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ConocoPhillips (COP), BP plc (ADR) (BP): What Does Seadrill Ltd (SDRL) See Under the Sea?

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Along with its earnings release, Seadrill Ltd (NYSE:SDRL) provided investors with an update on the deep water drilling market. With its large and growing fleet of offshore drilling rigs, the company has a lot of insight into the demand from exploration and production companies. Let’s take a quick journey under the sea with Seadrill Ltd (NYSE:SDRL) as we catch a glimpse of what to expect from offshore operators over the next few years.

Seadrill Ltd (NYSE:SDRL)

Drilling down into the depths
Last year was the best year ever for deep water and ultra-deep-water discoveries of oil and gas. Exploration and production companies announced 52 finds in water depths of more than 4,000 feet of water, which trounced the previous record by 40%. Of that total, 18 finds were in depths of more than 7,000 feet. This trend plays well into the hands of Seadrill Ltd (NYSE:SDRL) thanks to the company’s vast and growing ultra-deep-water fleet. Overall, Seadrill Ltd (NYSE:SDRL) sees a positive outlook for future drilling based on the success of the oil and gas industry last year, as well as the discoveries already made this year. It also sees a very tight market for global ultra-deep-water fleets. While 21 new units will be delivered this year, just two are without fixed contracts. Demand from Africa and the Gulf of Mexico were strong last quarter, and Brazil is expected to join those two later this year.

It should come as no surprise that demand for ultra-deep-water rigs is strong in the Gulf now that the industry is finally moving past the BP plc (ADR) (NYSE:BP) disaster. Oil companies have been investing heavily in the region and those investments are starting to bear fruit. Earlier this year ConocoPhillips (NYSE:COP) and its partners announced two major oil discoveries, Shenandoah and Coronado, which could be added to as the company plans to drill another five wells this year. The company has amassed over 2 million net acres in the Gulf, a position it recently added to as the company was the highest bidder on 30 blocks which added 172,000 net acres to its position. Needless to say, ConocoPhillips (NYSE:COP) is expecting big things from its investments in the Gulf.

Underwater landscape

ConocoPhillips (NYSE:COP), though, is fairly new to the Gulf, and its new entrants like Conoco which are helping to drive some of the increased spending from oil and gas companies. But the financial and operational risks are a significant barrier to entry for smaller players. That’s part of the reason why Seadrill Ltd (NYSE:SDRL)’s order backlog is filled with larger exploration and production companies; for example, BP plc (ADR) (NYSE:BP) has contracted 24% of Seadrill’s $19.1 billion backlog.

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