Improved pricing leverage for service and supply companies in the fourth quarter made earnings-growth winners of service companies on the Oil and Gas Investor This Week scoreboard. "There is a growing sense of urgency on the part of national oil companies, international oil companies and independent E&P companies with respect to securing necessary oilfield equipment and the resources to execute drilling projects," says Scott Gill, an analyst with Simmons & Co. International. This urgency, which began forming several quarters ago, has led many service-sector companies to command record-breaking rates for their services. How long can the current pricing scenario last? "Given the structural constraints characterizing the broader energy industry, stubbornly well-behaved demand, robust E&P cash flows and coupled with strong balance sheets and low reinvestment ratios, what we are witnessing today in terms of industry fundamentals is likely to persist for the next several years," Gill says. Parker Drilling Co., Diamond Offshore Drilling and Todco were among the most dramatic winners in earnings-per-share growth in fourth-quarter 2005 versus 2004, along with Stolt Offshore SA, Rowan Cos. Inc. and Grey Wolf Inc. EPS growth for these companies jumped 867%, 767%, 467%, 367%, 320% and 240%, respectively, during the fourth quarter. Robert L. Parker Jr., president and chief executive of Parker Drilling, says 2005 was one of the company's best years on record and it was able to reduce debt during the quarter. Average utilization of Parker's international land rigs for the fourth quarter of 2005 was 84% versus 65% during the same period in 2004. Utilization of its Gulf of Mexico barge rigs in fourth-quarter 2005 averaged 73%. Deep-drilling barge dayrates in the Gulf averaged $11,600 per day higher in the quarter versus fourth-quarter 2004. Larry Dickerson, president and chief operating officer of offshore driller Diamond Offshore, says the company has been upgrading, new-building and purchasing rigs. "Virtually all of the fundamental market conditions that defined 2005 appear to remain in place for 2006...." To avoid turning business away, Grey Wolf has four new 1,500-horsepower rigs under way by National Oilwell Varco. "...We believe there is the potential for the company to order up to three additional newbuilds in the near-term," says Sterne, Agee & Leach oil-services analyst Robert Ford, "and up to 11 between now and the end of the year. "Management has seen no slowdown in demand for its rigs due to the recent decline in natural gas prices and believes its customers will continue to increase activity levels until they begin to believe that gas prices are likely to fall below $6 per million Btu and stay there for some time." Transocean Inc., Halliburton Co. and GlobalSantaFe Corp. made significant improvements in earnings per share in the quarter; each had reported losses in fourth-quarter 2004. Transocean has snagged a three-year contract extension with BP for its deepwater drillship, Discoverer Enterprise, at a dayrate of $519,600 per day. Also, Chevron Corp. awarded Transocean a deepwater contract for a new drillship that will work exclusively for Chevron for five years, and signed multiyear contract extensions for two other deepwater drillships currently in use by Chevron. The three agreements total about $1.7 billion. Of Transocean's high-specification floater fleet, 81% is committed under firm contracts in 2006, while 78% and 61% of the fleet time is under contract in 2007 and 2008, respectively. As for Halliburton, Calyon Securities (USA) Inc. analyst Mark Urness calls 2005 "the best in the company's 86-year history." Meanwhile, GlobalSantaFe "continues to enjoy one of the strongest balance sheets in the industry," he adds. "At year-end, the company had $837 million in cash and marketable securities, $574 million in long-term debt, and shareholders' equity of $5 billion. We estimate the company will generate cash flow from operations of $1.3 billion in 2006, with almost $800 million in free cash flow." Only 50% of GlobalSantaFe's fleet is committed in 2007 and 30% in 2008, Urness adds, so it should benefit from any additional upside in dayrates. Looking ahead, Gill says more producers are likely to commit additional funds to drilling projects. These same independents are also becoming uneasy over production decline, and are pressured to scramble after dwindling opportunities, he adds. Both bode well for the service sector.