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

To: Dennis Roth who wrote (125227)	11/2/2009 5:54:53 PM
From: Dennis Roth	3 Recommendations Read Replies (1) \| Respond to of 206184

Logging While Investing OFS Weekly Analysis Upbeat U.S. meets 914 40 pages, 32 exhibits, 570 KB Link: sendspace.com Excerpt: Upbeat U.S. meets 914. As we reach roughly mid-way through earnings last week, a curious combination. OFS providers spoke not only of a stabilizing U.S. environment, but some predicted rig count growth near term, with the only caveats related to winter weather or operators taking the holidays off. And if recovery had been oil-based activity up until fairly recently (and the 4% sequential decline of the gas rig count was offered as explanation of why Q3 wasn’t stronger for several service companies), the optimism was “gassy” and certainly “shale-y”. Our U.S. rig count forecasts for this and next quarter could prove too low. We have commented frequently on the risk that 2010 U.S. spending could exceed what fundamentals warrant as E&Ps have been given access to cash from supportive capital markets and optimistic futures (I.e. a 2010 strip that has repeatedly allowed hedging >$6/mmtbu). Yet we had gathered that the determination to add rigs was very judicious for many operators and we felt this might slow the pace of rig addition. The tone from PTEN and others suggest these rig adds are coming more quickly than our published U.S. onshore rig counts of 1,007 for 4Q09, up 7% from 3Q09, 980 for 1Q10 (assuming largely winter weather drives the pause), and then 1,119 for 2H10. But with no help from supply it suggests our rig count forecasts for 2H10 could be too high. Our logic for higher rig counts in 2H10 is that there is some favorable natural gas price response as production presumably declines, albeit at a slower pace than conventional wisdom is likely forecasting. But even the slower production decline assumption may need to be revisited, in our view. The Energy Information Agency’s August 914 data, released Friday morning showed that U.S. onshore production grew 1.1% month/month, or 0.5 Bcf/d even after normalizing for restored volumes from plant maintenance in Wyoming in July. As Credit Suisse’s E&P team wrote it their note from Friday, “we are now sensing production could actually stabilize into 2010 and potentially start to show material growth mid-next year.” Our take on the group. As we have for some time, we remain wary of the U.S. landscape for much beyond a trade to take advantage of the pickup of this very near term pick up in U.S. activity described above. But as the OSX retreats with (but more than) the market, we acknowledge that the global 2010 outlook for OFS continues to trickle more positive. As this earnings season appears to be demonstrating, including via the demand step-up witnessed in the jackup market, the tone on international spending is improving and we take greater confidence in an outlook of flat-to-modestly-up spending. The companies are generally exhibiting solid cost control, which lends itself to some upside bias to our generally still-below-the-Street estimates. However, we continue to struggle, with how much of this better outlook has been reflected in shares for some time and thus we remain very selective. In diversified service large caps, HAL (top pick) and SLB appear reasonably well positioned to outperform. And we continue to prefer free cash flow generative drillers with healthy deepwater exposure including RIG and NE.