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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: isopatch who wrote (4306)	11/22/2001 12:36:40 PM
From: russwinter	Read Replies (2) \| Respond to of 36161

Some very good observations, especially about relative valuations on the OSX: large cap "index" driven factors. I'm leaning toward the NG weighted mid tier producers, with some "likely target" small caps for spice. I'd be looking for the classic 62% retracement on OSX, and we aren't there yet. As I indicated in my 4125 post, I was in this initial OSX rally for a trade; Fidelity Select Energy (OSX surrogate): 20 to 26 and change. However, I think we may be setting up for the big secular multi-year bull move, and I'm in the supply side camp on this. I'm also in the quasi-depression camp on the demand side, but really don't see an enormous fall off despite that. Most of it's already happened. We are a lot further into this contraction than folks realize. I subscribe to the L theory, and we are close to the bottom of the first segment on resource demand. What I'm keying on was the pathetic production response (discussed by Simmons) in NG, DESPITE a drilling boom over the last year. That does not auger well for supply, especially in a sub $3 world. To me it looks like the new equilibrium price for NG is pushing $3.50, and moving steadily higher. The longer prices stay lower than that, the greater the "snap back" to mitigate it. So the key variable are the rig counts: bakerhughes.com If the NYMEX strip-production rate lag theory holds water here, we should start to see a rapid fall off in rig counts. It's one of those "don't fire until you see the white of their eyes" calls however. So far the drop off is grudging; Nov. 21 to 986 (down only 7 from prior week). That's not enough. I'd like to see a waterfall of 30 or more a week. The question I would pose to the drilling pros here, is how long does it typically take logistically for companies to pull rigs in response to conditions. Are there a lot of long term contracts out there, or are "break" clauses too high? I just don't know the tiny details of how this thousand fold inventory of drilling rigs is configured. I suppose off shore rigs are more permanent? If they are mostly short term contracts, I would expect them to be returned fairly quickly.