No question, the offshore industry is making a big comeback on the back of high oil prices and depleted onshore resources, but which companies are benefitting most? Royal Dutch Shell and Chevron are good candidates, for starters.

It wasn’t so long ago that deep sea drillers were flat on their backs, victimized partly by their own hubris and hounded by Washington politicians and federal regulators.  Offshore drillers have had it tough for the past few years, following the ban on offshore drilling in the Gulf of Mexico in the aftermath of the Deepwater Horizon spill.

But that was then and this is now. A new report from the New York City-based Paragon Group said offshore drillers are rebounding nicely from that two-year term in regulatory purgatory, and the group is poised for stronger growth in 2012 and 2013.

“Nearly two years ago, the offshore-drilling industry was in danger of collapse under the pressure of lawmakers and regulators pushing to ban offshore drilling in reaction to BP's oil spill and Transocean’s rig explosion,” noted Paragon. “The industry persevered and now seems to be in the midst of a comeback as rising oil prices and depleted resources are forcing major oil companies to focus on exploration and development of offshore oil and gas reserves.”

Paragon added that oil companies are once again turning to the high seas as those regulatory burdens abate. But even more so, deepwater drillers are rising in numbers as the rush to get oil and gas out of the ground may be losing some steam, just as oil demand is picking up steam.

“Offshore oil and gas reserves have been an increasing focus for energy companies as significant oil discoveries on land are becoming less common,” explained Paragon. “With recent offshore discoveries and the large number of underdeveloped oil and gas fields, demand for mobile offshore drilling units (MODUs) are expected to increase dramatically. Major energy companies such as Royal Dutch Shell and Chevron have already reinvested earnings in offshore ventures. The International Energy Agency (IEA) expects global oil demand will rise from 88 million barrels today to around 99 million barrels in 25 years' time.”

What do analysts see in both Royal Dutch Shell and Chevron as they kick-start drilling efforts in the Gulf? Great quarterly numbers, with reason to believe that outperformance will keep rolling on.

Royal Dutch Shell

The first quarter 2012 was a home run for Shell, with revenues and earnings both up, and significantly so, on a year-to-year basis.

Revenues were up to $119.9 billion. Analysts at S&P capital had pegged revenue growth at $107.6 billion.  Sales posted were 9% higher than the $109.9 billion earned in Q1 2011.  Average earnings for Q2 2012 are expected to clock in at $111.61 billion, and estimated average earnings-per-share are $2.24.  Average revenue earnings for 2013 are estimated to be $469 billion, with the outlook on earnings-per-share at $9.24.

Analysts monitored by S&P Capital listed Shell as an “outperform,” and called for an average price target of $82 per share (it was trading at $71 per share as of May 1). Wall Street generally credits Shell’s sterling first quarter to higher oil prices and income generated from new exploration and recovery projects -- areas that should improve as Shell re-commits to the Gulf of Mexico.

According to Zacks Investment Research, Shell’s crude oil production contributed 47% to gross volumes, with total oil and gas output 4% higher than 2011. Zacks expects that trend to continue in 2012.

“The Hague-based group continues to make solid progress with its three-year strategic plan that commenced in 2010,” said Zacks in an April research report. “Shell has been able to boost returns and remain competitive by embarking on aggressive cost-reduction initiatives, exiting unprofitable markets, refocusing its efforts on emerging economies and streamlining the organization.”

Chevron

Chevron is another deepwater oil producer that leveraged high crude oil prices to earn big first-quarter profits.

Earnings-per-share rolled in at $3.39, above the Zacks estimate of $3.30, and adjusted 2011 profit of $3.17.  Quarterly revenue rose by 0.6%, to $60 billion, which saw some dampening against expectations from the falling price of natural gas -- a big market for Chevron.

U.S. crude oil output fell by 6.2% on a year-to-year basis, but its re-emergence in the Gulf should boost output in 2012 and 2013, analysts say. Chevron stock, which was trading at $106 per share on May 1, has a one-year target estimate of $125 per share, according to a survey of analysts by Thompson Financial Network.

“Despite the slight dip in Chevron’s quarterly volumes, we believe its production outlook remains one of the most robust in its peer group with a number of major initiatives scheduled to come online during the next few years,” Zacks stated in an April research commentary on Chevron. “Major start-ups during the last few months include the deepwater Usan project in Nigeria and the Caesar/Tonga project in the deepwater Gulf of Mexico.”

Deutsche Bank energy analyst Paul Sankey sees Chevron stock rising to $130 per share, about 22% ahead of the stock’s current trading price. But he cautions investors to be patient about the comany -- possibly until 2014.

“Chevron is a waiting game,” he noted in a recent research report.  “In fact, there are a multitude of waits. We are waiting for final capex spend to emerge on major projects; and we are waiting for volume growth to start in 2014. We are waiting for cash return from the $19 billion cash pile. We are waiting to be sure there are no acquisitions instead. We are waiting for the multiple to expand and reflect its high Brent leverage, short U.S. natural gas, high profitability, and its high returns.”

Slow and steady may win the race here, as offshore drillers like Shell and Chevron capitalize on high crude oil prices, and re-access into the oil-rich Gulf of Mexico.