Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: SargeK who wrote (39900)	3/14/1999 1:36:00 PM
From: BigBull	Read Replies (1) \| Respond to of 95453

An interesting interview on CBS Marketwatch re. supply v demand. cbs.marketwatch.com

To: SargeK who wrote (39900)	3/14/1999 1:55:00 PM
From: Mike from La.	Read Replies (2) \| Respond to of 95453

I'm glad to see the discussion turn to "what next?". The question, at least among investors as opposed to traders is, how the best capitalize on the apparently certain trend of oil prices to rise. This is a good area to discuss, i.e. land vs offshore, deep vs shallow, etc. I went through the tough times in 92-94, as an investor. What happened then was just as drilling started to recover, from the huge 80's disaster, natural gas fell to all time lows, around $1.00. Then in the late spring, it started to recover, and kept going until the latest crash, which I'd date as beginning in fall of '97. There was plenty of time to get in, no rush. I suspect that this cycle is going to be more compressed, both the decline and the recovery. My strategy, using margin which I maxed out about two weeks ago, is to stay with the deepwater activities for now. I won't be buying, I've already done that. PGO, DO, RIG, CXIPY, BWG, and NE. Didn't get FLC because of their debt. When I learn that oil companies are increasing their spending, I'll move into the jackups, ESV, and FLC. Then, when I see the rig utilization rates climb, I'll move into the workboats, TDW, and HMAR. Finally I'll go into the fabricators, GIFI, JRM, and builders, FGI, and HLX, as well as the general service companies, BHI, HAL, CAM etc. The land drillers will come in when money starts to flow to them. My theory is, since I don't know how fast the recovery will be, to follow the earnings. I try to time to catch earnings upswings. True, I could buy land drillers now, and be ahead of the game there, but their earning will recover much later than the others. One reason to follow earnings is that these companies will be the strongest financially, which they can use to their advantage, buying others, upgrading equipment and such. None of this is locked in, and I certainly don't claim that this is the only or the absolutely best way. It does correspond to how the recovery went from 94-97 though. Mainly, I'd just like the get the discussion moving in that direction, and would like to see what others think. Mike

To: SargeK who wrote (39900)	3/14/1999 5:55:00 PM
From: Razorbak	Read Replies (3) \| Respond to of 95453

Analytical Illustration of OPEC's Dilemma... <<The example was also provided to stimulate or provoke thoughtful analysis.>> Sarge: Here is an opposing analysis to consider. It's a well-known game of strategy called the "Prisoner's Dilemma" which highlights the tension between the individual incentives within OPEC to "defect" (i.e., cheat by overproducing beyond agreed production quotas) and the collective goals within the cartel to "cooperate" (i.e., abide by the agreed quotas). Suppose that each of two players has two options at any time. They can either cooperate or defect. Consider the payoff matrix below. Player B Cooperate Defect ------------------------- \| 2 \| 4 \| \| \| \| Cooperate \| Outcome 1 \| Outcome 2 \| \| \| \| \| 2 \| -1 \| Player A ------------------------- \| -1 \| 0 \| \| \| \| Defect \| Outcome 3 \| Outcome 4 \| \| \| \| \| 4 \| 0 \| ------------------------- In this game, there are only four possible outcomes: Outcome 1) If Player A cooperates and Player B cooperates, then Player A scores 2 and Player B scores 2. Outcome 2) If Player A cooperates and Player B defects, then Player A scores -1 and Player B scores 4. Outcome 3) If Player A defects and Player B cooperates, then Player A scores 4 and Player B scores -1. Outcome 4) If Player A defects and Player B defects, then Player A scores 0 and Player B scores 0. Notice that the dominant strategy of the game (i.e., the strategy that yields the best outcome for an individual player) is to defect. Hence the inherent dilemma. IMO, the Prisoner's Dilemma helps explain why OPEC has such a hard time obtaining compliance to agreed production cuts and why history is littered with a trail of stories about rampant cheating within the cartel. Just my opinion, of course. Razor

To: SargeK who wrote (39900)	3/14/1999 5:58:00 PM
From: Razorbak	Respond to of 95453

More on the Prisoner's Dilemma... FWIW, The Prisoners Dilemma got it's name from its frequent use by police when questioning two accomplices in a criminal investigation. If you've ever watched NYPD Blues, you've probably noticed that the police always questioned the suspects in separate interrogation rooms. They did this for a very good reason. If you think about it, both accomplices (now "prisoners" in separate rooms unable to hear what their accomplices say) have a great incentive to keep their mouths shut (i.e., "cooperate"). That way, the state won't have any witnesses, and they'll both get off scot free (Outcome 1). Unfortunately, the police, being smart, structure the interrogation in their favor. After placing each prisoner in a separate room, they then proceed to tell each prisoner that their partner is in the process of ratting the other partner out (i.e., "defecting") to save his own skin and avoid going to jail (Outcomes 3 & 4). This usually forces one or both of the prisoners to talk, because if they really believe that their partner will talk, the best outcome under the circumstance is to defect. IOW, even though it is in their collective best interest to cooperate, one or both will usually defect to save their own skin. The Prisoner's Dilemma also explains the Mob's Code of Silence, which is used to persuade "wise guys" to maintain their silence if ever caught. Since the dominant strategy in the Prisoner's Dilemma is to defect, only the threat of dramatic punishment upon release (i.e., the fabled "kiss of death") will overcome the natural tendency of a prisoner to rat under interrogation. Regarding the "OPEC Dilemma", the best analogy to the Mob's code of silence and the kiss of death is the implicit threat of punishment from Saudi overproduction. That's the main reason why $6 oil is a very real possibility, albeit probably remote and undoubtedly short-lived if ever invoked. Razor