Did you know that last year was the best year ever for deepwater discoveries? Exploration and production companies announced 52 new finds last year, which crushed the old record by 40%. The future looks even brighter as the industry continues to drill in newer geographies across the globe.
Unfortunately, profiting from the growth in deepwater drilling is easier said than done. Investing in an exploration and production company adds a layer of risk due to more direct exposure to commodity prices. A better way to invest in the profits found under the sea might be to invest in a contract driller. These are the companies that major exploration companies hire to do the actual drilling.
To help you better determine which deepwater drilling stock you’ll want to buy, I’ve compiled the top reason why you’d want each company in your portfolio.
…you want to own the industry leader
With the industry’s largest fleet, an investment in Transocean LTD (NYSE:RIG) is one in the industry’s leader. Not only does it have the largest fleet but that fleet is booked under a massive $29.7 billion contracted backlog. Simply put, an investment in Transocean LTD (NYSE:RIG) is an investment in the growth of deepwater drilling.
However, that growth does come with risks, and topping that list is another Macondo-like incident. That disaster was a huge black eye for the industry, and it has cost the company dearly. Lessons learned from what happened, though, will likely help prevent a repeat disaster.
…you want to own a solid No. 2
Both Noble Corporation (NYSE:NE) and ENSCO PLC (NYSE:ESV) own roughly similar-sized fleets; either one would be a solid choice to add some deepwater growth to your portfolio. Noble Corporation (NYSE:NE) is completing its newbuild program and beginning a new phase of distributing cash back to investors. The company just doubled its dividend which now yields about 3%.
Ensco, which also just boosted its payout, has a higher yield at over 4%. Where the company really shines is in its customer service as it has been rated the number one offshore driller for the third year in a row. Both companies though offer investors a nice balance of growth and income.
…you want to own a big dividend
However, if its income you want then Seadrill Ltd (NYSE:SDRL) is your name. The company has a diverse fleet which will soon be up to 73 rigs. The fleet is split rather evenly with 26 drillships and semi-submersibles, 26 jack-up rigs, and 21 tender rigs. Those ships are contracted to a broad customer base with a total backlog that’s now up to $21.5 billion. What I really like is that Seadrill will soon have one of the largest ultra-deepwater fleets once it completes its current newbuild program.