Shares of Diamond Offshore Drilling Inc. DO, a major contract driller, fell almost 4% on the NYSE to touch a 52-week low of $25.97 on Jun 25. The weakness can be blamed on the still dull crude pricing environment. Ultimately, the shares closed at $26.26.
What Led to the Share Price Decline?
The West Texas Intermediate (WTI) crude has been trading around the $60 per barrel threshold for quite some time now. This is owing to plentiful supply of the commodity especially in the face of lackluster global demand.
The ongoing Greek debt impasse, concerns over further rise in Saudi crude production and news about the impending Iranian nuclear deal – that has the potential to release more oil into the already oversupplied market – added to oil trading woes. Moreover, a stronger dollar has made the greenback-priced crude more valuable for investors holding foreign currency.
Further, higher rig availability is a major concern in 2015 as the global floater market is poised to remain considerably stressed through 2016. As a result, major operators are reducing their spending extensively, postponing projects and reviewing their cost structure. In particular, the utilization concern arises with respect to three floating rigs in the North Sea and two rigs in South East Asia.
Hence, with the drastic fall in oil prices, upstream energy players will ask for lesser drilling rigs for exploration and production activities. Also, with crude prices falling amid abundant rig supply, we don’t see Diamond Offshore earning significant cash flows for its shareholders.
All these are reflected in the 52-week low share price of the company.
Zacks Rank & Stock Picks
Currently, Diamond Offshore carries a Zacks Rank #3 (Hold).
Some better-ranked players in the energy sector are Transmontaigne Partners L.P. TLP, CNOOC Ltd. CEO and LRR Energy, L.P. LRE. All these stocks sport a Zacks Rank #1 (Strong Buy).
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