U.S.-headquartered offshore drilling contractor Diamond Offshore Drilling has secured new contracts and extensions with higher day rates for several rigs in the U.S. Gulf of Mexico and the UK sector of the North Sea. The rig owner also has another deal in the pipeline for one of these rigs. In addition, the U.S. giant expects to further bolster its financial position by exploiting the advantages and enjoying the fruits of a forecasted multi-year upcycle in the offshore drilling market.
Diamond Offshore disclosed contract awards for a drillship in the U.S. Gulf of Mexico and three harsh environment semi-submersible rigs in the UK North Sea on Monday, 8 May 2023. Thanks to these deals, the company got $212 million in contract awards in addition to the $1.6 billion backlog reported as of 1 April 2023.
Bernie Wolford, Jr., President and Chief Executive Officer of Diamond Offshore, remarked: “Securing work at significantly improved day rates with quality customers further demonstrates the value our crews and assets are delivering. These awards reflect the continued strength of both the drillship and semi-submersible markets and our ability to capture meaningful upside as our rigs become available.”
The tightening of the offshore drilling market has enabled multiple rig owners to land new deals. In line with this, Diamond Offshore’s rival, Noble, mostly secured drillship deals, with one semi-sub and one jack-up deal thrown into the mix. On the other hand, Transocean got work for semi-submersible rigs while Valaris expanded its backlog with both drillship and jack-up deals.
Diamond Offshore’s average day rate in 1Q 2023 was $272,000 per day, its total fleet utilisation was 63 per cent and revenue efficiency was 95.9 per cent, compared to the average day rate of $249,000 per cent, a fleet utilisation of 65 per cent and a revenue efficiency of 96.4 per cent in 4Q 2022.
In contrast, Noble’s marketed fleet utilisation was 80 per cent in the three months ended on 31 March 2023, compared to 88 per cent in the previous quarter, while Valaris delivered revenue efficiency of 99 per cent in 1Q 2023, compared to 98 per cent in the fourth quarter of 2022 and 97 per cent for the full-year of 2022.
All four offshore drilling contractors along with Seadrill, Vantage Drilling, Shelf Drilling, and Dolphin Drilling are in high hopes that a multi-year upcycle will overtake the market, bringing a boost in rig demand and further increase in day rates and fleet utilisation.
New drillship deal
According to Diamond Offshore, the Ocean BlackHawk drillship has been awarded a one-year contract with a one-year priced option in the U.S. Gulf of Mexico by Anadarko Petroleum Corporation, a wholly-owned subsidiary of Occidental. This deal is expected to start in the fourth quarter of 2023.
Currently, the drillship is working in Senegal with Woodside and this contract is slated to end in 2Q 2023. The 2014-built Ocean BlackHawk drillship is of Gusto P10000 design. It is capable of operating in water depths of up to 12,000 ft and its maximum drilling depth is 40,000 ft.
Semi-subs get more work
Diamond Offshore also won a two-well contract with Repsol for the Ocean Patriot semi-submersible rig in the UK North Sea, which is scheduled to begin in the second half of the third quarter. However, a potential new contract for this rig is “currently under negotiation,” which would “fill out the remaining availability in 2023 and keep the rig contracted through the winter season,” based on Wolford’s statement.
The 1983-built Ocean Patriot rig, which is currently working for Apache in the UK until July 2023, is of Bingo 3000 design. This rig can operate in a water depth of up to 3,000 ft and its maximum drilling depth is 20,000 ft.
Furthermore, the offshore drilling player landed an extension for the Ocean Endeavor semi-sub rig, covering two wells with an estimated duration of 120 days with Shell. The contract is slated to commence in early November 2023. This rig has been working for the oil major in the UK since May 2019. The 2007-built Ocean Endeavor rig is of ODECO Victory Class design and its maximum drilling depth is 35,000 ft. The rig can carry out assignments in water depths of up to 10,000 ft.
Additionally, BP exercised the first option well for the Ocean GreatWhite semi-sub rig. This has an estimated duration of 60 days and is expected to start in mid-January 2024, after the completion of the initial five-well firm period. BP still has priced options for up to seven more additional wells. The 2016-built Ocean GreatWhite sixth-generation Moss CS60E rig can work in water depths of up to 10,000 ft and its maximum drilling depth is 35,000 ft.
How did Diamond Offshore perform in 1Q 2023?
Diamond Offshore’s contract drilling revenue for the first quarter of 2023 totalled $232 million, compared to $223 million in the fourth quarter of 2022, primarily driven by the Ocean BlackHornet drillship embarking on its second option period with BP at a higher day rate. The results for 1Q 2023 reflect the completion of the reactivation of the Ocean GreatWhite rig and the start of its 300-day contract in the North Sea near the end of March. This is the rig’s first contract award since stacking in 2020.
The rig owner’s contract drilling expense for the first quarter of 2023 decreased to $173 million, compared to $178 million in the prior quarter, largely due to the Ocean Onyx semi-sub rig being cold-stacked for the entire quarter. The company’s general and administrative expenses were $20 million in the first quarter of 2023, compared to $17 million in the prior quarter, primarily attributable to higher personnel costs and professional fees.
On the other hand, the tax benefit for 1Q 2023 was $26 million, compared to a tax expense of $26 million in the prior quarter, attributable to the lack of tax benefit on losses in certain jurisdictions as well as the increase in certain tax reserves for potential tax exposures. Diamond Offshore’ adjusted EBITDA was nearly $22 million in the first quarter of 2023, compared to about $12.5 million in the fourth quarter of 2022.
Meanwhile, the Ocean BlackRhino drillship, operating in Senegal, earned a performance bonus from Woodside Energy, marking the third consecutive quarter during which Diamond Offshore’s Senegal rigs earned a bonus. Another operational highlight for the rig owner’s fleet is the return to work for the Ocean Endeavor rig, which is now once again working for Shell in the North Sea, after completing its shipyard stay for its special hull survey and structural upgrades.
Moreover, the U.S. firm’s revenue efficiency for 1Q 2023 remained level at approximately 96 per cent, demonstrating consistent and efficient operations. Diamond Offshore also engaged a broker to assist in evaluating the potential sale of the Ocean Monarch deepwater semi-submersible rig, which is currently cold-stacked in Malaysia. The 2008-built rig is of ODECO Victory Class design. With a maximum drilling depth of 30,000 ft, it can operate in water depths of 10,000 ft.
“The market exhibits the characteristics underpinning the continuation of the broad-based upcycle, as demonstrated by our recent fixtures for both drillships and semi-submersibles across multiple regions and tendering activity for longer term prospects. As we move through 2023 and into 2024, our EBITDA and cash flow from operations should continue to improve quarter over quarter, further strengthening Diamond’s financial position,” concluded Wolford.
