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Hercules Offshore: Getting to Know a Hero

Dayrates (the amount charged by a rig owner to an exploration company for the use of their rigs) for the type of jack-ups operated by HERO are falling - today they stand at $70-80k per day, but with the current oversupply of jack-ups in the Gulf of Mexico, these are expected to fall to $50-$60k.

Whereas most other jack-up operators (ie Rowan, Ensco, Pride, Noble) are able to mitigate this risk by moving their higher premium jack-ups into international waters (where day rates are higher), HERO's fleet can only operate in shallow water and, with the possible exception of being moved to Mexico, can't go anywhere.

Bottom line - HERO looks very good in valuation terms, but beware the threat to earnings posed by the company's exposure to the Gulf of Mexico and falling day rates.