Not all offshore drilling (XLE) companies are the same size, which means that some companies’ backlogs are a few million while others’ backlogs are a few billion. This difference makes it hard to compare companies, and so it’s better to compare backlog as a percentage of revenue. The higher the backlog-to-sales ratio, the better the future revenues.
In an industry downturn, especially like the one offshore drillers are experiencing right now, it’s crucial to have a high backlog. Since securing new contracts has become difficult, a higher backlog means a higher chance of survival in the downturn. A lower backlog may mean a company will have a hard time surviving the downturn.
Transocean’s strongest backlog
To compare backlogs across companies, we’ve calculated the total backlog reported at the end of 2Q16 as a percentage of TTM (trailing-12-month) revenue.
Transocean (RIG) secured two new contracts in the second quarter. RIG is the only company whose backlog-to-revenue ratio has risen from 1Q16, with a ratio of 239%—the highest among peers. It has increased from 218% from the previous quarter. Diamond Offshore also has a ratio above 200%, and Seadrill Partners (SDLP) and Noble (NE) have ratios above 150%.
Low ratio among peers
In the previous part of this series, we saw that Atwood Oceanics’ (ATW) backlog has fallen the most among its peers. Comparing with a backlog-to-revenue ratio, Atwood once again has the lowest ratio of 67% among peers. Seadrill’s (SDRL) ratio of 118% is the next lowest. Ensco (ESV), Ocean Rig (ORIG), Rowan Companies (RDC) have ratios of 115%, 118%, and 123%, respectively.