ConocoPhillips (COP), BP plc (ADR) (BP): What Does Seadrill Ltd (SDRL) See Under the Sea?

What Seadrill Ltd (NYSE:SDRL) does see for small and midsized companies is that these operators will look to sign short-term contracts for exploration drilling. Larger companies like BP plc (ADR) (NYSE:BP) will counterbalance this with long-term drilling campaigns. Overall, Seadrill expects oil companies to continue to increase their budgets and spending on ultra-deep water by double digits. The company sees a strong trend here which also bodes well for competitors such as Noble Corporation (NYSE:NE) and Transocean LTD (NYSE:RIG). Here, though, Seadrill sees exploration companies looking to replace older drilling rigs with the most modern equipment. Seadrill has a very young fleet with its ultra-deep-water units having been built after 2000. Overall, its fleet is still smaller than Transocean’s, which boasts 29 ultra-deep-water rigs in service while Seadrill currently has 16. However, Seadrill has a much more robust newbuild program than all of its competitors. Meanwhile, Noble sees ultra-deep water becoming a major contribution to its revenue; it’s expected to grow from 24% in 2011 to 40% of Noble’s revenue in 2015. The trend here is clear: Oil companies are increasingly looking to drill in deeper water to find oil, which means lots of future revenue and profits for contract drillers.

Foolish bottom line
Seadrill is in a prime position to take advantage of the massive growth in deep water drilling over the next few years. The company has a young fleet that it’s aggressively growing, yet prudently securing though a large backlog of contracted revenue. When you add in the company’s equally large dividend, there’s a lot to like when looking at Seadrill.

The article What Does Seadrill See Under the Sea? originally appeared on Fool.com is written by Matt DiLallo.

Fool contributor Matt DiLallo owns shares of ConocoPhillips. Matt DiLallo has the following options: Short Jul 2013 $35 Puts on Seadrill. The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill and Transocean.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.