Parker Drilling Company

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Parker Drilling Company

Eight East Third Street
Tulsa, Oklahoma 74103-3637
U.S.A.
(918) 585-8221
Fax: (918) 631-1341
Web site: http://www.parkerdrilling.com

Public Company
Incorporated : 1954
Employees : 3,500
Sales : $481.22 million (1998)
Stock Exchanges :New York
Ticker Symbol : PKD
NAIC : 213111 Drilling Oil & Gas Wells

Parker Drilling Company is a leading provider of contract drilling and drilling-related services—including land, transition zone, and offshore drilling—to major oil companies, independent oil and gas producers, and government-run oil companies. It has operated in 49 countries, primarily in the transition zones of the Gulf of Mexico, Nigeria, Venezuela, the Caspian Sea of Kazakhstan, and the offshore waters of the Gulf of Mexico, and in numerous on-land oil and gas producing regions throughout the world. Parker maintains a fleet of 75 international land rigs, 15 U.S. deep gas land rigs, 34 barge rigs, seven platform rigs, seven offshore jackup rigs, and specialized rental tools that it leases to other drilling companies. Parker Drilling Company has become the dominant operator in the heli-rig market, operating 80 percent of all rigs transportable by helicopter to otherwise inaccessible desert, jungle, and mountain locations. It is also a specialist in deep well, arctic, and geothermal drilling.

A Company Committed to Innovation Since 1934

Gif ford C. Parker, an Illinois farmer, excited by the opportunities presented by the Oklahoma and Texas oilpatch, founded Parker Drilling Company in Tulsa in 1934. The following year, the new company pioneered the use of diesel electric powered drilling rigs and by 1945 was branching out into the international market. During the next four years, Parker Drilling began to operate five rigs in Venezuela and 12 in Canada.

In 1954 the company was incorporated in Oklahoma. Robert L. Parker, Gifford’s son, purchased the company and became its president, a role he retained until 1977 when he was elected chief executive officer. Robert L. Parker, Jr., Gifford’s grandson, joined the company in 1973 and followed his father as president and chief operating officer in 1977. He later became chief executive officer in 1991. Under the direction of both men, the company committed itself to the exploration and practice of new drilling techniques. Starting in the 1960s in west Texas, Parker created its own niche by developing new deep drilling technology that has since become the industry standard. By the mid-1960s Parker had eight deep drilling wells—defined as those 18,000 feet and deeper—the oldest of these being one it drilled for Gulf Oil in west Texas. In 1969, the year Parker went public with shares sold on the over-the-counter market, the company landed a major contract with the United States Atomic Energy Commission to drill a series of holes up to 120 inches in diameter and 6,500 feet in depth in Alaska and Nevada for nuclear testing. Three years later Parker set a world record for deep well drilling with a 28,500-foot well, again in west Texas. In 1977, using the world’s largest rig at the time, Parker drilled the deepest test to date in the Middle East in Kuwait.

During the second half of the 1960s the company began to pioneer the helicopter-transportable rig technology for which it eventually became well known. Parker engineers experimented with the design, later patented, of several series of rigs that could be disassembled, flown into remote or environmentally sensitive areas, and there reassembled for the operator’s drilling program. During the 1970s and 1980s Parker technology also introduced a number of changes in the realm of arctic drilling, including new rig designs, innovative rig-moving systems, and improved drilling technology for arctic conditions. In 1975, the year the company was listed on the New York Stock Exchange, it acquired OIME, a design, engineering, and manufacturing firm located in Texas that evolved into Parker Technology, Inc., or Partech, Parker’s research and development, manufacturing, and rig service center. In 1978 Parker Drilling pioneered arctic drilling technology using a winterized rig on wheels, designed and manufactured for an ARCO Alaska, Inc. drilling program in the Prudhoe Bay Field.

International Drilling Beginning in the Early 1980s

The early 1980s proved a time of dramatic change in the energy industry. Under President Reagan’s direction, many of the restraints imposed upon companies during the previous decade, including such things as pestilent controls on industrial fuel burning, were dismantled by Congress as a part of the National Energy Plan II. As a result, there was a gradual increase in drilling activity, including a move to international drilling. In 1980 Parker was awarded a contract in the People’s Republic of China to work in Xinjiang province, becoming the first American land drilling company to work in that nation. This contract was followed in 1984 by a second, for work jointly undertaken by Parker and China’s National Oil & Gas Exploration and Development Corp. Elsewhere in the Asia-Pacific area, Parker signed on to its first operation in New Zealand and its second in Papua New Guinea. Parker also began operations in Somalia, Tanzania, the Sudan, and South America.

In the late 1980s, the Soviets began launching a new push to increase the output of their vast oil and natural gas reserves. Parker signed a protocol agreement with the Soviet Union’s Ministry of Oil and Gas Industry in 1989 to act as exclusive project manager in negotiating a comprehensive contract to coordinate the planning, design, engineering, and implementation of deep well drilling on a remote desert location near the Caspian Sea. Parker became the first Western drilling contractor to work in the Siberian arctic when it entered into a contract in 1991 with White Nights Joint Enterprise to provide two state-of-the-art rigs and supervisory personnel for an improved-recovery and development-drilling program. This operation was followed by two others in 1993, one of these a contract to develop one of the world’s largest oil fields, the Tengiz oil field in Kazakhstan; the other, to provide drilling services in western Siberia.

