2 Drillers Head in Opposite Directions

More than a year after the deepwater oil spill in the Gulf of Mexico, the drilling industry is back at work again. There's less turmoil over regulations, and drillers from shallow to deep water are getting back to work. Some, though, are having more success than others.

Deepwater drives Seadrill
Seadrill
's (NYSE: SDRL  ) revenue fell to $955 million from $1.11 billion a year ago, primarily because of a deconsolidation of Archer Limited this year. It's no surprise in the current environment that most of this industry leader's operating profit came from the company's fleet of floaters. These rigs generated $341 million of the company's $430 million in operating profit.

The floaters segment includes drill ships and semisubmersible rigs that operate in much deeper water than jack-ups and are dominating the drilling market right now. Companies like Seadrill, Transocean (NYSE: RIG  ) , and DryShips (Nasdaq: DRYS  ) are building deepwater rigs as fast as they can to keep up with demand.

For Seadrill, net income for the quarter came in at $645 million, or $1.35 per share, and Seadrill maintained its $0.75 dividend, which should make shareholders very happy.

Dry bulk sinks DryShips
On the other end of the spectrum is DryShips, which had drill ships that weren't drilling and dry bulk ships that aren't commanding a decent price in the second quarter.

The company's offshore drilling segment revenue rose 16% to $126.6 million, while the dry bulk segment declined 19% to $97.4 million. But revenue was hurt by the mobilization of a couple of the rigs.

What did DryShips leave shareholders with at the end of the day? A hefty $114.1 million loss, or $0.33 per share, a big downturn from a $19.5 million profit last year.

DryShips' spinoff Ocean Rig, which will begin trading under the ticker "ORIG" later this year, may be worth evaluating, but until then I would avoid DryShips stock.

There are offshore drillers that provide value to shareholders and drillers that don't. Over time, DryShips has proven to be the latter, and Seadrill has proven to be a steady operator worth a second look.

Deepwater is still the place to be
Companies with deepwater capabilities like Seadrill, Transocean, and Noble (NYSE: NE  ) are where investors should focus their time and energy. Shallow water, where Hercules Offshore (Nasdaq: HERO  ) focuses and some of these companies have rigs, hasn't been nearly as profitable as deepwater in recent years.

Keep track of your favorite drilling stocks with My Watchlist, your one-stop shop for all of our Foolish analysis.

Fool contributor Travis Hoium does now 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 Motley Fool owns shares of Transocean and Noble. Motley Fool newsletter services have recommended buying shares of Hercules Offshore. 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.


Read/Post Comments (4) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 01, 2011, at 11:57 AM, turnermuseum wrote:

    Great story!

    Please do one on how John Fredriksen has turned the drilling business upside down with his genius in financial engineering.

    [See PR's from earlier this year on SDRL's AAA website - www.SeaDrill.com]

    JF basically is DE-leveraging debt by creating /organizing subsidiaries to carry that load

    and

    LEVERAGING cash flow by keeping the management of the drilling units+ attendant lucrative fees for SDRL from these same subs.

    No wonder SDRL is now Numero UNO in cash flow +

    best fleet among its peers!

  • Report this Comment On September 01, 2011, at 5:30 PM, xetn wrote:

    I rode SDRL through the storm and I am a happy camper. I believe they now own a 39% stake in Archer.

    http://www.seadrill.com/modules/module_123/proxy.asp?I=2434&...

  • Report this Comment On September 03, 2011, at 4:25 PM, TruffelPig wrote:

    Me too - I am extremely happy with SDRL and will add on any sign of temporary weakness (which it doesn't really show much.......). The dividend is a dream and SDRL sinks all other drillers (like ATW and RIG) into the deep ocean.

  • Report this Comment On September 24, 2011, at 10:28 AM, jrmills0014 wrote:

    I like sdrl.. But at $3. a shr.. I like Drys better.. What this writer didn't tell you.. Drys (ORIG)started 2011 with 2 UDW Drilling rigs... Those things cost over $600M to build and it takes about 3 yrs from the time you buy an option to get a berth to have one built untill you get them.. Drys (ORIG) ordered 4 in 2008... Each qtr of 2011, they are getting delivered.. In the second qtr, they had to mobilize 3 of the 4.. During moblilization, they ain't making no money... So as of right now.. Drys has seen very little return on these first 6 rigs... But as they will have 6 in operation by the 4th qtr.. It will be coming... After the spin off of 26 1/2% of ORIG.. Drys will own about 73 1/2%...ORIG should generate from $1B to $1.2B in 2012... And when you look at ORIG debt.. They have already payed about $700M down on 3 more of those UDW rigs that will be coming in 2013....

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