What: Shares of RigNet (NASDAQ:RNET) took a deep dive in May, slumping 24.7%. That slump came despite the fact that oil prices rose sharply last month, jumping nearly 7% to just under $50 a barrel.

So what: The culprit driving RigNet's slide last month was a weak first-quarter earnings report. While the company earned $0.08 per share on $62.3 million in revenue -- both figures which beat estimates -- its underlying results were much weaker than the headline numbers would suggest. That's because the company, which provides digital technology solutions to the oil and gas industry, settled a contract dispute during the quarter, the effect of which boosted revenue by $2.3 million and earnings by $2.1 million. Moreover, revenue and earnings were down sharply year over year due to the steep drop off in spending by oil and gas companies on drilling projects due to lower commodity prices.

Given where oil prices are at the moment, it could be quite some time before oil companies start increasing their investments in offshore projects again. Because of that, a growing number of offshore rigs are expected to be stacked or scrapped this year. For example, analysts estimate that up to four of ENSCO's (NYSE:VAL) rigs currently working in Brazil could see their contracts terminated in the near future. ENSCO's growing fleet of stacked rigs already sits at 25 of its 59 total rigs. With such a large portion of ENSCO's fleet currently idle, analysts think the company should start scrapping -- aka, retiring -- some of these rigs due to the increasing likelihood that they'll never see work again. It's that growing number of offshore rigs sitting unused that's weighing on RigNet, because it provides key services to these rigs, and therefore will continue to see downward pressure on its revenue and earnings as more of them are idled.

Now what: Though oil prices have risen, the outlook for the offshore drilling sector is still pretty weak, and could get worse. That doesn't bode well for RigNet, which needs the sector to start putting idled rigs back to work in order for its financial situation to improve. Given that it's unclear when that will happen, investors don't see much reason to stick around.

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