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

To: Douglas V. Fant who wrote (56068)	12/5/1999 12:31:00 PM
From: SliderOnTheBlack	Read Replies (4) \| Respond to of 95453

"It's the bottomline - stupid" ... as in, it is obvious that this is NOT any longer about - "it's the price of oil - stupid". On the reference of "archiving" earlier - seems to me that perhaps we can put to rest the old mantra of "ITS THE PRICE OF OIL -STUPID" for a while. I think I remember the flames I received for my rendition of "it's the cap ex spending-stupid" (VBG). Now, even with bullish news on the substantial planned cap ex spending - that's no longer enough either... ? Actually; we all know that it "usually" is about the price of oil, but that it "is not" about the price of Oil here presently; is why it is such a great bet imho.The market has lost track that this will be a multi-year expansion because it will be a " global demand" driven expansion.They have also lost track of the supply & demand fundamentals in reference to the sustainability issue. The "sustainability" issue was originally whether or not crude could sustain above $15 initially, then $18, so what is the magic number now ? This amazes me. We are at $25+ crude with simultaneous rising global demand and falling supply - and there is still a "sustainability" issue ? - at what price level now ? $18 crude supports strong growth and profitability in the industry and $15 crude can sustain breakeven operations. Imho; there is really only one factor keep us in the coiled spring mode - and it will be a coiled spring breakout. That issue is simply the bottomline numbers We just had HAL then BHI disappoint on the bottomline in comparison to analyst estimates and generate sectorwide selloffs. The street really does not seem to want to make this very complex here. The Energy specialist funds who understand the nature of the sector have taken it as far as it can go - OSX 85ish; to move further it takes the "momenteum crowd." They will not lend their support here untill the bottomline numbers reflect that the price of crude has found its way to the bottomline of the driller, service and the E&P companies. The E&P companies had their first dramatic turnaround this past quarter. Many E&P's showed dramatic qtr, over qtr and year over year improvements and showed strong profitability. The same has not ocurred in the OSX stocks. With the poor under the market hedging primarially for NG, but for crude as well; that is coming off for most companies and being replaced by what is now the above market hedging for NG, in additon the the incredibly still strong crude prices; the E&P's will still continue show strong sequential improvement for at least the next 2 qtrs. This is an anomaly, as their bottomline fundamentals are ramping well ahead of the driller/service stocks, but their selloff has been disproportionate on a % basis to their service & drilling brethren. I'll strongly over-weight that separation of bottomline fundamentals to valuations, this gap will close, allways has - allways will. Salomon Smith Barney survey their group of 12, 13 (?) Independant E&P's and cap ex spending will increase over 20% on the average - this is strongly bullish for both the expected production, cash flow & earnings growth in these E&P's themselves; but also obviously for the driller & service companies as well.It "IS" only a matter of when & not if - imho. Those cap ex $ just won't disappear... The Market seems to be waiting untill the E&P's blow them away with another qtr of positive reporting imho and Q4 reporting will be that catalyst if a NG price rebound doesn't beat it to the punch. Douglas; good point on the weather - this looks like a front that will blanket virtually the entire northern half of the US; with very cold weather dropping down into the Southern USA in some areas as well. Should be a nice catalyst for NG prices. NG prices are completely at the mercy of the weather here. Fighting to $2.45 - then knocked down to $2.30. What is lost on the valuations here, is that many companies have now had the opportunity to lock in nice hedging positions in the $2.75-$3 range and that present market prices are still outstanding in the $2.30ish range. We have E&P shareprices that reflect $1.85 Natural Gas AND $15 crude oil in the E&P sector - this is a great buying opp, both short and longterm. Sector leaders like NBL are selling within 10% of 5 year lows and have over 50% upside to just the recent highs of less than 90 days ago ! This quote is from Bloomberg and seems to have been totally lost on the market: <<Prices are down 21 percent since the end of October, though they still are up 19 percent from a year ago.>> I think the OSX may rally to 100 if we see a bounce in NG prices in the next couple of weeks and the E&P's will explode. If NG languishes - then it does become a trading range bound game that continues; untill these companies show the market the bottomline numbers that support the return of the mo-mo crowd. Maybe we get lucky and get a cold front that bounces NG prices upward at about the same time we see the NASDQ & DOW get some strong profit taking, leading to a little rotation fuel thrown on the Oilpatch fire ? A note on the overall market valuations, this is a great quote from noted market technician John Bollinger on the nature of the frothiness of this market. <<In some respects, an excess of bullishness is like a boat where all the passengers have run to one side. In itself, that's not enough to swamp the boat. "That's just the precondition," said Bollinger. "Were a wave to come along and nudge the ship, in fact, it might sink. That's what we have to look for now -- the catalytic event that will take this sentiment excess and start sending it in the other direction." >> Maybe Y2K, maybe a Fed rate hike, maybe just a mindset that pigs get fat, but hogs get slaughtered ?