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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Broken_Clock who wrote (18737)4/11/1998 2:37:00 AM
From: Czechsinthemail  Read Replies (1) of 95453
 
PK,

Downward revisions are based on the assumption of softening dayrates. These, in turn, are based on the assumptions of less demand for drilling in a lower oil price environment. When I last talked with ESV's IR and asked about how dayrates and utilization looked, they said they were continuing at full utilization and dayrates in the Gulf for the 1Q were higher than during the 4Q. I think what the Simmons report is addressing is the possibility of softening dayrates. How it will actually play out isn't clear. But I think ESV will show very strong 1Q earnings. Going forward if dayrates are softer, their year to year growth rate may slow. But even here, any softening of dayrates is likely to be very short-lived. As I've pointed out countless times before, shallower drillers will more sensitively track the ups and downs of drilling demand because their contracts are shorter. But given the pronounced selloff of ESV and other shallow offshore drillers, I think the recovery potential may be greater than for companies like RIG. Once oil prices begin to rise, ESV will be reflecting that improvement much faster than RIG does.
ESV should do fine. They will have one of the strongest earnings reports, and the downward earnings revisions have already happened. Given a price that discounts virtually all the negatives and the likelihood that future surprises will be positive ones, I think ESV looks poised for a recovery.

Baird
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