Diamond Offshore Report Mixed - Analyst Blog

Diamond Offshore Drilling Inc. (DO) reported fourth quarter 2010 earnings of $1.74 per share, substantially beating the Zacks Consensus Estimate of $1.45. However, earnings were much below the year-ago profit of $1.98.

Total revenue in the quarter dropped nearly 5.6% to $841 million from the year-earlier level and missed the Zacks Consensus Estimate of $847 million.

Comparatively, Noble Corporation (NE) reported disappointing fourth quarter 2010 earnings as the Gulf of Mexico (GoM) oil spill incident resulted in the lack of permits and hurt rental revenue for some of the costliest drillships. Noble delivered better-than-expected results, which were, however, substantially below the year-earlier profit of $1.72.

Dividend Story

The company also declared a 75 cents per share special dividend in the quarter, which remained unchanged from the prior quarter. It has also maintained its regular quarterly dividend of 12.5 cents per share (50 cents per share annualized).

Operational Performance

Although intermediate semis witnessed a slight hike in day rates, high specification floaters and jackups were still lagging. Hence, the Contract Drilling segment experienced a 5.5% year-over-year decline in revenue in the reported quarter.

The high specification floaters accounted for nearly 47% of the total quarterly contract drilling revenue, while intermediate semi-submersibles and jackups accounted for 48% and 5%, respectively.

High specification floaters recorded an average dayrate of $357,000 during the quarter, down from $388,000 in the year-earlier quarter. Intermediate semi-submersible rigs realized an average dayrate of $281,000, up from $280,000 in the year-ago quarter. Jackup rigs' dayrates averaged $82,000, down from $112,000 in the fourth quarter of 2009.

High specification rig utilization was 79% during the quarter, down from 81% in the year-ago quarter. Intermediate category rig utilization was 79%, up slightly from 78% year over year. Jackup rig utilization decreased to 43% from 63% in the year-earlier quarter.

At the end of the quarter, Diamond had approximately $464.4 million in cash on hand and $1.5 billion in long-term debt. Debt-to-capitalization ratio at the end of the quarter was about 27.9% (versus 28.6% in the previous quarter).

Outlook

We believe that the decline in day rates from peak levels will continue to affect the company's results in the near future. However, we like Diamond's financial discipline that makes it one of the best-capitalized companies in the industry.

Though near-term tentativeness in the Gulf of Mexico persists, management said that international markets for Diamond's rigs are stable on the back of higher oil prices and consistent demand. We maintain our long-term Neutral recommendation for Diamond shares. The company also holds a Zacks #3 Rank (short-term Hold rating).

 
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