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

To: Platter who wrote (35002)	1/13/1999 1:09:00 PM
From: Platter	Read Replies (2) \| Respond to of 95453

For the first time in a long time TheStreet.com has a "Kinda" positive article on OS stocks.. "Good News Gives Way to Bad for Oil-Service Stocks By Mavis Scanlon Staff Reporter 1/13/99 12:21 PM ET There's a tug of war going on in the oil-service sector. Vying for investors' attention -- and money -- is a smattering of positive news in the crude-oil market and the continuing poor fundamental outlook for the oil and oil-service industries. Just look at today. Nearly all the gains seen so far this year in the group are gone. The Philadelphia Stock Exchange oil-service index was down 5% this morning to 54.40, and it's dropped nearly 10% since Monday's close. Hitting the sector is the news that Brazil widened the trading range of its currency, the real, effectively devaluing it by about 9%. Hardest hit Wednesday is the offshore drilling group -- Ensco (ESV:NYSE) down 1 1/8, or 10%, to 10 1/4, and Falcon Drilling (FLC:NYSE) off 3/4, or 8.7%, at 7 7/8. Yet before today, the stocks were rallying on rising crude-oil futures. Even with a drop of 55 cents Tuesday to $12.89 per barrel, crude-oil futures contracts are nearly $3 per barrel higher than the 12-year low reached just before Christmas of $10.35 per barrel. Crude prices rose thanks to cold weather finally arriving in the Northeast and increasing heating-oil and natural-gas usage. In addition, Kuwait is showing a willingness to continue OPEC's production cutbacks. Looking ahead, there are signs that crude demand will pick up this year. Global economic growth is expected to rebound slightly from 1998 levels, with increases in Asia, excluding Japan, leading the way. That's a plus for crude-oil demand. Drilling demand is expected to grow in 1999's second half, especially domestic natural-gas drilling, in part because natural-gas wells have steeper decline rates. This confluence of factors helped boost oil-service stocks 14% last week. The group outperformed the overall market, a recent rarity. "All in all, [oil-service stocks] have been pretty resilient," says David Stadlin, manager of the Smith Barney Natural Resources fund. An encouraging sign has been the lack of new lows in the group since the last dip in late December. Yet all of this doesn't mean the stocks have hit a bottom or are ready for a sustained rise, especially considering today. "I believe [the group] will be higher at year-end than now, but there will be lots of humps between now and then," says Robert Trace, who follows 17 oil-service companies at Southcoast Capital in Houston. Investors will have to contend with a choppy natural-gas market and the uncertain outlook for the Brazilian market. In addition, estimates are still too high, a sentiment echoed in recent weeks by investors. Salomon Smith Barney Tuesday lowered its 1999 estimates for the drilling group, saying that with oil prices in the $12 to $13 range, it expects oil-company spending to fall 20% to 25% in 1999. That's well above the 11% spending decline Salomon forecast when its annual oil and gas spending survey came out just a few weeks ago. And even that estimate may be too low. Trace at Southcoast says some oilfield-service companies are expecting exploration and production capital expenditures to be down between 30% to 50% in 1999. Further, utilization rates for the shallow-water domestic drilling market has hit a 3 1/2-year low. There were 600 rigs contracted as of Friday, according to the Baker Hughes' (BHI:NYSE) weekly rig count, down from 900 rigs contracted a year ago. Trace says he has lowered his earnings estimates to what he says is a worst-case scenario -- the lowest rig utilization in 20 years. Even a piece of seemingly good news is overshadowed. Rowan (RDC:NYSE) just signed one of its larger jackup rigs to a new contract at an $8,000 premium to the market rate. The rig, able to drill in 350 feet, was signed at a dayrate in the low $30,000 range, says Bill Provine, Rowan's director of investor relations. But there are 40 other jackup rigs without work in the Gulf of Mexico right now, and "until you see 25 of those going to work, you won't see improved dayrates," Provine says. "