(DO) Diamond Offshore Drilling Wins Major Contracts

March 3rd, 2010

Diamond Offshore Drilling Inc. (DO), a major contract driller, has received notifications of award for three term drilling contracts from Petrobras (PBR) in Brazil. Excluding bonus and extensions, these contracts have a combined capacity to generate total revenue of approximately $1.4 billion and represent at least 11 years of contract drilling backlog.

The contracts are for three floating drilling rigs: ultra-deepwater semisubmersible Ocean Valor, deepwater semisubmersible Ocean Baroness and deepwater drillship Ocean Clipper.

Ocean Valor and Ocean Baroness each received a three-year commitment that could generate approximately $493 million and $307 million of revenue, respectively. However, Ocean Clipper received a five-year commitment with a $557 million revenue generation capacity.

While Diamond has been suffering from a severe contraction in utilization rate for jackups and high specification floaters, the new contracts will surely boost the company’s struggling bottom line.

The company’s contract backlog has also been experiencing a downtrend for quite some time. As of Feb 1, 2010, contract drilling backlog stood at $8.5 billion, down more than 22% from the position on Feb 5, 2009. The long-term contracts will also help the company to reverse this diminishing backlog trend.

In the contract drilling industry, Diamond is a prominent name. Moreover, the company has returned excess cash to shareholders through regular and special dividends since the beginning of 2007.

Though the company reported significantly weaker-than-expected fourth quarter 2009 results, it kept its dividends unchanged. With an improving global economy, more offshore discoveries Incorporatedreased E&P spending and the Petrobras contracts, we believe that Diamond’s dividend is safe.

Zacks Investment Research

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