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Longtime readers know that I have been pretty tough on contract driller Pride International (NYSE:PDE) over the years. While I've been very bullish on several of the company's peers, Pride has always failed to impress me. I've criticized the firm for heavy shipyard time, weak utilization of its fleet, and low margins. New evidence suggests that it may be time to change my tune.

We've seen Pride streamline its operations significantly over the past few years. First, the driller shed well over a billion dollars' worth of Latin American land rigs, tender rigs, and platform rigs. Then came the spinoff of Seahawk Drilling (NASDAQ:HAWK), which I told you to stay away from. That stock has been as volatile as promised, running as high as $35 and as low as $19 since September. What's left at Pride is a business that's much more focused on deepwater oil and gas drilling.

Anyone not living under a rock should know that the deepwater is where the major discoveries are being made today. Well, except for this one. Pride's strategic transformation has given it a good story to tell Wall Street (no fewer than 30 analysts cover the stock), and I figured that folks were willing to give the company a pass on its underperformance relative to peers, as long as the deepwater shift led to a big enough change in earning power.

Some new independent research suggests that Pride has made changes that go well beyond strategic direction. A note by Doug Sheridan at EnergyPoint Research, whose detailed surveys of customer satisfaction in the oil patch are an invaluable resource, concludes that Pride "has developed a more performance-oriented mind-set across its organization in general." This is evidenced by improved customer ratings across all measures of job quality, from the ability to complete jobs on schedule to the quality of postjob reporting and review.

EnergyPoint draws a connection between Pride's improved customer ratings and its stock price performance, pointing to an industry-beating return over the past two years. The firm's three-year total returns also stack up quite well to its competitors':

Company

3-Year Average Total Return

Diamond Offshore (NYSE:DO)

17.0%

Noble (NYSE:NE)

8.4%

Pride International

8.2%

Transocean (NYSE:RIG)

6.5%

Ensco (NYSE:ESV)

(3.6%)

Data provided by Morningstar.

Thus far, I think changing investor perceptions have given Pride a real boost. (Incidentally, I expect the same to happen for Devon Energy (NYSE:DVN) as it abandons the deepwater.) Now that this driller appears to have turned the corner, the company needs to continue performing at a very high level in order to stand out among such high-quality peers.

Disclosure: Author doesn't have a position in any company mentioned.

Source: A Corporate Overhaul Pride International Can Be Proud of