Top Stories: Buyers Pouring into Drillers as 1997 Comes to a Close
......this explains the reason, i think
By Mavis Scanlon
Staff Reporter
12/30/97 6:32 PM ET
Investors won't let the drillers skid to year-end without a good fight.
As 1998 nears, buyers are coming back to oil drilling and service stocks, picking through the beaten-down group for potential winners. Some investors believe the group has started to bottom, but the sector's situation still remains murky at best.
The drillers have struggled mightily since Gray Monday, although doubts about the sector's blistering, double-digit growth pace had already started to surface in early October. The Oil Services Index (OSX), which tracks 15 large and mid-cap stocks in the sector, jumped around with the sector's volatility after Gray Monday, but stayed mainly in the 130 and up range for the ensuing month, and peaked at 141.211 on Nov. 5. With few exceptions, it's been downhill since then, as macro forces (Asia, OPEC, world supply and demand) and micro issues (day rates, E&P budgets of oil and gas companies) shook investor confidence. Monday's boost in the index -- it jumped 4.2% to close at 108 -- was mirrored in nearly every group within the drilling and service sectors, and was not affected by a sharp decline in the price of crude.
In Tuesday's trading, however, the OSX started out strong, dipped down near 105 by midday, and then slowly inched up all afternoon to close at 109.86. The index rose overall, but buyers seem to be differentiating among the many groups which we know collectively as the "drillers."
"We've reached valuations here that make sense," says David Stadlin, portfolio manager of the Smith Barney Natural Resources fund, which is overweighted in the oil service area, especially with deepwater drillers. "You're starting to have an interplay between people willing to buy based on valuations and short-sellers who have taken gains for the year."
That doesn't mean things are headed for a quick turnaround, Stadlin says. We may be in the process of making a bottom in the drilling and service sectors, he says, but added that the movement in the price of oil in the last day is worrisome. Indeed, the price of crude for February delivery dipped to a low of $17.50 today, before climbing back to $17.61.
Going forward, Stadlin says he will be keeping an eye on earnings estimates and oil prices. He is concerned that analysts might start trimming earnings forecasts if oil prices drop to the $16 or $15 range.
Land drillers also joined the upbeat mood today. Patterson Energy (PTEN:Nasdaq) said on Monday that it will purchase closely held Robertson Onshore Drilling. Patterson, which would own 114 drilling rigs after the deal, is among the largest land drillers in the industry. Patterson gained 5 1/8, or 15.8%, to close at 38 Tuesday. That big move followed a jump of 3.5% on Monday. Nabors Industries (NBR:NYSE), the largest onshore driller, gained 1 and rose to 30 15/16, on top of Monday's 4.8% rise.
Cliffs Drilling (CDG:NYSE) announced a small rig purchase on Tuesday, but its acquisition of two offshore platform drilling rigs, a jackup drilling and workover rig, as well as the offshore drilling assets of Trinidad-based Well Services Marine, did nothing to boost its stock. Cliffs, whose fleet consists predominantly of jackup rigs used in shallow waters, closed Tuesday down 1/8, at 46 11/16.
Marine Drilling (MDCO:Nasdaq) may be feeling some dayrate fallout over a pre-Christmas contract announcement. The $23 million contract with Premier Oil is for an initial period of nine months, beginning in April 1998 off the coast of Burma. Dayrates will rise over the life of the contract, says company CEO Jan Rask. They will start out at $75,000 for the first quarter of the contract, rise to $80,000 for the second quarter, and rise again, to $90,000, for the remainder of the contract. MDCO rose 4.6% to 19 3/4 in Monday's trading, and managed to squeak out a late-day gain of 1/8 on Tuesday to close at 18 7/8.
Many specialty or niche service companies servicing drillers and exploration and production companies could not hang on to Monday's gains. Cooper Cameron (RON:NYSE), which manufactures assorted equipment needed to drill smoothly, rose more than 3 on Monday, but closed Tuesday at 59 3/8, down 3/8. EVI (EVI:NYSE), a drill pipe manufacturer, also posted a gain Monday, but fell 7/8 Tuesday, to 48 1/8.
On the integrated oil services front, Western Atlas (WAI:NYSE ) rose 1 1/8 to 70 15/8. Halliburton rose 13/16 Tuesday at 49 7/16, and Schlumberger (SLB:NYSE ), the bellwether stock of the sector, has risen from below 73 on Friday to 79 1/4 Tuesday. |
