Deepwater drilling contractor Diamond Offshore Drilling (NYSE:DO) is hardly a favorite in the community of analysts who follow its industry, but its results for the fourth quarter of 2012 indicate that its five-star CAPS rating may well be warranted.

For the quarter, the company's net income was $155.7 million, or $1.12 per share, compared with $188.5 million, or $1.36 per share, for the comparable quarter a year earlier. But eliminating the $0.29-per-share charge for the reclassification of four rigs yields adjusted per-share earnings of $1.41, a drubbing of the $1.11 per share that had constituted the consensus expectation. Revenues for the quarter reached $750.5 million, versus $734.3 million a year earlier.

It's also worth noting that in the most recent quarter, the company, which operates as a subsidiary of Loews (NYSE:L), carried an effective tax rate of 15.9%. That's more than double the 7.4% rate for the final quarter of 2011. The prior rate resulted from a reduction in liabilities for uncertain tax positions. For 2012, the company's rate was 21.5%.

Another nice surprise
As has now been the case for a number of quarters, Diamond Offshore's board of directors declared a special quarterly cash dividend of $0.75 per share in addition to a regular quarterly per-share cash dividend of $0.125. As in the past, the board emphasized that the payment of special dividends will be determined quarterly.

The four rigs that were reclassified as "held for resale" involved three semisubmersibles and one jack-up. As CEO Lawrence Dickerson noted on the company's post-release call, "[O]ur goal is to recognize that some of these rigs are at the end of their lives, and they're not rigs that we would like to continue to invest in." At the same time, those units will be replaced by six rigs currently under construction. The company incurred capital expenditures of nearly $500 million on the new-builds in 2012, with additional expenditures, excluding capitalized interest, expected to reach $1.3 billion this year and $1.4 billion in 2014.

Dickerson said on the call, "We have an aggressive new-build program, as do many of our competitors, but there's really nothing being done right now to refresh the market in water depths ranging from 3,000 to 6,000 feet." As a result, management scoured its fleet for one or more rigs that could be reconstituted and thereby made ready to operate in more lucrative locations.

A patriot to the rescue
The Ocean Patriot was settled upon as a rig that could be upgraded and mobilized from the Pacific theater to the North Sea. Once it is able to comply with U.K. specifications, it will begin working for Royal Dutch Shell (NYSE:RDS-B) at a day rate of more than $400,000, substantially higher than the mid-$200,000 range it had been commanding previously.

Playing drilling-rig chess
At the same time, another of the company's rigs, the Ocean Onyx, which has been serving the deepwater market, has been contracted to Apache (NYSE:APA) for work in the Gulf of Mexico for "a very, very attractive day rate." Indeed, according to Dickerson, "The returns and cash flow that we'll have on that rig, we believe will exceed or meet the cash flow coming off the new-build drillships and with quite a bit lower capital cost as well."

It's intriguing, then, to note how fleet management -- i.e., upgrading and redeploying rigs around the planet -- can significantly expand the payouts generated by those units. It appears that Diamond Offshore has performed admirably in that aspect of drilling company management.

As in previous quarters, Dickerson focused on the company's emphasis on cost management. Indeed, he singled out the "severe cost pressure coming out of Brazil." By my reckoning, nine Diamond Offshore rigs are currently working for Petrobras (NYSE:PBR). In response to a query during the question-and-answer session of the call, Dickerson pointed to several items that result in high costs in the country. Included was a scarcity of skilled labor that makes it difficult to fulfill a Brazilian requirement that a given percentage of crews be made up of Brazilians.

Foolish takeaway
Industry analysts are currently higher on, for instance, Noble (NYSE:NE), a Switzerland-based competitor of Diamond, than they are on the Houston company. At this juncture, about 82% of the Wall Streeters rate Noble a buy or better, compared with 30% for Diamond Offshore. Nevertheless, I remain convinced that Diamond Offshore's CAPS rating is meaningful, and I suggest that Fools with a penchant for oil-field services watch the he offshore drillers -- including Diamond Offshore -- carefully.