Out Fox The $treet

Transocean reached yearly highs last week. The recent production cuts agreed to by oil producers around the world shift drilling towards domestic shale producers. The deepwater drilling market still remains far from a recovery as Transocean continues to face a declining backlog. On the back of more oil production cuts,  Transocean (NYSE: RIG )  soared to multi-year highs this week. The news though has questionable benefits for the offshore drilling market. The stock traded at a high of $16.66 to start the week, but Transocean is closing down for the week around $15. The question now is whether investors are rushing into the sector on false hopes. Read the full article on Seeking Alpha.  Disclosure: No position. Please review the disclaimer page for more details. 

Summary Transocean reported a huge Q1'15 beat. The deepwater driller produced impressive revenue efficiency and cost controls for the quarter. The significant revenues obtained from midwater and deepwater floaters are a major concern going forward.    After endless news of scrapping rigs and CEO changes, Transocean (NYSE: RIG ) finally reported some good news. The deepwater driller entered the industry downturn with an outdated fleet and management has slowly reacted to the predicament. The Q1 results provide some hope for a turnaround due to solid operational improvements.  Read the full article on Seeking alpha.  Disclosure: No positions mentined. Please read the disclaimer page for more details.

The July fleet status report for Transocean, Ltd ( NYSE: RIG     ) again provides an example of why the historical leader in the deepwater drilling sector is no longer the best investment going forward. The deepwater driller famously uses the website deepwater.com for its corporation, but it continues to struggle with old rigs in a market that demands the most modern capabilities. Read the full article here . Disclosure: Long SDRL. Please review the disclaimer page for more details. 

In a surprise move, offshore driller Seadrill Limited ( NYSE: SDRL     ) raised its dividend in the face of a difficult market for new contracts. The company even faced some operating issues during the first quarter, yet that didn't prevent solid earnings and cash flows from supporting the dividend. At the time, investors couldn't grasp the 11% dividend considering the large debt load and 19 newbuilds under construction in a tough offshore drilling market. The stock has now rallied, and investors need to understand that the bifurcation of the market provides long-term stability for a company with limited rigs older than 10 years. Companies with older rigs like Transocean ( NYSE: RIG     ) face a tougher road with limited contract coverage for 2015, so why is the market still allowing Seadrill to pay a high 10% dividend yield? Read the full article here . Disclosure: Long SDRL. Please read the disclaimer page for more details.

For the first quarter, Transocean Ltd ( NYSE: RIG     ) generated earnings that smashed analyst estimates. The offshore driller, which has struggled since the Macondo accident and is plagued with old rigs, put together one of the best quarters in years. For offshore drillers, two key metrics dictate the level of profits: revenue efficiency and fleet utilization. In the case of Transocean, revenue efficiency hit 95.7% to reach the highest level since 2008. Fleet utilization is still struggling at 78%, but the level is high enough to produce huge profits. Read full article here . Disclosure: No positions mentioned. Please read this disclaimer page for more details.

Over the last several months, several analysts have come out with dire warnings of a further plunge in shares of deepwater drillers. The market, which had already soured on the sector from several warnings of a pause in demand for offshore drilling in the deepest areas, is questioning the timing of the analyst calls. The cyclical offshore-drilling market faces an interesting dynamic of customers rethinking capital projects while oil and natural gas prices sit near recent highs. On top of that dynamic, a bifurcation is occurring in the market where the newest high-specification rigs remain in solid demand while the oldest rigs face idle time and the potential for being cold-stacked or dismantled. Read the full article here . Disclosure: Long SDRL. Please review the disclaimer page for more details. 

The debate over the current slowdown in the deepwater market covers a wide range of opinion regarding the duration and impact. Regardless of an investor's ultimate opinion, the offshore drilling sector always faces cyclical troughs and peaks. The key is the ability of the driller to take advantage of weakness and thrive during the following rebound. In the case of Transocean ( NYSE: RIG     ), the company is the largest deepwater driller with 79 rigs in total and 46 of those listed as either deepwater, ultra-deepwater, or harsh environment. The deepwater specialist is now facing a bifurcated market that it is quickly finding itself on the wrong side of the contract ledger. On top of that, Carl Icahn is pressing the company for changes, but his actions can't fight industry momentum. Idled rigs in a weak market might is never a good thing, but will the stock continue to plunge? Read the full article here . Disclosure: No positions mentioned. Please review t...

While Seadrill ( NYSE: SDRL     ) confirmed that exploration and production firms had recently cut back on capital spending budgets for 2014 due to escalating costs, the company actually sees a very positive scenario on the future outlook. Other deepwater drillers have speculated that the pause to drilling growth is needed for crews and suppliers to catch up with demand in order to refresh the market. Seadrill actually predicts the pause is greater undersupply of rigs by 2016. Seadrill is a leading deepwater driller with a focus on aggressively building out new rigs for what it forecasts as a major undersupply in rigs by 2020. Ironically, fellow deepwater driller Transocean ( NYSE: RIG     ) expects a weak market yet recently ordered two ultra-deepwater drillships. Read the full article here. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

After reporting earnings on Jan. 22, investors continue to sell off shares of Noble Corp  ( NYSE: NE     ) due to fears of a cyclical downturn in the previously robust offshore drilling market. The company is busy completing a newbuild program that will modernize the fleet while at the same time spinning off the older standard assets into Noble Spinco. The spinoff will help focus the company into two separate companies with different objectives to benefit shareholders, but the old assets might lose significant value in a cyclical downturn. The stock sold off on the news of an industry pause, but people appear to be missing the extreme valuation and the limited slowdown forecasted by management of Noble. In addition, the suggested pause probably has a different impact on companies with a young fleet of premium, high-specification rigs such as SeaDrill ( NYSE: SDRL     )  as opposed to companies with older fleets such as  Transocean ...

