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The Best Stock Among Oil Drillers

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Slowly but surely offshore drill rig owners appear to be getting back on their feet. They've had more than a year to adjust to life after the Macondo oil spill and subsequent stronger regulation. With uncertainty easing and oil prices rising, it looks like financials for oil drillers are also stabilizing.

This morning, Seadrill (NYSE: SDRL  ) reported revenue up 3.4% to $1.03 billion and operating profit jumped 11.6% to $480 million. The floaters segment drove the results as usual, capturing $349 million of the operating profit. The company's large fleet of ultra-deepwater rigs are in the best position to add value in the drilling industry that focuses on deeper and deeper water.

Even after a $330 million loss on derivative financial instruments, the company posted a $58 million net income.

Seadrill appeared less affected by new regulations than Transocean (NYSE: RIG  ) , which posted a loss in the third quarter and used the excuse of regulations for the loss. But Hercules Offshore (Nasdaq: HERO  ) also showed strength in the shallow water segment as day rates rose, so regulation doesn't seem to be derailing the entire industry.

One eye on oil
Maybe the best thing that can happen to oil drillers long term is a continually rising price of oil. Today, oil topped $100 per barrel, and if the economy can boost growth even slightly that price could continue to rise.

The best stock in drilling
Seadrill's focus on deepwater has it positioned better than other drillers to create value for shareholders long term. The company also pays a dividend exceeding 9%, almost unheard of for a business that's growing profitably.

I would like to say that a pure play on deepwater like Ocean Rig (Nasdaq: ORIG  ) is in a similar position to create value, but when you're owned by DryShips (Nasdaq: DRYS  ) and George Economou, I just can't get behind a stock like that. That leaves Seadrill as this Fool's top drilling stock, a prediction I'll back up by adding an outperform CAPScall on My CAPS page.

Interested in reading more about Seadrill? Click here to add it to My Watchlist to find all of our Foolish analysis on this stock.

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 Motley Fool owns shares of Transocean. 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 (5) | Recommend This Article (16)

Comments from our Foolish Readers

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 November 30, 2011, at 2:40 PM, soycapital wrote:

    Thanks Travis... .........have some SDRL...2 batches of it! Good pickin'

  • Report this Comment On November 30, 2011, at 4:02 PM, dontwin wrote:

    I've been pushing SeaDrill {SDRL} for a year. I just hope it is in my Great America Fund!

  • Report this Comment On November 30, 2011, at 6:16 PM, truman1987 wrote:

    With the newest rigs in the industry, tighter regulations have benefited well run companies like SeaDrill. Companies like Transocean that took advantage of regulators not doing their job are paying the price. Too bad the Gulf had to pay a price as well.

  • Report this Comment On November 30, 2011, at 10:31 PM, 4farme55 wrote:

    I, too, like SDRL, but have not bought it, because I do not know if there would be any foreign tax on the dividend. Investor relations has been totally inept at answering my question in this regard (which scares me about the company) Does anyone know the answer to my question?

  • Report this Comment On December 18, 2011, at 2:54 AM, turbo200 wrote:

    I bought a bunch when the market crunched

    in August 2011. In fact I happened to be off

    work, watching exactly as the bottom piddled

    along and started up, and I decided to buy

    over half my portfolio's value in a giant chunk,

    wagering that with the market turning, up was

    the only way it was going from $26.50 yup.

    The dividend, as the company is based in

    Bermuda, apparently does NOT subtract

    any amount as a 'foreign tax' from its dividend,

    so I got the whole amount of .76 per share

    in the dividend. nice. then after seeing it

    get to right at $36 almost three times and not

    go above, I sold covered calls for Dec 16th 2011 (gettin brave

    and new territory for me...) on Dec 7th, at $35, just in the

    money, right as it fell out of the money, for

    another 'dividend' on 8 days shy of expiration.

    Interestingly almost all of it was called away,

    even as they were losing money, but not all of

    it. Still don't understand that part, exactly.

    So far so good. collected the full quarterly


    collected more than that on a very short term covered call.

    Now it's down $4 where I can start all over, and

    effectively be 'up' a quarter of my annual

    dividend calculated on a $26.50 entry price

    (2.6+%) plus a premium of 2.4% on the call

    of 9 days. if only they'd taken it all...

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Related Tickers

10/27/2016 4:02 PM
SDRL $2.28 Up +0.01 +0.44%
Seadrill CAPS Rating: ***
DRYS $0.37 Up +0.00 +0.43%
DryShips CAPS Rating: **
HERO.DL $1.16 Down -0.02 -1.50%
Hercules Offshore CAPS Rating: **
ORIG $1.15 Up +0.10 +9.52%
Ocean Rig UDW CAPS Rating: No stars
RIG $10.38 Up +0.06 +0.58%
Transocean CAPS Rating: ****