I have mentioned in several articles (view the most recent here) that SeaDrill’s (SDRL) modern fleet of oil drilling rigs gives the company a strong moat in the industry. SeaDrill also acts to defend and even expand this moat as it continues to build up its fleet with even newer offshore rigs. This article will take an in-depth look at this fleet so that investors can better understand the moat that they are purchasing.
As of February 24, 2011, SeaDrill owns and operates the following oil rigs (click to enlarge image):
SeaDrill owns and operates 56 rigs, 23 of which were built in 2009 or later. SeaDrill also has an additional eleven rigs that were constructed in 2008. Thus, more than half of the company’s fleet is less than three years old. This is newer than the fleets of any of SeaDrill’s major competitors.
As the chart above shows, SeaDrill is also constructing new offshore rigs for its fleet. The company remains committed to keeping this fleet at the cutting edge, which has two advantages:
- As governments impose higher safety and environmental regulations on the industry, newer rigs have an advantage as they are more likely to meet these requirements.
- The company can more easily drill for oil in hard-to-reach areas or harsh environments compared to its competitors. This is a significant advantage going forward.
West Alpha, West Venture, West Phoenix, West Navigator, West Epsilon, and West Elara are all owned by North Atlantic Drilling Ltd., a spinoff from SeaDrill in which SeaDrill owns 75% of the shares outstanding. The tender rigs T3, T6, T9, T10, and Teknik Berkat are owned by Varia Perdana Bhd, in which SeaDrill owns a 49% stake.
It is worth noting that these are among the oldest offshore rigs in which SeaDrill owns an interest and so removing them from the analysis (since SeaDrill is not the majority stakeholder in any case) makes SeaDrill’s wholly owned fleet appear to be even newer. I have not done that for my analysis, however.
There is strong geographic diversification here as SeaDrill has at least one offshore rig operating on every continent except for Australia and Antarctica. There have been several articles written on this site relating to or mentioning difficulties being experienced by the industry in the Gulf of Mexico. That is a nonissue with SeaDrill. The company has only one offshore rig in the U.S. Gulf of Mexico and has no other interests anywhere in North America.
A few companies that it holds investments in do, however, have operations in the United States and the Gulf of Mexico. SeaDrill thus provides oil drilling investors with an excellent opportunity to put their capital to work outside of the U.S. and Canada.
Note: The table above does not include rigs currently under construction.
West Alpha, West Venture, West Phoenix, West Navigator, West Epsilon, and West Elara are receiving part of their dayrates in Norwegian kroner (NOK). The table above assumes a NOK/USD exchange rate of 5.8. This should offer investors a partial hedge if the dollar declines against the Norwegian krone. In a similar vein, West Setia and West Vencedor receive part of their dayrates in euro.
As these two rigs account for such a small percentage of SeaDrill’s revenues, any currency gains here caused by euro appreciation against the dollar will be negligible. West Eminence, West Orion, and West Capricorn receive part of their dayrates in Brazilian real. This would have the same effect and could slightly boost earnings if the dollar declines appreciably against the Brazilian real. SeaDrill should not be thought of as a play against the US dollar – rather, it is a growth and dividend play on the offshore drilling industry.
See SDRL fleet data here.
Disclosure: I am long SDRL.
