Chuzz, re: "It has nothing to do with the price of oil per se",
first of all, the price is dictated by the supply curve and the
demand curve. You can't separate "supply," "demand," and "price," and
say the reaction of the drillers' stock prices is attributable to
just one, without considering the others. But price is probably
the most important. Why does lotto sell more tickets when the
jackpot is $50 million than when it is $8 million? If the payoff
is bigger, you're more willing to take the gamble. Would you be
more easily convinced to drop, say, $5 million to explore and develop
a possible reserve of 1 million barrels if a) you'll be able to
sell it for $12 million; or b) you'll be able to sell it for $20
million? Remember if the oil isn't there, you get nothing back.
There has to be a large return relative to the risk to induce E&P
companies to explore. Now if the price is at $20, and you
are real hot to explore, so are your competitors. So as a driller,
if I know there isn't enough capacity to drill for all the possible
exploration folks, I can up my price, and, of course, make more
money. So my stock price goes up.
Paul |
