Offshore drillers

I find the current valuations of offshore drillers some what strange. Companies with little debt and backlogs worth of billions are have a P/E ratio >10, while most financials have a P/E 13-15. The market seems think that the price of oil will continue to decline and that the financials have bottomed. I find both assumption unlikely to be true. Well actually I do think that oil can drop at least temporarily below $90, but not much lower.

One thing dragging down the valuations of drillers is the dividend yield. Most American drillers dont' pay regular dividends(Pride, RIG, Atwood) and those who do, pay merely nominal amounts(Ensco 0.20%, Noble 0.40%, Diamond 0.50%* Rowan 1.20%). Seadrill of Norway(officially domiciled in Bermuda) is refreshing exception among major drillers as intends to distribute all of its excess cash to shareholders.

The are currently 39 drillships, 50 semi-submersibles and 74 jack-ups under construction at various shipyards around the world(mostly in Asia). All of these vessels will enter the market by the end the year 2012(delays are of course possible). With these newbuilds the number of drillships will increase by 102%(current number 38), semis 31%(160) and jack-ups 20%(376). Currently most industry insiders believe that the market can absorb all these newbuilds.

*DO has paid several special dividends in recent years($5.75 in 2007,$2.00 in 2006)
Links: Rigzone:Rig data, Offshore.no: rigger under bygging, Energywiki