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

To: SargeK who wrote (55360)	11/24/1999 1:06:00 PM
From: Aggie	Respond to of 95453

Sarge, Slider, hello One of the things I find interesting about the incipient B2K is the concensus of recovery voiced on this thread. When an operator explores the economic feasibility of a development, the concept is usually explored on the basis of NPV or internal ROR. The only certainty these days is the current pricing environment - any projections regarding commodity prices, rig rates, etc. have been rendered pretty much meaningless by the chaotic natures of the oil service economy and oil commodity prices in the past few years. It used to be that the oil cycle could be predicted with reasonable certainty, because the cycle period was more or less 9 years, right? No more. We can only be certain of next week, and to a lesser extent, next month, and because we are at the nadir right now, it will force development decisions to be made sooner, not later. We typically look at the economics of developments which produce for about 20 years or so. The front-end drilling, completion, and facilities costs represent the single biggest controlling factor on project economics, to the extent that they are often deterministic. This is especially the case with deeper water or subsea developments. I'm no egghead economist - but it's the upfront costs that eat your lunch, and right now, with rig rates depressed, this is the best time to drill. That's the message I've been carrying to upper management, and it's one which smaller companies like Apache, for example, are capitalizing on as we speak. From the scenarios I've been exploring, even with many fabrication yards standing idle, there is still a minimum of 18 months fab time for a platform jacket and topsides. With these kind of lead times, oil companies are pressed to make decisions based on speculation. Not an exercise for the faint of heart. If all of the projections hold true, I think that many of these project decisions will be going before the corporate boards in the next 2 months - and getting approved. My point? I believe that the orders for fabrication will begin coming in shortly after the new year, before drilling on these developments actually starts. 18 months is a long time in the world of rig rates. Look for a sharp increase in the jackup utilization rate starting in Feb., based on development drilling, not exploration. But I would not be surprised to see the fabricators recovering sooner than the concensus expects. I'm currently in UFAB and looking to average down, as I believe this one will start to rebound within the next 3 months. As for FGH, well I looked at that one for a long time, and I'll have to side with you, Slider. Looks like dead money for at least 6-8 months, unless boats start hiring out for 3x their current rate. Regards to all, except the turkeys. Aggie