1.
What to Watch When Diamond Offshore
Reports Second-Quarter Results
Photo credit: Seadrill

2.
• Analysts anticipate that Diamond Offshore will report $683.8
million in revenue and earn $0.56 per share this quarter.
• That’s well below the $1.33 per share the company earned in last
year’s second-quarter.
• It’s also below last quarter’s mark of $0.93 per share.
• However, in both cases the company vastly outperformed
analysts’ estimates as Diamond Offshore beat estimates by 43%
last quarter and 7% in last year’s second quarter.
Diamond Offshore is expected to report
second-quarter results on July 24th.

3.
• Topping the list is the company’s average dayrate and utilization
on the quarter. While dayrates have been picking up, utilization
has been weak. Ideally, both would improve this quarter.
In order for the company to beat estimates
again, a lot has to go right.
1Q 2014 4Q 2013 1Q 2013
Dayrate Utilization Dayrate Utilization Dayrate Utilization
Ultra-Deepwater Floaters $387 66% $350 91% $360 73%
Deepwater Floaters $418 64% $402 65% $389 94%
Mid-Water Floaters $276 64% $277 66% $262 64%
Jack-Ups $93 79% $87 76% $85 71%
Source: Diamond Offshore’s First Quarter Earnings release

4.
• On June 4th Diamond Offshore announced that it had received
notice from Statoil that its contract for the mid-water
semisubmersible Ocean Vanguard was terminated.
• The contract called for a $454,000 dayrate and the contract was
estimated to conclude next February.
• Diamond Offshore is disputing the cancellation.
• Investors will want to see the company provide some color on
what happened and how it will impact its business going forward.
However, one area that could negatively
impact both is a recent contract termination.

5.
• A quarter of Diamond Offshore’s rigs are coming off of contract in
the coming months with no new ones having been announced
yet.
• Investors need to see new contract announcements or the
company could be in deep trouble.
• Working against Diamond Offshore is the age of its fleet. It has
one of the oldest fleets in the industry, which puts it at a
disadvantage to companies like Seadrill that have new rigs
coming online. That could be bad news for Diamond Offshore as
drillers prefer newer vessels.
The other area to watch here is a fleet update.

6.
As the slide below notes, Diamond Offshore’s
ultradeepwater fleet is smaller and much older than its
peers.
Source: Seadrill Investor Presentation

7.
• Diamond Offshore has the best credit rating in the sector as it
hasn’t used debt to build new rigs. However, Seadrill’s debt
fueled building binge is why it has the new rigs that drillers want.
• It’s possible that Diamond Offshore will use its pristine balance
sheet to take advantage of the current storms in the deepwater
market to acquire a weaker rival or acquire new vessels.
• Investors should look to see if the company has hints that it’s
planning on using its financial strength to take advantage of
current market conditions.
Another area to watch is the company’s
balance sheet.

8.
As the slide below notes, Diamond Offshore’s
net debt to market cap leads its peer group.
Source: Diamond Offshore Investor Presentation

9.
• Optimism seems to slowly be coming back to the offshore rig
market.
• Just last week an analyst upgraded Diamond Offshore siting a
slow resumption of activity in the offshore marketplace.
• Further, in June Seadrill and some of its deepwater peers had a
really good week as four new deals were signed.
• Look to see if Diamond Offshore is seeing signs that optimism is
returning to the sector as that could be the key to getting new
contracts for its rigs.
Finally, investors should pay attention to what Diamond
Offshore has to say about the rig industry in general.

10.
Diamond Offshore could be in for a rough quarter if its utilization
and dayrates continue to slip. However, if the company decides to
use its balance sheet strength to refresh its fleet, that could be
the encouragement investors need to bid shares higher.
Photo credit: Flickr/Seadrill
Investor takeaway

11.
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