Diamond Offshore’s contract backlog hits $1.9 billion amid tightening rig supply and demand dynamics

After cinching a fleet utilization level of 68% and enlarging its contract backlog by $713 million in the first quarter of 2024, U.S.-headquartered offshore drilling contractor Diamond Offshore Drilling is determined to expand its backlog further by finding new job opportunities for its fleet of rigs and take full advantage of the ongoing upcycle across the global offshore drilling landscape.

With favorable offshore drilling market fundamentals in place, rig owners have been enjoying a rise in demand for drilling services and higher day rates, as illustrated by Diamond Offshore’s peers, Transocean, Valaris, and Noble, which boosted their contract backlogs in the first quarter of 2024 to $8.9 billion,  $4 billion, and $4.4 billion, respectively.

All members of the offshore drilling club are forecasting a bullish outlook for the market and expecting new assignments for their rigs with elevated day rates, which will propel further fleet utilization growth.

Diamond Offshore’s revenue for 1Q 2024 totaled $275 million, which represents a decrease compared to $298 million in the fourth quarter of 2023. The drop in revenue quarter-over-quarter is said to be primarily driven by the reduction in revenue for the Ocean GreatWhite rig, following its equipment incident in the first quarter and the West Auriga drillship’s return to the rig owner at the end of February upon expiration of the rig’s charter.

The drilling player explained that the decrease in revenue was partially offset by a full quarter of revenue for the Ocean BlackHawk drillship and the Ocean Courage semi-submersible rig at higher day rates after the completion of shipyard upgrades and contract preparation work in the fourth quarter of 2023.

Moreover, the rig owner’s contract drilling expense for 1Q 2024 was $184 million, a $5 million reduction from $189 million in the prior quarter, largely due to lower charter and other operating expenses attributable to the two managed rigs and the absence of the well control equipment efficiency bonus accrued in the fourth quarter of 2023.

The U.S. player underlined that the fall in expense was partially offset by incremental contract drilling expense for the Ocean Courage and Ocean BlackHawk rigs, both of which operated for the entire first quarter of 2024, and the recording of $7.6 million in insurance deductible associated with the Ocean GreatWhite rig’s equipment incident.

The offshore drilling contractor noted that the general and administrative expenses were flat at $19 million for the first quarter of 2024 and the fourth quarter of 2023. The Houston-based rig owner recognized a net tax benefit of $3.2 million for 1Q 2024, compared to a tax expense of $174 million in 4Q 2023.

While this benefit is inclusive of a $12.2 million tax benefit on the remeasurement of uncertain tax positions due to the movement in foreign currency exchange rates, the expense in the fourth quarter of 2023 reflected the reversal of a previously recorded tax benefit earlier in 2023.

Bernie Wolford, Jr., Diamond Offshore’s President and CEO, highlighted: “The demand landscape remains compelling for our business. The high-specification deepwater rig supply-demand balance continues to tighten, which is resulting in strong contracting conditions that have already begun to benefit our fleet. The average contract dayrate across our fleet will notably increase as we transition to our recently awarded contracts.”

With an overall revenue efficiency for the quarter of 94%, excluding the Ocean GreatWhite incident, Diamond Offshore emphasizes that its rigs continued to perform well, with six achieving revenue efficiency of over 96% for the first quarter. The Ocean Courage and Ocean BlackHawk rigs operated for the full quarter under new contracts. The Ocean Patriot semi-submersible rig completed its campaign with Repsol and began its two-well P&A contract with Serica.

On the other hand, the Ocean GreatWhite semi-submersible rig safely recovered the LMRP from the seabed and arrived in the Kishorn port on March 15 for repairs, which are said to be progressing well. As a result, the rig is scheduled to be back on the well location in the first half of June, in line with prior estimates.

Diamond Offshore has secured $731 million in contract awards year to date, including $713 million in the first quarter of 2024, thus, the U.S. player’s total backlog was $1.9 billion as of April 1, 2024. The deals obtained in 1Q 2024 entail two-year contract extensions for the Ocean BlackLion and Ocean BlackHornet drillships in the U.S. Gulf of Mexico at higher day rates along with additional plug and abandonment (P&A) work for the Ocean Patriot rig, which is currently underway.

After quarter-end, the offshore drilling firm signed an estimated 30-day, one-well contract for the Ocean BlackRhino drillship, representing approximately $18 million in total contract value that will be pre-paid before commencement. The work will start immediately after the rig’s special periodical survey and managed pressure drilling upgrade later this year.

In addition, the Houston-based company has secured the marketing rights for three seventh-generation drillships by sealing a deal with the owner of the West Dorado and West Draco drillships to market the rigs in Brazil, Latin America, West Africa, Malaysia, and Indonesia. Diamond Offshore also agreed with the owner of the former West Libra, now known as the Tidal Action, to market the rig in the U.S. Gulf of Mexico.

“Looking ahead, we are focused on the Ocean GreatWhite returning to work safely, securing additional backlog for our rigs, and delivering operational excellence across the fleet to maximize our cash flow generation,” concluded Wolford.