403 



Such companies, whose stocks are currently in vogue and are selling at relatively 

 high price- earnings multiples, find making acquisitions and financing them much 

 easier than those in groups which are out of favor - such as conglomerates and 

 offshore drilling companies, for instance. Right now, I guess one can say nearly 

 the whole stock market is out of style with investors except for hedge funds with 

 short positions! But it will pass, it always has, and new styles will take over. 



We in Wall Street try to take a hard-headed approach in appraising the fin- 

 ancial outlook for various aspects of oceanology. A very simple question must 

 be posed: which is the more economical source for materials, supplies, food, 

 in the commercial market, now and during the next several years - the land or 

 the sea? Naturally, security and defense considerations are decisive in the 

 military market. The amount of funding by the Governnment will be vital in de- 

 termining how attractive the civil government market will be. The Commission 

 has proposed that the current expenditures for marine research and development, 

 on an annual basis, be doubled to the $2 billion level by 1980, without allowing 

 for inflation. 



To try to set the stage in briefly outlining our views about the financial out- 

 look of the diverse sections of oceanology, which we think management should be 

 considering in searching for and developing a participation in the growing oceanic 

 market, let's break it down into its many components. First, oceanic companies 

 are forming, which are providing an integrated, systematic approach to operating 

 in and on the water, including the ocean beds. Zapata-Norness, represented here 

 today by Bob Gow, is an excellent example of an oceanic company which is no^v 

 proposing to enter the shipping business. It already is engaged in offshore dril- 

 ling, fishing and marine construction operations. Those companies which already 

 have a public market for their stocks are in a much stronger position to finance 

 other operations and attract firms to be acquired. We would advise smaller, 

 privately- owned companies to go public only if they have a recent record of profit- 

 able operations. 



Now, what is the financial outlook for the main sectors of the market? 



1. Petroleum Offshore is a dominant part of the commercial oceanic market and 

 is providing a strong thrust for industry to enter the ocean on a profitable basis. 

 The extensive oil and gas reserves which are located in the continental shelves 

 of the world, represent a substantial reservoir of energy for the future, not to 

 overlook the present. Increasing amounts of oil company budgets are going off- 

 shore providing a great opportunity for firms to service and supply these re- 

 quirements. Over $2 billion a year are being spent by this industry in the world- 

 wide offshore search for oil and gas. Such expenditures are increasing at an 

 annual rate of some 15% and will probably total over $30 billion during the coming 

 decade. We would encourage the smaller independent oil and gas companies to 

 take participations in offshore leases especially off the U.S. continental shelf. 

 We also feel that there are opportunities for business in providing services and 

 supplies to the offshore operations of the oil companies. Financing, if the com- 

 pany is public, can be done by offerings of security issues generally having an 

 equity "kicker". Loans against two and three year drilling contracts may be another 



