Pride International (PDE): New deepwater contract supports our positive view - Goldman Sachs - April 02, 2008
News
This evening, Pride finalized a 5-year term contract in Angola for the Pride Angola at $472,000/day (including a 5% bonus). The contract was originally awarded in June 2007 and begins in early July 2008.
Analysis
This contract brings Pride’s backlog to over $9.2 billion or 140% of the current enterprise value. While the dayrate may appear to be lower than recent leading-edge rates, above $500,000, we see two contributing factors:
(1) The contract was awarded in June 2007. This is consistent with Pride’s practice of announcing contracts once they are finalized and not when the letter of intent is received, such as the practice of many peers. We believe that the rig would have received $20,000-$40,000/day higher if signed today.
(2) The Pride Angola is fit-for-purpose to work in Angola where it is equipped to operate in 6,000 feet of water; however, the rig is capable of drilling in 10,000 feet of water if outfitted with a larger riser. Pride could have decided to upgrade the riser and market the rig outside of Angola; however, this would have required a shipyard stay (downtime), capital investment, and a mobilization period. We believe that the decision to keep the rig with Total in Angola was appropriate given the limited rate discrepancy with ultra-deepwater rigs and attractive term of the contract.
Implications
We view this contact as a slight positive for Pride shares although the dayrate is inline with our forecast. This contract, along with the 5 long-term contracts signed by Noble yesterday, gives us increased confidence that the deepwater cycle will remain strong well into the next decade. We continue to believe that the market undervalues Pride’s deepwater fleet and expect this announcement to help narrow the discount to peers. We reiterate our Conviction Buy rating on Pride and preference for deepwater names such as Transocean and Diamond Offshore, both Buy rated. Our estimates and price target are unchanged. |
