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Why Diamond Offshore Drilling’s Confident Despite Market Downturn

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Diamond Offshore Drilling’s performance by segment

From fiscal 4Q14 to 4Q15, Diamond Offshore Drilling’s (DO) Ultra-Deepwater segment’s revenues rose 38% while its other three segments’ revenues fell. Its Mid-Water segment suffered the biggest revenue decline with an 81% fall. The Ultra-Deepwater segment alone accounted for 73% of Diamond Offshore Drilling’s fiscal 4Q15 revenues.

Diamond Offshore Drilling’s Ultra-Deepwater segment’s operating income rose 62% in fiscal 4Q15 compared to a year ago. On the other hand, the company’s Mid-Water and Jack-Ups segments’ operating income fell 86% and 95%, respectively, during the same period. Core Laboratories’ (CLB) fiscal 4Q15 adjusted operating income fell 57% compared to fiscal 4Q14. Core Laboratories’ market capitalization stands at $4.4 billion compared to Diamond Offshore Drilling’s $2.6 billion.

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Factors affecting Diamond Offshore Drilling’s fiscal 4Q15 performance

  • lower Deepwater and Mid-Water average day rate
  • significantly lower Mid-Water and Jack-Ups rigs utilization

Partially mitigating these negative factors were an 8% higher Ultra-Deepwater segment average day rate and a 29% higher Jack-Ups day rate. Plus, steady Ultra-Deepwater rig utilization partially offset a fiscal 4Q15 operating income decline. Diamond Offshore Drilling is 0.19% of the Guggenheim S&P 500 Equal Weight ETF (RSP), but for investors looking for some exposure to the energy sector, energy makes up 7.9% of RSP.

Diamond Offshore Drilling’s CEO comments

Diamond Offshore Drilling’s CEO, Marc Edwards, expressed confidence in the company’s balance sheet despite the continued pressure in the energy market. In the fiscal 4Q15 press release, he commented, “Given the severe and prolonged downturn in industry fundamentals, we believe it is prudent to bolster our already strong balance sheet. By conserving additional cash, we will have increased flexibility to manage the company through difficult market conditions and position ourselves for the eventual recovery in offshore drilling.”

Next, we’ll discuss Diamond Offshore Drilling’s returns.

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