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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: GREENLAW4-7 who wrote (72621)9/7/2000 8:08:13 PM
From: ItsAllCyclical  Read Replies (2) of 95453
 
Greenlaw comparisons with 97 are very misleading due to all the differences.

1) Crude never got this high. When crude comes down (and it will) it has plenty of places it can land where the majors are still swimming in profits and willing to spend on cap ex. 25 to 15 and marginal production goes away, 35 to 25 and they'll still spend like crazy.

2) In 97' OPEC had plenty of excess capacity. Where's the excess capacity now? How much cheating have we had now compared to '97?

3) NG market is very strong and is expected to stay strong (at least over $2.50) for sometime. Huge amount of power generation will be coming on line over the next 5-10 years.

4) In 97' we hadn't suffered from prolonged $12 oil first. Things had been bad before, but they hadn't predicted $5 crude just a year or two before the '97 boom. Oil production doesn't turn on a dime. We are just starting to turn production around after bringing worldwide production increases to a halt for over a year.

5) In '97 the majors spent like crazy (creating a boom/bust). This time they took a full year of $20+ oil. Only now are they beginning to spend more. Once again this limits new production and prolongs the OSX cycle. I don't think the majors are even close to maxing out on cap ex yet.

There are other differences I'm sure, but these are the most obvious to me and it's enough imho to demonstrate why it's different this time. About the only thing that is the same is some of the stock prices in selective issues. We may be 10-15% overvalued here. Hard to say. That will be borne out in the next 1-2 months thru oil data, earnings and contract announcements. However I see few similiarities between now and '97. This will come to an end eventually, but you're very early.

Have you seen or heard how some of the land drillers among others can ramp up earnings if rates hit replacement costs? PTEN for instance can make in one quarter what is being forecast for all of 2001. NSS isn't a land driller, but is in the same boat. We will reach a time when those type of estimates start hitting the street. After that time then I'll consider going short.

Our biggest problem is that things are too good. How can we improve from here? But I've heard of worse problems. Pullback? Yes. Correction? Yes. The End?? No. Please stay short.

P.S. NOTICE I DIDN'T RESORT TO ALL CAPS LIKE TO SOME TO TRY AND MAKE MY POINT. SEEMS TOO MUCH LIKE SHOUTING IF YOU ASK ME.
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