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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Lazlo Pierce who wrote (5937)	12/22/1997 10:46:00 PM
From: The Perfect Hedge	Respond to of 95453

Great!I'll be black and blue in time for X-mas.This is going to be a blast!GD

To: Lazlo Pierce who wrote (5937)	12/22/1997 11:12:00 PM
From: Surfer	Respond to of 95453

David, It depends on how one reads it. It does have both bullish and bearish views. We'll have to see how the market reacts over the next two weeks. Thanks for the article. Since the article is Bullish/bearish, I wonder how much does Street.Com influence it over one to 5 day periods? Anybody, please help. Also, MPT Review newsletter is positive on Oil services stocks as of 10 days back. Bye now.

To: Lazlo Pierce who wrote (5937)	12/22/1997 11:37:00 PM
From: Bill Li	Read Replies (3) \| Respond to of 95453

I usually do not post analysts' research notes, but today is an exception. As Mike once said, everything is in the detail of the contracts. Excerpts from the note: Morgan Stanley\DW (Lovoi, John V. 713-512-4481) SLB DO ESV Schlumberger (SLB): Pushing the Edge of the Integration Envelope, Maintain Strong Buy and $105/Shr Target John V. Lovoi (713) 512-4481 P. David Chiaro (713) 512-4485 Date: December 22, 1997 Industry: Oil Services and Equipment Type: Sales/Earnings Analysis ______________________________________________________________________ Rating: Strong Buy Price: 74 52-wk Range: 49 - 94 Price Target: 105 KEY POINTS - Over the last week, Schlumberger announced two meaningful newbuild drilling rig contracts using the company's proprietary Sedco Express deepwater drilling rig design. We believe the structure of these contracts and the nature of the assets deployed have important future implications for the industry, the most important a closer working relationship between contract drillers and oilfield service companies. - One of the things that we admire most about SLB is the company's strong cultural orientation towards the delivery of cost effective drilling and production solutions. This company clearly understands that its long-term success is fundamentally premised on its ability to lower drilling and production costs for the operator. - Current market speculation is that SLB underpriced these assets and that dayrates within the high-specification floater market have peaked. We believe the ultimate return to be earned by SLB will be significantly higher than the speculated below-market dayrate and we further believe that future dayrate fixtures for high-specification floaters will continue to rise. - Our rating on the shares of SLB remains Strong Buy and our 12-month target remains $105/share. DETAILS: New Contracts Over the course of the last couple of weeks, Schlumberger's Sedco Forex (contract drilling) division has entered into two separate 5- year drilling contracts utilizing the company's Sedco Express deepwater drilling rig design. The first rig will be leased by Elf Aquitaine for drilling operations Offshore West Africa. The second rig will be contracted by Texaco for five years for work in the deepwater Gulf of Mexico. Both rigs are scheduled to go to work in the fourth quarter of 1999. Towards the end of last Thursday and throughout last week, energy service stocks performed poorly, largely in response to concerns that SLB had entered into below market dayrate contracts for these two newbuilds. According to market speculation, the dayrate for these assets is believed to approximate $160,000 - $165,000/day, roughly 25% below current market, assuming the construction costs for the assets will approximate $225 million to $250 million. In our opinion: (1) there is much more to the speculated dayrate than immediately meets the eye, (2) the value-added potential of this type of rig should prove to be significant (benefiting both the operator and SLB and its shareholders), (3) the nature of these contracts signals a closer working relationship between offshore drillers and oilfield service companies, and (4) the negative price impact on oil service equities last week was yet another sentiment-driven overreaction. Economic Implications To repeat, the dayrate for these assets is believed to approximate $160,000 - $165,000/day, which would be roughly 25% below current market, assuming the two newbuilds will cost roughly $225 million to $250 million to construct. Our belief is that the ultimate structure of the agreement between Schlumberger and the two operators will likely include three components (1) a base dayrate, which may very well be nominally below existing market, (2) agreements to use the full suite of SLB oilfield services - directional drilling, measurement-while-drilling, pressure pumping, drilling fluids, and wireline logging - over the five-year term of the contract and (3) a significant performance bonus in the event that the integrated nature of this asset does truly deliver value-added to the customer in the form of a clean well drilled in a significantly shorter period of time. In short, we think there will be much more to this contract than $160,000 - $165,000/day. In our opinion, the final structure of these contracts will be such that the total return on capital for SLB will be higher, and most likely significantly higher, than what the company would earn under a traditional contractual arrangements. There is absolutely no reason whatsoever for SLB to enter into below market contracts for new-build high-specification semisubmersibles. The company is the largest oilfield service company in the world and among the largest in the area of offshore drilling. More importantly, SLB is the most profitable oilfield service company in the world. Furthermore, SLB recently sold two second-generation semisubmersibles. When questioned as to why it sold these assets, which were earning and had the potential to continue to earn extremely attractive rates of return on invested capital (indeed a much better return than the return underlying a five-year contract at $160,000/day for a $225 million newbuild), the company stated that it was interested in substituting higher capability assets - i.e. the Sedco Express - for lesser capability assets. First Call Corporation - all rights reserved. 617/345-2500 END OF NOTE

To: Lazlo Pierce who wrote (5937)	12/22/1997 11:47:00 PM
From: Big Dog	Read Replies (1) \| Respond to of 95453

The street.com article just shows how ignorant these finanical-types are. They are scraping and begging to find ANY dent in the fundamentals of the sector, and this is the best they can come up with. The article freely admits that the details of the contract are not known...so DUH...how can they say it is below market...whatever market is. The article also says there are many components possible to a charter arrangement...especially with a multi-faceted, huge company like SLB. So why would they write a bearish article? 'Cause they are stupid. Here is a future article headline: SLB Earnings Increase Surprise Analysts Due to Unexpected Revenue From Offshore Rig Contract Watch the cash register and you will make money, IMO. I'm going to bed.