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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Walter Bagehot who wrote (38147)	6/2/2010 8:52:15 PM
From: Jurgis Bekepuris	Respond to of 78462

You are barking on the right tree. The bull case is that the decline is sufficient to cover the losses of business in GOM. The bear case is that there's almost perfect storm: - the losses of business in GOM due to moratorium - decreased day-rates due to rig glut as they relocate from GOM - newbuild order book adds to glut - costs to refit rigs due to additional safety features that will probably be enforced All these are going to create a negative earnings comps for foreseeable future. There is some uncertainty what will happen with PBR ultradeepwater drilling. PBR is planning to do it using "local" Brazil rigs, but from what I understand they still don't have them, so there may be some additional business if PBR blinks. I don't think it will cover the GOM glut though. I had bought some RIG/NE/DO/ATW before the blowup and after it. However, since the moratorium announcement I am not going to add unless the stocks drop a lot more. I may lighten depending on relative pricing to other equities. My combined RIG/NE/DO/ATW position currently is less than 2% of my portfolio.

To: Walter Bagehot who wrote (38147)	6/3/2010 10:35:40 AM
From: Jurgis Bekepuris	2 Recommendations Read Replies (1) \| Respond to of 78462

FYI, FWIW, Citi assessment of the deepwater drillers: Message 26585967 IMHO they are optimistic, since they don't account for price pressures as the E&Ps sees opportunity to lower their costs on the rig glut during moratorium. They also don't account for the rig improvement costs to satisfy any new regulations. They mention one positive: theoretically drillers will get paid OKish rates for 90 days or remainder of contract under "force majeure". I think there will be pushback from E&Ps to get those rates as low as possible and continue for as short time as possible. The ultimate results of these negotiations are a bit tough to predict.