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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (3497)	3/10/1998 6:46:00 PM
From: Triffin	Read Replies (1) \| Respond to of 78531

Issues to consider that passed the following screen Market Cap < 500 million Debt to Equity < 20% Return on equity >20% Price/Sales <1.2X Price/Earnings <15X Current price within 10% of annual low ADDM - 1.75 BOOM - 8.25 DENHY - 16.125 DPW - 6.00 JHPC - 4.25 MSS - 3.25 PLSS - 4.25 RSHX - 7.375 TMAX - 7.50

To: jeffbas who wrote (3497)	3/11/1998 1:16:00 AM
From: Alex Greenland	Read Replies (3) \| Respond to of 78531

Normally this would be considered a somewhat commodity business, except for the convergence of several macro economic trends. First is that the number of availible has been shrinking since the early eighties and no new rigs were even built for 6-7 years. This has caused the age of the rig fleet to age and is now getting old and long in the legs. This requires new rigs to come on line JUST to keep the # rigs constant. The same is true with the boats except that boats are easier and less time/money consuming to build. Secondly technology has increased so that it is easier and more cost effective to find oil/gas. The success rate for drilled holes is up to ~65% up from the mid 30's. This makes it more cheap and cost effective to search for oil. Also worldwide demand for oil has increased dramatically since the early 90's. This has put a strain on worldwide oil production capacity. For much of the eighties most wells/companies/countries were pumping below 80% capacity. Therefore most of the increase in production has come from already discovered/existing fields. Currently the industry is running at about 97% capacity. So any meaningful increase in production would have to come from new wells. The major oil companies realize this and have now stepped up there exploration schedule so that several years from now the new fields will be ready to come on line for the new increase. So what we have is a smaller number of rigs, more worlwide demand for oil, and near capacity restraints on current wells. Not to mention the depletion rate of ~2-3% on current supplies. So this creates a long term bullish scenario for drilling and service companies. While some people point out that there are several new rigs being built, most of these are already under contract(except 3 I believe) for 3 or 4 years and wont be in service until 1999. Also people point out that several jackup(shallow water) rigs will come up for contract renewal this year in the Gulf of Mexico. This is true but also realize that a lot of shallow water Gulf activity is related to natural gas(which hass not been under pressure). One way to see if there actually has been any drop off in drilling activity is to watch the earnings reports and 10-k's from Global Marine since they have the largest turnkey drilling operations and would be the first to notice a fall off in day rates. With all that being said, some stocks I like in this sector are FGII, HMAR, RIG, FLC, and NE. With regards to MAVK they are a specialty steel tube maker and will feel seom pressure from cheaper priced Asian imports. PDS is an onshore driller and right now there is pressure on dayrates on land, but so far nothing offshore. For more information I suggest reading the strictly drilling thread here on SI and follow the posts of Big Dog(who works with in the oil business as rig broker so therefore knows what is going on in the front lines) and a few others. Alex G. PS hope this makes some sense its only 1 am :)