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 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

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!