Global energy demand is on the way up, led primarily by emerging markets. Therefore, opportunities abound in the energy sector. In particular, investors would be wise to consider offshore drillers, who are seeing strong upticks in business activity.
Of the publicly traded stocks that provide rigs, as well as other products and services to the offshore drilling industry, there are four that are firing on all cylinders right now and are poised to deliver strong returns going forward. Moreover, they’re handsomely rewarding their investors with compelling dividends, and should be given strong consideration by investors interested in the energy sector.
Strong growth lies ahead
Transocean LTD (NYSE:RIG) holds the largest worldwide rig fleet, with 80 rigs in operation. In addition, Transocean LTD (NYSE:RIG) has an impressive $27.3 billion in backlog, meaning business conditions should remain strong in the future.
Of course, the major risk surrounding Transocean LTD (NYSE:RIG) that its investors need to pay attention to is the ongoing legal trouble pertaining to the 2010 Gulf of Mexico oil spill. Some progress on this front has already been made, as Transocean LTD (NYSE:RIG) pleaded guilty to violating the Clean Water Act and was forced to pay $400 million earlier this year. In total, the company reached a settlement with the Department of Justice in the amount of $1.4 billion, paid over five years.
That being said, Transocean LTD (NYSE:RIG) has more than enough financial flexibility to withstand the financial damages stemming from the spill. Revenue is up 3.5%, and the company booked more than $1 billion in operating profit over the first six months alone.
Seadrill Ltd (NYSE:SDRL) lags behind Transocean LTD (NYSE:RIG) in terms of rigs currently in operation, but it has 25 rigs currently under construction, so investors shouldn’t worry that the company is at risk of missing out on the surge in offshore drilling activity.
Furthermore, investors should be enthusiastic because of the company’s high efficiency. Seadrill Ltd (NYSE:SDRL) has shed assets that it considers to be non-critical, including selling its tender rig division for $2.9 billion, on which it realized a gain of $1.25 billion.
At the same time, Seadrill Ltd (NYSE:SDRL) generated its best operating results and net income ever in its recently concluded second quarter. In all, net income totaled $1.75 billion. The fact that Seadrill Ltd (NYSE:SDRL) is booking record results while simultaneously streamlining its operations is a huge credit to management, and investors should be excited as a result.