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
Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitteror RSS. 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 owns shares of Diamond Offshore, Ensco, and Transocean. The Motley Fool has a disclosure policy.