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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Aggie who wrote (46370)	6/13/1999 11:24:00 AM
From: getanewlife	Read Replies (3) \| Respond to of 95453

To all, this is where the money will rotate into: June 13, 1999 Oil-Drilling stocks broke out after several weeks of consolidation. Last week, while traders were selling Internet and other technology related shares, they were using the proceeds to buy oil-drilling stocks. These stocks went through several weeks of consolidation and have broken out to the upside. Investors are taking positions in anticipation of earnings growth. Money flow data shows continued buying, primarily from the retail side. Despite improved fundamentals, buying remains somewhat subdued, as there are many skeptics who want to see solid evidence of earnings growth. So, what's the outlook in the oil-drilling sector? As it stands, OPEC and non-OPEC members pledged to cut production by almost 5 million barrels a day over the past year or so. During this time, Asian economies have started to rebound, which have been in a severe recession the past few years. OPEC members have 91% compliance so far. Oil production cuts have come at a time when demand is on the rise. In fact, the International Energy Agency, based in Paris, France, raised demand for oil worldwide for the second month in a row. Earlier this year, the agency was predicting lower demand, but all that changed after Asian countries started to rebound. According to the agency, their demand estimates may have to be increased if the rate of growth in Asia/Pacific region accelerates. The IEA anticipates worldwide demand for oil to come in around 75 million barrels a day, up 1 million from last year's level. The IEA believes that if the demand/supply equation remains as is, excess supply would be used up on or before the end of this year. Currently, crude oil inventories are running 13 million barrels, or 4 percent, below last year's level. Crude oil for July delivery rose 29 cents to $18.14 a barrel on the New York Mercantile Exchange. Crude oil was trading at $10.35 a barrel in December 1998. According to Luis Tellez, Mexican energy secretary, crude oil price could rise to $20-$22 a barrel by the end of this year. What does this mean for oil-drilling stocks? Earnings have come down sharply for shallow and deep water drilling companies due to lower day rates. This was because major oil companies cut back production when crude oil price fell to $10-$11 a barrel. Now that prices are substantially higher and staying there, analysts believe that major oil companies would start to increase drilling activities starting next year. Should that be the case, day rates are expected to rebound from current depressed levels. Currently, day rates appear to have bottomed in the shallow drilling and are expected to rebound in coming months. This is being reflected in stock prices of those companies that have exposure to that area. Stock prices of many of these companies are up in excess of 100% over the past few months. These include Rowan Companies (RDC), Precision Drilling (PDS), and Patterson Energy (PTEN) to name a few. However, day rates in the deep-water drilling are still in a decline because the decline started late. Thus, stock prices of those companies have not rebounded that much yet. In fact, when day rates return to normal levels, deep-water drilling companies would have the edge over shallow-water drilling companies because day rates are much higher due to harsher drilling environment. Companies exposed to deep-water drilling include Transocean Offshore (RIG), Diamond Offshore (DO) and Falcon Drilling (FLC) to name a few. It is this sector that look particularly attractive relative to shallow water drilling stocks, since stock prices have not rebounded as much. Overall, even though many of the stocks have rebounded strongly over the past few months, as a group, they are still substantially below their previous highs. This suggests that when the recovery is in full bloom and investors come back to this sector, these stocks may have much further to go.