An Overview of Deepwater Drillers (RIG, SDRL)

While oil prices are still way off their highs of early 2014, the commodity has shown signs of recovery from the lows of 2016 over the past year. In February of that year, Brent crude oil spot price dropped to a 10-year low of about $29.8 per barrel, but it now hovers around the $50 per barrel region. The oil market recovery is good news too, not just to major oil companies, but to drillers as well. Deepwater drillers will particularly be breathing a sigh of relief. Deepwater drilling usually comes with higher costs because of the increased difficulty of accessing oil in deepwater areas. With oil on the up again, it’s a good time to take a look at deepwater drillers.

Based in Vernier, Switzerland, Transocean Ltd. (RIG) is primarily involved in the contracting of drilling rigs, associated equipment and workforce for the drilling of oil wells. It particularly targets drilling in deepwater and harsh environments. As of February 9 of this year, Transocean had 56 rigs, including “30 ultra‑deepwater floaters, seven harsh environment floaters, three deepwater floaters, six midwater floaters and 10 high‑specification jackups.” It also had nine rigs under construction as of February 9 – four ultra-deepwater floaters and high-specification jackups. Transocean operates four market sectors including ultra-deepwater, deepwater, midwater and jackup. Its ultra-deepwater floaters are able to drill in water depths of 7,500 feet or deeper.

As with most companies operating in the oil and gas space, Transocean has seen its revenue dip since the 2014 oil market dip. Its revenue has dipped by about 61% since the close of 2013, with its stock since dropping by over 81%. It’s worth noting that Transocean’s struggles had started before the 2014 oil market dip. The company was implicated in the 2010 Deepwater Horizon oil spill, in which one if its rigs, leased to BP PLC., exploded. Before the spill, its revenue declined in 2009 due to “reduced drilling activity associated with stacked and idle rigs and reduced operating activity associated with our integrated services.” Since the end of 2008, its revenue is down by roughly 69% and its stock down by over 80%. (For more, see also: Transocean Issues $625M Bond on Drillship.)

Seadrill Limited (SDRL) is mainly an offshore drilling contractor, which owns and operates drillships, semisubmersible and jack-up rigs used in drilling oil in water of various depths as well as in gentle and harsh environments. As of April 21 of this year, the offshore driller had 38 offshore drilling units including seven drillships, 12 semisubmersible rigs, and 19 jack-up rigs. It also had contracts for the construction of 13 offshore drilling units as of April 21. (For more, see also: Seadrill vs. Transocean: How Long Can They Survive Low Oil Prices?)

Owing to the oil market blip, Seadrill has seen its revenue drop by roughly 46% and its stock price drop roughly 99% since the end of 2013. Seadrill runs three operating segments including floaters, jack-up rigs and a third segment tagged “other.” Its floaters segment deals with drilling contracts in deepwater areas. This segment generated about $2.2 billion in revenue in 2016, down from about $2.9 billion in 2015 and roughly $3.4 billion in 2014. 2017 hasn’t been kinder, with the floaters segment recording an operating revenue of $369 million in the first quarter, down from $616 million in Q1 2016.

Based in Houston, Texas, Diamond Offshore Drilling Inc. (DO) is predominantly an offshore driller, owning a fleet of 24 offshore drilling rigs, according to its most recent 10-K filing. These rigs include four drillships, one jack-up rig and 19 semisubmersible rigs.

Diamond Offshore, has seen its revenue dip by about roughly 48.5% since the end of 2013. During that time, its stock has dipped by over 80%. The Houston-based company routinely includes a table of its contract drilling backlog in its 10-K filing. The values of its backlogs since the oil market blip look significantly different from before the blip. The two tables below, gotten from its 10-K filings, shows its contract backlog by year as of Jan. 1, 2017 and Feb. 5, 2014.

The difference in the values of the backlog here spells just how much the oil market dip has affected Diamond Offshore.

There are other deepwater drillers not included here. Some of them, for instance, Schlumberger NV (SLB), Baker Hughes Inc. (BHI) and Halliburton Co. (HAL), are much bigger companies, offering several oilfield services other than deepwater drilling. These companies usually don’t report their deepwater drilling activities in great detail.