Seadrill Ltd (SDRL): Three Ways to Profit From Offshore Drilling

The Macondo oil rig disaster caused a temporary cessation of new oil exploration in the Gulf of Mexico. Since the moratorium was lifted, the Gulf has become a hotbed of exploration activities. With this new activity, there’s money to be made and here are three companies to consider.

Young fleet, big orders

Seadrill Ltd (NYSE:SDRL) owns and leases drilling ships (or units) used to tap into offshore oil and natural gas reserves. The company claims to have the youngest fleet in the world. At last count, the company operated 62 units of all sizes and capabilities with 19 more under construction. Even better, the units under construction are also under contract. These units not only operate in the Gulf of Mexico, but across the globe with particular activity in Asia.

As an investment, Seadrill Ltd (NYSE:SDRL) offers both income and capital gains. After disappointing earnings in 2012, Seadrill recently reported the best quarterly results in its history. Revenue, cash flow, and operating profit all increased over the previous quarter’s results. The dividend also increased. Long-term debt and income taxes declined. These results reflect, among other things, correction of some technical problems seen in one class of rigs. During its earnings conference call, Seadrill management announced $19.1 billion in backlog to further support future earnings and dividends.

The stock currently sells around 18 times earnings, but with a Price to Earnings Growth ratio of 0.70. The dividend yields about 8%. The stock has been languishing for most of the past 12 months, but since late June, it has moved upward from $39 a share to about $43 a share. With a growing global demand for oil, Seadrill Ltd (NYSE:SDRL) stock looks well-positioned to move higher.

One by air, another by sea

Whether exploring for oil and gas or producing it once discovered, offshore platforms need support services. Two support companies to consider are Bristow Group Inc (NYSE:BRS) and GulfMark Offshore, Inc. (NYSE:GLF).

Bristow provides helicopter-based transportation services for offshore energy sites and boasts 50 years of experience doing so. The company primarily transports people, but time sensitive equipment can also be delivered. Additionally, Bristow Group Inc (NYSE:BRS) offers helicopter pilot instruction and search and rescue operations. Its scope of operations is world-wide, offering transportation services in Australia, Africa, the North Sea, as well as the Gulf of Mexico.

Bristow Group Inc (NYSE:BRS)’s revenue comes primarily through fixed contracts, with a smaller revenue stream from hourly fees that can vary with the client and need. Another feature of Bristow’s revenue is that roughly 60% of its business centers on producing wells with the rest serving exploration, development, and other offshore activities. These revenue sources help ensure steady income. A recent development is the signing of a search and rescue contract with the United Kingdom, which Bristow estimates will generate roughly $1 per share of earnings by 2018.

The stock currently trades at around 19 times earnings and a Price to Earnings Growth ratio of about 1. The company projects 10%-15% earnings growth for the next three to five years. The search and rescue contract with Her Majesty’s government should provide even more earnings. Even better, the dividend, currently 1.4% or so, has steadily increased over the past two years and the company also plans a share buyback plan for 2014.

For heavy or less urgent transportation services, ships do the job and GulfMark Offshore, Inc. (NYSE:GLF) operates ships just for these purposes. The company’s fleet includes supply ships that deliver people, drilling supplies, and other materials to offshore platforms. Other ships perform anchoring and towing functions or highly specialized functions such as seismic data gathering. If you need something in a hurry, GulfMark operates fast supply ships to do just that.