How Seadrill Measures Up

Offshore drilling contractor Seadrill (NYSE: SDRL  ) will come out with its fourth-quarter results on Feb. 29. Today, we'll see how this oil and gas exploration and production company fares on a SWOT test. This should help investors develop a more complete picture about the company.

Strengths

  • Seadrill has a global footprint. It operates in 15 countries, spanning five continents.
  • Has a versatile fleet of 60 rigs, including seven drillships that are capable of drilling in ultra-deepwater and harsh conditions.
  • More than 50% of the rig fleet is contracted till 2015 and beyond.
  • Great management with high insider ownership. The chairman and president, John Fredriksen, owns at least 28%.
  • A fat dividend yield of 8.2%.

Weaknesses

  • Has a high payout ratio of 75%. This could likely pose problems since the company also has a relatively high debt-to-equity ratio of 145%.
  • Current ratio has fallen from 1.1 times in 2009 and now stands at 0.8 time. Short-term liquidity issues exist.

Opportunities

  • Global demand for ultra-deepwater rigs is on the rise, especially in the Asian and West African markets.
  • Lucrative Brazilian market: Seadrill plans to spin off the Brazilian unit as a separate entity with a $1 billion IPO in April. Currently, rigs located in Brazil have the highest day rates, fetching upward of $500,000 per day.

Threats

  • Seadrill's customer base is not well diversified. At the end of 2010, the top five customers accounted for 76% of future contracted revenues. Unforeseen circumstances (read: an accident like the Gulf of Mexico oil spill) that might result in the failure of payments by even one of these customers could significantly affect cash flows.
  • Competition is quite intense. Since global demand for offshore rigs is on the rise, potential customers could turn to other drilling companies if Seadrill can't procure more rigs. 

Foolish bottom line
The pros far outweigh the cons. In fact, fellow Fool Travis Hoium has named Seadrill as the best stock among oil drillers. I can't disagree. To stay up to speed on the top news and analysis on the company, you can start here by adding Seadrill to your watchlist.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. 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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