Pride Petroleum Services (PDE) Message Board

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Gold/Mining/Energy : Pride Petroleum Services (PDE)

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From: Dennis Roth	5/9/2007 10:20:14 PM
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Making progress on LatAm separation but execution risk remains May 09, 2007 Goldman Sachs' Rating/Coverage View is Neutral/Neutral What's changed We are lowering our 2007/2008/2009E EPS estimates to $2.99/$4.55/$5.38 from $3.02/$4.60/$5.85, respectively, primarily due to lower operating margins from Latin America and E&P services, offset by non-operating items. Our 12-month price target is unchanged at $35 (8.0X 2007 EV/DACF). Pride also issued 2Q2007 guidance of $0.68-$0.72 (GS = $0.69). Implications (1) Even though this was not addressed in the press release nor brought up by management on the conference call, Pride’s 10-Q included an extension of the ongoing investigation of Foreign Corrupt Practices Act (FCPA) violations to India and Brazil. While we do not expect this to delay the separation of the Latin American businesses is shows that Pride is not totally out of the woods yet when it comes to legacy execution issues. (2) Pride appears to be making progress towards the divesture of Latin America but it appears to be a late 2007 event. The S-1 is expected to be completed by the end of June. (3) Pride continues to favor a private sale versus a spin-off due to limited tax implications in Latin America and the desire to grow the deepwater fleet. We believe acquisition will become more attractive relative to newbuilds as delivery dates extend into 2011. (4) Pride agrees with most other peers and expects the US GoM to recover in late 2007 early 2008. Valuation On 2007E/2008E EV/DACF, Pride is trading at a 7%/7% discount relative to peers. Pro forma for a separation, Pride will look very similar to GlobalSantaFe and Noble, to which it trades at a 0%/4% discount currently on 2007E/2008E EV/DACF. Key risks Risks to our thesis and target price include (1) capacity additions could result in a flattening or depression of dayrates and (2) a severe correction in commodity prices could result in decreased drilling demand.

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