There has been a lot of speculation for some time now that the offshore drilling industry is about to enter a two-year slow down. As a result of these forecasts, many analysts have turned negative on the sector.

However, Diamond Offshore Drilling's (NYSE:DO) recent set of first quarter results has started to raise questions about the reliability of these forecasts. What's more, fleet status reports from Rowan Companies (NYSE:RDC) and Transocean (NYSE:RIG) are also raising questions.

Interesting results
Diamond's first quarter results revealed some interesting trends. Headline figures beat consensus estimates by almost 50% as the company reported a profit of $0.93 per share, compared to estimates of $0.65. The outperformance was mainly due to lower than expected costs.

What's more, one thing that stood out in Diamond's recent earnings release was the fact that, although the company's utilization rate fell, average day rates actually ticked up across the board:


Q1 2014

Q1 2013






Ultra-Deepwater Floaters





Deepwater Floaters





Mid-Water Floaters










Source: Diamond's Q1 earnings release.

As the table above shows, all of Diamond's drilling units reported a higher year-on-year day rate; deepwater floaters registered the largest increase with a 7.5% year-on-year day rate increase.

Many analysts consider Diamond's results to be an indicator of offshore drilling industry health as the company's drilling fleet has an average age of 25.7 years; a rig in service for more than 25 years is considered old.

Analysts had expected Diamond to report poor results due to the state of the industry and the age of the company's fleet.

Indeed, older fleets are expected to suffer more from the upcoming industry slowdown, although as of yet it seems as if demand for Diamond's services, remains robust.

For example, two of Diamond's 40+ year old deepwater rigs are returning to work in the next two months, one of which is returning for a higher day rate than expected.

So, the very fact the Diamond reported higher day rates across the board signals that the industry is not yet entering a period of declining prices.

Other indicators
In addition to Diamond's set of interesting results, Rowan Companies has been putting out some intriguing fleet status reports this year, and so far these reports are not showing any sign of a slowdown within the sector.

Rowan has issued four fleet status reports so far this year, and the notable events relating to rigs coming on/off contract have been as follows:

  • EXL IV: Awarded a one-year extension at $159,500 per day, above the previous day rate of $151,000.
  • Joe Douglas: Awarded a 75-day contract at $160,000 per day, in line with the previous day rate.
  • J.P. Bussell: Awarded a day contract at $143,000 per day, above the prior day rate at $140,000. 
  • Rowan Renaissance: Commenced a three-year drilling contract at an effective day rate of $619,000 during the first year.
  • Rowan Mississippi: Commenced a one-year contract at $195,000 per day, above the previous base day rate of $170,000.
  • Hank Boswell: Commenced a one-year contract at $180,000 per day, above the previous effective day rate of $128,000.
  • Scooter Yeargain: Commenced a one-year contract at $180,000 per day commencing November 2014, above the previous effective day rate of $128,000.
  • Rowan Gorilla II: Commenced a 120-day contract at a day rate of $150,000 per day, no change from the previous base day rate.
  • Ralph Coffman: Commenced a 80-120 day contract at an effective day rate of $243,000, above the previous effective day rate of $227,000.

In addition to the above movements, there have been two rigs contracted out for no change in day rate.

It seems as if, for Rowan in particular, the drilling industry slowdown is nothing but a rumor.

Not alone
Along with Rowan, Transocean is also reporting strong demand for its drilling units based on figures contained within fleet reports issued so far this year.

For example, within Transocean's April fleet report the company highlighted that the Transocean Marianas was awarded a four-well contract offshore South Africa at a dayrate of $370,000 ($118 million estimated backlog). The rig was previously idle.

Further, the Transocean Arctic was awarded a two-well contract in the Norwegian sector of the North Sea at a dayrate of $519,000 ($83 million estimated backlog). The rig's prior dayrate was $419,000.

Still, during this period one rig was taken out of service due a fire; this unit is now held for sale.

The other notable event within Transocean's fleet reports issued this year was the news that the drilling unit, GSF Arctic was awarded a two-well contract in the U.K. sector of the North Sea at a dayrate of $410,000 ($48 million estimated backlog). The rig's prior dayrate was $339,000.

Foolish summary
So overall, while there has been much chatter of a slowdown in the offshore drilling market this year, as of yet it does not appear as if Rowan is going to suffer.

This year Rowan has only reported rising day rates paid for its services, and the company has not reported any rigs coming off contract and unable to find customers.

Rupert Hargreaves owns shares of Rowan Companies. The Motley Fool owns shares of Transocean. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.