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Yesterday, the Oil
Drilling sector was pulled down as a knee jerk reaction to the news.ÿ
According to the Wall Street Journal, the increased quotas probably
won't translate into increased supply of oil on world markets.ÿ Due to
bigtime cheating on the quotas already, OPEC countries already pump 28
million barrels a day.ÿ It is doubtful that slightly lower oil prices
will have a significant effect on oil companies' drilling plans.ÿ With
rigs in such tight supply, energy-production companies will be reluctant
to cancel contracts and risk delays of months or years to get back in
line. In addition, a lot of current drilling is a hedge against
political instability in the Middle East, and the OPEC quota change
doesn't affect that. Today, we saw the Drillers rebound nearly 4% as the
sector strength we were anticipating came a day later.ÿ Today, the
trading action of the Drillers was reminiscent of recent performance.ÿ
When the techs and general markets were weak, the Drillers seemed to be
poking up like a sore thumb when most other stocks were down or flat.ÿ
Yesterday's selling in the Drillers looked to be a blowoff bottom and
now may be the time to begin nibbling again.ÿ The concern we face is the
price of oil.ÿ If oil prices stay too low, the relative value of the
Drillers is lessened.ÿ Tomorrow will be an important day for the
Drillers to see if they have follow through and continued buying
interest.ÿ If so, the environment looks much better.ÿ If not, we simply
wait until the trend is up.ÿ
As I said earlier in this issue, tomorrow will be a telling day for
this sector.ÿ It is extremely oversold and yesterday's selloff based
on the street's interpretation of the OPEC decision tended to fuel
what appeared to be a blowoff bottom.ÿ A blowoff bottom tends to be
formed when a stock, or in this case the sector goes through a strong
selloff on substantially above normal volume.ÿ This was the case
yesterday as the Drillers were down across the board on high volume.ÿ
Today, a rally of sorts came together as the group rose nearly 4% on
the day for the Oil Service stocks.ÿ I mentioned in an earlier issue
that there is a large quantity of puts that are outstanding that will
need to be covered before options expiration.ÿ To cover a put
essentially creates buying pressure.ÿ If the sector were to heat up
quickly, I would expect that the put owners would be very motivated
to cover their positions quickly and they have a fair amount of
profit accrued.ÿ A sector wide short squeeze?ÿ Possible.ÿ Tomorrow
will help us to see if the coast is clear to nibble on these once
strong stocks again.
Bandwagon.ÿ If we see a few upgrades start to fly, that would help
the sector gain momentum.ÿ If we notice a lot of upgrades start to
fly, take note as the analysts could significantly help to move the
group higher.
The ones that are the leaders and who stand to have the greatest
potential (also who have been victimized by profit taking) are as
follows somewhat ranked in descending order:
Friede Goldman (FGII) - FGII has become a barometer of sorts.ÿ FGII
up, driller up - FGII down, Drillers down.ÿ For the first time in a
lot of days, FGII finished the day up by 2 points to 30.88.ÿ Volume
was about average which is a positive sign.ÿ It didn't take huge
volume to move FGII up relative to its recent averages.ÿ It just
meant that a preponderance of the trades were buys.ÿ This stock can
really move, especially when the sector is hot. It can also go the
other way as we are well aware.
Schlumberger Ltd. (SLB) - The big guy in the group and has fared
better than most during the recent selloff.ÿ Up 2.81 to 80.88 today.
Rowan (RDC) - This stock has a lot of potential to lead the pack should
the sector fire up.ÿ RDC has a ton of upside potential. The first of the
RDC's jack-up rigs, Gorilla V, is set for completion in mid-1998.ÿ These
deep-water, heavy-duty rigs command premium day rates and take several
years to build. According to RDC, only seven jack-up rigs are scheduled
for delivery in the industry by 2000 and Rowan will own three of them.
Analysts project that earnings at the company will grow 146% in 1997 and
45% next year. The company's balance sheet is also looking stronger as
it is cleaning up debt. In announcing record net income for the
company's most recent quarter, C.R. Palmer, CEO of the Rowan Companies
said: "We continue to gaze into our crystal ball and stare with
disbelief that a business that has been so lousy for so long can recover
so quickly. History teaches us this state of euphoria will not last --
but for the moment, 'things' sure look good. Average day rates during
the third quarter were $55,500 per day, up $5,500 from last quarter and
$18,400 from last year. Looking forward to 1998, we believe it is
possible for day rates to average over $70,000." Today it rebounded 1.18
to 33.75.
Marine Drilling (MDCO) - Woke up today, adding 1.18 to 21.75.
TransOcean Offshore (RIG) - Definitely a leading stock.ÿ Today RIG
regrouped and rose .93 to 46 on the day.
Ensco International, Inc. (ESV) - Up 1.43 to 35.75 today and is
looking good.
Cliffs Drilling (CDG) - One of the most oversold of the Drillers.
Rebounded 2.93 to 54.38 today.
Nabors Indus. (NBR) - Rebounded 2 to 36.125 today.
Falcon Drilling (FLC) - Up 1.50 to 33 today.ÿ
Tidewater Inc. (TDW)ÿ - TDW is the world's leading provider of
service vessels (boats) led the way adding 3.12 to 56.875 today.
Cooper Cameron (RON) - Big day today as RON added 5.43 to 62.687.ÿ
Strong move.
Haliburton (HAL) - Added 1.25 to 52.38 today.
Camco International (CAM) - Up 2.87 to 62.375 today.
BJ Services (BJS) - Up 2.56 to 70.562 today.
UTI Energy (UTI) - Power to the lead as it added 2.62 to 28.
PTEN - Up 2.50 to 36.375.
Others to watch:
Western Atlas, Inc. (WAI)
Petroleum Geo Service (PGO)
MAVK, GLM, SII, WII, RB, and NE.ÿ |
