A Deepwater Stock You Shouldn't Miss

As all Fools know, oil prices have jumped around in the past five quarters like a proverbial cork in a storm. The result has been difficult for most of the companies, except for the deepwater drillers, namely Diamond Offshore (NYSE: DO  ) and Transocean (NYSE: RIG  ) , both of which have seen their rigs generally remain contracted.

Diamond Offshore reported its third-quarter results on Thursday, and the second-largest drilling contractor did a great deal to make itself proud. From a purely earnings standpoint, the company checked in with income of $361.4 million, or $2.62 a share, improving on earnings of $310.5 million, or $2.23 per share in the third quarter of 2008. Analysts who follow the company had been anticipating a consensus of $2.30 per share.

At the same time, Diamond Offshore announced regular and special dividends for the quarter. The company's regular dividend will amount to $0.125 per share. The special dividend, for which Diamond has become somewhat noteworthy, will total $1.875. As such, the total will amount to $2.00 per common share.

Diamond's earnings overage for the quarter coincided with that of Noble (NYSE: NE  ) , third largest of the deepwater drillers, which beat last year's earnings by 11%. Noble, like both Diamond Offshore and Transocean, has a number of rigs working in the waters of the Santos Basin offshore from Brazil. Transocean, however, will make us wait until November before announcing its third-quarter results.

If you listened to the company's conference call, you know that a couple of Diamond Offshore's key accomplishments were the acquisition, at attractive prices, of the Ocean Courage and the Ocean Valor, two dynamically positioned drilling rigs that can operate in as much as 10,000 feet of water. At the same time, as the quarter came to a close, the company issued $500 million in 30-year notes at a 5.7% interest rate.

During its call, management was asked about rumors that ExxonMobil (NYSE: XOM  ) would raise its capex by 10% to 12% in 2010, primarily outside North America. Management's response was unclear, at best. But I strongly believe that with oil prices heading higher, the budgets of other international oil companies like Chevron (NYSE: CVX  ) , BP (NYSE: BP  ) , and Total (NYSE: TOT  ) almost certainly are headed north as well.

The key beneficiaries will surely be Diamond Offshore, Transocean, and Noble.

Diamond Offshore is a four-star company as rated by Motley Fool CAPS players. Why not go into the company's CAPS page and tell us how you'd cast your ballot?

Total SA is a Motley Fool Income Investor pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor David Lee Smith used to crawl around on Diamond Offshore rigs as a very junior officer of a predecessor company. He welcomes your questions and comments. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1017440, ~/Articles/ArticleHandler.aspx, 10/23/2014 2:02:43 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement