Pride Int'l: Persuasive Deepwater - Analyst Blog

We believe that downward pressure on rig utilization and dayrates will continue in the near term resulting from newbuild capacity as well as the impact of the Gulf of Mexico (GoM) moratorium. However, long-term fundamentals of the offshore story remain favorable, especially the deepwater end of it.

This is reflected by the dedication of Deep Ocean Clarion, the second of Pride International Inc.’s (PDE) four new deepwater drillships under construction by Samsung Heavy Industries in South Korea.

Clarion is expected to be delivered in the upcoming month followed by mobilization in the GoM where it is expected to commence operations in the first quarter of 2011, under a five-year contract with BP plc (BP).

Pride now operates a fleet of twenty four rigs, including three deepwater drillships, twelve semisubmersible rigs, seven jackups and two managed deepwater rigs. The last two drillships under the company’s newbuild program are expected to come online by next year.

The newbuild program is the key to Pride’s initiatives toward deepwater expansion as it anticipates revenues from its floating rigs to grow to more than 90% when these units are delivered and operational.

We believe that Pride remains a compelling long-term value with an investment grade credit rating and substantial contract backlog. However, we are cautious on the jackup outlook due to spare capacity with the entry of newbuilds into the market. Given this scenario, we do not foresee any dayrate improvement at least in the near term. Our Neutral recommendation remains unchanged at this stage with the Zacks #3 Rank (Hold).