Pride International offers investors an aggressive play on recovering commodity prices and the resulting rebound in offshore and international onshore drilling activity, says C.K. Poe Fratt, senior analyst, oilfield services, for A.G. Edwards & Sons Inc. in St. Louis. "Our 12-month stock-price objective for Pride is $24 per share." Houston-based Pride is one of the world's largest providers of onshore and offshore drilling services. It owns a geographically diverse fleet of 319 rigs, including two 51%-owned drillships, three semisubmersibles, 17 jackups, seven tender-assisted rigs, four barge rigs, 23 offshore platform rigs, 97 land-based drilling rigs, and 166 land-based workover rigs. Pride also has a 26% joint-venture interest in four new semisubmersibles under construction. "Until 1993, Pride's domestic land-based well service and drilling operations generated substantially all its revenues and earnings," the analyst says. Since 1993, current management has completed a series of strategic transactions that has successfully transformed Pride into a more profitable company focused on the high-margin offshore and international drilling markets. "These markets have greater profit potential than domestic onshore markets due to lower competition, high utilization levels and stronger demand," Fratt says. Pride is a joint-venture partner with the national oil company of Angola in the construction of two deepwater drillships-Pride Africa and Pride Angola-that are under long- term contracts to Elf Aquitaine for drilling offshore West Africa. These contracts, in addition to those related to the construction of four other deepwater units, "provide Pride with a stable level of earnings and cash flow during the next several years." In addition, the company's fleet of 263 land-based drilling and workover units in South America makes it the largest such contractor there. "This provides PDE very high pricing leverage and cost advantages in the region, mainly in Argentina and Venezuela," says Fratt. The company also has high operating leverage in the Gulf of Mexico, where it has 11 jackup rigs. "Due to high natural gas prices, drilling activity there has picked up and Pride is putting idle rigs back to work. Every $1,000 increase in average jackup dayrates in that region adds four cents to PDE's earnings." Three 1999 transactions-a $200-million note offering, a private equity infusion of $37.5 million, and conversion of $84.5 million of convertible debt-have substantially improved Pride's balance sheet. "More importantly, sufficient liquidity was created to allow the company to withstand a prolonged industry downturn and benefit from the eventual recovery." Pride's stock is trading at less than 4.9 times adjusted 2001 operating cash flow-well below a peer group average multiple of eight-Fratt adds. "Given Pride's strong positions in the Gulf of Mexico jackup and Latin American onshore drilling markets, its shares carry a very attractive valuation." He concludes, "Pride's balanced asset portfolio and geographic diversity reduce the potential [negative] impact of a prolonged downturn in any one market." Note: Analysis was on 11-29 when PDE closed at $14.56 per share and was reaffirmed on 1-20 when $16.50. Currently, some 60.4 million shares are outstanding. The recent 52-week price range was $18.31-$4.81.