Commentary On Diamond Offshore's Q4 And FY 2015 Results, Part I - Fleet Status

| About: Diamond Offshore (DO)

Summary

Diamond Offshore released its fleet status on February 8, 2016. I noticed two new contract extensions, and another four rigs cold stacked. Murphy reverted the terms of BlackRhino.

DO has put all its jackups for sale (except Ocean Scepter) and indicated a value of $14.2 million.

The company's fleet status is shrinking at a fast rate. 14 rigs are actually working out of 34, and another three more rigs will roll off contract in 2016.

Source: Ocean Endeavor

This article is an update to my preceding article on Diamond Offshore Drilling (NYSE:DO) published on November 2, 2015. This article should be read in connection with Part II (4Q'15 balance sheet) about the balance sheet.

Complete Fleet Analysis as of February 8, 2016

1 - Semi-Submersibles, Deepwaters and Midwaters

# Name Spec.

Contract

End

Current day rate

K $

Down time

Location
Ultra-Deepwater Drillship - Semi-submersible
1

Ocean

BlackHawk

2014

Ultra-deepwater >7,500'

Drillship

6/19 495

5Y+unpriced opt.

(Anadarko (NYSE:APC))

GOM-US

2

Ocean

Black Hornet

2015

Ultra-deepwater >7,500'

Drillship

4/20

495

5Y+unpriced opt.

(Anadarko)

GOM-US

3

Ocean

BlackLion

2015

Ultra-deepwater >7,500'

Drillship

mid-12/19

400

(37d) 1Q'16

(Murphy (NYSE:MUR))

US GOM

(Hess (NYSE:HES))

GOM-US

4

Ocean

BlackRhino

2015

("1")

Ultra-deepwater >7,500'

Drillship

mid-2/16

2/16-12/16

12/16-12/19

550

contract prep.

400

(45d) 1Q'16

(15d) 2Q'16

(30d) 3Q'16

(60d) 4Q'16

(Murphy)

GOM-US

(Hess)

5

Ocean Courage

2009

Ultra-deepwater >7,500'

SemiSub

Late 2/18

Late 2/18-Late 7/20

455(+112)

380

(10d) 4Q'15

6% bonus pot.

(Petrobras (NYSE:PBR))

Brazil

6

Ocean Endeavor

2007

Ultra-deepwater >7,500'

SemiSub

Available

Late 5/16

Demob.

Reassembly

(91d) 1Q'16

(49d) 2Q'16

(Exxon Mobil (NYSE:XOM))

Romania

Italy

7

Ocean Monarch

2008

Ultra-deepwater >7,500'

SemiSub

Early 10/16

early 10/16-early 1/17

410

350

+1Y opt.

(Quadrant/Woodside (OTCPK:WOPEY))

Australia

(Quadrant/Apache (NYSE:APA))

8

Ocean Great White

2016

Ultra-deepwater >7,500'

SemiSub

South Korea

H2/16-H2/19

H2 2016

585+

(BP (NYSE:BP))

Australia

9

Ocean Rover

2003

Ultra-deepwater >7,500'

SemiSub

3/16 465 +1Y opt.

(Murphy)

Malaysia

10

Ocean Valor

2009

Ultra-deepwater >7,500'

SemiSub

mid-10/18

455

(Petrobras)

Brazil

Deepwater Floaters
1

Ocean Apex

2014

Deepwater 5,000' to 7,500'

SemiSub

Available

Early 5/16-Late 10/17

-

285

18m term convertible to 24m term @270k/d

1x1Y opt./2x6m opt.

(20d) 2Q'16

(Woodside)

Australia

2

Ocean Valiant

1988

Deepwater 5,000' to 7,500'

SemiSub

4/16

197.50

(Premier Oil (OTCPK:PMOIY))

UK
3

Ocean Victory

1997

Deepwater 5,000' to 7,500'

SemiSub

mid 5/17

398

1Y opt.

(BP)

Trinidad

Midwater Floaters
1

Ocean Ambassador

1975

Midwater 450' to 5,000'

SemiSub

3/16 115

(Pemex)

GOM

Mexico

2

Ocean Guardian

1985

Midwater 450' to 5,000'

SemiSub

Available

3/16-3/17

-

220

(Dana)

UK

3

Ocean Patriot

1983

Midwater 450' to 5,000'

SemiSub

10/17

400.511

(Shell (NYSE:RDS.A) (NYSE:RDS.B))

UK

Click to enlarge

2 - Jackups

# Name Specification Contract End

Current day rate

K $

Down

time

Previous day rate
1

Ocean Scepter

2008

Jackup 0' to 450'

3/17

115 (12d) 3Q'16

(Pemex)

GOM

Mexico

Click to enlarge

Note for the Endeavor - Mr. Ron Woll said:

Endeavor is in Romania now where the derrick will be removed, so we can take it back to the Bosporus on a heavy lift. We definitely see it as part of our fleet going forward but there is no immediate follow on work that we are announcing today. Yes, we've got several months worth to work, I think before we take her down to a cold-stacking status. So, we've got to - there is some work still ahead, before get there but we will minimize our costs and then see where the market takes us.

