A little snip from my gal pal:
Oil Stocks Rebound on Strong Lease Sale, Jump in Crude Prices
By Mavis Scanlon
Staff Reporter
3/18/98 6:58 PM ET
Stronger-than-expected results in the Central Gulf lease
sale and a sharp rebound in crude oil prices boosted
flagging offshore drilling and oil service stocks
Wednesday. But given the recent volatility in the sector,
few investors were prepared to say the tide had turned for
the better.
The auction's total of $810.4 million in high bids is less
than the record of $824 million in high bids submitted in
last year's Central Gulf sale, but well over the $616 million
in high bids submitted in the most recent sale, held in
August, for tracts in the Western Gulf. Eighty-seven
companies competed for drilling rights offshore Louisiana,
Mississippi and Alabama in Wednesday's sale,
submitting closed bids on 794 tracts. Once again, interest
in deepwater was most intense, accounting for fully 70%
of the high bids submitted.
... ...The results "show that the cycle is continuing despite the
fact that oil is at 13 or 14 dollars," says Dean DuMonthier,
an analyst with the Strong Common Stock fund, which
has about 10% of its fund in oil service and exploration
and production stocks. "I think what this shows is that
deepwater is the long-term play, with the kind of
production that doesn't come on for a year or two."
In addition, the sale "put some heart back into the
stocks," says John Cabell, co-manager of the USAA
Aggressive Growth fund. The crude market has been in
disarray, he says, alluding to the four-month price slide
and the much-publicized dispute between OPEC's top two
producers, and an event like this illustrates that producers
are taking a long-term view.
Major oil companies snapped up most of the leases, but it
was the independent, or smaller, companies getting in the
game and forking up the most cash for individual bids,
according to a spokesman for the Minerals
Management Service (MMS), which manages the
biannual sales.
The pricing for winning bids varied widely. The big winners
spent millions for dozens of tracts each, while the single
highest bid, submitted by a division of Sun Oil
(SUN:NYSE) for a joint venture between Sun and Statoil
Exploration, went for $28 million.
What's important to the oil companies is the number of
winning bids, or the "capture rate." Chevron
(CHV:NYSE), for example, which submitted 86 high bids
out of a possible 104, came out of the sale with a capture
rate of 83%. Chevron was high bidder on 62 deepwater
blocks out of 82 bids submitted, and on the shelf, the
more shallow water, it was high bidder on 21 out of 22
blocks, spokesman Tom Garcia said.
"We've improved our competitive position in deepwater and
we did it at a reasonable price," he added, referring to the
$18.5 million in total high bids the company submitted.
As expected, the majors were the big players in the sale.
Conoco shelled out $48.7 million for 122 high bids, Shell
Deepwater Development, a unit of Royal/Dutch
(RD:NYSE), submitted 119 high bids for a total of $46.9
million, and Mobil Oil and Exploration, a unit of Mobil
(MOB:NYSE), submitted 118 high bids for a total of $62.8
million. Also on the top 10 company list of high bidders
were large independents Vastar Resources (VRI:NYSE)
and Burlington Resources Offshore (BR:NYSE). Vastar
submitted 24 high bids for a total of $38.4 million while
Burlington also submitted 24 high bids, for a total of $18.3
million. Each bid must pass MMS approval for fair market
value before the leases are awarded.
A jump in crude prices, attributed to short covering as well
as reports of an OPEC meeting this weekend possibly to
stem the overproduction that has caused a slide to
nine-year lows, coincided with the lease sale. But traders
are skeptical whether the rally will last.
... ...Indeed, even Cabell at USAA, who was buying
"selectively" Wednesday morning, would not venture a
guess on whether the day's events signaled a bottom in
the crude market. "Trying to call commodity prices is like
trying to call interest rates," he says.
For oil to make any firm movement upward, two things
have to happen, says Dan Rice, manager of the State
Street Research Global Natural Resources fund. The first
is that Asian demand has to return, and the second is
that Iraqi production under the current oil-for-food plan has
to be accounted for. ... ...the new trading range when it finally does firm closer to
$16 than to $18.
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