This was a very interesting fleet status report. Once again, Diamond Offshore has shown its ability to find contracts for its rigs. The new contracts for drillships put the company in a very interesting situation. All four drillships are now booked until 2022-2023. I have previously estimated that BP contracts for BlackHawk and BlackLion came with a dayrate of about $250,000. Should Bassoe estimate of a $275,000 dayrate for new Woodside contracts prove right, the company will have all drillships locked below $300,000 per day until 2022-2023.
These dayrates are good compared to the current spot rates of about $175,000 but below the optimistic projections. In this sense, the obviously great fleet status report may even serve as a short-term bearish catalyst for the industry as some investors and traders still believe that a speedy recovery envisioned by Transocean (RIG) will happen. Since Diamond Offshore was the most accurate company in predicting the length and severity of the market downturn, the market can take these new contracts as a call on "no rates above $300,000 until 2023".
Regardless of how the market will take the news in the short-term, I believe that the new contracts are fundamentally good for the company. Diamond Offshore has secured cash flow positive contracts for all its drillships for a period that is lengthy enough for spot rates to recover and ensure the viability of the company. I believe that the new contracts fully reflect the view that Diamond Offshore has reiterated many times - modern drillships are the most overcrowded segment of the market so fixing them for the next several years while leaving some optionality on the semi-sub side makes perfect sense.
Diamond Offshore remains one of my favorite drillers: solid balance sheet, rigs that have proven their attractiveness to the market, and great execution from the management team will ensure that the company will ultimately thrive in due time. Meanwhile, should the market be too harsh to Diamond Offshore's shares in the near term, I'd look for a speculative entry somewhere between the support levels at $9.00-10.00.
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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in DO over 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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