The world will always need more oil, and as the oil fields that are easy to access run dry, the world will have to go to more extreme places to find it. Oil companies are now dependent upon the expertise of professional oil rig companies to run the drilling and extraction operations that they are no longer able to conduct themselves.
But where to invest to play this long term trend?
Well firstly it would be helpful to find out what the rig situation around the world is like.
|Area||Last Count||Count||Change from Prior Count||Date of Prior Count||Change from Last Year||Date of Last Year's Count|
|U.S.||18 Jan 13||1749||-12||11 Jan 13||-259||20 Jan 12|
|Canada||18 Jan 13||601||+70||11 Jan 13||-53||20 Jan 12|
|International A||Dec 2012||1253||-14||Nov 2012||+73||Dec 2011|
This is the global rig count, as supplied by Baker Hughes. I can see that the global rig count is falling in some area’s but rising in others - overall the count is remaining relatively stable.
It is also handy to know the cost of oil rigs, as this could be a deciding factor in where to invest. Offshore oil rigs can cost up to $500,000 per day, whereas onshore truck-based rigs can cost as little as $1,000. This will lead to higher margins for off shore drilling companies and lower margins and income for those companies who drill onshore.
So who are the main players?
There are four main players in this industry who I will be comparing.
Transocean LTD (NYSE:RIG)
Helmerich & Payne, Inc. (NYSE:HP)
Rig Fleet: In US
Rowan Companies PLC (NYSE:RDC)
Nabors Industries Ltd. (NYSE:NBR)
Instantly, Transocean comes out as the bigger player in the group, with the largest fleet of deep water rigs. Although both Nabors and Helmerich have bigger rig fleets, the majority of their fleets are land based, which of course means less revenue.
It's handy to know what to expect from these companies over the next few years in terms of revenue. Due to the high cost of oil rigs, drilling needs to be planned in advance. This produces a backlog, which helps identify future demand and profits.
|Company||Current Order Backlog $US Billion|
|Helmerich & Payne||4|
Transocean's strength again shows through in its order backlog. The significantly higher revenues commanded by its offshore fleet has led to a huge order backlog.
This strength also shows through with Rowan, who has the second biggest backlog, although it's significantly smaller than Transocean's.
Nabour's poor order backlog really shows the effect the mostly land based fleet is having on the company. Helmerich and Payne, Inc. (NYSE:HP) have the third biggest backlog, and although it does have a significant amount of its fleet onshore, it has some offshore drilling vessels. These offshore vessels really pull in the revenue.
What about the profitabiltiy of these companies? Do the high daily rates demanded for oil rigs translate into profits for the companies?
|Company||Net Profit Margin||Gross Profit Margin|
|Helmerich & Payne||18.4%||44.5%|