Transocean LTD (RIG): Push to Deepwater Helping Seadrill Ltd (SDRL)

The offshore oil drilling market continues to be red hot, particularly ultra-deepwater, which is great for Seadrill Ltd (NYSE:SDRL). In the second quarter, total operating revenue rose 13% from a year ago, despite selling its tender fleet during the quarter. Net income spiked to $1.75 billion but that was driven by the tender sale so a better judge of progress is to look at a 5% rise in operating income to $507 million. To top it off, management increased its dividend to $0.91 per share.

Seadrill Ltd (NYSE:SDRL)

Seadrill Ltd (NYSE:SDRL)’s fleet is now even more heavily skewed toward  ultra-deepwater drilling with 70% of contract revenue coming from the floaters segment. That’s a good sign for investors because deepwater rigs are commanding high dayrates and long-term contracts. 6 of Seadrill Ltd (NYSE:SDRL)’s drillships and 6 semi-submersibles are contracted into 2017 with dayrates as high as $590,000.

The newbuild program will keep returns high and revenue growing in the future as well. 27 new rigs are under construction, including 11 drillships and 2 harsh environment semi-submersibles. If the market continues like it is Seadrill Ltd (NYSE:SDRL) could nearly double revenue in the next five years.

Deepwater drilling lifts all rigs
The transition to deepwater has been a swift one for some of the industry’s largest players. Transocean LTD (NYSE:RIG) has taken a similar strategy to drilling as Seadrill Ltd (NYSE:SDRL), selling 37 jackups  last year for $1.05 billion. It also has six ultra-deepwater rigs coming in the next two years, continuing its transition to a deepwater company. Noble Corporation (NYSE:NE) will begin generating revenue from two new rigs this quarter and has another three under construction as well.

Where Seadrill Ltd (NYSE:SDRL) has an advantage over Transocean LTD (NYSE:RIG) and Noble is with a newer fleet and revenue reliant on ultra-deepwater. That’s resulted in the revenue out-performance you see below.

SDRL Revenue TTM Chart

SDRL Revenue TTM data by YCharts

Offshore drilling pays you back
If the deepwater market continues to expand at a rapid rate the industry will easily be able to absorb the supply being built by Seadrill, Transocean, Noble Corporation (NYSE:NE), and others are building. That will help keep revenue and profits growing as these companies expand deepwater fleets and allow them to pay back investors. Seadrill currently leads these companies with an 8.1% dividend yield followed by Transocean at 4.8% and Noble at 2.6%. Each dividend should grow given the strong earnings prospects these companies have. Seadrill is my pick but I think the whole industry will be able to outperform the market going forward.

The article Push to Deepwater Helping Seadrill originally appeared on Fool.com and is written by Travis Hoium.

Fool contributor Travis Hoium manages an account that owns shares of Seadrill. The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill and Transocean. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

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!