The Best Stock Among Oil Drillers

Slowly but surely offshore drill rig owners appear to be getting back on their feet. They've had more than a year to adjust to life after the Macondo oil spill and subsequent stronger regulation. With uncertainty easing and oil prices rising, it looks like financials for oil drillers are also stabilizing.

This morning, Seadrill (NYS: SDRL) reported revenue up 3.4% to $1.03 billion and operating profit jumped 11.6% to $480 million. The floaters segment drove the results as usual, capturing $349 million of the operating profit. The company's large fleet of ultra-deepwater rigs are in the best position to add value in the drilling industry that focuses on deeper and deeper water.

Even after a $330 million loss on derivative financial instruments, the company posted a $58 million net income.

Seadrill appeared less affected by new regulations than Transocean (NYS: RIG) , which posted a loss in the third quarter and used the excuse of regulations for the loss. But Hercules Offshore (NAS: HERO) also showed strength in the shallow water segment as day rates rose, so regulation doesn't seem to be derailing the entire industry.

One eye on oil
Maybe the best thing that can happen to oil drillers long term is a continually rising price of oil. Today, oil topped $100 per barrel, and if the economy can boost growth even slightly that price could continue to rise.

The best stock in drilling
Seadrill's focus on deepwater has it positioned better than other drillers to create value for shareholders long term. The company also pays a dividend exceeding 9%, almost unheard of for a business that's growing profitably.

I would like to say that a pure play on deepwater like Ocean Rig (NAS: ORIG) is in a similar position to create value, but when you're owned by DryShips (NAS: DRYS) and George Economou, I just can't get behind a stock like that. That leaves Seadrill as this Fool's top drilling stock, a prediction I'll back up by adding an outperform CAPScall on My CAPS page.

Interested in reading more about Seadrill? Click here to add it to My Watchlist to find all of our Foolish analysis on this stock.

At the time thisarticle was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Transocean. Motley Fool newsletter services have recommended buying shares of Hercules Offshore. 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.

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