To: Tomas who wrote (70381 ) 8/3/2000 8:03:06 AM From: Terry D Read Replies (1) | Respond to Some research that came over the transom this morning - don't have time to edit it (moving in a week) so sorry for errors - my emphasis added.Under these assumptions OPEC should be at about 90% capacity utilization by yearend, with most of the spare capacity in Saudi Arabia and Kuwait. They are clearly targeting an oil price of about $25/bbl and have a very good chance of achieving their target given that they control most of the world's spare capacity. Importantly, the overhang of embargoed Iraqi oil capacity has been essentially absorbed, thereby removing a cloud that has hung over the oil market, and the oil stocks, for the past nine years. CONTRACT DRILLING: R&B Falcon reported a second quarter loss of $0.22 per share, slightly below our estimated loss of $0.20 per share, due to unexpected delays in the deployment of the newbuild deepwater semisubmersible Deepwater Nautilus. However, the company's shallow water operations are quickly improving with concurrent increases in dayrates and utilization. In fact, management was strikingly bullish on the company's conference call, forecasting full utilization of its Gulf of Mexico shallow water assets within one year, at rates which could exceed the peak rates achieved during 1997. We have not incorporated quite such aggressive assumptions into our earnings models, providing the company with an opportunity to beat our 2001 earnings estimates if these lofty utilization and pricing levels are actually achieved. We have extrapolated some continued growth in dayrates for R&B Falcon's uncommitted fleet, particularly the jackups, into 2002 to arrive at our preliminary 2002 earnings estimate of $1.45. Our new target price of $31 is based on a 12 times multiple of our 2002 estimated cash flow of $2.60. With roughly 48% appreciation potential to reach our new $31 target price, we reiterate our Strong Buy rating and SBI designation on FLC.
