ConocoPhillips (COP), Seadrill Ltd (SDRL): Why I’m Finally Buying This Stock

Page 1 of 2

I’ve had my eye on Seadrill Ltd (NYSE:SDRL) for some time now. The company pays a very tempting dividend, currently at just over 9%. However, as I drilled down deeper into the company and the industry, it became pretty clear to me that it offered a compelling long-term investment opportunity.

ConocoPhillips (NYSE:COP)

The opportunity
Last year marked the best year ever for deepwater and ultra-deepwater discoveries. Not only did the energy industry’s 52 finds smash the old record by 40%, but those discoveries were spread across the globe off the coasts of 14 nations. As good as last year was, 2013 is shaping up to be a gusher as well.

Just last month ConocoPhillips (NYSE:COP) and its partners announced two discoveries in the Gulf of Mexico. ConocoPhillips (NYSE:COP) is planning to drill five exploration and appraisal wells this year, but that plan could be expanded by three more wells. Given its success, it wouldn’t be a surprise if the company devotes more capital to its deepwater projects.

That’s what is so compelling about Seadrill Ltd (NYSE:SDRL)’s future. The more oil that’s discovered, the more it will incentivize energy companies to drill. That, of course, creates higher day rates for Seadrill Ltd (NYSE:SDRL)’s rigs which equates to more profits. It’s a cycle that’s showing no signs of slowing down.

Why Seadrill?
While I really like Seadrill’s outsized dividend, that’s not the main reason why I’m choosing the company. The company is in the midst of a major newbuild program which has 22 units expected to be delivered over the next few years. This fleet build-out gives the company the most modern fleet of all the offshore drillers. That’s important because it means less downtime, which is something exploration and production companies really like.

Further, Seadrill Ltd (NYSE:SDRL) has a contract backlog of $21 billion which goes a long way to securing its hefty dividend. When you put it all together, the company is poised to grow its EBITDA by 50% by 2015. However, the company is not without its risks.

The risks
The biggest risk in my mind is Seadrill Ltd (NYSE:SDRL)’s use of debt to fund its growth. While the contract backlog provides security, it’s still a risk as debt has been known to be the weight that’s sunk many businesses. However, Seadrill does have a plan to keep its debt it check.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!