Diamond Offshore Drilling, Inc. (DO), a leading provider of offshore drilling services, has demonstrated its ability to navigate the industry's challenges with resilience and optimism. The company's recent financial performance and strategic initiatives have positioned it for continued success in the dynamic offshore drilling market.
Financial Highlights
In the latest fiscal year, Diamond Offshore reported annual revenue of $1,056,179,000 and a net loss of $44,706,000. Despite the challenging market conditions, the company's annual operating cash flow stood at $11,780,000, while its annual free cash flow was negative $119,669,000. These figures reflect the company's ability to generate cash flow, even in the face of industry headwinds.Looking at the quarterly data, the company reported revenue of $274,610,000 and net income of $11,612,000 in the first quarter of 2024. The company's adjusted EBITDA for the quarter was $64,000,000, showcasing its operational efficiency and profitability.
Operational Resilience and Incident Response
During the first quarter, Diamond Offshore faced a significant challenge with the incident involving the Ocean GreatWhite rig. The company's swift and effective response to the incident, including the safe recovery of the Lower Marine Riser Package (LMRP) and the ongoing repairs, demonstrates its operational resilience and commitment to safety.The company estimates the overall EBITDA and cash flow impact of the incident to be approximately $25 million to $30 million, which includes a decrease in revenue, increased expenses, and the expected reimbursement from the company's insurance policy. Despite this setback, Diamond Offshore has maintained its focus on delivering strong operational performance and securing new contracts.
Backlog and Contract Wins
Diamond Offshore's contract backlog provides strong visibility into its future revenue-earning opportunities. As of April 1, 2024, the company's contract drilling backlog stood at $1,877 million, with 88% of its marketed capacity contracted for the full-year 2024, and 49% of its 2025 marketed capacity contracted.During the first quarter, the company secured $713 million in new backlog, including contract extensions for two of its seventh-generation drillships, the BlackLion and BlackHornet, in the U.S. Gulf of Mexico. These contract extensions, which provide firm work through the third quarter of 2026 and the first quarter of 2027, respectively, are expected to contribute approximately $115 million in annualized rig-level EBITDA.
Additionally, the company announced a new one-well contract for the BlackRhino in the Ivory Coast, with a total prepaid contract value of approximately $18 million and a day rate in line with recent global drillship fixtures.
Market Outlook and Opportunities
The offshore drilling market continues to show signs of improvement, with increased demand for floating rigs. According to industry data, as of mid-April 2024, open demand from floating rig tenders was approximately 56 rig years, compared to 42 rig years a year earlier, representing an increase of more than 30%.This uptick in tendering activity, coupled with concerns over future rig availability, has pushed day rates for high-specification ultra-deepwater drilling rigs into the high $400,000 to low $500,000 per day range. Diamond Offshore is well-positioned to capitalize on this favorable market environment, with 53 contract opportunities totaling 55 rig years of demand with commencement dates from now through the end of 2025.
Furthermore, the company has secured marketing rights for three seventh-generation stranded new-build drillships, which could generate meaningful income and increase its exposure to the high-specification drillship market during a period when its own units are likely to be fully committed.
Guidance and Outlook
Diamond Offshore has updated its full-year 2024 guidance to reflect the impact of the Ocean GreatWhite incident, as well as positive outcomes across its fleet. The company now expects full-year 2024 revenue, excluding reimbursable revenue, to be in the range of $925 million to $945 million, and full-year 2024 adjusted EBITDA to be in the range of $225 million to $245 million.The company's improved financial outlook is largely driven by higher revenue as a result of certain rigs being on contract more days than originally anticipated, as well as lower operating costs. Notably, 100% of the company's adjusted EBITDA guidance for the remainder of 2024 is represented by already contracted work or priced options that are likely to be exercised.
Looking ahead, Diamond Offshore's visibility to estimated future earnings and cash flow is increasing, with 73% and 41% of available days in 2025 and 2026, respectively, committed through firm contracts and priced options. The weighted average drillship and semisubmersible day rate in the company's 2025 backlog is $475,000 and $267,000 per day, respectively, with a total weighted average day rate across the entire fleet of $356,000 per day.
Liquidity
Diamond Offshore maintains a strong liquidity position, with $169.2 million in cash and cash equivalents as of March 31, 2024. The company's revolving credit facility provides additional financial flexibility, with $298.1 million available for borrowings as of May 6, 2024.The company's continued strong operating performance has it on track to meet its net leverage ratio and other requirements under its credit facility and bond indenture by the end of 2024, which could provide additional flexibility with regard to its capital allocation strategy, including potential opportunities to return capital to shareholders.
Geographical Diversification and Revenue Breakdown
Diamond Offshore's operations span multiple geographies, with a significant presence in the United States, United Kingdom, Australia, Brazil, and Senegal. In the first quarter of 2024, the company generated $153,803,000 in revenue from the United States, $36,801,000 from the United Kingdom, $29,823,000 from Australia, $26,570,000 from Brazil, and $27,613,000 from Senegal.The company's revenue is primarily derived from contract drilling services, which accounted for $258,770,000 in the first quarter of 2024, and revenues related to reimbursable expenses, which contributed $15,840,000 during the same period.