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

To: Jon I. Brolliar who wrote (598)	2/17/1998 11:03:00 PM
From: Czechsinthemail	Respond to of 2282

Jon, I don't see oil prices climbing much soon. There is a load of oil overhanging the market right now, which gives a bearish tone to the fundamentals for crude prices. I think the market is discounting any major supply disruptions. Perhaps Iraq's supply may be cutback if there are heavy air strikes, but I'm guessing there is a high likelihood of Iraq pumping more oil as the UN humanitarian relief resolution gets implemented. Consequently, I think any jumps in oil prices may be short-lived. My investment strategy is not based on rising oil prices, but rising revenues from contract drilling. Without increasing oil prices we may see a flattening in dayrates and perhaps some shelving of drilling projects. This will likely have the biggest impact on land drilling, then shallow offshore drilling, then deeper jackup drilling, and lastly semisubmersibles and drillships. The companies most heavily involved in the deepest drilling projects should do best, both because these will be the last projects to experience cutbacks in drilling expenditures and because their long term contracts take longer to realize the full revenue and earnings benefits from rising dayrates. This is reflected somewhat in the higher PE's of the ultradeep drillers like RIG, which are expected to show a higher rate of growth going forward. You can get more information on this at the RIG website: 207.183.153.23 In short, I think the market is overly obsessed with oil prices and not fully recognizing the potential of the drillers. Unless oil prices go lower and stay there a long time, the earnings of drilling stocks will be great -- much better than most companies you can invest in. Among these, I think the deepest drillers should be the safest bets. If oil prices strengthen and the demand for drilling increases, drillers with shorter contract terms such as the shallow offshore and land drillers should reflect the higher revenues faster. Hope this helps, Baird