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Gold/Mining/Energy : Ensco International Inc. (ESV)
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To: William Nelson who wrote (1325)6/22/1998 8:03:00 PM
From: Chuzzlewit  Read Replies (1) of 2005
 
William, don't feel bad, sometimes I don't understand what I'm saying either <VBG>.

Let me see if I can have this make sense to anyone but me. The point I'm trying to make is that there is a separate and distinct calculus for drillers as opposed to producers. Producers will continue to pump so log as their marginal revenues exceed their marginal cost of production. But that has nothing to do with the decision to drill. Drilling is based on two factors. The first is that it economic to drill, and the second is that there is a need to drill. But the need to drill is motivated by the perception of the length of time available oil will last. Given today's rates of consumption available oil will last longer than had been anticipated say eight months ago. So the factor driving down the drilling stocks is not the price of oil, but the need to replenish reserves. So long as the rate of depletion of those reserves is low as a result of either lowered consumption or bringing a lot of large fields on line, the marginal demand for drilling activity will remain low.

If I am correct (and I seem to be the only person who thinks so), then crude prices will not be a determinant of drilling activity (assuming that it is economic to drill). Rather, it will be the days' supply of crude present in already developed fields calculated on the basis of anticipated consumption.

TTFN,
CTC
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