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

To: Chuzzlewit who wrote (15322)	3/18/1998 2:13:00 PM
From: Czechsinthemail	Respond to of 95453

Paul, The bullish case for drilling stocks gets replayed every day here on this thread. The main problem I see is the fear that oil prices will drop low enough to torpedo the companies and recreate major cutbacks in drilling business, oversupply, etc. I guess my view is that for most of the offshore drillers there is probably low correlation but not no correlation between short-term oil prices and drilling demand. Also, the value case works as long as investors have confidence that the value will persist, and falling oil prices erode that confidence. You are right that drilling companies do not need to have oil prices moving up, just sufficient confidence that they won't move down. As Thean and others have suggested, it may take a climate of rising oil prices to get that. But if you look at today's trading, you can see how dramatically even the slightest whiff of a firming oil price environment can move both the oil prices and the drilling stocks. As I've said elsewhere, I'm placing my bets on drilling companies over service companies and more particularly on the drillers I expect will show the most predictability and highest earnings growth this quarter. Whatever else is going on, the ongoing march of strong earnings should help bolster the value case. I've been splitting my recent investments between RIG (with the highest growth and predictability), FLC and ESV. The latter two carry more uncertainty around their shallow drilling operations but also sport lower PE's and perhaps more appreciation potential as oil prices strengthen. I have less confidence around the service companies, mostly because I think they are more vulnerable to price/margin erosion if drilling activity moderates. Should we get a definitive OPEC oil agreement that suddenly lifts the floor on oil prices, I think we have a new ballgame. Under these circumstances, my spotlight would be on the land drillers as the companies likely to show the best appreciation potential.