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Top Energy Stocks in 2012: Diamond Offshore

David Lee Smith
December 7, 2012

As New Year's Eve quickly approaches, and we prepare to make our 2013 investing resolutions, it is a good time to reflect on the energy sector in the year that was 2012. In this December series, our writers will be recapping some of the most popular, highest-performing stocks in this sector. We will examine whether the gains these companies provided their shareholders in 2012 are sustainable, or whether they merely can be attributed to one-time events or fizzling trends. Consider these pieces as gifts to benefit our Foolish, long-term investors seeking exposure to the energy sector. Enjoy, and Fool on!

As we move toward 2013, and despite the successful development of the Eagle Ford, the Bakken, and other nascent venues onshore in the U.S., the bulk of the global quest for meaningful new discoveries of crude oil is moving into progressively deeper offshore waters. On that basis alone, it's clearly appropriate for Foolish investors to remain cognizant of the goings-on in the worldwide offshore drilling industry.

Drill, baby, drill
There are several companies in the group that today merit your time, attention, and perhaps your investing shekels. Among the more compelling is Diamond Offshore (NYSE: DO), the second-largest of the offshore companies -- to Transocean (NYSE: RIG) -- and an active player in virtually all of the significant worldwide traditional and deepwater plays. In that context, I'm including the U.S. Gulf of Mexico, Mexico's portion of the same body of water, the deepwater pre-salt plays of Brazil and Angola, and the South China Sea, among other locations.

Among Diamond Offshore's customers are the likes of Royal Dutch Shell (NYSE: RDS-B), Norway's Statoil (NYSE: STO), and Chevron (NYSE: CVX). Of the dozen rigs it has deployed to Brazil, eight are in the employ of the company's state-controlled oil company, Petrobras (NYSE: PBR). Of the six units the company currently has under construction, four will be capable of drilling in water depths to 12,000 feet, making them able to operate in any of the world's emerging deepwater plays.

Obviously, the key to the investment attractiveness of offshore drillers lies in the demand for their services and the resulting dayrates they're able to garner. It's therefore a positive sign for Diamond Offshore and its shareholders that the company's utilization percentages, its backlog, and its daily contract rates all appear to be strengthening.

Market strength
Indeed, on the company's more recent post-release conference call, Michael Acuff, Diamond's senior vice president for contracts and marketing, said that "the offshore drilling market remains robust, as we continue to see steady-to-increasing activity as a result of the strong commodity pricing in the