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Laws Upgrades Hercules Offshore (HERO) to MARKET PERFORM from UNDERPERFORM

March 2, 2010

Alan Laws, research analyst on our Energy team, has today upgraded Hercules Offshore (HERO) to a MARKET PERFORM rating from UNDERPERFORM.

From Laws' report: "While we do not see an imminent operational upturn for HERO, management has done a good job scaling its costs to the business level so modest improvements should deliver upward not downward revisions in 2010. All players in the oil services sector are linked differently to the cycle but linked all the same. When inflections are reached everyone participates. Domestically, we can't imagine demand for HERO's rigs gets worse with an upswing under way. So modest utilization improvements will help GOM jackups and potentially the inland water business (although `09 seemed more akin to a heritage-based maritime theme park/museum where a tourist interpretive center with entrance fees may net more income). International offshore faces day rate compression on contract rollovers, but demand seems to be rising and lift boats are at least profitable. Having achieved an operational bottom we'd expect the stock to begin to discount some form of a recovery (however modest at this point). While we believe HERO is far less attractive than its offshore drilling peers, the upswing has begun & its single digit share price combined with seasonal GOM activity improvements, stabilization in the international jackup market and solid management should ensure thematic interest in the stock."

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