While the oil price crash lasted from the middle of 2014 to early 2016, the market for offshore rigs started to decline well before that and is still on the downswing. In the fourth quarter of 2016, Diamond Offshore Drilling (NYSE:DO) was able to surprise investors a bit with a better-than-expected quarter. This time, though, results fell back in line with what we would expect from a company suffering through a more than three-year slump.

Despite this environment, Diamond's results weren't all that bad, really. Here's a look at how the company did this past quarter and what investors should make of Diamond's stock in the future.

Offshore rig pushed into dockyard

Image source: Getty Images.

By the numbers

Results*Q1 2017Q4 2016Q1 2016
Revenue $374.2 $391.9 $470.5
Operating income $50.8 $104.1 $111.5
Net income $23.5 $73.1 $87.4
Earnings per share $0.17 $0.53 $0.64

*IN MILLIONS, EXCEPT PER-SHARE DATA. DATA SOURCE: DIAMOND OFFSHORE EARNINGS RELEASE.

What has helped keep earnings afloat for many rig companies over the past year has been the ability to cut costs, especially with those related to rigs that are either warm stacked (idle but kept ready to go if a customer wants it quickly) or cold stacked (significant shutdown of equipment in anticipation of a long idle time). In many cases, costs for these stacked rigs were cut in half or more. 

It seems, though, that rig companies have pulled all the levers they can on cutting costs as of late, because operating cost cuts today are no longer keeping up with declines in revenue. That's why we saw such a sharp drop in earnings for Diamond year over year. The decrease from the prior quarter isn't as concerning as it looks because Diamond realized a $0.29-per-share gain related to an early termination payment for one of its midwater floaters. 

That said, investors shouldn't be too discouraged by these results. The company has been able to maintain profitability with less than 50% of its total fleet utilized. Also, Diamond has been able to maintain a 94.3% operational utilization rate for the quarter, which means that the rigs that are under contract aren't experiencing much downtime. 

Diamond's operating income by business segment for Q1 2016, Q4 2016, and Q1 2017. Shows flat or declining results for all segments

DATA SOURCE: DIAMOND OFFSHORE EARNINGS RELEASE. CHART BY AUTHOR.

It also is a good sign that Diamond has been able to find work for some of its rigs. Last quarter, two of its ultra-deepwater rigs started work on long-term contracts, and management was able to follow up this quarter with new contracts for two rigs. Its Ocean Monarch rig obtained a contract extension through the end of 2018, and Ocean Patriot will start a new two-year contract once its current contract is complete in the second quarter of 2018.

These contract awards touch on a theme that Diamond CEO Marc Edwards mentioned in the prior quarter's release. He said that it is going to be easier to market "hot" rigs -- those that haven't been stacked -- because they are ready to go on day one. This will play rather well into Diamond's hands over the long run as most of its newer assets are still hot while its older fleet consists of mostly the ones that were stacked. 

From the mouth of management

About the shorter-term rig market, Edwards said:

We believe that it is still too early to call it bottom in deepwater utilization although we could be witnessing the first signs of a trough in falling rig demand. However, even when demand stabilizes, there will likely still be an oversupply in the sixth-generation asset class. At a major industry conference here in Houston during February, many of the operating companies who contract deepwater assets, however, have stated that deepwater can compete on a financial returns basis with shale on North American light tighter oil.

What a Fool believes

Diamond has done great work in managing its fleet both during the high point of the industry by not being overly exuberant with its expansion plan and during the crash by preserving capital and prioritizing its marketing. Today, a decent chunk of its most valuable assets are still on the water and getting new contracts as a result. At the same time, the company's balance sheet has held up remarkably well. With a half-dozen or so older rigs on the books that are less likely to get much work in the future, don't be surprised if the company scraps a few of its stacked rigs someday.

Overall, however, Diamond looks like the kind of company investors can get behind if they are looking to bet on the offshore oil and gas industry bouncing back over the next several years. Considering how cheap shares trade for today -- 0.5 times tangible book -- that seems like a solid thesis. 

Tyler Crowe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.