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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: quehubo who wrote (16234)	12/28/2002 12:43:57 PM
From: Ed Ajootian	Read Replies (1) \| Respond to of 206326

Que, The point that I have been trying to make is that the past is no longer good as a measure of what drilling companies' earnings will be in the future. We have seen what happens after a peak drilling year such as '01 -- commodity prices crash due to the influx of supply and drilling then slows down for the next year or two. So when you look at that cyclicality it makes little sense to me to put a multiple of 30-40 times expected '03 earnings here, where if they really get to the numbers being projected, '03 will almost per se end up becoming another peak earnings year. Let's go back to PTEN, for example. Per Yahoo research they are projected to earn around $.75/share next year vs. breakeven this year. They way they will get there, apparently, is by generating 50% more revenues than in '02. Now we have all seen the projections of flat drilling growth in the "Lower 48" for '03 vs. '02. But let's say the projections turn out to be way wrong, and in fact drilling does go up significantly in '03 vs. '02, so that PTEN in fact is able to meet this earnings number of $.75. (This growth rate seems quite rosy given that PTEN has no debt and therefore no leverage to increased drilling rates -- i.e., it would seem that the relationship of overall drilling rates to revenues for PTEN would be linear, unless they are planning to somehow add market share). My point is that if drilling does in fact go up that much in '03, based on recent experience this will almost inevitably mean that we would have created an over-supply of gas again, simliar to what happened in the latter part of '01, such that PTEN will likely have a subpar year in '04, maybe not back to breakeven but I bet well short of $.75/share earnings. So with this much cyclicality, why does a company like PTEN deserve a multiple of 35 x forward earnings? I always thought that sort of multiple is usually deserved for the companies that are poised to grow at that kind of rate for a multi-year period.