UPDATE 1-RESEARCH ALERT-Citigroup downgrades Pride International

Jan 7 (Reuters) - Citigroup downgraded Pride International
Inc (PDE.N) and Hercules Offshore Inc (HERO.O) to "sell" from
"hold," citing globally weak shallow-water rig markets,
particularly in the U.S. Gulf of Mexico.

Shares of Pride fell 6 percent to $17.97 on the New York
Stock Exchange, while those of Hercules were down 5 percent at
$5.45 Wednesday morning on Nasdaq.

The brokerage said it also cut its price targets and
estimates on the offshore drillers under its coverage.

"All drillers are exposed to shallow water," analyst Robin
Shoemaker wrote in a note to clients.

However, the rebound in oil service and offshore drilling
stocks in early 2009 has paralleled the surge in oil prices,
and investors may continue to look beyond negative earnings
estimate revisions if the oil markets can preserve recent
gains, the analyst said.

Moreover, with oil prices stabilizing and offshore drilling
companies trading below replacement cost, mergers and
acquisitions could resume soon, the analyst said.

Merger and acquisition deal announcements are being seen
positively by investors and are likely to boost stock prices
across the entire sector. "This could happen sooner than you
think," he said.

Shoemaker maintained a "buy" rating on Diamond Offshore Inc
(DO.N), Transocean Ltd (RIG.N) and Noble Corp (NE.N).

Citigroup lowered its price targets on the following
companies:

Company name Price Target (in $)

Current Prior

Diamond Offshore Inc (DO.N) 92.00 98.00

Ensco International Inc (ESV.N) 36.00 39.00

Hercules Offshore Inc (HERO.O) 5.00 6.00

Noble Corp (NE.N) 45.00 49.00

Pride International Inc (PDE.N) 17.00 20.00

Rowan Companies Inc (RDC.N) 20.00 28.00

Transocean Ltd (RIG.N) 107.00 137.00
(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by
Deepak Kannan and Amitha Rajan)