Diversification drives La.-based Superior Energy stock higher

New Orleans CityBusiness, Jun 16, 2008 by Emilie Bahr

The pricey oil that is ramping up investment by energy companies bodes well for service-side companies such as Superior Energy Services, tasked with supplying the requisite lift boats, rental tools and services needed for oil and gas exploration.

As might be expected, 2007 was a strong year for Superior -- the Harvey-based company reported net income of $281.1 million, up 49.4 percent from a year earlier. Strong earnings continued into 2008, with Superior reporting first quarter net income of $102.1 million, up 59.4 percent from the same period in 2007.

While high energy prices have played a role in Superior's growth, they are not the driving factor, analysts and company officials said. Furthermore, a continuing rise in commodity prices does not portend a significant shift in company strategy or resource allocation from expanding its international market share.

Just a few years ago, Superior derived as much as 80 percent of its annual revenue from Gulf of Mexico activity, said Greg Rosenstein, Superior vice president of investor relations. Today, he said, only about 40 percent to 45 percent of revenues come from Gulf activity.

Superior's division in company activity is part of a broader strategic goal of dividing assets and business among the Gulf Coast, onshore United States and foreign locales, said Joe Gibney, an analyst with Capital One Southcoast in Houston.

Gibney said recent acquisitions and the company's ongoing quest for diversification are largely responsible for the growth that has buoyed company stock to one of the best performers among the offshore service companies he covers.

Superior stock opened the year at $34.26 and sold for $54.04 June 2, a 58 percent increase.

That stock acceleration was "kick started," Gibney said, by the announcement earlier this year of $750 million in contracts Superior subsidiary Wild Well Control Inc. was awarded to decommission seven downed platforms off the Louisiana coast.

Gibney said other well-received advances included the $165 million sale of 75 percent of Superior's interest in SPN Resources, the company's Gulf-based exploration and production wing, in February

"It was always kind of a bridge strategy for the company," Gibney said of the business, which he said made up roughly 10 percent of the company's revenue. Money from the sale is now being put to work, including toward a $52 million investment in lift boats.

"This investment enhances our position to compete in the international lift boat market," Superior Chairman and CEO Terry Hall said.

Gibney said most observers expect the remainder of the cash from the sale to be put to use in short order, likely in an investment in the international rental tool market.