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

To: Czechsinthemail who wrote (10989)	2/8/1998 2:08:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 95453

Baird, I agree with much of your analysis, however I am confused with something you said. Perhaps you could elaborate on this point: There is apparently strong correlation between dayrates and consumption of oil ... In the short-term your analysis is undoubtedly correct given the current shortage of rigs and the long lead-times required to build new rigs, but in the longer term I would think that the two are quasi-independant. Consider for example the increase in consumption during the last couple of decades and the large increase in day rates only during the last two years or so. That's why I think the primary driver is rig supply, and that's why I fear that eventually (although not for a couple of years at least) day rates will drop rather precipitously as many new rigs come on line. Perhaps I should have phrased my original thought as follows: day rates represent fixed costs for drilling and exploration, and therefore have little accounting impact on the cost of production of oil. Thanks as always for your thoughtful comments and analysis. Regards, Paul