Sunday, April 22, 2007

Finding a Driller

My efforts in the past week or so have been to find an oil driller to invest in. I learned the hard way in 2006 that oil companies are investing in offshore drilling rather then land drilling. So I have been doing the usual research. Comparing fundamentals of the bigger names, reading research reports, annual reports, mid-quarter status reports, seeing which companies they contract out to, seeing where they drill, looking at how long their contracts are good for, comparing their day rates, etc. Here are the four companies that I was comparing:

Transocean (RIG)
Noble (NE)
GlobalSantaFE (GSF)
Diamond Offshore (DO)

Transocean is the largest, and has been getting the most praise. Jim Cramer owns it, T Boone Pickens owns it, etc. I liked transocean, and they do a lot of business with my favorite of the big boys, Chevron, but I think they are too concentrated in the Gulf of Mexico. Their margins a somewhat lower than the others as well. The are the most polished, in terms of image, and name recognition, which should bode well for it it when the entire sector does well. Because of their popularity, they trade at a premium, about 19 P/E, to the others, which is around 15 P/E.

The other three are similar. Each has about half the market cap of Transocean. Here, I'm just going to talk about the one I picked, and that is Noble. I like them for many reasons. The biggest is that most of their drilling activity is taking place in areas outside the gulf, and particularly the Middle East and Africa. They have great growth, profit margins, and are managing their company well. They also have room to grow, which is important.

In closing, I'd say you'd be good in either Transocean or Noble. Transocean is going to get pumped by Cramer, and will get the most publicity, but you have to pay up to get that. I lean toward Noble in this battle. I like their long term prospects, and the way they have run the company in the past. I think they have more room to grow, in terms of mergers and acquisitions, as well as organic growth. They just reported a good quarter, and I'd be a buyer on any pullbacks in price.

No comments: