Overall, offshore drilling is benefiting from a lack of easy-to-extract oil on land. Offshore rig owners SeaDrill (NYSE:SDRL), Transocean (NYSE:RIG), and Noble Corp. (NYSE:NE) are three of the leaders in the industry, and Noble said recently that demand translates to the bottom line.

Last week, Noble announced third quarter earnings, which showed a 22% jump in revenue to $1.08 billion and a 146% increase in net income to $282.0 million, or $1.10 per share. Even after adjusting for a $63 million gain on a rig sale the results were very strong.  

One of the biggest drivers of revenue growth was the beginning of operations for ultra-deepwater drillships Noble Don Taylor and Noble Globetrotter II. Don Taylor started a contract that runs through February 2019 for $489,000 per day and Globetrotter II will began earning $460,000 per day for the first five years of a 10-year contract. To put the impact in perspective, at full utilization they could earn $346 million per year in combined revenue. That's about a 10% increase on last year's revenue.  

When combined with Noble's other drillships, which are commanding stronger dayrates than a year ago, the segment saw a 57% jump in revenue.

Ultra-deepwater trends should be similar at SeaDrill and Transocean as well. SeaDrill will receive three more ultra-deepwater rigs this year and another four next year. Transocean has six ultra-deepwater rigs under construction and is commanding extremely high dayrates. A five-year contract signed last week with Chevron will pay the company $599,000 per day, near the top of what rig owners are commanding now.

Is there trouble brewing offshore?
The addition of ultra-deepwater rigs will add to revenue, but it also presents a risk of unbalancing supply and demand. Right now, there's more demand than supply of ultra-deepwater rigs, which is keeping dayrates extremely high. And we may see demand continue to outpace supply if new oilfields continue to be found around the world.

A recent presentation from SeaDrill, citing Rystad Energy's work, predicted that the current global fleet of 256 floating drill rigs will increase to as much as 358 by 2020, but the market may demand 455 rigs. There's an opportunity to double the number of rigs being built by then.  

More than just deepwater
Ultra-deepwater is the long-term driver of growth, but shallow water is seeing improvement as well. Noble's jackup rig utilization was up to 94% from 83% a year ago and average dayrate jumped from $97,857 to $112,414. Overall, that's 27% revenue growth in a segment that's still nearly twice the size of drillships right now.

Bullish news for investors
Noble's results show progress in ultra-deepwater and SeaDrill and Transocean will likely show the same. Dayrates have continued to hover around $600,000 for newbuilds and as each company adds to their fleet they'll see both revenue and net income growth.

But neither SeaDrill or Transocean will see the same impact from the jackup market. Transocean recently sold most of its jackup fleet and SeaDrill has always concentrated more heavily on deep water. Short-term, that may mean Noble can outgrow both companies but long-term it's the right strategy for investors.