Prior to June 5, Helmerich & Payne (NYSE: HP ) was seen as a solidly run contract drilling firm with a small dividend. The company made a surprising announcement that it would dramatically increase the yield making the stock interesting for the yield now. Or maybe it wasn’t that surprising considering the expected influx of cash and a strong balance sheet. The company operates primarily as a contract drilling firm with more » Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Anybody following the offshore drilling market knows that CEO Fredrik Halvorsen of Seadrill Limited ( SDRL ) is an aggressive operator. Not only does the company pay substantial dividends unlike the competition, but it also continuously wheels and deals rigs, divisions, and subsidiaries. The company is a leading offshore deepwater drilling expert with a fleet of drillships, jack-up rigs, and semi-submersible rigs operating in Northern Europe, U.S. Gulf of Mexico, Mexico, South America, West Africa, Middle East, and Southeast Asia. The company owns positions in numerous other drilling oil services firms including 75.7% of Seadrill Partners ( SDLP ) that alone is worth nearly $1 billion. Read the full article at Seeking Alpha. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

It used to be that growth stocks traded at 1x the earnings growth rate. A stock growing at 10% with earnings forecasted at $2 would trade at $20 and in some cases up to 2x that growth rate. In the current climate a stock such as Atwood Oceanics (NYSE: ATW ) can trade at virtually half the growth rate. The company is an under-the-radar global offshore deepwater drilling contractor engaged in more » Disclosure: Long ATW. Please review the disclaimer page for more details. 

As the deepwater drilling market rebounds strongly, it remains interesting that the once unquestioned leader continues to struggle. After all, the company even uses deepwater.com for their official website. Everybody knows that Transocean (RIG) has been hit hard since the Macondo accident back in April 2010. While that incident initially set the company back, the stock rebounded sharply at the end of 2010 and the start of 2011. Investors buying the stock though weren't paying attention to their aging fleet. The company engages in offshore contract drilling services for oil and gas wells worldwide with a primary focus on deepwater and harsh environment drilling. Read the full article at Seeking Alpha. Disclosure: Long ATW. Please review the disclaimer page for more details. 

On Monday, Seadrill (SDRL) highlighted on the Q2 earnings call that deepwater drilling remains a very hot sector with limited available rigs for the next couple of years. This was a theme highlighted at the beginning of the year as drilling in the Gulf of Mexico had picked back up. The company provides offshore drilling services to the oil and gas industry worldwide. Its services include drilling, completion, and maintenance of offshore wells; production drilling and well maintenance; and well services. The company owns a fleet of offshore rigs and has 18 new builds under construction. While the adjusted earnings slightly missed estimates, Seadrill continues to see huge demand for its rigs and tightness in the market for the next few years. The company has one of the youngest fleets in the industry and continues to benefit from an aggressive new build program. Read the full article at Seeking Alpha. Disclosure: Long ATW. Please review the disclaimer page for more details.

On Friday, Pacific Drilling (PACD) announced a 5-year contract for the Pacific Sharav that amounts to over $1B in revenue. According to the presentation at Global Hunter Securities, the dayrate amounts to $555,000 for the term. The deal was hinted at during the Q112 earnings report so possibly the terms shouldn't be used to read too much into the current strength of the deepwater markets. Worth noting though is that the rig won't be delivered until the fourth quarter of 2013. With its best-in-class drillships and highly experienced team, Pacific Drilling is a fast growing company that is committed to becoming the industry's preferred ultra-deepwater drilling contractor. Pacific Drilling's fleet of seven ultra-deepwater drillships will represent one of the youngest and most technologically advanced fleets in the world. The company currently operates four recently delivered drillships, has two additional drillships under construction and one on order at Samsung. Read ...

Raise your hand if you realized that by early 2012 there will be more deepwater rigs in the Gulf of Mexico than when the BP spill occurred. According to ODS-Petrodata, 40 deepwater rigs will be in the Gulf compared to 37 before the spill. As an investor and especially one that has invested in the sector, this news caught my attention as something the general investing public doesn't understand yet. So what stocks will be able to take advantage of this trend in 2012? First, companies that focus on drilling deepwater wells in the Gulf could benefit the most with the rising demand and possibly less competition as many rigs fled the area. Second, any companies in the deepwater segment should benefit with rising sector demand and higher global utilization lifting all day rates regardless of location. Read the full article at Seeking Alpha. Disclosure: Long ATW. Please review the disclaimer page for more details.

Transocean (RIG) used to be regarded as the top deepwater driller in the world. Its stock was considered a must-wn large cap in the energy sector. All that changed for the worse with the dramatic blowout of the Macondo well in 2010. Unfortunately, what seemed like an isolated event was just the beginning of a downward spiral for shareholders. Since then RIG continues to have problems meeting analyst estimates. On top of that, RIG just announced a shocking share issuance of up to 30M shares that pushed the stock down to 7 year lows. Yes, lows greater than from the financial crisis of 2008 and lows greater than 2010 lows after the explosion. Both those lows were eclipsed. How can Brent oil exceed $110 and a former premier driller be making a run at new lows? Other drillers such as Noble Drilling (NE), Atwood Oceanics (ATW), and SeaDrill (SDRL) are all currently attempting to claw their way to 3 year highs. Read the full article at Seeking Alpha. Disclosure: Long ATW. Please rev...