A must-know investor's guide to Diamond Offshore Drilling (Part 1 of 8)
Diamond Offshore Drilling (DO) is a major company in the offshore contract drilling industry, with a market capitalization of $6.75 billion and $2.98 billion in revenue for fiscal year 2012. Its fleet consists of semisubmersibles and drillships with emphasis on mid-water, deepwater, and ultra-deepwater drilling operations. Plus, it operates a modest shallow-water fleet of jackup rigs. Diamond Offshore’s shallow water operations occur in the U.S. Gulf of Mexico, Mexico, and Ecuador, while its drillship and semisubmersible operations occur around the world in popular drilling locations such as Brazil, Western Africa, the North Sea, Mexico, the U.S. Gulf of Mexico (US GOM), and Southeast Asia.
How Diamond Offshore makes money
Like its competitors, Diamond Offshore bids for competitive drilling contracts offered by integrated oil companies such as Chevron and ExxonMobil, and the terms of the contracts vary, depending on the needs of the customer. Sometimes, contracts can also be obtained through negotiations with customers. When a contract is active, Diamond Offshore will conduct exploration, appraisal, or development drilling, and these tasks continue for the contract’s entire duration. Contracts can be terminated prematurely for a number of reasons. Also, early termination penalties vary between customers.
In what does the company specialize
Diamond Offshore’s fleet is primarily focused on mid-water, deepwater, and ultra-deepwater operations, and the increasing popularity of these activities among integrated oil companies has result in increased activity and revenue growth in ultra-deepwater deeper markets and stagnant or declining activity in shallower markets. This contrasts with companies such as Hercules Offshore (HERO) and Ensco Plc. (ESV) that are primarily focused on shallow water jackup operations. The company has adapted to these trends by investing in the construction of four new ultra-deepwater drillships, two deepwater semisubmersibles, and one ultra-deepwater, harsh-environment semisubmersible to better service customers’ deeper reserves in key markets.
Browse this series on Market Realist: