Offshore drilling industry takes a punch

Seadrill Ltd (SDRL) which I had recommended and added to in March of this year, is down about 11% since my additional purchase and post. The stock is down over 26% year to date, not counting the three rather large dividend payments (~9%). Things are worse over at Transocean Ltd (RIG), where they are down over 29% year to date. The picture is no prettier over at Ensco (ESV) down 21.5%, Rowan (RDC) down 24%, Diamond Offshore (DO) down a whopping 33% year to date. The industry as a whole is taking a pretty big hit.

Backlog, or lack of backlog in the current market, is often used as the gauge of future earnings in the offshore rig market. Currently the market is lacking that line of oil and gas companies looking to lock up rigs on day rate for the coming years. This is a cyclical industry, and the stocks may have further to fall before it picks back up.

I still think Seadrill (SDRL) is a hold, and it might be a decent buy opportunity for those looking to make a contrarian play. That said, the market as a whole is very near its highs, and this sector is struggling to avoid 30% year to date decline… Proceed with caution.