3 - Rigs Stacked/Retired

# Name Year Built Specification Status Location
1 Ocean King 1973 Jackup 0' to 450' Cold stacked

GOM

Mexico

2

Ocean Nugget

1976 Jackup 0' to 450'

Cold stacked

GOM

Mexico

3 Ocean Spur 1981 Jackup 0' to 450'

Cold stacked

Malaysia
4 Ocean Titan 1974 Jackup 0' to 450' Cold stacked

GOM

Mexico

5 Ocean Nomad 1975 Midwater 450' to 5,000' Cold stacked UK
6 Ocean Princess 1975 Midwater 450' to 5,000' Cold stacked UK
7 Ocean Vanguard 1982 Midwater 450' to 5,000' Cold stacked UK
8 Ocean General 1976 Midwater 450' to 5,000' Cold stacked Malaysia
9 Ocean Star 1997 Deepwater 5,000' to 7,500' Cold stacked US GOM
10 Ocean Baroness 2001

Ultra-deepwater >7,500'

Cold stacked US GOM
11 Ocean Summit 1972 Jackup 0' to 450' Cold stacked US GOM
12 Ocean Alliance 1988 Deepwater 5,000' to 7,500' Cold stacked Brazil/Us GOM
13

Ocean Quest

1973 Midwater 450' to 5,000' Cold stacked Malaysia
14

Ocean America

1988 Deepwater 5,000' to 7,500 Cold stacked Malaysia
15

Ocean Onyx

2013 Deepwater 5,000' to 7,500' Cold stacked US GOM
16

Ocean Confidence

2001 Ultra-deepwater >7,500' Cold stacked Canary Island
Click to enlarge

("1") Murphy exercised its option to revert the term on Ocean BlackRhino to its previous 265-day duration and paid a lump sum "payback fee" in 4Q 2015 based on a rate of $550,000 per day. In the conference call, it is indicated that DO received $33 million as compensation.

Fleet Analysis

The fleet can be divided into four groups:

Floaters Jackups Cold Stacked Total

UDW

SemiSubs

Deepwaters Midwaters
Number of working rigs 8 2 3 1 - 14 (41%)
Available 2 1 1 0 - 3
Total rigs 10 3 4 1 16 34
Click to enlarge

Commentary:

Diamond Offshore reported its February fleet status on February 8, 2016 (Quarterly report). A few changes that I noticed:

  1. The Ocean BlackRhino - Murphy exercised its option to revert the term of Ocean BlackRhino and paid the fee called "payback fee" based on $550k/d.
  2. The JU Ocean Scepter got one-year extension with Pemex until 3/17 @$115k/d. Mexico.
  3. The Ocean Valiant got a four-month extension (option) until 4/16 (four wells) with Premier Oil at a reduced dayrate of $197.5k/d (before $320k/d).
  4. The Ocean Endeavor is demobilized and reassembled until 5/16, no dayrate.
  5. The Ocean Apex slightly changed the 18-month term @$285k/d, convertible to 24-month @$270k/day. Australia, starting late May 2016 instead of June 2016. It is not a new contract, and I indicated it in the preceding FSR.
  6. The Ocean Clipper has been scrapped in 4Q'15.
  7. Four new rigs have been added to the list of cold stacked rigs: The Ocean Quest, Ocean America, Ocean Onyx, and Ocean Confidence.

Overall, it was not so bad. Diamond Offshore managed to secure two new contract extensions with Pemex in Mexico and Premier Oil in the North Sea. For Premier Oil, it was an option for four wells that has been exercised, but the dayrate sank from $320k/d to now $197.5k/d.

After the Ocean Clipper scrapped in 4Q'15, the company has now a total of 34 rigs with only 14 rigs actually working or 41%. Good operational efficiency at 97% in 4Q'15.

However, looking at the contract backlog for 2016, 2017 and even 2018, we can see some decent numbers. Mr. Marc Edwards, CEO, said the following in the conference call:

All asset classes are struggling, but as I said before, the higher end dynamically positioned fifth and sixth-generation market has the biggest problem. But on a positive note and as you are aware, all of our sixth-generation assets are contracted to 2019 or beyond. The market will recover, as oil supply and demand fundamentals come into balance, but we believe that due to the long lead times in the deepwater space, any uptick in activity could be further over the horizon than current consensus.

The company expects to sell all its jackup fleet in 2016 - except the Ocean Scepter working for Pemex in Mexico - and indicated a value of $14.2 million in the balance sheet.

Another positive item is that DO has no special surveys for rigs in its fleet scheduled for 2016. The five-year survey is a costly expense that can reach over $50 million per rig.

The company entered an agreement with GE (NYSE:GE). Mr. Marc Edward, CEO, said the following in the conference call:

We are entering an industry first of its kind performance based service and maintenance arrangement for the provision of pressure control. In other words GE, as the original equipment manufacturer will now be a key stakeholder in improving the availability and performance of the subsea stacks on Diamond Offshore's sixth-generation ultra-deepwater drillships. These are the Oceans BlackHawk, BlackHornet, BlackRhino, and BlackLion.

The new service model, which we refer to as Pressure Control By the Hour, transfers full responsibility for the maintenance service, the management and supply of spare parts, equipment upgrades, continuous certification and data monitoring back to the original equipment manufacturer.

GE employees will be permanently stationed on our rigs but Diamond will retain operation and control of the subsea stack itself. Not only will GE maintain the subsea stacks but they will buyback Diamond Offshore systems, which include all eight units, two boarding ships as well as the diverters and control systems. Under the arrangement, Diamond Offshore will pay a dayrate, similar to how we are paid by our own customers.

We will have to see what this agreement will translate to in 2017? It is too early to conclude anything so soon, whereas the idea seems quite good.

The Part II will be about the balance sheet.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.