The crash of 2008 brought crude prices below $40 and almost paralyzed the oil exploration business. Now that crude is trading near the $110 mark, oil exploration companies see a profitable ride for their businesses. For oil exploration, deep sea drills are required and companies, which are strained for cash, outsource the work to offshore sea drilling companies.
SeaDrill(NYSE: SDRL) provides deep sea drilling services to the oil and gas industry; operating with a fleet of 66 drilling units including jack-ups, tender rigs, semi-tender rigs, semi-submersibles, and deep-water drill ships. The company also owns a fleet of offshore rigs, with 8 deep water rigs and 18 offshore rigs under construction.
The Growth Potential
Due to the high amount of drilling activity, the output of ultra-deep water rigs has fallen. Only five floater rigs are expected to be available until the end of 2012, and none until 2014. To secure fresh rigs, oil exploration has come into business along with offshore drilling companies. The reason why the sea drilling industry is surging is because of the discovery of oil rigs in the Gulf of Mexico; and offshore sites in Western Africa, Argentina, Brazil, and Middle East. With at least 20 floater rigs on the road to development in the coming years in Middle East, it’s not hard to figure out that these offshore drilling companies have a huge potential to grow.
Also due to the falling number of currently operational floater rigs, oil companies are hiring drilling companies for the exploration and setting up of new rigs. This has led to an increase in the day rates of the sea drills and other equipment that the drilling companies like SeaDrill Ltd. provide, thereby boosting the profitability of such companies.
Ahead of the Curve?
Additionally SeaDrill has one the newest and technologically advanced equipment available in the industry. On this basis, the company was able to increase its contracts in the pipeline to a record high of $20.3 billion. To add to the new fleet, the company will be taking the delivery of 8 new deep water units in the coming years, along with the delivery of 3 UDW drill ships in 2013.
The Numbers Game
The company in its recent quarterly results reported a 12.3% year on year increase in revenues, taking the figure to $1.087 billion, up from $965 million. The EPS surged 33% to stand at $0.88 and the EBITDA increased $39 million compared to the previous quarter this year. The company announced that it has increased its dividend yield, which now stands at a massive 8.16%, making the numbers all the more attractive to investors. SeaDrill faces competition fromTransocean (NYSE: RIG) and Ensco (NYSE: ESV). Let’s take a look at the fundamentals of the three competitors.
Company
P/E
Net Profit Margin
Dividend
SeaDrill
12.4x
49.38%
8.16%
Transocean Ltd
10.3x
-67%
0
Ensco Plc.
8.1x
26.06%
2.58%
SeaDrill might be trading at higher valuations compared to its competitors, but the company has a good profit margin and also has the highest dividend yield. If numbers aren’t enough, the comparative performance of the stocks might do the job.
SeaDrill outperformed its peers with 27.82% returns on the stock price, over the last 1 year.
The Foolish Takeaway
SeaDrill is operating in a thriving industry with good growth potential. The company has technologically advanced units that to an extent could help SeaDrill beat competition. Additionally the company also has good financials and fundamentals, and the performance of the company’s stock has been outstanding in the current year. It’s not hard to conclude that the company has good headroom to grow and that we have a foolish buy rating on this stock.
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