Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



This Drilling Stock Is Recovering

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The offshore drilling industry is recovering. Shallow-water drilling seems to be making a comeback. Diamond Offshore Drilling (NYSE: DO  ) beat analysts' estimates to post healthy first-quarter results. And this is not a company that focuses solely on ultra-deepwater drilling.

On the road to recovery
While ultra-deepwater drilling is arguably the most lucrative segment in the industry, management at Diamond oversaw a decent quarter, thanks to some astute cost-cutting and better rig utilization rates. Total drilling revenue came in at $755 million, which is a 4% drop from last year's first quarter. However, this represents 3% growth over last year's fourth quarter. While on a year-on-year basis things don't look too impressive, what's evident is that the company is making progress after falling behind in the previous quarter. Total operating income stood at $265.4 million, which is 17% lower than that of the year-ago quarter, but a healthy 22% improvement on a sequential basis.

Astute management
Gross margins improved sequentially by almost 3 percentage points to 47.4%, which is proof that the company is doing a decent job of keeping costs low. It's not that management came up with some ingenious methods to cut costs or had to trade off some essential expenses related to safety. Instead, the company ramped up its efficiency in its normal operations by clamping down costs in supply and repairs.

Additionally, rig utilization rates have been impressive. With as many as 15 rigs stationed off the shores of Brazil and at least 10 of them contracted till 2014 and beyond, there's no question of rigs being cold-stacked. And the best part is that the rigs aren't all suited for the ultra-deepwater drilling. Brazil's state-owned Petrobras (NYSE: PBR  ) is operating nine rigs (including three with ultra-deepwater-drilling capabilities) with six of them contracted till beyond 2014.

However, I'm not too impressed with the status of Diamond's rigs stationed in the Gulf of Mexico, where five of the eight unutilized rigs are located. This is explained by the lousy market conditions in this region. Hercules Offshore (Nasdaq: HERO  ) has 18 rigs idling in the Gulf, and this has affected the company's performance. But this is an improvement and Hercules is fetching higher dayrates as well. Still, it's high time that these drillers move out of the Gulf given that international offshore drilling is just picking up.

Foolish bottom line
All in all, Diamond Offshore is making good progress, and I believe it will continue to do so. This year, its stock has actually jumped 21%, which is a good sign. We at The Motley Fool will help you stay up to speed on the top news and analysis on Diamond Offshore. You can start subscribing now by adding the company to your free watchlist.

However, if you're looking for more ideas, The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Petrobras. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (4)

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.

Compare Brokers

Fool Disclosure

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: 1879396, ~/Articles/ArticleHandler.aspx, 10/24/2016 5:14:54 AM

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...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:01 PM
DO $17.40 Down -0.50 -2.79%
Diamond Offshore D… CAPS Rating: **
HERO.DL $1.16 Down -0.02 -1.50%
Hercules Offshore CAPS Rating: **
PBR $12.17 Up +0.16 +1.33%
Petroleo Brasileir… CAPS Rating: **