Diamond Offshore Outperforms

Diamond Offshore Drilling Inc. (DO) reported better-than-expected third quarter 2010 earnings of $1.43 per share, compared with the Zacks Consensus Estimate of $1.36. However, earnings were much below than the year-ago profit of $2.62.

Total revenue was $799.7 million, compared with the Zacks Consensus Estimate of $812 million and year-earlier quarter’s revenue of $908.4 million.

Dividend Story

Following two consecutive quarters of reduction in its special dividend, Diamond maintained its second quarter rate of 75 cents per share in the third quarter. It has also maintained its regular quarterly dividend of 12.5 cents per share (50 cents per share annualized).

Operational Performance

Though intermediate semis witnessed a slight hike in day rates, high specification floaters and jackups were still lagging. As a result, contract drilling revenue decreased more than 15% year over year to $749 million in the third quarter.

The high specification floaters accounted for nearly 41% of the total quarterly contract drilling revenue, while intermediate semi-submersibles and jackups accounted for 51% and 8%, respectively.

High specification floaters recorded an average dayrate of $364,000 during the quarter, down from $389,000 in the year-earlier quarter. Intermediate semi-submersible rigs realized an average dayrate of $280,000, up from $278,000 in the year-ago quarter. Jackup rigs’ dayrates averaged $82,000, down from $117,000 in the third quarter of 2009.

High specification rig utilization was 56% during the quarter, down from 75% in the year-ago quarter. Intermediate category rig utilization was 76%, down from 84% year over year. Jackup rig utilization also decreased to 60% from 65% in the year-earlier quarter.

At the end of the quarter, Diamond had approximately $184 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 28.6%.


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 Neutral recommendation for Diamond shares with the Zacks #3 Rank (Hold).

DIAMOND OFFSHOR (DO): Free Stock Analysis Report

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