Drilling for Deep Sea Gold
Moustafa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Seadrill (NYSE: SDRL) seems to be the kind of company famed investor Peter Lynch would be all over in his heyday. The company has a simple story, is in an industry that isn't glamorous and has a management team that is led by one of the most successful men in his industry John Fredriksen. Fredriksen may not be a household name inNorth America or a celebrity CEO, but he is a self made billionaire and according to Forbes magazine the 75th wealthiest person in the world with a net worth o 11.3 Billion dollars. Fredriksen is a shipping magnate who owns various shipping companies, oil tankers and Seadrill, a deepwater oilrig company.
In the most recent economic downturn shipping has been hit especially hard as theU.S.economy has a slow recovery, Europe has multiple severing debt crises, and there is a slow down inChina. Even with these difficulties, the price of oil has remained strong causing companies to continue to search for it in harder to find regions. As technology advances the ability to extract oil, the harder to reach places become much easier. Deepwater drilling has continued to grow, though the most recent disaster in theGulf of Mexicoslowed the growth of the industry, worldwide it has expanded. From the artic toBrazil, companies continue to go deeper and deeper in search of oil.
Seadrill has continued to flourish, operating the newest fleet of deepwater drilling rigs in the industry. The big player in the game is Transocean (NYSE: RIG) Some see this stock as undervalued as they have been dealing with regulatory issues in the gulf of Mexico and incurring high maintenance costs while they have to keep heir rigs out of service during the upgrade process. The costs weighing on Transocean as they maintain and upgrade their fleet of rigs is not an issue with Seadrill. Seadrill has a much more up to date fleet, which allows them to have much lower maintenance and repair costs. Additionally, Seadrill has been able to charge upwards of $500,000 a day to rent their deepwater drilling rigs to their clients and as long as the price of oil stays strong, they will be able to continue to charge these sums if not more.
As deepwater drilling grows, Seadrill is poised to capture a good portion of the market share with their advanced fleet and experienced management team. Obviously any major disasters that could arise would hamper their business, but going forward I feel that Seadrill is in the perfect position to become a big player. They have the management team; they have the tools and are in a potential growth sector in the oil industry. I see this company being a big gainer in the next 3-5 years.
mooseelz has shares in Seadrill. The Motley Fool owns shares of Transocean, and Seadrill, Ltd. Motley Fool newsletter services recommend Seadrill, Ltd.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.