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Gold/Mining/Energy : Big Dog's Boom Boom Room
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From: aerosappy10/8/2007 10:41:59 PM
   of 206254
 
Raymond James Energy Stat of the Week, published 10/08/2007.

Last week, the MMS hosted the 2007 Central Gulf of Mexico Lease sale, the second part of an annual two-part auction in which blocks of offshore acreage are auctioned off to E&P companies from all over the world. Typically, these auctions are strong leading indicators for offshore activity in the Gulf as the prices and volumes of acreage exchanged exemplify the current confidence in future capital deployment. The overall takeaways from this year’s lease sale: 1) by and large, strong bidding activity relative to historic standards, 2) a remarkable step change in deepwater demand and price, and 3) signs of hesitancy in the shallow water Gulf.


All in, we remain bullish on deepwater drillers as the strong long-term oil fundamentals are clearly pushing higher deepwater interest, as illustrated by last week’s Gulf of Mexico lease sale. On average, this group is trading at attractive valuations of 9x 2008 EPS. Such low multiples imply that the market is pricing in a typical earnings peak for a cyclical industry. We believe that the trend for deepwater development is very much a long-term necessity for the oil market and thus the fundamentals and visibility for deepwater drillers remain very strong. The vigorous demand for deepwater properties exhibited in this year’s lease sales provides another data point to support this trend and is a testament to the industry’s conviction in the fundamentals for the deepwater market.
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