Are Customers Satisfied with Diamond Offshore?

EnergyPoint Research has collected customer satisfaction ratings on Diamond Offshore (DO) and other major offshore drillers since 2004. These ratings reflect information gathered from hundreds of confidential supplier evaluations via EnergyPoint’s independent and industry-wide surveys.

For the period 2004 through Q1 2009, DO has rated last among major offshore drilling contractors in terms of respondents’ overall satisfaction. DO ratings reflect the opinions of 48 total evaluations, most of which by respondents characterizing themselves as primary decision-makers or contributors to the process of selecting suppliers within their companies. Approximately two-thirds of evaluations were from respondents at supermajors, majors or national oil companies.

So what’s holding DO back in the eyes of survey respondents? In part, it’s the company’s lower marks for service and professionalism, an area that has shown to correlate highly with how respondents rate a supplier in terms of overall satisfaction, customer loyalty and willingness to recommend to others. DO has struggled with particularly low ratings when it comes to the resolution of problems and disputes, along with its flexibility and responsiveness towards customers.

Anecdotally, we get the sense that some respondents have been frustrated with the company’s unwillingness to pay for equipment and materials that other drillers cover in standard fashion.

To be fair, DO’s ratings reflect respondents’ satisfaction during one of the strongest sellers’ markets in memory for its services. Unlike some of its peers, the company has not sought to aggressively expand its fleet via numerous and expensive new builds or acquisitions during the period. Instead, management has chosen to extract premiums and longer-term contracts for its existing fleet.

As a result, the company has generated impressive free cash flow and paid substantial dividends to majority owner Lowes Corporation (L) and other shareholders in recent years.

Yet, while returning cash to shareholders is understandable and even admirable, our data suggest customers might prefer greater amounts of capital be allocated to more advanced equipment and technologies for the future.

Disclosure: No positions