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

To: j g cordes who wrote (20923)	4/30/1998 7:26:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 95453

P.S. yea, I know I stepped in a mine field. Actually, the argument is cogent. You are just missing a couple of facts. While there is currently a glut of oil on the market, this will not last long for a couple of reasons. First, there was unseasonably warm weather world-wide due to el nino which reduced demand for heating oil. Second, there was the collapse of several Asian economies which further reduced demand. So it is safe to say that demand will begin to pick up around now due to the summer driving season (and with it the price of oil). Asian economic woes will also disappear, although the timing is far less predictable than el nino. However, exploration is driven not so much by current demand as the perception of future demand. And here, demand looks quite robust. In addition, deepwater exploration projects cannot be turned off so easily, while land drilling can, so the result is that land drillers have been more vulnerable to exploration cutbacks than shallow water drillers, who in turn are more vulnerable to the deepwater guys. The president of GLM (Luigs) likened the rigs to straws in the ground. He pointed out that demand for rigs was volume driven, not price driven. Finally, I would point out that there is no substantial increase in the number of rigs now compared to a couple of years ago. Although several new rigs are slated to come on line in the next couple of years, it doesn't appear that we will see the overbuilding that characterized the early 1980's. I should also point out that building a new rig is a lengthy, multiyear process. Finally, in terms of the fabricators and equipment supply companies, the demand to refurbish and overhaul rigs is tremendous. Many of rigs in the fleet are old and will need to be upgraded. TTFN, CTC