Transocean LTD (RIG), Seadrill Ltd (SDRL): Which Deepwater Play Will Line Your Pockets?

Page 1 of 2

Deepwater drilling is overshadowed by onshore oil and natural gas plays, but the profits are still very real.

Two major players get the bulk of attention from investors. On one hand, there is the older and more experienced Transocean LTD (NYSE:RIG). On another hand is Seadrill Ltd (NYSE:SDRL) , a new company backed by one of the John Fredriksen, a veteran of the oil container shipping business.

Transocean LTD (NYSE:RIG)

What’s the Difference?

A driller is a relative commodity. Asset owners like Royal Dutch Shell plc (ADR) (NYSE:RDS.A) or BP plc (ADR) (NYSE:BP) hire the drilling services and equipment from Transocean LTD (NYSE:RIG) and Seadrill to develop underwater oil wells. The business is simple, even if the execution is not. Transocean and Seadrill Ltd (NYSE:SDRL) invest heavily in rigs, which are then hired out on a day rate in the hundreds of thousands of dollars per day.

Their business is the same. The way these two companies approach the business couldn’t be more different, however.

Let’s look at the upsides and downsides with each company.

Transocean

The leading player in the space finally shed much of the liability risk from its Macondo disaster in the Gulf of Mexico. The largest offshore oil spill in U.S. history ended with the death of 11 crewman and $1.4 billion in damages and penalties.

The disaster showed weaknesses in Transocean LTD (NYSE:RIG)’s rigs. The company has much older rigs than Seadrill Ltd (NYSE:SDRL). Post-disaster, the company has spent heavily to maintain its existing rigs and work on blowout preventers. Maintenance has lead to horrendous downtime. The company expects that revenue efficiency should rise into 95%+ territory, up from 90% in 2011 and 93% in 2012.

Improving downtime and working on its cost structure should help Transocean LTD (NYSE:RIG) drive net margins. The company announced a $300 million cost-cutting program that would pay rewards by 2014. The announcement was timed with Carl Icahn’s move to push the company to pay a dividend and swap out three existing board members for a roster selected by Icahn.

For long-term shareholders, Icahn’s participation is little more than a distraction. Icahn pushed for a $4 dividend per share payable in 2013 and three new directors on the board. Transocean LTD (NYSE:RIG)’s board proposed a quarterly dividend that would amount to $2.24 per year, an amount which the company says it can afford.

Seadrill

Seadrill uses aggressive and creative financing to grow quickly. The company seeks to lease its rigs under much longer contracts, later extracting the value from these future cash flows to acquire new rigs or to pay lofty dividends to shareholders.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

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 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!