Kitty, I think you were saying your were trading the drillers? Or was it Ananda? Have been stopped out a few times with them on US markets over the past couple of weeks, most fustrating, but think (at some point!) they will be one of the best buys around, anywhere. Below is a nice bit of analysis picked off the CWEI board on investor village that paints the picture:

[quote]quote:

The stock market, as a leading indicator of roughly 6-8 months, is predicting that dayrates and earnings for offshore drillers will be coming down in the 1st & 2nd quarter of 2007--that peak earnings for drillers is either right at hand or just past. Is the market right? This question has been eating away at me recently.

I keep going back to the example of the housing sector. In mid 2005, profits were growing like gangbusters, valuations were low and the real estate market was on fire. Yet in mid 2005, housing stocks like TOL and DHI started to decline in the face of all this good news. In Aug-05, TOL was at ~$56/shr and DHI was at ~$42. At today's close, TOL is $24.53 and DHI is at $20.7. On the recent conf calls of TOL & DHI, profit expectations are being cut back, the companies are taking charges on abandoned land purchase options and sales are slowing. Ergo, the market was right in Aug-05 as the housing stocks began their descent.

Is the market right about the drillers? In May-06, DO touched $97/shr, ESV $57, RIG $90, RDC $48 and GSF $65. Most of us know where these stocks closed today. Are we in the midst of housing sector déjà vu, with further dowside coming for the drillers?

There are two big differences between the offshore drillers and the housing sector.

One, is the time it takes to build houses vs. rigs. I live in Atlanta, and about 400 new large homes have been built in the past year within ~4 miles of my house with plenty more being built right now. Houses can be built quickly and easily. But it takes ~3+ years to build a jack-up or a semisub rig and costs hundreds of millions. These rigs are not something the local S&L finances at a whim. Most are built with contracts already signed. So, the housing market can unquestionably become saturated much more easily than the offshore rig market.

Two, housing prices are subject to the whims of the current real estate market and can change on a dime unpredictably. Yet dayrates for rigs are set several months if not years in advance and the rates are well known. So, visibility into housing prices is murky at best and varies all over the country, whereas visibility into dayrates is transparent (posted right on the drillers' websites for all to see) and are set with firm contracts paid for by profitable E&P companies with deep pockets.

So, lets look at these transparent dayrates. As many of you know, I've been posting dayrates from rigzone.com, and those dayrates are showing no signs of a drop at all. But let's drill a little deeper (pun intended) and look at a specific company--D0.

Here is the most recent Rig Status update for the DO fleet, as 08-Aug-06:

http://www.diamondoffshore.com/excel...07,%202006.xls

On it are a few key data points I'd like to highlight. Dayrates for deepwater semisubs are particularly strong. Here are some examples of DO's deepwater semisubs:

Rig Name..Current rate..expiration..new rate after expiry...% diff in dayrate
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
Ocean Quest...low $270s....Apr-07....mid $350s thru Apr-09..30% higher dayrate
Ocean Star....mid $170s....Oct-06....mid $380s thru Oct-07..124% higher dayrate
Ocean America..low $230s....Apr-07....low $400s thru Apr-08..74% higher dayrate
Ocean Valiant..low $300s....Mar-07....mid $390s thru Mar-08..30% higher dayrate
Ocean Victory..mid $200s....Dec-06....low $320s thru Dec-08..60% higher dayrate
Ocean Baroness.low $200s....Dec-06....low $360s thru Dec-09..80% higher dayrate

So, there it is--completely transparent for all to see. G