As one of the world's largest provider of offshore drilling rigs, Diamond Offshore (DO) should attract investor attention as an investment choice in the oil and gas exploration and production sector. The rigs owned by the company provide drilling services around the world.
Diamond Offshore provides offshore drilling services to oil companies with a current fleet of 47 semi-submersible rigs, jack up rigs, and drill ships. Three $600 million drill ships are on order for delivery in 2013 and 2014. These new ships will be capable of drilling undersea oil wells to depths of 40,000 feet in 12,000 feet of water.
For the first half of 2011, Diamond Offshore posted almost identical revenue and profit results as it did in the first half of 2010. The current earnings estimates point to results which lag the profits from the second half of 2010. The full year consensus estimate is $6.31 per share, compared to the $6.70 earned in 2010.
The estimate for the fourth quarter is just $1.13 per share compared to the $1.73 earned in fourth quarter of 2010. However, last year analysts severely underestimated the fourth quarter results and DO beat the estimate by 26 cents.
The share prices of Diamond Offshore and other deep sea drillers like Transocean (RIG) and Atwood Oceanics (ATW) tend to rise and fall with the price of a barrel of crude. This reaction does not make a lot of sense, since these companies put their rigs out on long term contracts and have revenue and profit visibility for years into the future.
Investors thus can pick up shares cheap when the price of oil takes a sudden drop and offshore drilling stocks tumble. Of course, a long term decline in the price of oil would have a detrimental effect on revenues.
The analysts at the Macquarie Group recently downgraded DO to underperform. The reason for the downgrade was a lower percentage of high-end, deepwater equipment when compared to competitors. The company reports next on Oct. 20.
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