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

To: RGinPG who wrote (10936)	2/7/1998 3:53:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 95453

First, thanks to Heyward and Lee for their comments. Ron, there are some important differences IMO between the dd's and the oil service sector. From what I can tell, there is limited ship yard capacity and an even more limited supply of skilled labor to support rig building, so I don't see the same vulnerability here that I saw with the dd's, although I think that it is inevitable that it will occur. It is simply a question of time, and whether we are astute enough to see it coming. The long lead times to build a rig should provide us with some padding. It seems to me that what we need is a good leading indicator. Because I'm a long-term investor, not a trader, I'm not sure that there is a good connection between day rates and the demand for oil. Certainly, the day rates charged for the rigs is a component in the cost of producing oil, but so long as there is decent marginal profit to be made, why would the majors stop pumping? This leads me to believe that any correlation between OEX and oil is a short-run phenomenon. Also, during the fall we experienced a huge run-up in prices for drillers, while at the same time the price of oil was falling. I don't know the answer to this, so perhaps someone could educate me. How many bbls per day are pumped by one of those behemoths that are being used in the North Sea. They have day rates of around $90,000. What does this represent in terms of cost to produce each bbl pumped? Econ 101 teaches that so long as marginal revenues exceed marginal costs production will expand. Finance 101 teaches that so long as expected returns exceed the risk-adjusted cost of capital investments should be made. My big toe (and economic theory) tells me that this is not the issue. Similarly, I don't believe that exploration will be cut back, because of the limited lifetime of existing identified oil fields. I believe that I read that identified GOM wells are expected to last about 6 years, so it is imperative that the majors continue identify more sources of crude. So, it is for all of these reasons that I believe the key issue will be oversupply of rigs. We've already seen the market consequences of projections of a glut of supply and support vessels for this summer. Regards, Paul

To: RGinPG who wrote (10936)	2/7/1998 6:23:00 PM
From: Thean	Read Replies (1) \| Respond to of 95453

Ron, you asked if FGII is riding the upper BB. The answer is yes. They have been doing it for a while now and it overshot the last two days. I would like to caution that remaing outside the band for an extended period of time is very rare. Therefore, FGII has a strong likelihood of falling back within the band Monday. I want you to look at this chart: wysiwyg://126/http://207.95.154.130/chart/default.exe?PERIOD=60&time=day&chart=candle&chart1=bb&volume=y&stochastics=y&symbol=fgii It says a few things: 1. FGII confirmed a breakout. 2. FGII's stochastics is going into overbought. 3. Complete mirror image between events happened the last three months. This tends to indicate confirmed sentiment change. Going forward, it is going to do one of two things: 1. Continue to ride the upper band but stay within the envelop most of the time. Its stochastics will indicate both %K and %L lines remained above 80% in IQC's chart (this is important). When there is a distinct crossover between the two lines and are poised to trend below 80%, that is the time to exit for this cycle. 2. Take a rest and come down to test the mid line. This will depend more on what happen to the other companies in the oil services sector. If we have a selloff on Monday and Tuesday, it will get there very quickly. The initial support is 29-30, the same level that was the resistence for a long time. Paul Levy - you are not the only one puzzled by the price volatility and movement of the drillers the past three months. We all are. I have long since given up on finding the exact causes. One advantage of using TA is the reason for steering short term price volatility and direction is not important. Say it another way, let the market tell us the price direction and we follow it. This is also more the trader's way of looking at things. Momentum money definitely has got to do with it.