Varco International Inc., an Orange-based maker of oil-drilling equipment, earned $2.3 million in 1988--its first profitable year since 1981.
The 1988 results show a sharp reverse from 1987, when Varco lost $6 million, but a far cry from the $21 million the company earned in 1981. The following year, plummeting oil prices sent the industry into a prolonged slump from which Varco is just emerging.
Varco Chairman W. B. Reinhold attributed last year’s earnings to the popularity of its drilling technology and greater stability of oil prices.
He said the return to profitability for the year “represents a significant milestone in the ongoing realignment of the company in response to the continuing weakness in the market for our products.”
‘Turned the Corner’
Sam Z. Albright, an oil service industry analyst with Howard, Weil Financial Corp., an energy research and investment company in New Orleans, agreed that Varco has “turned the corner,” partly as a result of cutting operating costs and paying down its debt. Nonetheless, he said, it faces a continuing struggle to maintain profitability.
Albright noted that after a surge in orders for Varco’s principal product, which significantly speeds up offshore drilling and thus saves on oil rig leasing costs, orders have tapered off in recent months.
The reason, he said, is that the major oil companies are waiting to see if the Organization of Petroleum Exporting Countries can control oil prices at their current plateau of about $18 a barrel for another year before they begin new drilling.
Albright and Don Stichler, Varco’s controller, agree in their predictions that Varco may break even, or even report a slight loss in the first quarter or two of 1989 before orders pick up again. But both anticipate the company will again show a profit for the entire year.
Varco reported revenue of $69 million last year, up 82% from $38 million in 1987.
Net Earnings Double
The company reported fourth-quarter net earnings of $220,000, more than double net earnings of $99,000 for the same quarter of 1987. Fourth-quarter revenue was $20.2 million, up 54% from revenue of $13.3 million for the same period a year before.
Results for the fourth quarter of 1988, however, included extra sales and profit from the September acquisition of BJ Machinery Division of Baker Hughes Inc.
Varco also announced Wednesday that it is calling for the redemption of all of its outstanding 10% convertible debentures, or debt that may be exchanged for common shares.
Stichler said the company is expecting that most of the debenture holders will choose to convert to common shares, although they will also have the option of accepting $1,080 in cash for each debenture plus accrued interest.
The purpose of the redemption, Stichler said, is to remove $3.3 million in debt from the company’s books and thus eliminate interest costs of $330,000 a year. The redemption is scheduled to be completed by April 11.
Stichler said the company’s employee count at the end of 1988 had rebounded to 563, including 200 in Orange County. The company had slashed its work force from 522 worldwide in 1984 to 150 in 1987.