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Diamond Offshore Drilling Inc. (DO - Analyst Report) reported first quarter 2013 earnings of $1.27 per share, surpassing the Zacks Consensus Estimate of $1.15. The outperformance was mainly backed by lower contract drilling expenses and interest overhead. Also, the quarterly results increased approximately 5% from the year-earlier earnings of $1.21 per share.

Total revenue in the quarter, however, decreased 5.1% year over year to $729.7 million and lagged the Zacks Consensus Estimate of $769.0 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 Jun 3, 2013 to shareholders of record on May 7, 2013.

Operational Performance

In the first quarter, revenues from the Contract Drilling segment fell 7.3% year over year to approximately $700.0 million, mainly due to a 6.8% decrease in total floaters revenue. These floaters accounted for 94.4% of the total quarterly contract drilling revenue, while jackups contributed 5.6%.

Ultra-Deepwater floaters recorded an average dayrate of $360,000 during the quarter, down from $364,000 in the year-earlier quarter. Deepwater floaters realized an average dayrate of $389,000 versus $359,000 in the year-ago quarter. Mid-water floaters recorded an average dayrate of $262,000, down from $266,000 in the year-earlier quarter. Jackup rigs’ dayrates averaged $85,000, down from $87,000 in the first quarter of 2012.

Rig utilization for Ultra-Deepwater floaters decreased to 73% from 85% in the year-ago quarter. Utilization of Deepwater floaters increased to 94% from 88% in the year-ago quarter. Mid-water category rig utilization was 64% compared with 65% in the comparable quarter last year while jackup rig utilization increased to 71% from 44%.


As of Mar 31, 2013, Diamond Offshore had approximately $308.1 million in cash and cash equivalents, while long-term debt was $1,496.1 million. Debt-to-capitalization ratio at the end of the quarter was 24.4% (down from about 24.6% in the preceding quarter).


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 enhances the possibility of further share buybacks and/or special dividends, going forward.

However, given the volatile oil and gas price scenario as well as geopolitical risks associated with international operations, we maintain a Zacks Rank #3  (short-term Hold rating) on Diamond Offshore.

However, there are other stocks in the oil and gas industry, like Harvest Natural Resources Inc. (HNR - Snapshot Report), EPL Oil & Gas, Inc and Range Resources Corporation (RRC - Analyst Report), which appear more promising and carry a Zacks Rank #1 (Strong Buy).


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