Thursday, October 11, 2012

Comparison of offshore oil and gas drill contractors

About two yeas ago Seeking Alpha published my blog post titled The End Of Oil's Golden Age. That was my first article with them and so far the only one that have made to editor's picks list. I recommend reading it as a background for my interest in oil and gas sector and drilling contractors in particular.

Back then, the offshore drill contractors and rig owners popped up in my stock screens often since they (then) got the right stuff: Growing revenues, relatively low debt burden, excellent margins, low valuations in terms of P/E, P/B and price per cash flow. Back then I took a look at four companies listen in USA: Transocean (RIG), Diamond Offshore Drilling (DO), Noble Corporation (NE) and Atwood Oceanics (ATW). Since then I have added Seadrill (SDRL) and Ensco (ESV) to my list of companies to follow from this sector.

Summary of selected offshore drill contractors listed in USA (data source:

Compared to Fred Olsen Energy (listed in Oslo, Norway) these companies are much larger apart from Atwood Oceanics, which is of same size in terms of market cap. Compared to two years ago the debt burden of many companies have grown considerably. They seem to take advantage of low interest rates and have ordered new deep water drill ships and rigs.

Fred Olsen Energy compares quite favorably to these companies. It has lower P/E (2011) and far better ROE (Return on equity). P/B on the other hand is on the high side while P/S on the low side. Debt burden is about average (0.7x equity). Seadrill has by far the most long term debt (1.5x equity). That's too much for my taste. ATW, DO and ESV have least long term debt per equity (between 0.3 and 0.4 times equity).

Dividend yield isn't particularly good in the companies listed in USA. Only Seadrill offers excellent dividend at 8.6%. The next best, Ensco, is expected to pay 2,7%. These estimates, listed in, seem to assume that last year dividend level is kept also next year.

I used to hold some Noble Corp. stock, but sold that at some point of time. I continue to hold Fred Olsen Energy (see previous post).

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