Diamond Offshore Drilling Inc. (DO) posted third-quarter 2014 earnings – adjusting one-time items − of $1.42, surpassing the Zacks Consensus Estimate of 77 cents. The bottom line was also above the year-ago adjusted figure of $1.22. Improved dayrates from the Ultra-Deepwater floaters aided the results.
Total revenue in the quarter increased more than 4% year over year to $737.7 million. The top line, however, failed to surpass the Zacks Consensus Estimate of $750 million.
Dividend Update
Diamond Offshore announced 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 will likely be paid on Dec 1, 2014 to shareholders of record on Nov 5.
Operational Performance
In the third quarter, revenues from the Contract Drilling segment improved 5.4% year over year to $727.9 million, mainly attributable to above 6% increase in total floaters revenue. These floaters accounted for approximately 94% of the total contract drilling revenue, while jackups constituted roughly 6%.
Ultra-Deepwater floaters recorded an average dayrate of $442,000, up from $284,000 in the year-earlier quarter. Deepwater floaters, on the flip side, realized an average dayrate of $346,000, down from $380,000 in the year-ago quarter. Mid-water floaters recorded an average dayrate of $263,000 versus $258,000 in the year-earlier quarter. Jackup rigs' dayrates averaged $99,000, up from $93,000 in the third quarter of 2013.
Rig utilization for Ultra-Deepwater floaters decreased to 77% from 93% in the year-ago quarter. Utilization of Deepwater floaters decreased to 57% from 84% in the year-ago quarter. Mid-water category rig utilization was 59%, also down from 68% in the comparable quarter last year while jackup rig utilization was 83%, almost in line with the prior-year quarter.
Operating Expenses
The company’s total operating cost during the third quarter was $647.3 million, up more than 13% from the year-ago period.
Financials
As of Sep 30, 2014, Diamond Offshore had approximately $468.8 million in cash and cash equivalents, while long-term debt was $1,994.5 million. Debt-to-capitalization ratio at the end of the quarter was 33.4% (nominally higher than about 33% in the preceding quarter).
Other News
Diamond Offshore declared that it has got a nine-year contract extension offer for three ultra-deepwater semisubmersibles from the Brazilian state-run energy giant Petroleo Brasileiro S.A. or Petrobras (PBR). The extended contract will likely generate roughly $1.4 billion.
Diamond Offshore also announced that one of its affiliate has signed term drilling agreements with upstream energy firm Hess Corp. (HES). Per the deals, Hess Corporation is expected to hire two new-build drillships of Diamond Offshore named Ocean BlackRhino and Ocean BlackLion. The combined revenue from the two drillships will likely be $1.02 billion.
Ocean BlackRhino − likely to start operations by the fourth quarter of 2015 – is expected to work for four years in the U.S. Gulf of Mexico. On the other hand, Ocean BlackRhino – projected to start operation by the fourth quarter of 2016 – will likely operate for three years in the same place.
Zacks Rank
Diamond Offshore currently carries a Zacks Rank #3 (Hold). Meanwhile, one can look at better-ranked players in the energy sector like Enbridge Energy Management LLC (EEQ). The stock sports a Zacks Rank #1 (Strong Buy).
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