MLPs: The New Rage in Offshore Drilling

The master limited partnership, or MLP, structure has been popular in the energy pipeline and drilling business for years and is making its way to the offshore drilling business as well. A little more than a year ago, Seadrill (NYSE: SDRL  ) spun off Seadrill Partners (NYSE: SDLP  ) , an MLP that took on drilling rigs.

Early on, Seadrill Partners only owned two semisubmersible rigs, one drillship, and one tender rig. Since then, two more tender rigs have been added to the MLPs assets and more will be pushed down in years go come.

The energy industry prefers the MLP structure because companies can avoid paying taxes, instead passing distributable cash flow on to investors. This also gives investors looking for income an attractive way to play the drilling business.

Today we learned Seadrill will likely get a new competitor in the MLP business.

Transocean eyes an MLP
Activist investor Carl Icahn has been pushing driller Transocean (NYSE: RIG  ) to not only return more capital to shareholders, but also adjust its structure to include an MLP. The company said today it agreed to do both and will spin off an MLP in mid-2014.  

We don't know exactly what assets Transocean will push down to its MLP but this will give investors another investing option in drilling.

More to come?
We haven't heard from other drillers like Noble, Diamond Offshore, or Ensco, but I wouldn't be surprised to see more MLPs hit the market in coming years. The structure would allow offshore drilling companies to expand more quickly by tapping new shareholders. With focused assets, they often come with a lower cost of capital as well.

Until more MLPs come public there are still great dividend options in the drilling business. Seadrill pays a hefty 7.9% dividend to investors, and after upping its dividend to $3 per share today Transocean now yields 5.4%.

Seadrill's majority-owned North Atlantic Drilling will also hit the market soon, filing for an IPO just this morning. If it's anything like its parent the company will come with a big payout for investors looking for a harsh environment drilling investment.  

9 top notch dividend stocks
Long-term, dividends can result in market crushing returns for patient investors. Our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (0) | Recommend This Article (1)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2721844, ~/Articles/ArticleHandler.aspx, 9/22/2014 4:36:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement