Tags: SeaDrill | SDRL | oil | drilling

SeaDrill Sticks with Global Oil Exploration

By    |   Wednesday, 28 Sep 2011 04:07 PM

In the current stock market environment, it is rare to see a company with a high dividend yield and plans for big growth. SeaDrill Limited (SDRL) is a company with such plans. Over the last several years the strategy has worked, so a close look at the stock is warranted.

As the company name clearly implies, SeaDrill provides offshore drilling services in the form of leasing drill ships, jack-up rigs, tender rigs, and semi-submersible rigs for shallow to deep water oil drilling and pumping. The SeaDrill fleet currently consists of 33 vessels and rigs.

The drill rig business is a high-cost, high-margin business — as long as the rigs stay leased out. As one of the largest rig operators, SeaDrill has been able to keep its rigs leased and earning money. As an example, for the second quarter of 2011, SeaDrill reported net operating income of $430 million on revenues of $995 million. Quarterly revenues and net income tend to fluctuate quite a bit, but you can see the high level of profitability.

Pumping dividends

In the first quarter, the company increased what it calls its sustainable dividend rate to 70 cents per share quarterly, up from 67.5 cents at the end of 2010. Then the SeaDrill board added on an additional 20 cents for the year, bringing the current dividend rate to 75 cents. This is a significant rate increase from the 50 to 60 cents paid in 2008 and 2009.

SeaDrill continue to aggressively increase the size of its fleet. The company currently has 17 new vessels and rigs on order and under construction. Although the company is not averse to selling a rig if the profit is good, the revenue generation capacity of SeaDrill will increase by about 50 percent over the next several years. The growth comes at a time when less well financed competitors are having trouble obtaining financing for new rigs.

The most recent analyst discussion on SDRL is from Arctic Securities ASA, where analyst Kjetil Garstad upgraded the stock to a buy. He noted both the very attractive dividend rate and growing fleet. The company reports next on Nov. 30.

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In the current stock market environment, it is rare to see a company with a high dividend yield and plans for big growth. SeaDrill Limited (SDRL) is a company with such plans. Over the last several years the strategy has worked, so a close look at the stock is...
SeaDrill,SDRL,oil,drilling
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2011-07-28
Wednesday, 28 Sep 2011 04:07 PM
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