Blaylock Rates Ensco and Rowan as "Buy"

Blaylock & Partners' oil services analyst Brad Handler has initiated coverage of offshore drilling contractors Ensco International and Rowan Companies, both with "Buy" recommendations.

In a report titled "Gulf of Mexico Rig Rebound Expected," Mr. Handler bases his thesis on his view that natural gas prices will stay above current levels into 2004. Mr. Handler expects this to prompt a surge in drilling activity. Of all the drilling contractors, Mr. Handler believes Ensco and Rowan to have the greatest potential EPS upside given changes in Gulf of Mexico drilling day rates, which rise with increased drilling activity. He expects that day rate improvement will exceed what is implied by current consensus estimates over the next two years, leading to significant EPS upside for Ensco and Rowan.

Mr. Handler also points to the upturn in drilling permits for the Gulf of Mexico filed in 2003. This bodes well for Ensco and Rowan as both are significantly exposed to the Gulf of Mexico. Further, Mr. Handler believes that a large portion of these permits are for "deep shelf" drilling, an encouraging sign of sustained interest in this region.

Blaylock's ratings system consists of "buy," "hold" and "sell" recommendations. Companies with which Blaylock has an investment banking relationship have "not rated" designations for 12 months following the relationship's conclusion. Blaylock & Partners is a member of the NASD and SIPC.


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