Wednesday, February 6, 2013

Diamond Offshore 4Q Earnings

Diamond Offshore (DO) released earnings today. Revenues of $751 million beat consensus estimates of $738 million compared with revenues of $748 million in the prior year. EPS were fairly in line with consensus coming in at $1.12 which is down from $1.36 a year earlier due to reclassifying four cold-stacked rigs as held for sale and taking an after-tax impairment charge of $40.6 million, or $0.29 per share. These rigs are the Ocean Whittington, the Ocean Epoch, the Ocean New Era, and the Ocean Spartan. these rigs are at the end of their lives and are not worth investing in anymore. 

Diamond Offshore saw its shares tumble 4 percent to $73.77 as the company warned that a number of its rigs are heading into maintenance. The company estimated that its rigs will not be available for 1,382 days, substantially higher than analyst estimates of 1,050 days.

On a positive note the company saw a 7 percent decline in contract drilling expenses. Furthermore, Diamond Offshore scored a $400,500 per-day contract for its Ocean Patriot rig. However, the shipyard work needed to get this vessel ready contributed to a rise in downtime.

Going forward Diamond Offshore remains and attractive investment. Chief Executive Officer Larry Dickerson expects downtime to be "much" lower in 2014. Most markets are seeing a steady increase in activity, exploration and development budgets are increasing at an annual are of 7 percent, and we're seeing a period of stable commodity prices.

The ultra-deepwater market continues to show steady growth worldwide. Demand is currently fragile and expected to pick up substantially in 2014.

The deep water segment continues to see strong demand  primarily in West Africa, U.S. Gulf and Australia. The Ocean Valiant rig is expected to be operational in 2013 in either West Africa or the Gulf.

The mid-water segment is also seeing strong performance as evidence by the Ocean Patriot Deal. Discussions are beginning on deploying the Ocean Princess in the U.K. Additionally  the company is seeing unexpected demand coming from Southern Asia increasing backlog and potentially pushing up day rates. 

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