Diamond Wins Major Contracts

Diamond Offshore Drilling Inc. (DO - Analyst Report), a major contract driller, has received notifications of award for three term drilling contracts from Petrobras (PBR - Analyst Report) in Brazil. Excluding bonus and extensions, these contracts have a combined capacity to generate total revenue of approximately $1.4 billion and represent at least 11 years of contract drilling backlog. 

The contracts are for three floating drilling rigs: ultra-deepwater semisubmersible Ocean Valor, deepwater semisubmersible Ocean Baroness and deepwater drillship Ocean Clipper. 

Ocean Valor and Ocean Baroness each received a three-year commitment that could generate approximately $493 million and $307 million of revenue, respectively. However, Ocean Clipper received a five-year commitment with a $557 million revenue generation capacity. 

While Diamond has been suffering from a severe contraction in utilization rate for jackups and high specification floaters, the new contracts will surely boost the company’s struggling bottom line. 

The company’s contract backlog has also been experiencing a downtrend for quite some time. As of Feb 1, 2010, contract drilling backlog stood at $8.5 billion, down more than 22% from the position on Feb 5, 2009. The long-term contracts will also help the company to reverse this diminishing backlog trend.
 
In the contract drilling industry, Diamond is a prominent name. Moreover, the company has returned excess cash to shareholders through regular and special dividends since the beginning of 2007. 

Though the company reported significantly weaker-than-expected fourth quarter 2009 results, it kept its dividends unchanged. With an improving global economy, more offshore discoveries, increased E&P spending and the Petrobras contracts, we believe that Diamond’s dividend is safe.

Read the full analyst report on DO

Read the full analyst report on PBR