Seeking Alpha
Profile| Send Message| ()  

Now that the price of oil is beginning to moving up, and is approaching $100 per barrel, I thought it would be interesting to review some oil and gas drilling companies. When the oil price goes up drilling companies benefit, because large energy companies increase their drilling and exploration expenditures. This article will attempt to point out drilling companies that could benefit your portfolio. The five I chose are the only ones I found to be selling at a significant discount to fair value, however one of them, Pioneer Drilling (PDC) is still a hold.

Transocean Ltd. (RIG) RIG has a market cap of $15.31 billion with a negative price- to-earnings ratio. The stock has traded in a 52-week range between $43.15 and $85.98. The stock is currently trading around $48. The company reported third-quarter revenue of $2.2 billion compared with revenue of $2.2 billion in the third quarter of 2010. Third quarter net income was $-71 million compared with net income of $268 million in the third quarter of 2010.

One of RIG’s competitors is Noble Corporation (NE). NE is currently trading around $37 with a market cap of $9.4 billion and a price-to-earnings ratio of 27.68. NE pays a dividend, which yields 1.4% versus RIG, whose dividend yields 6.3%.

RIG is one of the world’s leading offshore drilling companies. The company has been profitable in each of the last eight years but saw its 2010 net income drop by 231%. The decrease in earnings was primarily due the explosion on its Deep Water Horizon drilling rig in the Gulf of Mexico. The company continues to be plagued by the fallout from the Gulf of Mexico disaster and reported a loss of $77 million for the third quarter of 2011. The reason for the loss was higher repair and refitting cost, and a decrease in the day rates for the drilling rigs. It will probably take the company three or four quarters to refit the rigs to meet the tougher new drilling regulations. RIG still faces legal challenges as a result of the Gulf disaster but will benefit from some recent judicial decisions. I believe that RIG will eventually get its fleet fully operational and move past its legal hurdles. I think that the price of oil will soon move back over $100 per barrel and that RIG will benefit. RIG’s stock is currently near its 52-week low, and is unlikely to go much lower, in addition the company is paying a $3.16 dividend with a 6.3% yield. I believe that patient investors will be rewarded, and that RIG’s stock price will rebound. I rate RIG a buy.

Pioneer Drilling Company (PDC) PDC has a market cap of $651 million with a negative price-to-earnings ratio. The stock has traded in a 52-week range between $5.83 and $18.00. The stock is currently trading around $11. The company reported third-quarter revenue of $187 million compared with revenue of $135 million in the third quarter of 2010. Third-quarter net income was $6.7 million compared with net income of $-2.5 million in the third quarter of 2010.

One of PDC’s competitors is Helmerich & Payne Inc. (HP). HP is currently trading around $55 with a market cap of $5.9billion and a price-to-earnings ratio of 15.12. HP pays a dividend, which yields 0.5% versus PDC, which does not pay a dividend.

PDC provides oil and gas drilling and exploration services. PDC does not have a strong track record and has lost money in each of the last three years. The good news is that the company has finally gotten back to profitability, and its year-over-year third quarter net income increased by $9.32 million to $6.74 million. PDC is not an investor-friendly company and has never paid a dividend. In spite of the company’s earnings history, the stock has performed quite well. The stock is up by 55.7% over the last 52 weeks and 18% over the last month. PDC is a high beta stock and even though it is up for the year it is 40% off of its 52-week high. Buying the stock of PDC is more like a gambling than investing. If I were to invest in and oil and gas drilling company, it would be Transocean Ltd. (RIG) or SeaDrill Limited (SDRL). I rate PDC as a hold.

Atwood Oceanics Inc. (ATW) ATW has a market cap of $2.89 billion with a price-to-earnings ratio of 11.05. The stock has traded in a 52-week range between $30.64 and $48.84. The stock is currently trading around $45. The company reported fourth-quarter revenue for the period ending on September 30, in the amount of $162 million, compared with revenue of $160 million in the fourth quarter of 2010. Fourth-quarter net income was $75.2 million compared with net income of $64.2 million in the fourth quarter of 2010.

One of ATW’s competitors is SeaDrill Limited (SDRL). SDRL is currently trading around $35 with a market cap of $16.41 billion and a price-to-earnings ratio of 7.36. SDRL pays a dividend, which yields 8.7% versus ATW, which does not pay a dividend.

ATW has done a good job of increasing its earnings. The company has increased its net income in each of the last seven years. The company increased fourth-quarter net income by 17%. ATW’s stock has performed well and is up by 22.5% over the last 52 weeks and 10% over the last month. The company recently received a large contract with Chevron Corporation (CVX) and expects to continue growing earnings. ATW does not pay a dividend. ATW is well positioned to benefit from the uptrend in energy stocks, and I rate ATW as a buy.

Diamond Offshore Drilling Inc. (DO) DO has a market cap of $8.98 billion with a price-to-earnings ratio of 8.84. The stock has traded in a 52-week range between $51.16 and $81.19. The stock is currently trading around $65. The company reported third-quarter revenue of $878 million compared with revenue of $799 million in the third quarter of 2010. Third-quarter net income was $256 million compared with net income of $198 million in the third quarter of 2010.

One of DO’s competitors is Nabors Industries Ltd. (NBR). NBR is currently trading around $20 with a market cap of $5.73 billion and a price-to-earnings ratio of 14.48. NBR does not pay a dividend versus DO, which has a dividend yielding 0.8%.

DO is an offshore contract drilling company. DO is another driller that should benefit from increasing oil prices. The company’s year-over-year third-quarter revenue increased by 9.8% while its net income increased by 29%. The company’s stock price is down by 5% over the last 52 weeks but up by 9% over the last month. DO pays a modest $0.50 dividend. DO had a strong third-quarter earnings report and over the last month the stock has been trending upward. I think that the stock price will continue to trend upward, and I rate DO as a buy.

Parker Drilling Company (PKD) PKD has a market cap of $782 million with a price-to-earnings ratio of 30. The stock has traded in a 52-week range between $3.60 and $7.45. The stock is currently trading around $6.72. The company reported third-quarter revenue of $176 million compared with revenue of $172 million in the third quarter of 2010. Third-quarter net income was $20.7 million compared with net income of $492 thousand in the third quarter of 2010.

One of PKD’s competitors is Ensco Plc. (ESV). ESV is currently trading around $52 with a market cap of $12.08 billion and a price-to-earnings ratio of 17.95. ESV pays a dividend, which yields 2.7% versus PKD, which does not pay a dividend.

PKD is a drilling company that has land rigs, as well as offshore drilling rigs. The company increased its third-quarter year-over-year revenue and net income. PKD’s third-quarter earnings per share beat estimates by 38%. The company specializes in drilling in areas where there is oil shale and has seen that business increase dramatically. Investors seem to appreciate PKD’s outlook, and have bid the stock price up by 60.4% over the last 52 weeks, and 22% over the last month. The stock is near its 52-week high. With oil prices approaching $100 a barrel, the company should continue to have strong earnings and I rate PKD a buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 4 Great Oil And Gas Drillers To Consider Buying, 1 To Avoid