With the company's strong exposure to the Gulf of Mexico, Marine Drilling provides the highest leverage of any offshore driller to the tightening domestic jackup market, says Karen David-Green, vice president and oilfield services analyst for RBC Dominion Securities in Houston. "We reiterate our Strong Buy rating on MRL, and our one-year stock price target of $34 per share." Based in Sugar Land, Texas, Marine Drilling owns a fleet of 18 offshore drilling rigs, consisting of 10 mat-supported jackups, six independent-legged jackups and two deepwater semisubmersibles. The company operates primarily in the Gulf of Mexico, where 14 of its jackups and one semisubmersible are currently located; the remainder of the company's fleet is in Southeast Asia and the North Sea. In addition, it has an agreement with Southern Drilling Co. of China to market two second-generation semisubmersibles. "Strong natural gas prices continue to drive robust Gulf of Mexico jackup rig demand," says David-Green. "Currently, there are 138 jackups under contract in the region-the highest level since the early 1980s-versus 117 in late January. Meanwhile, the number of idle [jackup] rigs in the Gulf of Mexico since the start of the year has declined from 22 to only 10 currently-and plans are under way to reactivate some of those units." With jackup rig availability tight, dayrates have been escalating and contract terms have been extending. Dayrates for mat-supported jackups are in the low $30,000 range versus $17,000 earlier this year. "Based on our supply-demand forecast, we believe that by 2002 dayrates for jackups could escalate another 50% or more to approach or exceed the dayrate levels reached during the 1997 cycle." With more than 60% of its 16 jackups mat-supported-and all those mat-supported rigs located in the Gulf of Mexico-Marine Drilling provides excellent leverage to this improving trend, she says. Each 5% increase in domestic jackup utilization adds 10 cents to Marine Drilling's annual earnings per share, she estimates, and each $1,000 increase in domestic jackup dayrates adds five cents to its earnings per share-the highest earnings leverage for any offshore driller. The company has a balanced portfolio of long-term deepwater contracts and short-term domestic jackup work, she stresses. "Its two deepwater semis, Marine 700 and Marine 500, are secured under multiyear contracts and provide Marine Drilling with strong contracted cash flow while its domestic shallow-water fleet provides the company exposure to improving Gulf of Mexico market conditions." In addition, the company's balance sheet provides financial flexibility. Its debt-to-capitalization ratio is a conservative 23% and the company is generating strong free cash flow. This gives it the opportunity to continue to grow its business through acquisitions and upgrades, she says. "Marine Drilling is the purest play on the recovery in the Gulf of Mexico market." Note: Analysis took place 7-28-00 when MRL closed at $22.44 per share and was reaffirmed on 8-14 when at $27.88. Currently, some 58.4 million shares are outstanding. The recent 52-week price range was $31.31-$12.63.