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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: LARRY LARSON who wrote (88304)	3/2/2001 12:55:54 PM
From: Big Dog	Read Replies (3) \| Respond to of 95453

From Dain: RDC:SB-Avg;ANOTHER ROUND OF RATE IMPROVEMENTS GOM Jackup Market Strengthening: Rowan recently received contracts for two of its 350-foot jackups in the GOM at dayrates in the mid-$60,000s. Prior rates for these units were in the $55,000-$60,000 range. We had anticipated this magnitude of a rate jump to occur in the second quarter, so these fixtures are slightly ahead of our schedule. Dayrates for standard jackups are also continuing to improve, with new fixtures in the $50,000-$55,000 range. Rowan has recently contracted the harsh-environment jackups Gorilla III for 120 days work in GOM with Anadarko (NYSE: APC; SB-Agg; $63.50) after it completes a two-week workover job. The estimated rate for the Gorilla III is in the $80,000-plus range once it moves to Anadarko, with a lower rate on the workover job. However, the Gorilla III is starting about two weeks behind our previous estimate. International Outlook For Harsh Environment Rigs Improving: Rowan recently returned from a marketing trip to the North Sea. It appears that demand for harsh environment jackups is improving, with additional supply possibly needed for Q3 and Q4. Rowan indicated interest from Shell, BP (NYSE: BP; SB-Avg; $50.23), Phillips (NYSE: P; B-Agg; $53.50), and others, interest confirmed by conversations with other drillers. Demand also looks to be improving in Eastern Canada--a market that needs Gorilla class rigs. There is a potential for Rowan or a competitor to move another harsh environment jackup to that market by Q3/Q4. When the market requires a Gorilla or comparable rig, the dayrate leverage is substantial. The Gorilla IV is currently working in Eastern Canada at a rate in the $110,000 range, and we have seen other harsh environment fixtures, when working in these conditions, as high as $130,000-$160,000. Rowan Is Building Two High-Performance Land Rigs: These 2,000 hp units will be equipped with state-of-the-art drilling equipment and are scheduled to commence operations in April (for the first rig) and June/July (for the second). The estimated costs are $8-$12 million, with the first rig slightly lower due to surplus equipment on hand. However, the staggering feature of these rigs is that their initial jobs are at $20,000! This is well above market and in excess of what replacement cost pricing should theoretically be. ERA Is Back On The Slope Again: Rowan's aviation unit is flying six aircraft on the North Slope, the first time ERA has worked there in six years. Additionally, the GOM helicopter market is strong, and there are rumors of the largest competitor raising pricing. Stock Opinion We believe most segments of the world's offshore drilling markets will face a capacity shortage during 2001/2002, driving dayrates to replacement levels. We believe the market will begin to discount that trend in the shallow water market this year. Our analysis of trading multiples in previous up-cycles shows offshore drillers peaked at approximately 7.5x replacement cycle EBITDA. Based on our estimate of $748.8 million replacement cycle EBITDA (before incremental earnings contribution from the Gorilla VIII), we derive a stock price target of $56 per share.