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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Tulvio Durand who wrote (20958)5/1/1998 1:06:00 AM
From: Czechsinthemail  Read Replies (1) of 95453
 
One other factor about land and shallow offshore drillers is their greater sensitivity to fluctuations in drilling demand, which are likely to result from changes in oil prices and expectations about where oil prices are headed. When oil prices are falling and people are expecting further weakness in drilling demand, earnings estimates and share prices for land and shallow drillers fall. But because they will be projected down even after the actual bottom, they end up being oversold. Eventually, when oil prices firm and are expected to move higher, the shallow drillers and land drillers will more quickly reflect the incremental demand for drilling through rising dayrates. At this point the advantage of the deep drillers becomes somewhat of a disadvantage because they are locked into their long-term contracts. They will do fine, but perhaps not increase their rate of growth as dramatically.

Since I'm looking forward to a strengthening of demand for oil and gas drilling as crude prices firm up, I'm favoring the shallow drillers on the idea that you can currently buy them much cheaper than the deep drillers and once things get rolling they may actually outgrow the deep drillers. The combination should eventually produce major share price appreciation.

Baird
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