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

To: Lee Fredrickson who wrote (6816)	1/7/1998 2:45:00 AM
From: Czechsinthemail	Read Replies (1) \| Respond to of 95453

Lee, I don't know what the Saudis are or will be up to. I think it's a hard call because they can play it so many ways -- optimizing total return, going for more market share, drying up exploration programs, etc. The Saudis have an unbeliebably low cost per barrel on their oil so they can make lots of money on volume if they choose that route. Also, consider that the strength of the dollar makes their dollars per barrel worth more on a trade equivalent basis. Given the uncertainties around how low oil prices might go, my strategy has been to go for the deepwater drillers over land and shallow drillers on the basis of a more favorable supply/demand situation on the rigs and more favorable economics on the projects. It seems pretty clear to me is that the economics of deep water drilling are still attractive, so virtually all the rigs will be fully contracted. This translates into strong earnings. When the price goes below this threshold, you'll know it because it will be cheaper to buy assets than drill for them. The improved technology, plus the mammoth size of deep offshore fields make it well worth the play. These are the kinds of fields exploration companies don't want to miss out on regardless of what the price of oil is today or tomorrow. You can bet that they will cut back on other projects before they will pass up these opportunities. That's why the main factor is rig availability not oil price. Though virtually all the oil-related companies have been trading up and down as a group, I think there are significant differences within the group that can improve the risk/reward potentials over time. I think the fundamental values are strong enough that the stocks could take off anytime. Good luck, Baird