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Why Seadrill's Still Going Strong in 2012

As we've hit the halfway point for 2012, now's a good time to look back at what's happening with the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Seadrill (NYSE: SDRL  ) . The company has benefited from the boom in drilling activity that has resulted from high prices for oil. Yet as oil plunged well below the $100 per barrel level recently, it called into question how profitable Seadrill may continue to be in the future. Let's take a quick look at how the stock is doing so far this year.

Stats on Seadrill

2012 YTD Return 12.3%
Market Cap $16.6 billion
Revenue, Most Recent Quarter $1.03 billlion
Year-Over-Year Revenue Growth, Most Recent Quarter (5.2%)
Net Income, Most Recent Quarter $416 million
Year-Over-Year Net Income Growth, Most Recent Quarter (52.7%)
CAPS Rating (out of 5) *****

Source: S&P Capital IQ.

Why is Seadrill still thriving this year?
The key to understanding Seadrill's recent success is simple: Just look at daily contract rates for ultra-deepwater rigs. Transocean (NYSE: RIG  ) has seen average rates rise to almost $535,000 per day, and Seadrill expects those rates to rise above $600,000. In fact, Seadrill already has contracts with ExxonMobil (NYSE: XOM  ) and Royal Dutch Shell that fetch that much, as the lucrative set of deepwater discoveries off the coast of Norway, Brazil, and several West African countries has set off a gold rush to try to make rich finds and tap those resources as quickly as possible. That stands in sharp contrast to shallow-water drilling, where Hercules Offshore (Nasdaq: HERO  ) and some of its peers have suffered from low rates that have led to losses.

Still, competition is coming. DryShips (Nasdaq: DRYS  ) has slowly been selling off its stake in deepwater venture Ocean Rig, but the company will still stand with Transocean and Noble to offer alternatives for big exploration and production companies looking for rigs. Still, with the supply and demand equation the way it is right now, there's more than enough business for Seadrill and its competitors to split up equitably.

The question, though, is whether lower oil prices could threaten drilling activities. Clearly, at some price point, expensive deepwater drilling becomes uneconomical. At $80-$85 per barrel, however, oil prices would have to fall further before Seadrill hit that point. As long as energy prices can stabilize here, then Seadrill should continue to enjoy success.

Seadrill has had some good performance, but we've got another stock that we think has a better chance to deliver strong gains in the future. Read about it right here in the Motley Fool's special free report on the energy industry and its best prospects.

Click here to add Seadrill to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Transocean, ExxonMobil, and Seadrill. Motley Fool newsletter services have recommended buying shares of Seadrill. 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 Fool has a disclosure policy.

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Related Tickers

5/27/2016 4:02 PM
SDRL $3.27 Up +0.12 +3.81%
Seadrill CAPS Rating: ***
DRYS $2.19 Down +0.00 +0.00%
DryShips, Inc. CAPS Rating: **
HERO $1.02 Down -0.92 -47.42%
Hercules Offshore,… CAPS Rating: **
RIG $9.85 Down -0.06 -0.61%
Transocean CAPS Rating: ****
XOM $90.01 Up +0.21 +0.23%
ExxonMobil Corp CAPS Rating: ****