Paul,
excluding Value Line from the rest of the pack. They seem to be truly independent and their ranking system seems to work fairly well. They also do recommend avoiding certain stocks.
Value Line does have the benefits of independence, but I have some reservations about their ranking system. I believe it has changed from the classic "Value Line" approach. Much of their ranking now is apparently technically based around relative price strength, so I'm not sure how reliable the current ranking system will prove to be going forward.
As far as the capacity/overcapacity issue for offshore drilling goes, Transocean Offshore's drillship Discoverer Enterprise, scheduled for completion this year, is the first newbuild in over ten years. As Big Dog pointed out, most of the newbuild projects are targeting deepwater and harsh environment drilling because of the enormous demand related to the enormous potential of deepwater drilling -- fields with 1+ billion barrels of oil equivalent. In their 1996 annual report, RIG indicated that about 60% of the worlds offshore acreage was unexplored, and of this 95% was in water 3,000 ft. and deeper. The continuing strong demand and the relatively slow pace of new rig construction is reflected in the many upgrade projects to enhance and extend the useful lives of existing rigs. There simply aren't many rigs coming into service anytime soon. That keeps E&P companies aggressively contracting those that are available.
Concerns about low oil prices are balanced by other considerations. For example, in the U.S. Gulf of Mexico, approximately 430 leases in water depths > 3000' are due to expire by 2000 with 1,500 more by 2007. There is a "use them or lose them" factor at work that is keeping demand for drilling rigs up even while investors are afraid that demand will decline. I think most investors don't realize how few rigs are or will be available. Though fears that we are at a cycle peak in drilling have hit the stock prices, investors willing to take a long-term view will profit as the companies continue to perform and money starts chasing the stocks again.
While it may take some time for investors to appreciate this situation, the predictability of long term contracts pretty much assures significant earnings growth going forward. Eventually, when oil prices begin to climb if not before, investors will again get religion about the drilling companies and their major growth potential. Meanwhile, investors willing to look beyond short-term crude oil prices can buy into that growth at bargain prices.
Baird |
