Diamond Offshore Drilling Inc. (DO) reported third quarter 2013 adjusted earnings of $1.22 per share, which beat the Zacks Consensus Estimate of $1.17. However, the quarterly results decreased 4.7% from the year-earlier earnings of $1.28 per share. The decline was mainly due to cash flow issues with customers. The company is working toward repositioning these rigs.
Total revenue in the quarter decreased 3.2% year over year to $706.2 million from $729.1 million and lagged the Zacks Consensus Estimate of $743.0 million.
Dividend Story
Diamond Offshore declared a special dividend of 75 cents per share in the quarter, unchanged from the prior quarter. The company will also pay its regular quarterly dividend of 12.5 cents per share (50 cents per share annualized). Both dividends are payable on Dec 2, 2013 to shareholders of record on Nov 5.
Operational Performance
In the third quarter, revenues from the Contract Drilling segment fell 3.3% year over year to approximately $690.7 million, mainly due to a 9.1% decrease in total floaters revenues. These floaters accounted for 92.6% of the total quarterly contract drilling revenues, while jackups contributed 7.4%.
Ultra-Deepwater floaters recorded an average dayrate of $284,000 during the quarter, down from $354,000 in the year-earlier quarter. Deepwater floaters realized an average dayrate of $380,000 versus $373,000 in the year-ago quarter. Mid-water floaters recorded an average dayrate of $258,000 unchanged from the year-earlier quarter. Jackup rigs’ dayrates averaged $93,000, down from $98,000 in the third quarter of 2012.
Rig utilization for Ultra-Deepwater floaters increased to 93% from 75% in the year-ago quarter. Utilization of Deepwater floaters decreased to 84% from 95% in the year-ago quarter. Mid-water category rig utilization was 68% compared with 71% in the comparable quarter last year while jackup rig utilization increased to 84% from 56%.
Financials
As of Sep 30, 2013, Diamond Offshore had approximately $468.8 million in cash and cash equivalents, while long-term debt was $1,246.3 million. Debt-to-capitalization ratio at the end of the quarter was 21.1% (down from 24.2% in the preceding quarter).
Outlook
Houston, Texas-based Diamond Offshore exhibits long-term earnings growth visibility based on its strong leverage to the offshore deepwater drilling market. Additionally, the company’s significant free cash flow generation potential and healthy balance sheet enhance the possibility of further share buybacks and/or special dividends, going forward.
We maintain a Zacks Rank #4 (Sell rating) on Diamond Offshore based on the volatile oil and gas price scenario as well as geopolitical risks associated with international operations.
However, there are other stocks in the oil and gas industry, like Stone Energy Corp. (SGY), Linn Energy LLC (LINE) and Enerplus Corp. (ERF), which hold value with a Zacks Rank #1 (Strong Buy).
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