The valuation is nuts. Especially since there is no debt here. Whats goofy, is that this stock was able to trade $20 in 2004 with $30's crude and very little earnings. The retained earnings are a few billion dollars since then and earnings are now huge.
There really is no sustainable downside for this company at this price. Earnings can be very volatile historically. If there is ever a glut of rigs then rigs would go idle and rates would fall and this company would have no earnings. But since crude is trading $60's with terrible demand, seems unlikely it is headed back to $30's. China car sales y/y are up 55%. I think thats why crude is $60's even though America is in depression.
HES gets 10 p/e because of ownership in Tupi field off the coast of Brazil that could be the biggest feild in the world.
These offshore drillers get low p/e's because there may only be 10 to 20 years of drilling left. There may be a 100 years, but you don't know in this industry. Thus, the low multiple. Where as people will most likely be buying cereal from General Mills in 200 years. Also, the valuation is in the 4's because the day rates are going to get cut in half. So they are really in the 8 to 10's.
I have been trying to figure out the prices for all of these water drillers. DO has the greatest percentage of deepwater in its fleet. 31 deepwater and only 14 jack-ups. RIG has it split half and half. Noble has 43 jack-ups and 17 deepwater. Ensco has 43 jack-up and 3 deepwater. That pretty much tells you the story of the p/e's right there. Jack-ups are bad and deepwater is good.
I too find the valuation ridiculous, but it's been here for so long so the market is obviously telling us something. Perhaps you're right, and the market considers the possibility that eventually there will be no more oil to be had. What happens to these guys when we run out of oil...go out of business I guess?
That said, I'm not sure only 10-20 more years of drilling is a reasonable estimate. I think the price of oil itself would be priced much higher if the market believed we were running out that quickly.