SeaDrill Scores Another Drilling Deal

The comeback of offshore drilling was in motion this week when SeaDrill (NYSE: SDRL  ) signed a $100 million contract with Murphy Sabah Oil. The deal is for semi-tender rig West Menang in a deepwater field off the coast of Malaysia.

This follows a five-year contract confirmed last week with Pemex in Mexico for the company's new West Pegasus semisubmersible rig. That deal is for approximately $850 million, and drilling will commence in the third quarter.

I told you we couldn't do that
But the good news for SeaDrill hasn't spread to the entire industry. Hercules Offshore (Nasdaq: HERO  ) shares were hit hard last week when the company said the Securities and Exchange Commission and Department of Justice had opened an investigation into the company. Hercules was hit harder than most by a slowdown in the Gulf of Mexico, and with shares rocketing higher over the last six months the investigation may have put a crunch on momentum. Plus Hercules doesn't play in the increasingly valuable ultra-deepwater drilling space.

Deepwater is the place to be
SeaDrill, Transocean (NYSE: RIG  ) , and DryShips (Nasdaq: DRYS  ) are all making big bets on the future of ultra-deepwater drilling. DryShips will have four new ultra-deepwater drill ships delivered in 2011 and has options for another four. Three of the four ships now have contracts awaiting them.

SeaDrill also ordered another ultra-deepwater drillship that will be completed in 2013, adding to its capabilities.

SeaDrill looks particularly attractive in the drilling space with a 5.4% dividend yield, a forward P/E ratio of under 11, and a growing fleet of high-value ultra-deepwater drilling units. With no end in sight to high oil prices, the demand for drilling units should remain strong well into the future.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Fool owns shares of Transocean. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On April 15, 2011, at 10:22 AM, artmuseum wrote:

    A trenchant analysis for the Fools in us.

    Lets remember JF the charismatic genius at the helm of SDRL is vaporizing $3Bn in debt as we speak - $2 Bn a week or two ago when the new North Atlantic Drilling Ltd assumed $2Bn, and now the calling of the $1 Bn convertibles.

    [which incidentally creates a great time to initiate positions in SDRL as the bond-funds owning them are forced to take profits]

    The year end balance sheet is barely recognizable now - with that ultra-Fool JF master-stroking at the speed of light.

    You foolishly glimsed at this here first:

    "SDRL - the stock of the year".

    You heard it here first:

    "SDRL - the Foolish Stock of the Year!"

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