8.22% Dividend Payer SeaDrill Is Growing Well In A Growing Market
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SDRL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
The deep-sea drilling market is finally starting to come back after the Macondo disaster of 2010 and the recession of 2008-2009 which saw oil prices fall to the $30/barrel range. Oil prices, especially Brent prices are much higher now at around $110/barrel. Brent prices are the most relevant to most deep-sea drilling. The day rates have finally returned to (and sometimes exceeded) the day rate highs of 2008. Companies are going deeper for oil. However, after the above cited events, there have been few new entrants into the deep-sea drilling market. On top of that, the shipping market has been down, so there has been little competition for new shipbuilding. This means that the existing competitors are getting new, high tech ships built at bargain basement prices. It means they are the ones acquiring the new business. An ultra deep water drillship can be purchased (usually years in advance of its availability) for approximately $650 million. The current day rate is about $600,000 for such a ship. If you estimate operating expenses at about $200,000 per day, a drillship should bring in about $400,000 per day in income. Assuming 95% utilization, an owner can earn about $694 million in five years. This will pay for a drillship that has a useful lifetime of about 25-30 years. The participants in this market should be very profitable for many years. The chart below shows the historical day rates for ultra-deepwater rigs. READ FULL ARTICLE HERE