Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why You Should Invest In Seadrill Ltd (SDRL)

When making an investment decision, investors keep a number of factors in mind: future growth, dividends, cash generation, and earnings prospects. It is often difficult to find a company with earnings you can easily predict beyond two or three years in the future. However, a little deeper research will bring a handful of companies that fulfill the criteria. If you want to invest in a company with a visible earnings growth potential, then Seadrill Ltd (NYSE:SDRL) is the obvious choice.

Seadrill Ltd (NYSE:SDRL)

Offshore Drilling is the Future

The scarcity of conventional reserves has pushed energy companies offshore, prompting a massive boom in offshore drilling. Though this sector shrank to half its previous size after the Deepwater Horizon incident, it is again gathering pace. The main drivers behind the increased activity are crude prices, deepwater’s massive oil and gas reserves, and the increasingly sophisticated technology being used.

Per capita demand for oil will remain high in the U.S. for the foreseeable future, prompting the exploitation of offshore reserves to decrease dependence on the imports. While shale gas has put the U.S. in a position to become an exporter of natural gas; the country still imports 8.49 million barrels of crude everyday. Furthermore, offshore drilling is also adding substantial amount of cash to the coffers of the U.S. government. Annual federal proceeds from leases have been as high as $18 billion in the past. As a result, the government is allowing the companies to drill in the Gulf of Mexico as well as in the Arctic waters.

Recently, ConocoPhillips (NYSE:COP) made a considerable discovery in the Gulf of Mexico. Faced with declining production and reserves, ConocoPhillips’ recent discovery at its Shenandoah well will go a long way in solving its production issues. It’s one of the biggest discoveries made in the area, and ConocoPhillips (NYSE:COP) has a 30% stake in the jointly owned project.

The other outlet for offshore drilling is Arctic waters; however, this area is proving a bit problematic for the drillers. Royal Dutch Shell plc (ADR) (NYSE:RDS.A)-A) faced problems there due to failing equipment and extreme weather conditions. As a result, the company has suspended its operations in the area, and will not be drilling in the Arctic during the current year, since the region’s volatile weather leaves only a small window available for drilling. However, Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s massive operations will offset any hit to its production from this area, and the company will come out of it relatively unscathed.

An increase in drilling activity has increased the number of rigs these companies are building, which might become a problem in the future. Consider a similar example in another sector: Before the recession, the shipping industry was prospering. But when its glut of new ships met dwindling business in the wake of the 2008 financial crisis, the industry nearly sank.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.