While rig companies continued to see revenues and profits decline precipitously in recent quarters, Diamond Offshore Drilling (NYSE: DO) generated a surprisingly resilient third-quarter earnings result. What's even more impressive, though, is that management had some very optimistic things to say about the outlook for the rig market. Here's a quick look at Diamond's earnings, what management thinks it sees in the future, and whether it's a signal of good times ahead.
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By the numbers
|Results*||Q3 2016||Q2 2016||Q3 2015|
|Earnings per share||$0.10||($4.30)||$0.99|
*in millions, except per share data. Source: Diamond offshore earnings release
Overall, Diamond's results were quite good. Sure, we saw the expected declines in revenue from rigs coming off contract, but it didn't have as much of an impact on the bottom line as it had on other rig companies in recent quarters.
One of the most surprising things in these earnings results is that the company posted quarter over quarter gains in operational income for its ultra-deepwater and midwater floater rigs. Midwater rigs have been falling out of fashion in the rig industry as of late because they are less technologically advanced and can't handle some of the more complex drilling jobs that the ultra-deepwater rigs can handle. On top of that, there hasn't been much new work in general. A closer look at those results will reveal that those gains in operational income all came on the cost control side of the business as revenues for these two rig classes remained pretty much flat and drilling expenses declined.
Source: Diamond offshore earnings releases. Chart by author
What management had to say
On top of CEO Marc Edwards comments on Diamond's rather commendable work this past quarter, he wanted to share the company's thoughts on what it sees in store for the industry in the coming years.
What a Fool Believes
Edwards' statement on the future of offshore oil aren't that revelatory. Shale drilling globally is likely going to play a larger role that just about everyone anticipated a few years ago, but its total production contribution won't be enough to meet new demand and declining production from other places.
Eventually, offshore sources will need to be utilized, and when that day comes Diamond says its fleet will be ready because the company has done a commendable job of maintaining both fleet and balance sheet discipline. The biggest question for these companies is not if the market picks back up, but when. With so many producers needing to improve their balance sheets and a muted oil price recovery, chances are we are still a long ways off.
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