In a previous article I introduced income investors to John Fredriksen, self-made billionaire and a modern day Poseidon. I outlined how this humble son of a Norwegian welder worked his way up the ship-brokering ranks and eventually built one of the largest seaborne empires in the world -- with $14 billion, he's the 78th-richest person on Earth).
Fredricksen's citizenship in Cyprus, where dividends aren't taxed, is why all the companies that he has founded or taken major stakes in have sky-high dividends. This article will highlight three of my favorite Fredriksen companies: Seadrill (NYSE:SDRL), North Atlantic Drilling (NYSE:NADL), and Seadrill Partners (NYSE:SDLP). These three are among the highest-yielding offshore drillers, and they show Fredriksen's genius at creative financial deals that enable his companies to have both generous yields and solid, sustainable dividend growth.
John Fredriksen and offshore drilling: match made in heaven
The investment theses for all three companies are composed of three parts.
The first two are major global economic megatrends; the world's growing demand for oil and the subsequent boom in offshore oil drilling. The third involves Fredriksen's influence on the boards of these companies (for example, he owns 21% of Seadrill).
Consider these facts:
- According to a recent study by Morgan Stanley and Rystad Energy, by 2035 the world's demand for oil will increase by 13%-26%.
- Oil prices are expected to average $125-$150 per barrel.
- Global exploration and production budgets (from oil companies) in 2013 were about $650 billion and expected to grow over the long term. (Note the 15% compound annual growth rate over the last 11 years.)
- Ultra-deepwater, or UDW, drilling is projected to see 19% CAGR through 2030, compared to just 1% for conventional land-based drilling.