ENSCO PLC (ESV), Seadrill Partners LLC (SDLP): Can Seadrill Ltd (SDRL)’s Growth Outpace a Potential Debt Problem?

Seadrill also has another arrow in the quiver that it can use to help mitigate that debt risk as well. The recent spin off of Seadrill Partners LLC (NYSE:SDLP) as a Master Limited Partnership allows the company to drop down assets into the MLP holding company in exchange for cash. This trend has emerged among several other sub-sectors of the oil and gas industry and it would not be too surprising to see other rig companies follow a similar path.

What a Fool Believes
If the debt levels are just a little too scary for you as an investor, then ENSCO PLC (NYSE:ESV) might be worth considering. The company has been able to keep much of its fleet in operation with a rig utilization rate of about 95%. Also, ENSCO PLC (NYSE:ESV) has been able to post comparable margins to those of Seadrill, but the company has a much more favorable debt profile. However, ENSCO PLC (NYSE:ESV)’s growth plans are much more modest than Seadrill’s and ENSCO PLC (NYSE:ESV)’s 3.5% dividend yield seems almost paltry in comparison to Seadrill’s 8.1%

Overall, the threat of debt for Seadrill Ltd (NYSE:SDRL) is certainly present, but based on the company’s growth prospects it should be able to cover its hefty obligations down the road. Also, unlike some of its peers, it has been able to resolve some labor related cost issues in some of the fastest growing markets, most notably Brazil, Angola, and Nigeria. These regions, which are both estimated to hold massive reserves in very deep pre-salt formations, will be a driving force in the offshore business for years to come. So seeing that Seadrill has made some progress in controlling costs in these regions is very encouraging for the future.

The article Can Seadrill’s Growth Outpace a Potential Debt Problem? originally appeared on Fool.com and is written by Tyler Crowe.

Fool contributor Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter: @TylerCroweFool.The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill and Transocean.

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