There are easier ways to make a living than drilling for oil and gas in hundreds or thousands of feet of water, but the rewards can more than repay the risk. We’ve taken a look at the five largest offshore drillers — Seadrill Ltd. (NYSE: SDRL), Transocean Ltd. (NYSE: RIG), Ensco plc (NYSE: ESV), Diamond Offshore Drilling Inc. (NYSE: DO), and Noble Corp. (NYSE: NE) — with an eye toward value lurking in the water.

Today’s announcement that Seadrill has acquired a 64% stake in Asia Offshore Drilling (AOD) and must initiate an offer for the rest of the small company is not a game-changer. AOD is a small outfit, with a market value of about $200 million, but it just received a contract worth $236.5 million for a new jack-up rig. That contract underscores the demand we’ve noted before for shallow water and midwater rigs.

And although offshore rig counts are somewhat lower in many parts of the world, the U.S. offshore count has been rising, from just 20 in September 2010 to 52 at the end of last month. In the same time span, worldwide offshore rig counts have gone from 317 to 293.

Seadrill Ltd. (NYSE: SDRL) traded at $40.13 and has a market value of about $18.81 billion. The consensus target price from Thomson Reuters is $44.31 and the 52-week range is $31.02 to $42.34. Seadrill has a dividend yield of 8.3%. The implied upside to the consensus target is 10%, and the target price is above the 52-week high.

Transocean Ltd. (NYSE: RIG) traded at $46.54 and has a market value of about $16.74 billion. The consensus target price from Thomson Reuters is $60.27 and the 52-week range is $38.21 to $60.06. Transocean does not pay a dividend. The implied upside to the consensus target is 29.5%, and the target price is slightly above the 52-week high.

Ensco plc (NYSE: ESV) traded at $58.35 and has a market value of about $13.52 billion. The consensus target price from Thomson Reuters is $64.80 and the 52-week range is $41.63 to $61.48. Ensco has a dividend yield of 2.6%. The implied upside to the consensus target is 11%, and the target price is above the 52-week high.

Diamond Offshore Drilling Inc. (NYSE: DO) traded at $69.95 and has a market value of about $9.71 billion. The consensus target price from Thomson Reuters is $74.19 and the 52-week range is $52.98 to $73.50. Diamond has a dividend yield of 0.7%. The implied upside to the consensus target is 6%, and the target price is above the 52-week high.

Noble Corp. (NYSE: NE) traded at $38.26 and has a market value of about $9.65 billion. The consensus target price from Thomson Reuters is $47.53 and the 52-week range is $28.73 to $41.71. Noble has a dividend yield of 1.5%. The implied upside to the consensus target is 24%, and the target price is well above the 52-week high.

Given it’s size and its very high dividend yield, it’s hard to ignore Seadrill, but Noble appears to have the upper hand based on implied gain. Seadrill has also posted the largest share price gain over the past 12 months — nearly 20% — compared with just a 7% gain for Noble. But Noble has posted the largest gain over the past 30 days — more than 13% — although it has come down as crude prices have dipped. It could be that Noble is just getting started.

Paul Ausick

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