Over the past year, the offshore drilling market has gone from bad to worse. The industry was already starting to see a slowdown in new contract awards well before oil prices started to slide due to an oversupply of drilling rigs. Now, with oil prices half what they once were its forcing oil companies to take a long look at offshore drilling, with one major oil producer even deciding to completely abandon future offshore exploration. Suffice it to say, Atwood Oceanics (NYSE:ATW) is up against a tough operating environment, which certainly will color its upcoming fiscal fourth-quarter results. Here are three things to keep an eye on when the company reports Monday evening.

First, let's review
Before we look ahead, let's quickly review last quarter. Atwood reported $330.6 million in revenue, which while up 12.9% year over year, did decline 5.7% sequentially. Earnings were a mirror image after the company reported $113 million in net income, or $1.73 per share, which was 55.9% higher than the year-ago period but declined 8.5% sequentially.

1. Keep an eye on revenue and earnings
Despite the significant headwinds in the offshore drilling sector, Atwood Oceanics is largely insulated from this over the short term. That's due to the fact that all but one of the company's rigs are currently under contract for all of 2015.

Atwood Oceanics Inc Backlog

Data source: Atwood Oceanics. 

This is expected to keep earnings and revenue around the same level, if not higher than, than last quarter. That being said, it is possible that something unforeseen affected revenue and earnings during the quarter. For example, the company noted on its last conference call that it expected the Atwood Achiever to be out of service for five days at a zero rate for fine-tuning of certain equipment. If this out-of-service time proved to be longer than anticipated, it could ding the company's results.

2. Focus on updates to its fleet
While most of the company's fleet is under contract for 2015, the same can't be said for 2016 with several rigs coming off contract early in the year. There are two things investors should watch here. First, look for further updates on new contracts for its fleet. For example, last week the company announced that it had been awarded a new contract for the Atwood Orca, which runs almost through the end of next October. However, the contract adjusted the dayrate to just $85,000 per day, which is roughly half of the prior dayrate. Meanwhile, the company also announced a one-year contract extension for the Atwood Achiever, which adjusted the dayrate of that rig down to $495,500 per day. While this is a worrisome trend, Atwood is far from the only driller to sign lower rate contracts with Noble (NYSE:NE) recently signing the lowest rate for a floater in the Gulf of Mexico since the outset of the downturn to go along with a reduced dayrate on an extension for another vessel operating in Argentina.

The other thing to watch here is for any word that it's going to cold stack, or idle, any of its rigs in 2016. The company's Atwood Mako is currently without a contract and is likely to be the first vessel cold stacked with the Atwood Manta potentially next in line. Cold stacking actually costs the company money, so it would be better to sign a low dayrate contract and at least make some money than to cold stack.

3. Will its dividend bite the dust, too?
Nearly the entire offshore drilling industry has cut or eliminated dividend payments in light of the downturn in the market. Noble was just the latest after it reduced its dividend by 60% a couple of weeks ago. The company didn't need to cut its dividend because it is still generating strong cash flow but, the move will save Noble $220 million per year. That will improve its liquidity and bolster its balance sheet to provide Noble with the ability to acquire rivals or drilling rigs.

So far, Atwood hasn't joined its peers in reducing its recently initiated dividend, but given its contract situation next year and capex requirements, it might not hold on to the dividend, especially if it sees darker days ahead. According to its last investor presentation, Atwood Oceanics expected to generate $646 million in EBITDA next year, but is expected to spend $655 million in capex, largely to fund the building of its two ultra-deepwater drillships. That shortfall, when combined with the company's dividend payments, could lead it to scrap the dividend until conditions improve.

Investor takeaway
Thanks to a strong contract backlog, Atwood Oceanics is expected to report a pretty good quarter. However, that backlog is growing weaker, which is why investors should keep an eye on any changes such as new contracts or adjustments to current contracts. Furthermore, with all of its peers cutting dividend payments, this might be the quarter that Atwood relents and cuts its dividend, too.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Atwood Oceanics. 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.