SeaDrill Still Tops Among Drilling Stocks

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SeaDrill (NYSE: SDRL  ) didn't blow away the market this morning with its earnings report, but after choppy earnings from competitors, just meeting expectations may not be a bad thing. Transocean is still dealing with remnants of the Macondo Well oil spill, and Hercules Offshore is struggling in shallow water. But SeaDrill and Noble are performing very well in deep water.

During the fourth quarter, SeaDrill said revenue increased slightly to $1.06 billion and operating profit fell 9% to $436 million. The company reported a loss of $82 million, or $0.23 per share, driven by a $463 million mark-to-market impairment of its investment in Archer Limited. Without the Archer loss, the per-share loss would have been about $0.81.

Adding to future growth
Earlier this week, SeaDrill announced orders for two more ultra-deepwater drillships to be delivered in 2014. The cost of these ships is $600 million total, but the opportunity for ultra-deepwater drilling is only expanding.

The company recently signed contracts for three semi-submersible rigs totaling up to $1.6 billion in potential revenue, all in the ultra-deepwater segment. Capitalizing on this opportunity now is the right move.

Bumping up the dividend
One of the reasons I picked SeaDrill as my top drilling stock was its strong dividend. Well, it got even better today, at $0.80 per quarter. On a full-year basis, that's a 7.7% yield at the current stock price.

The dividend is nice for investors, but it also highlights management's comfort level with risk. SeaDrill now has $9.99 billion of long-term debt and must pay for the new drillships in the coming years. I would have liked to see the extra cash used to reduce operational risk than pay investors at this stage in the game. If contract rates fall down the road, this is what could lead to trouble at SeaDrill.

Foolish bottom line
Right now, Noble and SeaDrill are the two top-performing drilling stocks with increasing focus on the ultra-deepwater market. SeaDrill continues to consistently perform well financially and pay a strong dividend, and until I see oil prices fall significantly or contract rates fall, I will hang on to this stock.

Interested in reading more about SeaDrill? Add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium manages an account that owns shares of SeaDrill. 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 SeaDrill. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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