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To: GREENLAW4-7 who wrote (112681)	10/30/2008 9:10:55 AM
From: kollmhn	Read Replies (1) of 206181

Grennie- Here's GS' view of HERO: "Goldman Sachs Global Investment Research October 29, 2008 COMPANY UPDATE Neutral Hercules Offshore, Inc. (HERO) [$6.88] Debt concerns overdone, but unlikely to prosper in the near-term What's changed HERO reported 3Q08 EPS of $0.37 vs. our $0.33 and consensus of $0.35 but in line with the preannounced range of $0.36-$0.38. We lowered our EPS estimate slightly to $0.98 for 2008 (from $1.18) and left 2009/2010 unchanged. We are 56% below consensus EPS for 2009 and 68% below for 2010. Implications We remain Neutral rated on Hercules, as there is no change to our $7, six-month price target (4.5X 2009E DACF). We believe that the stock is reflecting an appropriate value at this point in the cycle and do not expect the shares to outperform given our negative outlook for the US GOM jackup market. The domestic jackup market has remained strong due to the lower supply of rigs (four due to the hurricane) and the possibility of up to eight additional rigs leaving the region for international contracts; however, drilling permits have declined by 35% since early 2008 and our analysis suggests that at least $7/Mmbtu gas is needed to support drilling activity. With that being said, we are impressed with management's discipline to stack rigs to protect pricing, reduce costs, and cut capex. The consolidation in the domestic jackup market over the past few years should allow the industry to prevent the severity of losses that were experienced in the 1999 and 2002 down-cycles. We do not believe that the company is at risk of violating its debt covenants, a concern that drove the shares to below $5. US GOM jackup dayrates would need to average $40,000 in 2009 with utilization of 65% in order for the company to exceed the set debt ratios. Valuation HERO trades at 4.5X 2009E EV/DACF and 3.8X 2009E EV-EBITDA vs. the offshore driller average of 4.9X/4.1X. Key risks Risks include capacity additions or a decline in commodity prices."

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