3 Stocks to Gain From the Rising Demand in Offshore Drilling

Key Points

• Transocean’s fleet is 97% booked for 2025 with $9.3 billion in backlog as demand for ultra-deepwater and harsh environment rigs remains strong.
• Valaris is confident on the upcycle runway extending beyond 2026.
• Seadrill sees a near-term imbalance between available rigs and opportunities.

President Trump’s “Drill, baby, drill” initiatives may cause a demand spike for offshore drillers. Trump signed an executive order attempting to remove former President Biden’s permanent offshore drilling ban over 625 million acres of federal waters. This includes the Eastern Gulf of Mexico, the Pacific coasts of Oregon, California, Washington, the Atlantic Coast, and Alaska’s Bering Sea. Trump plans to expedite the approval of permits to drill on federal lands in an effort to increase domestic oil production and bring energy prices down. Here are three drillers in the oils/energy sector that could benefit from the rising demand for offshore drilling.

Transocean: Leading Offshore Drilling Contractor Fleet Utilization Nearly Full

Transocean Ltd NYSE: RIG provides offshore contract drilling services for the oil and gas industry.

They have a fleet of 34 mobile offshore drilling units, which consist of 26 ultra-deepwater floaters and eight harsh environment floaters.

Over 80% of Transocean’s rigs are less than 10 years old, with 10 delivered within the last five years.

Max water depth ranges from 7,500 to 12,000 feet, and max drilling depth ranges from 30,000 to 40,000 feet.

Demand Drives Up Day Rates

The company charges day rates for their drilling rigs. More demand equates to higher day rates. For example, BP secured a 365-day contract for the Deepwater Atlas drillship set to start in Q2 2028 at a day rate of $635,000 or $232 million per year. This comes after an earlier contract for the Atlas for a four-well contract at $505,000 a day and a two-well contract for $580,000 a day.

Rising Day Rates and Utilization Results in a 33% YoY Revenue Bump

Transocean reported Q3 2024 EPS of 7 cents, beating consensus estimates by 11 cents. Revenues rose nearly 33% YoY to $948 million, matching consensus estimates. Contract drilling revenues rose sequentially by 87 million due to increased rig utilization, higher day rates for two rigs, higher reimbursement revenues, and a full quarter of revenues from the newbuild ultra-deepwater drillship Deepwater Aquila, which was partially offset by lower revenue efficiency across its fleet.

Over 97% of Transocean’s Rigs Are Booked for 2025

Transocean’s backlog booked an additional $1.3 billion in Q3, including the Deepwater Conqueror, bringing the total backlog to $9.3 billion with clear visibility of future demand. The demand for ultra-deepwater and harsh environment rigs remains strong. CEO Jeremy Thigpen stated, “With these most recent awards, more than 97% of Transocean’s active fleet is contracted in 2025, once again demonstrating that our customers clearly recognize Transocean’s unique capabilities – our rigs, crews, and superior operational performance –add value to their programs.”

Valaris: Operating the World’s Largest Fleet of Oil Rigs  

Valaris Ltd. NYSE: VAL provides contract offshore drilling services just like Transocean.

The difference is that Valaris operates a larger fleet of 53 rigs, which include drillships, jack-up rigs, and semi-submersible platform drilling rigs.

Jack-up rigs, also known as mobile offshore drilling units (MODU), are giant rigs with legs and a large mobile platform that looks like a city on the sea.

Workers will often sleep there for two to three weeks at a time in the living quarters that are usually outfitted with a gym, cafeteria, sauna, TV, and computer rooms.

Upbeat About the Upcycle Runway Through 2026

Valaris reported Q3 2024 EPS of 8 cents, missing analyst estimates by 19 cents. Revenues rose 41% YoY to $643 million, beating consensus estimates by nearly $23 million. Fleetwide revenue efficiency was 98%, which included a full quarter of operations for its VALARIS DS-7, which started its contract in Q2.

Valaris Leadership Remains Confident in Industry Upswing

Management remains very confident in the upswing. CEO Officer Anton Dibowitz stated, “We maintain our conviction in the strength and duration of this upcycle and believe Valaris is well positioned to drive long-term value creation. While we have seen some customer demand deferred, the outlook for 2026 and beyond remains robust. We continue to focus on securing attractive, long-term work for our available rig fleet to support our earnings and cash flow growth."

Seadrill: A Smaller Fleet Trying to Right the Ship

Seadrill Ltd. NYSE: SDRL also provides contract offshore drilling services to the oil and gas industry.

Seadrill claims to have the most modern fleet of all the major offshore drillers, from drillships, jack-ups, and semi-submersibles for benign and harsh environments. 

They have a fleet of 13 ultra-deepwater drillships, four submersibles, and five shallow-water jack-ups.

In October 2024, Bloomberg reported that Transocean and Seadrill were in ongoing merger discussions, but the rumor fizzled out.

Seadrill Delivers Surprise EPS Beat Despite Revenue Decline

Seadrill reported Q3 2024 EPS of 49 cents, beating consensus estimates by 47 cents. Revenues fell 14.5% YoY to $354 million but still beat consensus estimates by $32 million. Its Q3 performance was better than it expected internally, which led it to raise its forward guidance for the full year 2024 revenues of $1.39 to $1.41 billion versus $1.36 billion consensus analyst estimates.

Seadrill’s Optimistic Long-Term View Supports Investor Confidence

Seadrill CEO Simon Johnson commented, “Seadrill's third-quarter results exceeded expectations, leading us to raise our full-year guidance. We secured additional drilling work for the Sevan Louisiana and mobilized the West Auriga and West Polaris to Brazil, where they are undergoing customer and regulatory acceptance.”

However, Johnson also pointed out, “In the absence of an immediate market opportunity for the West Phoenix, we stacked the rig and released the crews, refusing to contribute to our own white space, waiting on the market to change.” He concluded, “Despite the near-term imbalance between available rigs and opportunities, we remain resolute in our belief in the strength and durability of the offshore drilling industry and Seadrill’s position within it.”