Diamond Offshore's Weak Outlook Contrasts Demand for Onshore Rigs

Reuters

Aug. 1 (Reuters) - Diamond Offshore Drilling Inc. said there were "next to zero" contracts for deepwater rigs, highlighting the contrast between subdued offshore drilling activity and a recent resurgence in shale drilling.

The company's shares fell as much as 7.4 percent on Monday as the outlook overshadowed a better-than-expected quarterly profit.

Oil producers - especially those operating in North American shale fields - are putting rigs back to work as global oil prices recover from 13-year lows hit in January.

But offshore drilling activity is not expected to pick up anytime soon, given the formidably higher costs of operating fields in deep waters.

Diamond Offshore, which has scrapped dividend and retired rigs to cope with falling demand, took a $612 million writedown for eight offshore rigs in the second quarter.

"Some of the larger diversified oilfield service providers have declared a bottom in activity and are suggesting that a recovery is imminent," Chief Executive Marc Edwards said on a conference call. "While this may be the case for certain onshore basins, it is not so for deepwater drilling."

Schlumberger Ltd, the world's No.1 oilfield services provider, said last month the oil downturn appeared to have bottomed out. Halliburton Co forecast a "modest uptick" in North American rig count in the second half of the year.

New offshore rigs continue to hit the seas even as older rigs roll off contracts and customer spending falls, creating a "perfect storm" for drillers, Edwards said.

Separately, Diamond Offshore's rival Transocean Ltd said on Monday it would take full control of its master limited partnership Transocean Partners LLC - a move aimed at reducing costs and improving liquidity.

The deal, with an enterprise value of about $1.6 billion, will eliminate $29 million in payments to Transocean Partners unitholders and about $10 million in other costs, Tudor, Pickering, Holt & Co analysts wrote in a note.

Diamond Offshore reported a net loss of $589.9 million, or $4.30 per share, for the quarter ended June 30. A year earlier, it had a profit of $87.4 million, or 64 cents per share.

Excluding items, the company earned 16 cents per share, well above the average analyst estimate of 3 cents, according to Thomson Reuters I/B/E/S.

Revenue fell 17.4 percent to $388.7 million, but beat the average estimate of $373.5 million.

Diamond Offshore shares were down 5.5 percent at $21.44 in late morning trading, while Transocean shares were down 6 percent at $10.32.

(Reporting by Anet Josline Pinto in Bengaluru; writing by Swetha Gopinath; editing by Kirti Pandey)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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