Seadrill: Finding Gold in an Oil Driller

Jul.28.08 | About: Seadrill Ltd. (SDRLF)

Bermuda based Seadrill (OTC:SDRLF) is perhaps the most overlooked driller in the world's stock markets. With the most modern fleet of 27 drilling rigs currently on contract, and 16 more newbuilds in various stages of production, Seadrill aims to be the major force in deepwater drilling by 2010. When the last newbuilds are delivered then, the average age of their fleet will be only 8.6 years, which is well below the U.S. drillers', whose average age will be about 20 years old. Seadrill seeks stable cash flow by signing long term drilling contracts (ex.) the new drillship West Polaris was recently delivered on a four year contract to Exxon (XOMN). The West Sirius rig was just delivered to Devon Energy (NYSE:DVN) on a 6 year contract.

Seadrill also owns 80% of Seawell, a separate entity that provides well services. The projected revenue of Seawell is $3,500,000 Norwegian Krone for 2008. Pareto Securities is projecting a 32% growth of revenues over the next 2 years for Seawell. Seawell is likely to grow into a substantial oil service company over the next few years.

A recently announced capital repayment plan is beginning to materialize as Seadrill recently paid a $.60 USD per share dividend for the first quarter of 2008. First quarter earnings came in at $.66 USD per share. Seadrill looks like a very attractive growth and income story. With the shares recently trading around $28 USD, earnings are projected at $3.10 USD for 2009; the stock is trading at about 9 times next year's earnings. In addition, the dividend is projected at $2 USD per share for 2008, giving the stock a current yield of 7%.

Seadrill also owns substantial positions in the following companies: Pride International, Scorpion Offshore, Apexindo, Varia Perdana, and Seawell. On May 20, 2008, Pareto Securities raised their price target from $32 to $40 USD.

Disclosure: Author holds a long position in SDRLF.PK