Not all offshore drilling (XLE) companies are the same size, which means some companies’ backlogs are a few million, while others’ are only a few billion.
The difference makes it hard to compare companies, so it’s better to compare backlogs as percentages of revenue. The higher the backlog-to-revenue ratio, the better the future revenue.
In an industry downturn, especially like the one offshore drillers are experiencing, 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 a downturn, and vice versa.
To compare backlogs across companies, we’ve calculated the total backlog reported at the end of 4Q16 as a percentage of trailing-12-month revenue.
Transocean has the highest backlog
Transocean’s (RIG) contracts stretch out to 2028. It has one of the highest average contract durations, giving it a high backlog. Its backlog-to-revenue ratio is 316%, the highest among its peers. This ratio has risen compared to 273% in the previous quarter.
Diamond Offshore Drilling’s (DO) backlog-to-trailing-12-month revenue ratio is 236%. Only RIG and DO have ratios of more than 200%.