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Drilling Hard at GlobalSantaFe


In this nervous market, Joan Lappin, president of Gramercy Capital Management, sticks with companies with "excellent" balance sheets, compelling positions in their markets, and stocks that are near their lows. All that she finds in GlobalSantaFe (GSF), the product of a merger between Global Marine and Santa Fe International. The union made GlobalSantaFe the world's second-largest oil driller, which now owns and operates a fleet of 59 mobile offshore rigs and 31 on land. Transocean Sedco Forex, next in size to Global, is trading at 20.5 times next year's estimated earnings, notes Lappin. Transocean has debt of $4.9 billion and a market cap of $9 billion. Before the merger, Santa Fe had no debt, and Global Marine had some $1 billion. Based on Lappin's 2002 earnings estimate of $2.25 a share, GlobalSantaFe, trading at 25, has a p-e of 11, with a market value of $5.8 billion. Lappin thinks GlobalSantaFe also deserves a p-e of 20, implying a price of 45. With Global now a bigger player and getting more Street attention, Lappin thinks its stock should move higher. Says Allen Brooks, of CIBC World markets: "Global is the most undervalued offshore driller we cover." He rates it a "strong buy." By Gene G. Marcial


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