Pride International Inc. (PDE) completed the spin-off of Seahawk Drilling Inc. – a former subsidiary of Pride that owns 20 mat-supported jackup rigs operating in the Gulf of Mexico (GoM) – as a stock dividend to existing shareholders. For every 15 shares of Pride, stockholders would receive one share of Seahawk, besides a cash payment for fractional shares of Seahawk. Seahawk shares will start trading today under the ticker symbol of “HAWK” on the Nasdaq.

The mat-supported jackup market in the GoM has been hit hard by the sharp drop in overall activity levels due to weak natural gas prices and tight credit market conditions. Since experiencing very strong demand in the 2004–2007 period, utilization levels and dayrates have fallen steadily and currently remain at depressed levels.

With this spin-off, Pride has completed its multi-year restructuring and asset repositioning program that has transformed it from a diversified oilfield service and equipment operator to a focused deepwater driller.

The deepwater drilling market is typically oil-centric and enjoys long lead times. Given the high capital intensity and complexity of deepwater projects, they are typically sponsored only by the major oil companies or national oil companies. The deepwater drilling market, as a result, has largely been an island of stability in the overall turbulent oilfield scene lately.

With the turnaround in oil prices and the overall broad market recovery, the fortunes of the offshore drillers have also turned. While all drillers have benefited from the rally, the deepwater drillers have justifiably been the outperformers. Pride shares have been the second best in the group, having gained 51% year to date (slightly below Transocean’s (RIG) gain).

In addition, Pride’s solid backlog provides it with plenty of business, reflecting sound earnings and cash flow visibility. In the long run, we see significant upside in Pride shares and recommend an Outperform rating.

Zacks Investment Research
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