There’s a lot of hype surrounding offshore drilling, especially as the Deepwater Horizon incident becomes a mere blip in investors’ rear-view mirrors. The number of deepwater rigs in the Gulf of Mexico is quickly approaching 40, up from the 33 that were in the Gulf in 2010.
This is thanks to its FlexRigs. The beauty of these FlexRigs is they move faster and drill quicker/more efficiently than conventional rigs. But that’s not all–the company’s balance sheet appears rock solid, with a debt-to-capital ratio of only 5% and a current ratio that’s over 3.0. Thanks to this solid balance sheet, the company pays a 3% dividend yield.
With this, Helmerich & Payne, Inc. (NYSE:HP) is back near its all-time highs of 2008:
This comes as its rig utilization is over 80% in the land-drilling segment. So what will help drive Helmerich higher? The majority of HP’s rigs are under long-term contracts, which provides relative stability and insight into future cash flows.
More positives for the company? A couple of Helmerich & Payne, Inc. (NYSE:HP)’s largest customers are well- known operators in the oil and gas industry, including Occidental Petroleum Corporation (NYSE:OXY) and Exxon Mobil Corporation (NYSE:XOM). Both companies are turning to more land drilling, especially Occidental, which is looking to capitalize on its California and Permian Basin assets.
Helmerich’s June-ended quarterly EPS came in at $1.44, compared to $1.37 for the same period last year, thanks in part to a 4% rise in the average rig margin per day in U.S. land drilling.
Helmerich & Payne, Inc. (NYSE:HP)’s drilling contract backlog is now up to $3.3 billion. The real beauty about this backlog is that it helps give clarity, certainty if you will, to the driller’s solid dividend. As a result, earlier this year the company upped its dividend from $0.15 quarterly to $0.50.
Drilling elsewhere
A couple of notable competitors include Rowan Companies PLC (NYSE:RDC) and Patterson-UTI Energy, Inc. (NASDAQ:PTEN). Rowan is a contract-oil and natural-gas driller. It used to be a big Herlmerich competitor, but in 2011 it divested its land drilling and manufacturing divisions. The company now focuses on offshore drilling.
Rowan Companies PLC (NYSE:RDC) also has a low debt-to-capital ratio of 15%. This should help the company with its transition to a deepwater operator. Analysts expect the company to post impressive EPS growth on the back of this increased deepwater exposure. 2013 EPS is expected to be $2.23, but 2014 is expected to jump to $3.52.
Rowan Companies PLC (NYSE:RDC) has 31 jack-up rigs and is in the process of building four ultra-deepwater drillers, expected to come online between 2013 and 2015. Its first drillship is already contracted by Repsol for a period of three years, to begin in 2014. The rig will be used in West Africa and will receive a day-rate of $655,000. Rowan Companies PLC (NYSE:RDC) is still looking for opportunities for the other three drillships. The thing that makes Rowan relatively unattractive is the robust competition in the sector, where the likes of Transocean LTD (NYSE:RIG) and ENSCO PLC (NYSE:ESV) tend to dominate the market.
