Strictly: Drilling and oil-field services Message Board

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Gold/Mining/Energy : Strictly: Drilling and oil-field services

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To: Broken_Clock who wrote (44713)	5/13/1999 10:06:00 PM
From: SliderOnTheBlack	Read Replies (1) of 95453

RIG...my 2 cents.... RIG is refusing to low ball bid short term contracts; stating they are willing to miss business now (stack Rigs) in the expectations of a more positive dayrate environment later. Many schools of thought in negotiating Rig contracts: Longterm at a moderate rate, or take a short term lowball - just to keep crews working, but at a loss ? Or, let some get stacked - betting on the environment for dayrates turning somewhat soon; then locking in longterm contracts as much higher than present dayrates . - remember the ''bet'' here is for 2nd half 2000 - late 2000. RIG's downside, excepting any unforseen cancellations is very limited for the next 6-9 months imho. RIG still has a higher % of drilling days booked than ANYONE else ! They still are the deepwater pureplay and still have the most experience in drilling the ultra-deepwater wells. I think RIG is making the smart move - the bet here is simple; do they take low rates for a longterm ''lock in'' at present weak dayrates; or take a bit of a gamble, on stacking here and getting much higher dayrates later as activity presumably increases dramatically if $18 Oil Prices sustain themselves. Bottomline worst case: RIG earns $1.50 - $1.80 in 2000 in a better crude oil price environment - at a traditional PE of 14-18 = $21 to $32 Best case: RIG gets higher dayrates by waiting here and earns approx. $2.20 - $3.00 x PE's of 14-18 = $30 - $54 ...these are reasonable assumptions/estimates - with no ''blue sky'' for a strong Crude Oil Price environment, or RIG's expertise, or pure play on deepwater. RIGS worst case estimates still exceed DO's estimates and DO is selling for $4ish more !?!?! - sure DO has the cash hoard, but they aren't paying it out in dividends or anything.... I won't pay the $4 spread for less earnings visibility ! RIG has a .40 to .70 cents eps higher estimate than DO; .40 x PE 14 = $5.60 and .70 x PE of 14 = $10 - and it's $4 cheaper than DO instead of $5.60 to $10 higher based on earnings ? go figure... I see a conservative guesstimate of RIG at $36 to $48 for 2000; Bought a nice position here of late, at $26 7/8ths and I will be sitting with a good till cancelled limit buy order on RIG for tomorrows open at $24 3/8ths & $21 5/8ths to average down if the opportunity presents itself. I see $42 RIG in 9 months for a 50%+ gain.

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