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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 (130104)	4/14/2010 6:14:22 PM
From: Dennis Roth	2 Recommendations Read Replies (1) \| Respond to of 206183

Counting US Decline Chickens Logging While Investing OFS Weekly Analysis 38 pages, 30 exhibits Link: sendspace.com Excerpt: Counting US decline chickens. The OSX held last week's gains as the natural gas bounce continued (see performance summary next page and on page 13). Yet the pervasively bearish US tone stemming from natural gas (72% net shorts in non-commercial contracts, see page 16) yields a bias of when, not if, will the U.S. rig count fall and by how much. But they're not hatching yet. Yet permits directionally continue to offer signs of growth. Average weekly permits over the last four weeks of 984 are up 16% over the prior four weeks. More compelling is that Newfield and Other Exploration, which had looked to be trending down — and which we were eyeing as a possible sign of shorter term nature of "commitment" — has turned up, averaging 164 permits versus 90 over the prior four weeks. And natural gas is driving the increase, up 40% in the comparable four week periods (although this is a bit exaggerated because it includes CBM). We assume gas rig count eventually rolls, but see signs of differentiation in services. We maintain our basic assumption that gas productivity likely does lead to some pullback in activity. We also expect, however, to see differentiation within services, with a bias to technical capability and even logistical skill as it relates to the shale developments. We illustrated the points with our piece published yesterday. In Tight Squeeze; A Review of U.S. Hydraulic Fracturing, ( sendspace.com ), we stressed differentiation potential between services in that we argued there is a good chance that frac hp utilization could rise further, even with a 200-rig pullback. And we suggest differentiation is likely even within frac'ing based on the execution challenges of handling (profitably) the larger and more intensive shale plays. We believe both points support our top picks of HAL and to a lesser degree SLB, although in general supporting hydraulic fracturing clearly applies to several other companies as well. Our take on the group. We see enduring value in exposure to non-NAM markets —and we look for signs of spending growth to emerge more strongly after mid-year —which continues to steer our preferences — now nearer term and longer term — to diversified services, land-based construction, and strongly free cash-flowing offshore drillers. In diversified service large caps, HAL (top pick) and SLB appear well positioned to outperform in the nearer term, particularly with 1Q10 caution already being reflected in shares. We prefer NE among drillers. And in European OFS, we favor the defensiveness (including versus expectations) and backlog outlook for onshore-exposed names including PFC.L.