Diamond Offshore Drilling’s fourth-quarter earnings tumbled 13 percent from last quarter, as the company still struggles with the cost of increased industry regulation and rising costs of operating in challenging environments, such as Egypt.
Diamond Offshore reported a profit of $156 million for fourth quarter 2012, or $1.12 a share, down from $178 million, or $1.28 per share, for third quarter. The company earned $188.5 million, or $1.36 a share, for the same period last year.
Diamond recorded fourth-quarter revenue of $751 million, up $21 million compared to the prior quarter. But the end of the year boost still leaves the company’s annual revenue of $2.98 billion for 2012 trailing its 2011 revenue of $3.32 billion.
Diamond Offshore had seen declining revenue over the past year as the offshore-drilling sector struggles with increasing regulation over deep-water programs in the Gulf of Mexico. Diamond had more than 180 days of downtime in the third quarter, as the company struggled to ensure that its equipment met regulators’ standards.
In response, the company has worked to trim expenses, as it continues to pursue deep-water drilling contracts.
“Our results for the fourth quarter and full year reflect our continuing efforts to manage operating costs across the fleet,” said Larry Dickerson, president and chief executive officer of Diamond Offshore.
“While there is some cost inflation pressure in our industry, we remain focused on controlling and reducing expenses.”
While contract drilling expenses grew 4 percent to $387 million in the fourth quarter, they were still far lower than Barclays analyst James West’s prediction of $412 million, as Diamond managed to rein in costs by the end of the year.
“We believe the earnings release has positive implications for the stock,” West wrote in an analyst’s note, explaining that the company beat analyst expectations by 4 percent.
For the full-year 2012, Diamond earned $720 million in 2012, or $5.18 per share, compared with net income of $963 million, or $6.92 per share, in 2011. Its revenue also fell to $3 billion in 2012, compared with $3.3 billion in 2011.
The company also announced a three-year contract with Royal Dutch Shell for its Ocean Patriot with a dayrate of $400,000, an indicator of the strong prices offshore rigs are still able to command.
Dickerson said the company is “committed to continuing to enhance the fleet”, as it competes for deep-water opportunities in the Gulf of Mexico, West Africa and Australia, where the drilling business is booming.
“The No. 1 criteria is the design of the rig and what it is that you can do with that,” Dickerson said, explaining that the ability to take on additional weight is essential for rigs, which are being pushed into deeper waters and carrying more production equipment.
“Some of these rigs are very small…there is not much you can do with that. It restricts their water depth,” he said. “It is difficult to up-size the rigs to any degree without spending a lot of money.”
The company plans to sell four of its smaller rigs, as it trims its fleet and focuses its investments on bigger rigs that can hold more equipment and navigate deeper waters.
“Some of these rigs are at the end of their lives,” Dickerson said. “We decided to provide opportunities for other people to invest in them or other people to put them to work.”