Diamond Offshore’s CEO designates 2023 as ‘transformational year’ with multi-million-dollar rig deals in the bag

Offshore drilling contractor Diamond Offshore Drilling is looking forward to reaping the benefits of higher day rates, once its rigs move to their new contracts that poured in during 2023. With $245 million in backlog added in the fourth quarter of 2023, the rig owner’s fleet utilization level rose to 69% while its revenue efficiency remained the same as during the previous quarter.

Diamond Offshore’s contract drilling revenue for 4Q 2023 totaled $298 million compared to $245 million in the third quarter of 2023. The increase in revenue quarter-over-quarter was primarily due to the start of the Ocean BlackHawk drillship’s contract in the Gulf of Mexico in the fourth quarter, after the completion of an MPD installation, special periodical survey, and contract preparation work.

This increase was also driven by new contract commencements for the Ocean Patriot and Ocean Apex semi-submersible rigs, partially offset by lower revenue for the Ocean Courage semi-sub due to contract preparation activities related to its new multi-year contract in Brazil.

Furthermore, the rig owner’s contract drilling expense for 4Q 2023 was $189 million, or a $7 million increase from the prior quarter, largely due to higher charter rental costs associated with the managed rigs and the annual bonus expense related to the drillships’ BOP service agreement.

This was partially offset by the deferral of certain costs associated with contract preparation activities for the Ocean Courage, as the firm continued to prepare the rig for a new contract that began during the quarter, and the absence of costs associated with the Ocean Apex shipyard project in 3Q.

The offshore drilling contractor noted that the general and administrative expenses were $19 million in the fourth quarter, or a $3 million increase compared to the prior quarter, primarily due to an adjustment in accrued expenses associated with the company’s incentive compensation plan.

The rig owner’s tax expense for the fourth quarter was $174 million, compared to a $125 million expense in the prior quarter. The non-cash tax expense in the fourth quarter reflected the expected continued normalization of Diamond Offshore’s tax expense and the reversal of the tax benefit recorded earlier in 2023.

Bernie Wolford, Jr., Diamond Offshore’s President and CEO, highlighted: “2023 was a transformational year for Diamond Offshore. We marked our one-year anniversary of re-listing on the New York Stock Exchange, made measurable improvements in our capital structure, secured $485 million dollars in new contract awards throughout the year, safely completed special periodical surveys on five rigs, and completed eight contract start-ups, including four contract commencements in the fourth quarter, one in each of the regions in which we operate.“

Diamond Offshore underscored that its rigs continued to perform well, achieving revenue efficiency of around 95% across the fleet for the second successive quarter. The rig owner sees this as “a notable achievement” given its fleet’s high amount of shipyard activity and the start-up of contracts during the quarter. The company confirms that the Ocean BlackHawk and Ocean Courage rigs completed contract preparation activities in 4Q and are now operating under new contracts in the Gulf of Mexico and Brazil, respectively.

“In the first quarter of 2024, as previously announced, we secured a two-year contract extension for the Ocean BlackLion in the Gulf of Mexico at a leading edge day rate and secured additional P&A work for the Ocean Patriot to fill a portion of the gap prior to commencement of a long-term P&A campaign in 2025. The recent $362 million in contract awards are in addition to our reported backlog of $1.4 billion as of January 1, which will result in notable average day rate improvement as we transition to new contracts,” added Wolford.

In the meantime, an equipment incident was reported on February 1, 2024, for the Ocean GreatWhite semi-submersible rig west of the Shetland Islands. The rig’s lower marine riser package (LMRP) had been disconnected from the rig’s BOP on the well while waiting in harsh weather. Subsequently, the LMRP and the deployed riser string unintentionally separated from the rig and dropped to the seabed.

As Diamond Offshore estimates 90-100 days of out-of-service time for the rig due to this incident, the drilling campaign with BP is anticipated to resume by the end of April or early May. The rig is expected to remain under contract until at least late November or early December 2024.

Moreover, the end of the Vela drillship’s current campaign is estimated to be in mid-August while the Auriga drillship is expected to return to the rig owner, following the completion of its drilling contract, which is expected to occur in early March.

In addition, the Ocean Apex semi-submersible rig’s final campaign is slated to run until late February 2025. Aside from this, the firm earned an additional bonus in 4Q for efficient, injury-free operations in Senegal.

With rig demand set to grow further due to the ongoing offshore drilling upcycle, Diamond Offshore’s peers – Transocean, Valaris, and Noble – also anticipate more work for their rigs in the future, which will increase their contract backlog while boosting fleet utilization and day rates.