Seadrill Ltd (NYSE:SDRL) has a much stronger client base than that of its peers. Seadrill has three time more rigs than Atwood but fewer customers and contracts that extend into the next decade. This gives the company some clarity on its income position for the rest of the decade. Additionally, the company’s customers are the biggest oil companies in the world, removing some of the risk that comes with dealing with smaller operators, which can default on their contractual obligations.
Financials
As of these drillers lease their equipment to operators on multi-year contracts and have a certain amount of clarity when it comes to their revenue forecast for the next couple of years. Having said that, there is still a certain amount of unpredictability especially concerning contract renewals, industrial accidents and third-party defaults.
Due to the high cost of drilling equipment, drillers are usually highly geared, which can cause a problem in the event of a customer default or slowdown in activity in the sector. So based on that, I believe that the gearing and interest coverage of these three companies are the most important metrics.
| Operator | Seadrill | Atwood | Rowan |
|---|---|---|---|
| Debt to equity | 2x | 0.47 | 0.44 |
| Interest costs | 608NOK million | $6.2 million | $18.6 million |
| Q1 interest cost coverage by gross profit | 5.2X | 18.9X | 6X |
Seadrill Ltd (NYSE:SDRL) has the biggest fleet and also the largest amount of debt; interest costs are easily covered just over five times, but in comparison to Atwood, Seadrill’s financial position appears poor. Meanwhile Rowan Companies PLC (NYSE:RDC), which only has a gearing level of 0.4x, can only cover its interest costs 6x and Atwood can cover its interest costs around 19x.
Unlike Atwood, the majority of Rowan Companies PLC (NYSE:RDC)’s clients are oil majors, which gives a certain amount of clarity and less speculation over the company’s future revenue due to the financial strength of these operators.
Conclusion
So, Seadrill has the biggest fleet with the best operators but the worst financial position. Atwood has the smallest fleet but its operators are small and this adds an element of speculation to the company. On the other hand, Rowan has a medium sized fleet but its new jack-up drill ships should really boost the company’s future outlook. In addition, Rowan has a wide basket of oil majors and customers and its financial position is better than that of Seadrill.
Overall, Rowan would have to be my pick of this group.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends Atwood Oceanics and Seadrill. The Motley Fool owns shares of Atwood Oceanics and Seadrill.
The article A Rundown of 3 Oil Drillers originally appeared on Fool.com and is written by Rupert Hargreaves.
Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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