 is about 0.50 with an earnings growth rate of 20.86%. An over 30% decline in crude oil prices led to the decline from last year's high. When crude prices resume their upward bias, Global Marine is well-poised to pull ahead of the pack as the leader in the industry.

Just last week Seth Glickenhaus, a partner at the New York firm Glickenhaus & Co. said, "Oil drilling is one sector that's cheap and extremely attractive because they've been so badly hit." Mr. Glickenhaus, a veteran of Wall Street since 1934, named Global Marine as one of his favorites. I agree with Seth.

Love and Happy Father's Day,

Sharon

* A Stock for dad represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.