Undervalued Oil And Gas Drillers With Dividends And Growth

Includes: ESV, NE, RIG, SDRL
by: David Zanoni

The leading offshore oil and gas drillers have a few good things going for them in the form of undervaluation, dividends, and above-average expected earnings growth. The barriers to entry are high in this industry due to customers seeking drillers with strong track records and the challenge of new companies to obtain financing. The offshore drillers have good backlogs to drive future growth. Currently, these companies are seeing rising backlogs and upward pressure on day rates.

Here is a comparison of the leading oil and gas drillers:

SeaDrill (NYSE:SDRL)

Ensco plc (NYSE:ESV)

Noble Corp. (NYSE:NE)

Transocean (NYSE:RIG)

Forward PE Ratio





PEG Ratio





Price to Book Ratio





Dividend Yield





Profit Margin





Operating Margin





Operating Cash Flow

$1.78 B

$1.92 B

$1.23 B

$2.35 B

Total Cash

$764 M

$159.8 M

$218.47 M

$6.01 B

Total Debt

$11.67 B

$4.87 B

$4.64 B

$14.13 B

Debt to Equity





5- Yr. Expected Annual Earnings Growth





SeaDrill Limited, a leading offshore deepwater drilling company, has a market cap of $18.2 billion. The company operates a fleet of 67 drilling units, which is made up of drill ships, jack-up rigs, semi-submersible rigs, and tender rigs for operations in shallow and deep water. It operates in benign and harsh environments and has a backlog of $21.3 billion.

SeaDrill pays a sizable dividend of 8.8%. It has been increasing the total annual dividend payouts every year since 2009. SeaDrill has committed to provide shareholders with competitive returns. One thing to be aware of is that the dividend payment of $3.40 per share eats up nearly 90% of the company's operating cash flow. This leaves 10% of $1.78 billion, or $178 million left to invest to expand the business. Despite this scenario, the company remains committed to raising the dividend. SeaDrill says that this is possible by growing its rig fleet, and with improving day rates across its drilling units.

Ensco plc is a $13.69 billion global provider of offshore drilling services. The company operates across six continents with 9 drillships, 20 semisubmersibles, and 46 premium jackups. Its rigs have drilled complex wells in major offshore basins around the world.

Ensco has been rated number one in customer satisfaction by Energy Point Research Inc. The company invests significantly in the expansion and enhancement of its fleet of drilling ships and in its new-build construction. Ensco has a contract backlog of $9 billion.

Noble Corp. is a $9 billion offshore drilling company in its 91st year of operation. It operates a fleet of 14 semisubmersibles, 14 drillships, 49 jackups, and two submersibles. Noble has the following under construction: 5 ultra-deepwater, harsh environment drillships and 6 high-specification, heavy duty, harsh environment jackup rigs. The company operates in the Gulf of Mexico, Alaska, Mexico, Brazil, the North Sea, the Mediterranean, West Africa, the Middle East, India, Australia, and the Asian Pacific.

Noble is seeing stability in the global offshore drilling market. This is due to a positive long-term outlook for commodity prices and has contributed to improved dayrates for deepwater rigs worldwide. Market dayrates for new ultra-deepwater units have exceeded $500,000, which is higher than recent years. As of the end of September, Noble had a backlog of approximately $14.8 billion.

Transocean Ltd. is a $16.76 billion offshore drilling contractor for oil and gas wells. The company specializes in technically demanding sectors of the drilling business with a focus on deepwater and harsh environment drilling services. It operates 48 high-specification floaters, 25 midwater floaters, and 9 high-specification jackups. Six ultra-deepwater drillships and three high-specification jackups are under construction.

Transocean is expecting dayrates to improve modestly into 2013. It expects commodity prices and its customer's exploration and production programs to continue to support contracting opportunities for the drilling fleet into 2013. As of October 17, 2012, Transocean had a backlog of $29.7 billion.


With improving dayrates, under-valuations, dividends, and above-average earnings growth, the offshore oil and gas drillers look like a solid investment for the long term. With growing backlogs and a positive outlook on long-term commodity prices, these drillers should perform well for the long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.