Drilling for Dollars in the Oil Patch and Comparing Lernout with Network Associates

Also, more on iTurf/Delia's and Hollywood Entertainment.
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Wednesday's washout:

Drilling for dollars:

Oil services and oil drilling stocks hit their peaks in November 1997. While they've been on the mend lately, much of the recovery has been attributed to the recent rise in oil prices, and the recent rotation out of techs, rather than a fundamental improvement. But some analysts believe oil and gas prices really are headed higher, and "this sets a tone for the industry," says veteran oil industry analyst Mike Breard of the brokerage firm

Dominick & Dominick

in Dallas.

"If oil companies get more confident that prices will improve, they will possibly revamp their budgets this summer. And if they decide to spend more money on drilling, there will be more demand for drilling rights. Once they've sopped up the excess supply of rigs, day rates

for the use of rigs will rise substantially." A rig that may have rented for $40,000 a year ago is now at $15,000, "if it's working," Breard says. "So, there's tremendous upward leverage once rights go back to work."

Breard, who has a solid following among hedge funds and others that drill for oil stocks, was especially impressed after getting off a conference call last week with

Global Marine

(GLM)

, an operator of offshore rigs. Specifically, Global said that bid requests at its turnkey division, which rents rigs to oil companies at a fixed price, had hit a record in March. To an industry watcher like Breard, that's a sign that a turnaround in the oil patch is for real.

"In the past," he says, "turnkey bid requests have been a reliable indicator of future drilling activity. You take bids in the first week in April, and you may not drill till June. But it indicates that despite the hard times smaller oil companies ran into in the last year or so, they're still interested in drilling wells. And they're becoming more interested in drilling wells."

His opinion was reinforced yesterday when

Ensco

(ESV)

, another offshore driller, said it believes the industry is past the trough of the bottom in the U.S.

Beaten-up companies that could benefit, he and others say, include Global Marine, Ensco,

Rowan Cos.

(RDC)

and

Noble Drilling

(NE) - Get Report

. "It would raise the P/E ratio of the entire industry," Breard says. He adds that "you can't say anything for sure in this industry, but one thing you can say for sure is that every year the rigs are one year old, and nobody is building new rigs." Considering that it'll probably be two years before anybody starts ordering new rigs (assuming the oil industry really does rebound) and that it takes roughly two years to build a rig, Breard believes this could be the first stage of what could be a three- to five-year rebound for oil drillers.

On the lookout for Lernout:

Still haven't heard from anybody at

Lernout & Hauspie

(LHSP)

, the Belgian voice-recognition software company, with responses to this column's questions. (Heck, even

Boston Chicken

took my calls when it was being pounded here for plucking its investors; it still does this day!) The Lernout affair, and the hostility of its shareholders, is reminiscent of the reaction I used to receive regarding

Network Associates

(NETA)

. How dare this column question the quality of earnings of such a fine company, whose virus-detection software and technology are, without a doubt, tops? (So what if it was pretty much being given away as free with every PC? That's what some critics think will happen to voice-recognition software.)

What do Network Associates and Lernout have in common? Both are in the software biz. And both have unusually high receivables, suggesting too much software is in the pipeline, which is just what Network Associates conceded yesterday when it reported earnings that were even worse than the company had warned they would be.

Also, both Network Associates and Lernout have grown, largely by acquiring companies. Once the acquisitions stopped for Network Associates, so did its revenue growth. (Will the same thing happen at Lernout?)

And both got slapped by the

SEC

for being way too aggressive with their takeover-related expenses. (Network Associates CEO Bill Larson referred to his company's "honey pots" and "acorns.")

One difference between the two: Unlike Network Associates, Lernout has questionable related-party transactions, one of which, involving

e-Docs.net

, was recently detailed

here.

Another difference: The stock of Network Associates has swooned 83% from its highs, and now trades at 11 1/16, for a market value of $1.5 billion. Lernout, meanwhile, is off 38% from its highs and still commands a market value of $1.6 billion.

P.S.: This column's new rule of thumb: The more hostile the reaction to items here, the better the story

always

becomes.

Another Delia's dollop:

Somebody must be paying attention to the fundamentals, or lack thereof.

iTurf

(TURF)

, the

Delia's

(DLIA)

spinoff, went public less than two weeks ago at 22, and rose as high as 66. It has since been in one of the biggest swan dives of Internet stocks, dropping another 3 1/2, or 11%, to close at 28 yesterday.

As this column has

pointed out, as part of the IPO, iTurf agreed to buy $13 million in Delia's stock directly from Delia's. Just prior to the IPO Delia's had put out a special press release saying that its fourth quarter looked fine. Then, last week -- one week after the IPO -- Delia's issued fourth-quarter earnings, confirming that they were good. But, oh, by the way, Delia's said, not only did the first quarter look lousy, but now it will have to rethink the entire year.

Too bad iTurf investors didn't get that news

before

the IPO.

Hollywood clarification:

A recent item

here regarding

Hollywood Entertainment

(HLYW)

said that as part of a lawsuit with

Fox Entertainment

(FOX) - Get Report

, Hollywood had been slapped with a $1,400 fine for not producing certain documents. But, to make a very long story short, Hollywood produced the documents and, therefore, was never fined.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg writes a monthly column for Fortune and provides commentary for CNBC.