Pat McKeough responds to many personal questions on stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.
One of this week’s questions concerned energy stocks, and specifically the subject of offshore drilling. The search for new oil production depends heavily on deepwater drilling, with all its potential risks and rewards.
Q: Hi there: I would like to request an opinion on SeaDrill. Thanks.
A: SeaDrill Ltd. (symbol SDRL on Nasdaq; www.seadrill.com) is a leading offshore drilling company. Norway-based SeaDrill has a fleet of 60 drilling rigs that can operate in shallow to very deep water.
SeaDrill only started up in 2005, so it owns modern, high-quality drilling rigs that are in great demand. As a result, the company’s utilization rates are high, in the 93% to 97% range.
Like most deepwater drillers, this energy stock’s shares fell following the April 2010 explosion and sinking of the Deepwater Horizon drilling rig. BP plc (New York symbol BP) had leased the rig from Transocean Ltd. (New York symbol RIG). Its sinking caused a massive oil spill.
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Energy stocks: Offshore deposits are the future of new oil production
SeaDrill’s shares have since recovered from the low of $17.81 they reached at the end of June 2010.
The company currently pays a quarterly dividend of $0.75. That gives the shares a high 9.2% yield.
If oil prices remain high, that should spur even more deepwater drilling. That’s because new oil production will have to come mostly from offshore deposits, and new fields have been found in the Black Sea, the Mediterranean, West Africa and off the coast of Brazil.
SeaDrill would gain from that trend, but it’s also taking on a good deal of risk with high debt and its plans to grow quickly through acquisitions.
You can see Pat’s buy-hold-sell analysis on SeaDrill (and several other energy stocks) in this week’s Inner Circle Q&A.
Inner Circle members see Pat’s analysis and recommendations on the stocks other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this special investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.
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