The offshore drilling industry is recovering. Shallow-water drilling seems to be making a comeback. Diamond Offshore Drilling
On the road to recovery
While ultra-deepwater drilling is arguably the most lucrative segment in the industry, management at Diamond oversaw a decent quarter, thanks to some astute cost-cutting and better rig utilization rates. Total drilling revenue came in at $755 million, which is a 4% drop from last year's first quarter. However, this represents 3% growth over last year's fourth quarter. While on a year-on-year basis things don't look too impressive, what's evident is that the company is making progress after falling behind in the previous quarter. Total operating income stood at $265.4 million, which is 17% lower than that of the year-ago quarter, but a healthy 22% improvement on a sequential basis.
Gross margins improved sequentially by almost 3 percentage points to 47.4%, which is proof that the company is doing a decent job of keeping costs low. It's not that management came up with some ingenious methods to cut costs or had to trade off some essential expenses related to safety. Instead, the company ramped up its efficiency in its normal operations by clamping down costs in supply and repairs.
Additionally, rig utilization rates have been impressive. With as many as 15 rigs stationed off the shores of Brazil and at least 10 of them contracted till 2014 and beyond, there's no question of rigs being cold-stacked. And the best part is that the rigs aren't all suited for the ultra-deepwater drilling. Brazil's state-owned Petrobras
However, I'm not too impressed with the status of Diamond's rigs stationed in the Gulf of Mexico, where five of the eight unutilized rigs are located. This is explained by the lousy market conditions in this region. Hercules Offshore
Foolish bottom line
All in all, Diamond Offshore is making good progress, and I believe it will continue to do so. This year, its stock has actually jumped 21%, which is a good sign. We at The Motley Fool will help you stay up to speed on the top news and analysis on Diamond Offshore. You can start subscribing now by adding the company to your free watchlist.
However, if you're looking for more ideas, The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free.
Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Petrobras. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.