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

To: Challo Jeregy who wrote (23857)	6/11/1998 4:46:00 PM
From: jbe	Respond to of 95453

Anyone see this downgrade of the sector from Briefing.com? Comment: A little more than one month ago Briefing upped its rating on the Oilfield Equipment & Services group to outperform. We outlined a few of our reasons for doing so. Chief among them was that the group's earnings outlook remained strong and that as Asian fears subsided we expected the marketplace to refocus on the solid industry fundamentals. Well not only have Asian fears not subsided, they've grown deeper. Concern that the region's economic turmoil will translate into a sharp reduction in the demand for oil has sent the price of crude sharply lower over the past 5 weeks. This was another development we didn't expect. Briefing's upgrade was predicated in part on the fact that crude prices has stabilized in the $14-$16 range, and were likely to stay there. As we write this report, the price of oil is $13.10. Below $14 bbl, exploration budgets stand a far greater chance of being reduced, and we're seeing that reflected in the stocks, as share prices have been cut sharply. OPEC countries have announced production cuts to help bolster prices, but market a) doesn't believe the countries will live up to their promises and b) even if they do, the street thinks the production cuts need to be deeper in order to have the desired effect. Though there has been no concrete evidence from the industry that it expects an earnings slowdown, many investment firms are reducing estimates - thereby adding to the group's downward pressure. For all of these reasons, we are adjusting our short-term rating to market perform and our long-term view to slightly outperform. The reason for not lowering the rating further is that the group has been punished severely already, and the declines have been psychologically, not fundamentally, driven. We will continue to hold out some hope for a recovery, at least until we get a look at this quarter's earnings numbers. Stocks: Baker Hughes (BHI), Camco (CAM), Cliffs Drilling (CDG), R&B Falcon (FLC), Global Marine (GLM), Halliburton (HAL), McDermott International (MDR), Schlumberger (SLB), Smith International (SII), Tidewater (TDW), Transocean Offshore (RIG) and Unifab (UFAB).

To: Challo Jeregy who wrote (23857)	6/11/1998 5:49:00 PM
From: Grommit	Read Replies (2) \| Respond to of 95453

Very good posting. If you missed it, anyone, check the message I linked to. There certainly is reason to believe that the oil glut will continue for a year or even longer. And, like you say, we all expect these companies to rebound eventually. But when? Short Term: If Dog's information is correct that rigs will be stacked (and I recall seeing a link here a couple of weeks ago which pointed out that the number of rigs having their contracts about to expire and without new contracts has gotten unusually large - which supports Dog) then there will be warning press releases for Q3 and there will be warnings given during the Q2 conf calls. (I think Q2 is in the bag already and there will not be much of an effect.) So there may not be good news on the horizon unless OPEC comes through. Do not hold thy breath. My impression is that all the downgrades so far are due to dayrate visibility and that the utilization effects will be another whammy. Note that dayrates only affects the drillers themselves, but utilization affects all the supporting companies. Long Term: Even though many denied it, these companies are cyclical and dependent on oil prices. Presently this upcoming cycle is viewed as a gentle weakening and these companies are still projecting nice profit levels. I wonder if this could be a very deep or very long correction. There is even an unprecedented chance that this could be a "very permanent" shift in energy prices. You will all scoff at this notion.