Pride Petroleum Services (PDE) Message Board

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

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To: Dennis Roth who wrote (450)	4/4/2008 9:03:21 AM
From: Dennis Roth	Read Replies (1) of 454

Pride International (PDE) Buy: Deepwater value with a free "option" on US GOM jackups - Goldman Sachs - April 04, 2008 Source of opportunity We reiterate our Conviction Buy rating on Pride shares. We believe Pride’s assets are undervalued by the market and view the shares as an inexpensive way to gain exposure to the deepwater market. We estimate that Pride will generate over 60% of 2008E EBITDA from deepwater, yet the shares are trading closer to those of international jackup levered companies. We also view Pride shares as a free “option” on a potential recovery of the US Gulf of Mexico (GOM) jackup market. We see 26% upside to our $45, 12-month price target (8.3X 2009E EV/DACF) and 40% upside to the high end of our expected trading range. Catalyst (1) Positive dayrate momentum in the deepwater market and a contract for Pride’s only uncontracted deepwater newbuild. (2) A turnaround in the US GOM jackup market ($0.08 of EPS, or 1.8%, for every $5,000 change in dayrates) – this also increases the likelihood of a separation of the jackup fleet though a potential sale, spin, or IPO. This would highlight the current relative discount assigned to Pride’s floater fleet, in our view. (3) Cash settlement of the convertible – an effective 6.4% share repurchase. Valuation Pride trades at 6.6X/5.2X 2009E EV-DACF/EV-EBITDA, an excessive 21%/ 25% discount to peer deepwater drillers Diamond Offshore & Transocean. Key risks (1) Capacity additions could result in lower utilization and dayrates; (2) cost inflation; and (3) a severe correction in commodity prices. Impact on related securities We initiated coverage of HERO today with a Neutral rating – we see significant L-T upside given HERO’s leverage to a recovery in the US GOM jackup market but our bullish view is tempered by near-term EPS risk.

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