Ensco International Inc. (ESV) Message Board

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Gold/Mining/Energy : Ensco International Inc. (ESV)

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To: Chuzzlewit who wrote (1324)	6/22/1998 6:28:00 PM
From: William Nelson	Read Replies (1) of 2005

Chuzzlewit, this doesn't totally make sense to me, e.g. you observe "the marginal costs of producing a barrel of oil is still well below its current market price" which is certainly accurate, but I don't think it really affects whether cuts are possible. After all, even though they can make some money at $8 a barrel (probably), they can make much more by selling a tiny bit less at much higher prices (from the sound of it, a 10% output cut could boost prices 50%). Basically they should look for the point on the supply-demand curve where they can make the most. I don't know about drilling. I guess I think if the price stabilizes at earlier reasonable levels, then the situation will look just like it did and drillers in the us will do well again. I doubt the oil companies were miscalculating the large scale trends that drastically in 1997, they just didn't factor in the asian hiccup. Another point is that the producers don't all have to join in here. The price is so low that the biggies should be able to make more money if they unilaterally cut, even if some smaller producers cheat. Therefore the big guys should cut, if they are logical.

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