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

To: chuck weir who wrote (6052)	12/23/1997 8:47:00 PM
From: Czechsinthemail	Read Replies (3) \| Respond to of 95453

The Morgan Stanley conference call with Jon Lovoi is well worth listening to if you want any reassurance or guidance about the drilling and oilfield services companies. Great overview: (800) 642-1687 , then 795371 to access it. Some of the highlights: --SLB's deal is a total package that contains significant incentives so that it in no way indicates a drop in dayrates. He believes the contract provides returns as high or higher than prevailing market rates. SLB's plan is to pocket much of the overall cost savings on the drilling project through a package deal they estimate will cut drilling time by 25%. --Virtually all exploration budgets are expected to spend more for deepwater drilling projects in 98. Overall budgets are expected to range from flat to up 10-15%. At another point he forecasted overall exploration and production budgets to be up 15% next year. Since costs for rigs are relatively fixed, high dayrates should provide very high margins for drillers. --Deepwater drilling projects are looking for 1/2 billion to 1 billion barrels of oil. The economics are such that if the company thinks there is oil there, the drilling costs are miniscule compared with the likely return. --There will be insufficient supply for at least 3 years (probably more). Stock buybacks have the effect of extending the shortage by using capital that might otherwise finance new rig building. --Lovoi feels earnings expectations for 1998 are generally too cautious. There have been no earnings downgrades among the companies he follows, nor does he expect any. If anything, they will be revised upwards. He acknowledges that he expects a slowdown to around 25-30% average growth following '98. --He described the situation as being able to buy companies with 5-10x market growth rates for about half the market multiple. --Deep offshore drillers seem to be Lovoi's favorites. He described it as a growth industry that was capacity constrained based on inadequate supply of ships, machinery and crews. He feels we are early in the cycle with many years to go before peaking out. He projects a demand for 70-85 deepwater rigs by the year 2000, which probably will not be possible to meet. He feels the demand will maintain premium dayrates and essentially full utilization for deep offshore drillers. --Shallow Gulf drillers focus more on natural gas, deepwater drillers more on oil, so there are somewhat different economics at work. Since shallow drillers are more dependent upon the economics of natural gas production (which can't be easily imported), their projects will track the profitability of gas drilling. Shallow offshore rigs and land rigs engaged in oil drilling may be more vulnerable to short term weakening in the price of crude than deepwater drillers. --In the event the overall economy slows, he expects oilfield companies and drillers to maintain a proportional outperformance. There is a lot more, but these are some of the highlights. It is a great listen if you want reassurance around holding or buying more. Baird