Will Diamond Offshore Continue to Sparkle?

The oilfield services companies will continue to step forward with their results on Thursday, when deepwater driller Diamond Offshore (NYSE: DO  ) takes center stage and discloses the results of its September quarter.

At this juncture, the company, which has long been a leader in the global movement to search for oil and gas in progressively deeper waters, is expected to check in with earnings of about $1 per share, a reduction from the per-share figure of $1.85 that the company reported for the comparable quarter of 2011. Revenue is expected to slip by about 16.5% to $733.6 million. You can thank a gentleman named Isaac -- who just happened to be a hurricane that invaded the space of those companies attempting to find and produce oil and gas in the Gulf of Mexico -- for a proton of the year-on-year reduction. 

A bevy of considerations
Beyond that, however, its seems to me that there are several considerations that you should take into account as you evaluate Diamond Offshore's results and attempt to determine its future potential:

  • Unlike the Halliburtons (NYSE: HAL  ) of this world, the offshore drillers obviously aren't being forced to contend with the ups and downs of the U.S. onshore market, which has softened materially as North American natural gas prices have slid during 2012. As a result, the company and its peers haven't been forced to figuratively pick up their toys and relocate to more profitable offshore venues. 
  • Indeed, the company already plies its trade in a host of global locations. A recommended glance at the company's rig status report on its website -- an approach I suggest that Fools with an interest in offshore drilling undertake -- indicates the variety of locations in which Diamond has equipment currently operating. In addition to the Gulf of Mexico, its units are currently active in such international spots as Mexico, the U.K., both the Angola and Congo geomarkets of Africa, the Philippines, and of course, Brazil. 
  • It's a tough task to find anyone today who doesn't tout the deepwater for increased fossil fuels exploration and production in the years ahead. Following the hiatus that resulted from BP's (NYSE: BP  ) 2010 Macondo well tragedy, the Gulf of Mexico deepwater is continuing to return to its prior activity levels. Beyond that, Brazil's Santos Basin and an increasing number of locations offshore Africa are witnessing significant activity. I'm also betting that the South China Sea will become increasingly active in the not-too-distant future.
  • As my Foolish colleague Travis Hoium noted last week -- and as can be viewed in more detail in its aforementioned rig status report, Diamond Offshore has several deepwater-capable units currently under construction. In addition, several other offshore drilling contractors are adding newbuilds to their fleets in order to meet the increasing global demand for their services.
  • It wasn't long ago that deepwater drilling essentially referred to the capabilities of Transocean (NYSE: RIG  ) and Diamond Offshore. Today, however, the task of evaluating optimum investments in the group has been rendered more challenging by expanding deepwater capabilities on the parts of Noble (NYSE: NE  ) , Seadrill (NYSE: SDRL  ) , and other contractors.
  • A subsidiary of Loews Corporation (NYSE: L  ) , Diamond Offshore, unlike its drilling contractor peers, has to some extent taken on the elements of a master limited partnership. Through its expanding history of rewarding its shareholders with special quarterly dividends, the company today sports a trailing annual dividend yield of 5.10%. However, the extent to which those special dividends will be issued regularly in the future is, of course, in the hands of the company's directors. 

In the interest of full disclosure, I must admit that, upon completing my graduate education, I joined a predecessor company of Diamond Offshore in Houston. Nevertheless, I trust it's not indicative of any sort of lingering bias that I urge you, while you're navigating the company's website, to skim its corporate history. It's an interesting one, replete with such well-known offshore drilling names of yesteryear as Ocean Drilling and Exploration Company, Diamond M Company, and Zapata Offshore. The last-named company was headed by George H.W. Bush, who later became the 41st president of the United States.

Foolish takeaway
For now, we'll await the impending release of Diamond Offshore's quarterly results. In the meantime, let me suggest that Fools with a taste for energy add the company -- and perhaps some of its peers -- to My Watchlist.

If you're an energy investor seeking new opportunities, then you should look into one of the more exciting plays in the space: Seadrill. To learn more about the strengths and weaknesses of the company, as well as what to expect from Seadrill going forward, be sure to check out this brand-new premium report one of our top Stock Advisor analysts has put together. Click here to get started.

David Lee Smith owns shares of BP and Transocean. The Motley Fool owns shares of Halliburton Company, Transocean, and Seadrill, Ltd. Motley Fool newsletter services recommend Halliburton Company and Seadrill, Ltd. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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