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Diamond Offshore: A Tough Road To Recovery


  • Diamond Offshore reported a net profit of $19.3 million or $0.14 per share for the first quarter of 2018. Total revenues were $295.51 million.
  • The company expects slightly higher contract drilling expense in Q2 2018 between $210 million and $215 million.
  • The stock is retracing now and I recommend a cautious accumulation under $16, assuming future bullish oil prices.

Image: Drillship Ocean Endeavor.

Investment Thesis

Diamond Offshore (NYSE:DO) is a dilemma from an investor's perspective due to the contradictory character of its business model. While the company has managed to survive years of struggling and shows a solid balance sheet with room to maneuver, it did not use this substantial advantage to handle these tough economic times to rejuvenate at a discount its shrinking and aging rig fleet. However, I consider the stock as a good investment due to an appealing valuation. The stock is retracing now and I recommend a cautious accumulation under $16, assuming future bullish oil prices.

CEO Marc Edwards is still procrastinating and refuses to act decisively about the need to fix the company's aging rig fleet, thinking that the offshore drilling industry may get even worse and will offer better "distressed" deals this year. However, it is not what we are experiencing at all in the Industry.

Oil majors are starting to spend money again in exploration CapEx and tendering activity is slowly increasing. Good assets have been grabbed fast directly at the shipyard (West Mira, West Rigel, etc.) with discounted sale prices lately.

Transocean (RIG) and Ensco (ESV) have been quick to recognize that this market is offering buying opportunities and acquired some good assets at a significant discount. I think Diamond Offshore should consider a merger, but I do not see a firm commitment from the company, yet. The clock is ticking.

ChartDO data by YCharts

After listening to the last conference call, I concluded that offshore drillers could be at the bottom, but it will be a slow recovery which will take months to translate into meaningful business improvement. The question for Diamond Offshore is to adapt and have a fair share of the recovery.

Diamond Offshore - Balance Sheet history. The raw numbers

This article was written by

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As an experienced investor, I will help you stay on task more efficiently.

I am a former test & measurement doctor engineer (geodetic metrology). I was interested in quantum metrology for a while.

I live mostly in Sweden with my loving wife.

I have also managed an old and broad private family Portfolio successfully -- now officially retired but still active -- and trade personally a medium-size portfolio for over 40 years.

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Note: I am not a financial advisor. All articles are my honest opinion. It is your responsibility to conduct your own due diligence before investing or trading.

Analyst’s 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.

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