Smaller offshore drillers enjoy solid returns

Smaller offshore drilling companies are giving their onshore competitors a run for their money – and winning, according to a report issued Friday.

Investors’ returns for offshore drillers have beaten the Standard & Poor’s  500 index by 9 percent in the last two years, according to a study by IHS, a private energy research firm.

The companies have benefited from an increase in offshore drilling around the world, and from  a return to the Gulf of Mexico.

Activity there slowed after the blowout of BP’s Macondo well that destroyed Transocean’s Deepwater Horizon rig, killed 11workers and spilled millions of gallons of oil into the Gulf. The government imposed a moratorium on deep-water drilling there for a few months after the disaster.

“With the exception of litigation- plagued Transocean, the public equities of the offshore drilling industry appear to have largely adjusted to the post-Macondo environment, helped by rising rig utilization and strong dayrates for rig contract renewals,” wrote John Parry, principal energy analyst at IHS.

Parry expects 2013 and 2014 to herald stronger operating margins for the offshore drillers, as dayrates climb up and beyond $600,000 for new rigs capable of drilling in the deepest waters.

Recent times have been rougher for big multi-service providers like Baker Hughes, Halliburton, Schlumberger and National Oilwell Varco, as they have had to cope with low natural gas prices that have depressed onshore operations, a market glutted with pressure pumps and a slump in the natural gas liquids market.

S & P 500 returns have beaten the big onshore service companies by an average of 13 percent in the last couple of years.