Ahead of the quarterly results (scheduled on July 29), we remain Neutral on Pride International Inc. (PDE) shares based on our conservative outlook for midwater and deepwater dayrates. Though the company is unfavorably impacted by the ongoing deepwater moratorium, Pride’s underlying fundamentals remain strong attributable to its geographically distributed operations.
 
Pride recently warned of a profit drop from BP plc (BP) rigs. It has five-year drilling contracts with BP for two of its drillships, the Deep Ocean Ascension and Deep Ocean Clarion. The six-month moratorium on deep-water drilling could affect its ability to win contracts for its fleet, as many rigs may move out of the region, reducing global dayrates.
 
However, we believe that the Gulf of Mexico oil spill is not much about the deepwater drilling story. It is lot more than the “Deepwater Horizon” incident and the ongoing moratorium. Deepwater is a compelling growth industry and Pride is a proven leader in this space with its engineering and product management skills.
 
We also believe that Pride has significant long-term value with an investment grade credit rating and substantial contract backlog, as well as an outsized earnings growth expectation for 2011 from the delivery of four newbuild drillships this year and in the next.
 
The company has a number of contracts expiring this year. We think the contract activity needs to pick up meaningfully in order to absorb the incoming capacity and the rigs that are scheduled to roll off contract.
Read the full analyst report on “PDE”
Read the full analyst report on “BP”
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