Throughout the early 1990s, Parker Drilling continued to develop its overseas operations. In 1992 it traveled to the Congo where it was hired to design hybrid rigs combining the drilling technologies of both the petroleum and solid minerals industries and to wireline core several holes for oil and gas exploration. In 1993 it returned to Argentina, where it had last worked in 1974, before that country’s oil industry was nationalized, and contracted to drill 48 wells. It also signed contracts in Colombia and in Peru to drill a total of up to seven wells. In 1995 Parker agreed to manage China’s state-owned Great Wall Drilling Co.’s rigs as well as to train its crews, and to drill two wells south of Hanoi, Viet Nam, for an Australian company.

Acquisitions in the Mid-1990s

Parker Drilling’s revenues for fiscal 1995 were $157.4 million with net income of $3.9 million. In 1996 revenues dropped to $156.7 million, but income increased slightly to $4.1 million. By fiscal 1997 those figures were at $311.6 million and $16.3 million, respectively. This significant increase between 1996 and 1997 reflected changes within Parker Drilling, specifically, the November 1996 acquisitions of Mallard Bay Drilling, Inc. and Quail Oil Tools. Mallard, a leader in transition zone barge and offshore platform drilling and the largest operator of barge rigs in the Gulf of Mexico, enabled Parker to expand into the offshore drilling market, moving away from its focus on large land rigs that drilled for natural gas and smaller rigs that were easily transported to remote locations. The addition of Quail Oil Tools, the second largest provider of tools and equipment to exploration, production, and service companies in the Gulf of Mexico, moved the company into equipment rental.

These changes also reflected a general upswing in the oil market. The year 1996 and most of 1997 were a time of high activity for oil and gas companies, during which they increased exploration and production budgets in response to demand and strong commodity prices. In July 1997 Parker acquired Bolifor S.A., a Bolivian drilling contractor. Hercules Offshore Drilling, along with its affiliate, Hercules Rig Corp., came on board in December 1997, purchased from a publicly owned Malaysian company for $195 million. These two purchases enabled Parker to expand into a unique industry niche, drilling and workover in waters 215 feet or less, at a time when rig day rates and utilization were approaching a 15-year high, with many segments of the industry near full utilization. Mallard, Quail, and Hercules, as subsidiaries of Parker Drilling, increased not only the size of the company, but also the percentage of its revenue generated domestically and made the company’s U.S. operations more profitable.

The sudden upswing, however, was followed by just as abrupt a downturn. From the fall of 1997 to the spring of 1998, the price of a barrel of oil fell from $20 to $11, the lowest level in 25 years, once adjusted for inflation. This drop caused drilling to slack off and reduced spending by Parker’s customers. A merger with Louisiana-based Superior Energy Services would have made Parker the second largest oil tool rental company behind Weatherford International, but plans to merge were called off in 1998 after both companies’ stock prices fell in response to an oil price collapse.

Company Perspectives

Founded in 1934, Parker is a pioneer in the contract drilling industry. Parker’s engineers and designers have introduced many innovations, such as light weight, high capacity hydraulics for drilling rigs, rapid rig-moving systems and helicopter-transportable rig technology. Parker maintains its own research and development and rig-manufacturing center to quickly meet the needs of customers around the world. Its asset base is unmatched in diversity of type and geographic location as compared to other companies in its oil service peer group.

Downturn in the Drilling Market in 1998

As 1998 progressed, reduced activity and lower rates throughout the industry resulted in a significant slowdown in activity for Parker Drilling. The market cooled to oil service stocks, and shares of Parker and its peer companies lost on average 70 percent of their value. Parker closed out 1998 as one of the New York Stock Exchange’s four worst-performing stocks. At the same time, the financings related to acquiring Mallard and Quail combined with Parker’s issuance of convertible notes in July 1997 and senior notes in 1998 substantially increased the company’s debt. Parker Drilling went from having $3.4 million in debt in 1996 to $651.6 million in 1998.

In other ways, however, 1998 was a notable year for Parker Drilling. In a move to centralize its administration, the company completed its new 47-acre Mallard-Partech complex in New Iberia, Louisiana and made plans to move Hercules’ Lafayette shore base to a building adjacent to Partech in the spring of 1999. A new central health, safety, and environment (HSE) team formed and launched a companywide HSE initiative. The new ParkerNET system, the company’s globally accessible intranet, computerized new maintenance procedures via its preventive maintenance program. In addition, despite the general softness in industry conditions, drilling and service activities remained strong in the Caspian Basin, Nigeria, parts of South America, and the Gulf of Mexico. In 1998 Mallard Drilling completed the redesign, fabrication, and winterizing of a rig for arctic-style drilling conditions in the northeast Caspian Sea for a three-year Royal Dutch Shell-led drilling project and, in early 1999, entered into an alliance agreement for all of Texaco’s domestic inland water drilling and workover requirements.

In fact, fiscal 1998 operations represented a significant improvement over 1997 due to the continued strength of barge drilling operations in the transition zones and most international land drilling markets and the addition of Hercules’ shallow water and platform drilling operations. Year-end revenue was $481.2 million and net income was $28.1 million. Yet the improvement of the last six months of fiscal 1998 was followed by a further decline in the oilfield services industry combined with the most dramatic drop in energy prices since the 1980s. During the first quarter of fiscal 1999, Parker experienced a net loss of $7.7 million. As a result, management anticipated substantially less capital spending in 1999 and took moves to conserve cash, reduce operating and overhead costs, and consider the sale of certain assets. Hercules and Mallard were incorporated into the company as a division called Parker USA Drilling Company in early 1999, leaving only Quail Oil Tools and Partech as the company’s subsidiaries.