Zeev's Turnips Patch-No Politics (ZEEV)

[Gizmo]

Taken from an AOL O&G Board and I might add this guy has a history of knowing what he is talking about.

Subject: Re: Strong Buys: RIG, DO
Date: 1/1/03 4:07 PM US Eastern Standard Time
From: P Engr
Message-id: <[e-mail]>


>Do you have any insight into why RIG and DO have remained undervalued?

Primarily because the market is focusing
on the short-term rather than a longer term.
Hence, the best RS has been those contractors whose rig fleet utilizations
respond quickest to higher commodity prices.
Hence, the land contractors (NBR, PTEN) then the shallow water rigs: Barges and
jackups, then lastly the deep water rigs:
semis and drillships.

Semi's: RIG is the world's largest owner
with (46) of the world's 175.
DO is second largest with 30.
Then comes: NE (13), GSfF (11),
PDE (10).
Jackups: RIG is the world's largest owner
with (56) of the world's 386.
Next comes: GSF (47), ESV (43),
NE(34), PDE(31) and RDC (25)
Drillships: RIG is the largest with (12) of the
world's 40.
Next comes GSF (4), NE (3) and
DO has (1).

As confidence builds that the commodity prices are sustainable (which 5year futures
on NG of $4 indicate such), then the Industry
will commit ever increasing long-term E&P capital budgets, which will chase the deep
water rigs of RIG and DO. And the Advantage
that they have over the shallow water and
land drillers, is that the EBITDA margins
that were fetched in the last boom (as high as
75%) will be locked into long term (3-5year)
contacts. Whereas, the land and shallow
water rigs will mostly be short term contracts
and utilization will bust quickly if the commodity prices drop.


>How has the FLC/RIG merger progressed and what is the condition of the old
>FLC assests?

They recently annouced that they are spinning off the shallow the shallow water
rigs through an IPO---proceeds to RIG and
class B voting stock stays with RIG.



> I have had the impression that the RIG management is not altogether on top
>of things but this could simply be an ignorant position on my part.

RIG's management is very progressive.
They have lead the industry in developing
the state of the art, 5th generation rigs.
They are "bold"----they took on lots of debt
($4.7 billion presently) to build this fleet
of the largest and most technologically advanced in the world.
IMHO, the management has demonstrated
an outstanding track record for executing
a well thought out long-term growth plan.
The company is in a enviable position to
it's peers.

>How are RIG and DO positioned for the necessary increase in NG drilling?

Short term---GOM jackup owners (RDC and
ESV) are in highest demand area of the
market.
But, once again, as the Energy crisis intensifies, ALL of the rigs will become
fully utilized-----And Competed For!!!
RIG and DO's 4th and 5th gens. will
fetch the $250-300,000+ daily contracts!!!

The present Situation---where RIG and
DO are being ignored by wallstreet, is
an extraordinary opportunity. Though I
am Very bullish on the entire group of
drillers, I think that these 2 ---presently
trading in the low 20's-----relative to
GSF at 25, RDC at 23, ESV 29 and NE at
35------
represents an Outstanding opportunity.
I would utilize this opportunity to rotate
from the the others INTO RIG (#1) and
DO(#2).

Enjoy the Moves!!
All IMHO!!
P Engr.