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Gold/Mining/Energy : Global Santa Fe (GSF) (formerly Global Marine) -- Ignore unavailable to you. Want to Upgrade?

To: CMason who wrote (594)	2/17/1998 1:34:00 PM
From: Czechsinthemail	Read Replies (1) \| Respond to of 2282

CMason, Though drilling stocks have been fairly weak while crude prices have dropped, I think they present an incredible buying opportunity. The risks vary. Generally, I think land drillers, including NBR, are riskier, since they are more likely to see cutbacks in their drilling activity and their dayrates if oil prices remain weak. Offshore drillers should show firmer demand, particularly those most heavily involved in the deepest drilling projects. The reason is that these projects typically contract for several years. They also tend to be more lucrative for the exploration and production companies making it less likely that they will be shelved during times of lower oil prices. There are a number of ways you can approach these companies. One is to select the companies with the highest concentration in ultra deep drilling; this list would include RIG, DO and FLC. Another is to select companies that are increasing their deep drilling exposure such as NE and GLM. Still another is to select companies more heavily involved in natural gas projects such as MDCO or ESV with the idea that their drilling would be less influenced by crude prices and more by natural gas. In general, the companies concentrating on ultra deepwater drilling trade for higher PE multiples and have higher projected growth rates. They are thought to have a higher predictability to their growth even if oil prices remain weak. The others may grow faster if oil prices strengthen and drilling activity heats up more, because they can raise dayrates on their short-term contracts faster. But if dayrates begin to level out, companies with long term contracts should do relatively better because they will continue to show increases in their average dayrates as older contracts "catch up" to the higher rates. My heaviest concentrations are in RIG and MDCO -- RIG as the premier ultradeep driller with the highest estimated growth rate for this year and MDCO as a low PE offshore driller with no debt, good growth forecasts and strong buyout potential because it is much smaller than most other drilling companies. Hope this helps, Baird