What happened

Shares of offshore rig company Diamond Offshore Drilling (NYSE:DO) closed down 16.7% today. The stock plunge comes after the company reported earnings results that didn't pass muster compared to Wall Street estimates. 

So what

Diamond reported an adjusted second-quarter loss of $0.99 per share compared to Wall Street analyst expectations of an $0.89-per-share loss. The adjustment excludes a modest gain on the sale of a rig in the quarter. 

An offshore oil rig at sunset.

Image source: Getty Images

The disappointing earnings results is largely a result of an offshore drilling market that has been agonizingly slow to pick back up. Shale drilling in the U.S. has grown at such a fast clip over the past few years that it has replaced the natural decline and most of the increase in global demand. That has disincentivized producers from shelling out the large sums of cash for the exploration and development of offshore prospects.

Now what

Investing in offshore rig companies has been the ultimate exercise in patience over the past several years. The investment thesis for offshore rigs was that eventually producers would have to increase spending rates to accommodate for years of underinvestment. 

Shale has thrown a monkey wrench into that thesis because a new well can be developed in a matter of days, significantly reducing the time to monetize a project and making production more responsive to price moves. 

The long-term thesis for Diamond is that it is one of the best-capitalized rig companies in the industry and has a fleet of rigs with the specifications necessary to handle complex drilling jobs. When producers start to spend again, Diamond will be one those producers' first phone calls.

When that phone actually rings is anyone's guess.