Monday, July 29, 2013

Diamond Offshore Q2 Results

Diamond Offshore reported a net income of $185 million this quarter or $1.33 per share, which is lower than the same time last year when we saw net income of $201 million, or $1.45 per share.  However, if we revaluate these numbers and pull out the one time event of the sale of 5 jackup rigs in Q2 2012 ($50 million), 2013 was an improvement over last year. 

            The firm’s profits were higher than what the street had anticipated, however the revenue numbers they offered were lower than expected.  The company has continued to see slow growth due to the large number of rigs that are going through surveying or restoration.  It appears that over the rest of the year we can expect the same with faster growth taking place more in H2 of 2014 and thereafter. 

              The biggest news out of the company is that their first drillship the Ocean Blackhawk is going to be delayed at least 2 months.  This is due to engine cooling problems that will have to be taken care of before the ship can begin its’ first contract with Anadarko.  It appears that this will be the only drillship of the 4 that has this problem; so at this point the rest of the schedule remains unchanged.

            Overall, I would rate Diamond Offshore as a Hold.  This is because I believe their cash flows will be relatively flat over the coming 6 months and that the only news surprises we could see would be negative.  Until the company has its drillships working there is no large growth story, the company is trading at $67.93 and I anticipate we could see a movement to $63-$65 by yearend.  If it is in this range than during Q1 of 2014 it may be worthwhile to evaluate taking a position on within the above mentioned range.      

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