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

To: Chuzzlewit who wrote (10931)	2/7/1998 1:38:00 PM
From: HH	Respond to of 95453

Paul, I am not offering answers but your questions ring home. I have decided that I dont fully appreciate the cyclical nature of this sector. Price multiples obviously relate to earnings growth, sustainability and visibility. I think there is fear of recession and these earnings are at risk. Shortage of rigs has been the war cry yet as you point out volatility on low P/E underscores uncertainty somewhere. HH

To: Chuzzlewit who wrote (10931)	2/7/1998 2:10:00 PM
From: RGinPG	Read Replies (3) \| Respond to of 95453

Thank you for your analysis. I have only one thought about why these stocks command such low PE's, especially in the face of strong projected earnings growth: the price of oil. Check out the OSX -Vs- Oil chart at lonestar.texas.net The price of oil has fallen precipitously (20%) over the last 3 1/2 months, this following a previous fall of almost 20% at the beginning of last year. Oil has fallen to the point where I imagine many are fearful that if it falls much further, exploration will no longer be profitable. This will lead to a bust reminiscent of the 80's. I think the key word here is fear. Once oil prices stabilize (at least stop falling so fast), I imagine the fear factor will subside, and these stocks will command significantly higher PE's. The Street just doesn't believe the earnings estimates right now. Your comparison to the drive makers gives me a stomach ache. It IS like a recurring nightmare to me, excellent PE/projected earnings growth numbers (The best in the market) and prices that precipitously fell (and murdered my portfolio). Only to find out later that all the estimates were wrong and had to be revised downward day after day after day after day. I'm betting this sector is different. Can anyone else elaborate as to why this sector is different from the Disk drive makers? Please do, it will make me feel better.

To: Chuzzlewit who wrote (10931)	2/7/1998 2:34:00 PM
From: Lee Fredrickson	Respond to of 95453

Paul- Like yourself, I'm a long way from knowledgeable, let alone expert, re: the oil industry. But I've been reading and studying any and everything I could find about it's history, fundamentals, and general lore for a couple of years and can offer the following (probably rambling) thoughts. First, let me say that I appreciate your additions to this thread, even on too-heavy-to read-'em-all days, I don't pass any of your commentary by. [Enjoy a sprinkling of 12-gauge words, having heard a couple of English teachers when they said "Listen up, communication is more important than you may now think."] The Mo People. Pick up any of the pop publications on the newstands and I'll bet you $.50 there'll be at least one reference to 'The HOT SECTOR,' 'Today's Top Something Or Other,' 'Make A Million By This Time Next Week' etc. And these guys aren't just ind'l investors, plenty of fund managers are playing 'Cover-My-Ass' with the same philosophy. It's a way of making money, so I doubt that it'll go away soon, but it makes longer term, fundamental story investing a kind of out on a slim limb proposition when the force isn't with us. (I haven't resorted to St. John's Wort yet, but I've been pretty grumpy with my quote list over the last few months!) This quick-cycle volatility is over-laid on the life-long ups and downs of the oil industry, the graph of which has a topography more like Colorado than Kansas. The supply/demand situation, the present absence of any really viable alternatives, and the continual need for finding and developing more oil sources to cover those real needs tell me that long-term, I'm not going to be disappointed by FLC, DRQ, MIND, or GW. (Tho' the latter may take a little longer to buy down it's acquisition debts.) Re-read 'The Prize', might help you with the Volatility Wiggles. Lee

To: Chuzzlewit who wrote (10931)	2/7/1998 3:44:00 PM
From: Teddy	Respond to of 95453

RE: "...we will have an oversupply (rather than a balance) of rigs in a few years...." Paul, i'm not going to argue with a wiseman like you. Since you are so sure about that, the only logical thing to do (if you want to make money) is Monday morning to sell every stock that has any ties to oil and short as much as possible. Of course, IMHO, that is the best way to lose 50% of your money ASAP, but it is clear from your post that your know more than than any person that has ever walked upon this planet.

To: Chuzzlewit who wrote (10931)	2/8/1998 12:36:00 AM
From: Czechsinthemail	Respond to of 95453

Paul, I think the volatility we're seeing reflects the divergence of opinion between those banking on strong drilling prospects based on a capacity constrained situation in the industry and the need to replace reserves on one hand and fears of a continuing drop in crude prices that presumably would cause cutbacks in drilling projects, reduce rates, etc. I think most of the volatility reflects the uncertainty around crude prices and what impact they are likely to have on the earnings of drillers and service companies. The split view on what is likely to happen with Iraq makes for a pretty schizophrenic crude oil market that gets translated into the share prices of oil-related companies. There are many who simply don't want to hold these companies if crude oil prices are likely to fall and many who don't want to be without them if crude oil prices are likely to remain firm or rise -- hence the mercurial trading patterns. There is additional volatility because the drillers moved so much last year that there can be considerable difference of opinion between the profit-taking and bargain-buying investors with a lot of money to back either point of view. I think the important background for the relatively low PE's is that we're dealing with a cyclical industry, and there are concerns about where we are in the cycle. I suspect the answer is likely to be different for different companies. For land drillers, there is likely to be a greater sensitivity to the ups and downs of crude prices, and there is a chance that these companies may be experiencing a flattening of dayrates, particularly if crude oil prices continue to fall. For deep offshore drillers, the demand is likely to remain stronger even at lower oil prices and capacity constraints aren't likely to be resolved for several years at the earliest, so rates are much more likely to stay strong. Shallow offshore drillers should fall somewhere in between. I think the service companies are harder to call, both because I don't have a clear sense of how fast they may be able to ramp up supply and because many of them have a mixed business involving onshore and offshore activities that increases the uncertainty in forecasting their overall business. My guess is that the trends we have seen are likely to persist with the deep drillers relatively stronger given weak crude oil prices and land drillers relatively stronger if the crude oil market improves significantly. good luck, Baird

To: Chuzzlewit who wrote (10931)	2/8/1998 12:38:00 AM
From: Broken_Clock	Respond to of 95453

Paul, You probably have received an answer by now but here's another one(2 cents worth only).Ron's Chart of OIL price(XOI)/OSX comparison says it all.Psychologically, traders buy/sell these stocks based on inaccurate information/analysis. This isn't unusual. Why does gold sell at $280 when it costs $300+ for most mines to make it from the ground? Why do some stocks trade at below book? Simple answer: investors don't favor the stock/commodity, etc.Logic is in short supply in the market.News, rumor, etc. are the forces that drive stocks short term.The best thing these companies could do IMO would be to start giving out some healthy dividends!That would spark some interest for long term investors. Five years from now these prices will look incredibly cheap.I envy the people that bought these 2-3 years ago under $5!. PK