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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: waverider who wrote (23200)6/1/1998 8:13:00 PM
From: Elmer  Read Replies (1) of 95453
 
Diamond, now that we have heard from a short on NE, let's here from a long.

While NE is not a pure deepwater driller like RIG or DO, it is hard to argue that they are not going to be a significant player in this area going forward. In 1999, 30% of their cash flow will be derived from deepwater drilling. Also, NE would be less hurt by declining jackup rates than say an ESV or GLM, unless you feel dayrates are going to continue downward for more than a year. 80% of NE's 1998 jackup fleet time is already booked on term contracts at fixed rates. In 1999, this number still remains fairly high at 55%. Now that NE's EPS estimates have been trimmed by most analysts to reflect the 20% of 1998 jackup rig time that recently rolled over or will be in the near future, EPS estimates should be relatively safe. The earnings visibility of NE is very good relative to most of the other drillers with the exceptions of RIG and DO.

NE also has two more submersibles that could be upgraded to their EVA semi design. It is estimated that these potential upgrades would add about $.25 each to EPS. NE can also expand its deepwater fleet with newbuilds given its very strong balance sheet and huge cash flow from the locked in dayrates on the majority of its rigs.

NE is trading at under 10x next year's Paine Webber's EPS estimate. Since PW just initiated coverage of NE last week, and it is a known fact that these analyst's get the blessing from company management on their earnings models before they publish them, I would have a very difficult time shorting this stock. But, that's why I am long NE and that's why this game is so much fun - people can have differing opinions and put their money where there mouth is.

Best of Luck (other than with your NE short),

Elmer
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