About two weeks ago I wrote about the flurry of orders for deepwater drilling rigs that kicked off late last year. The pace has not subsided, with Daewoo Shipbuilding & Marine Engineering since pulling in three more drillship orders: two from Aker Drilling -- a Norwegian drilling contractor prepping for an IPO on the Oslo Stock Exchange -- and one from Atwood Oceanics
We've seen the ticket price for a new drillship pull back from its peak, but contractors aren't exactly getting deep value at $600 million per rig. Many of them are also willing to commit to newbuild orders without a drilling contract in hand -- something that Transocean
Are these outfits simply that bullish on the long-term demand outlook for deepwater drilling, or is there something else driving this herd-like behavior?
The folks at JPMorgan think there's something else at work. That something is a company named Seadrill
Diamond, a cornerstone of the Tisch family's Loews
The firm is popular with value and income-oriented investors, but I question whether Diamond's high returns on capital and outsized special dividends are sustainable. Looking at the age and capabilities of this contractor's fleet, I foresee significant future capital expenditure requirements in order to stay competitive with the more modern fleets of firms like Seadrill and Ensco