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Diamond Offshore Drilling Inc (DO) (Q1 2024) Earnings Call Transcript Highlights: Robust ...

GuruFocus Research
·4-min read

  • Total Revenue: $275 million for Q1 2024.

  • Adjusted EBITDA: $64 million for Q1 2024.

  • New Backlog: Secured $713 million during the quarter.

  • Annualized Rig Level EBITDA: Approximately $115 million each for BlackLion and BlackHornet.

  • Contracted Capacity for 2024: 88% of marketed capacity, 91% including price options.

  • Contracted Capacity for 2025: 49% of marketed capacity, 73% including price options.

  • Operating Cash Flow: $59 million for Q1 2024.

  • Free Cash Flow: $38 million for Q1 2024.

  • Full-Year 2024 Revenue Guidance: $925 million to $945 million.

  • Full-Year 2024 Adjusted EBITDA Guidance: $225 million to $245 million.

  • Q2 Revenue Guidance: $230 million to $240 million.

  • Q2 Adjusted EBITDA Guidance: $55 million to $65 million.

  • Q2 Capital Expenditures: Expected between $30 million and $35 million.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Diamond Offshore Drilling Inc (NYSE:DO) secured $713 million of new backlog during the quarter, equating to 4.2 rig years of work across three rigs.

  • The company reported strong financial results with total revenue and adjusted EBITDA for the first quarter at $275 million and $64 million respectively.

  • Diamond Offshore Drilling Inc (NYSE:DO) has significantly increased the visibility of its revenues for 2024 and beyond, with 88% of its marketed capacity contracted for 2024.

  • The company successfully managed the GreatWhite incident, with repairs progressing well and the rig expected to be back on location in the first half of June.

  • Diamond Offshore Drilling Inc (NYSE:DO) has secured marketing rights for three seventh generation stranded new-build drillships, potentially increasing exposure to the seventh generation drillship market.

Negative Points

  • The GreatWhite incident led to the rig being off contract for two months in the first quarter, impacting revenue.

  • The estimated financial impact of the GreatWhite incident on EBITDA and cash flow is approximately $25 million to $30 million.

  • The company reported a quarter-over-quarter decrease in revenue, primarily due to the completion of one of the managed rig contracts and the GreatWhite being off contract.

  • There are concerns over future rig availability which could impact day rates and contracting conditions.

  • Regulatory uncertainties and potential national elections in the U.K. are causing volatility and could defer program decisions, affecting demand for rigs like the Patriot.

Q & A Highlights

Q: Could you elaborate on the marketing arrangements for the three stranded new-builds and whether Diamond Offshore has a say in the day rates for these contracts? A: Bernie Wolford, CEO of Diamond Offshore, explained that the company would manage and crew the rigs, presenting them as Diamond Offshore rigs to customers. The commercial proposals for these rigs would be evaluated and submitted with the owners' input and consent, with Diamond handling the commercial and contractual negotiations. The management agreements are expected to continue through the term of the managed contracts but are not indefinite.

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Q: Regarding the margins on the management contracts for the new-builds, are they similar to those earned for the Auriga and Vela? A: Bernie Wolford confirmed that the margins would be similar to those previously earned. If all three units were operational under the new marketing rights, they could contribute approximately $35 million to $45 million annually to EBITDA.

Q: Can you provide details on the short-term contract announced for the BlackRhino, specifically the day rate? A: Bernie Wolford clarified that the total contract value of $18 million for the BlackRhino, which translates to about $600,000 a day, includes mobilization and demobilization costs. The clean day rate aligns with current leading-edge rates, which are in the mid-to-high $400,000 range.

Q: Are the management rights agreements for the new-build rigs inclusive of a potential path-to-ownership? A: Bernie Wolford stated that the current marketing rights do not include provisions for potential ownership in the future. Success in marketing and managing the rigs could improve Diamond Offshore's position, but there are no explicit rights to ownership included in the agreements.

Q: Could you discuss the regional activity trends, especially with regard to regulatory impacts? A: Bernie Wolford noted that in the U.K., the extension of the energy profits levy and the anticipation of national elections have created volatility and concern among clients, affecting their decision-making on specific programs. This has led to some program deferrals until more regulatory clarity is available.

Q: What are the financial implications of the GreatWhite incident, and how have they been accounted for in the financial results? A: Dominic Savarino, CFO of Diamond Offshore, detailed that the overall EBITDA and cash flow impact from the GreatWhite incident is estimated to be between $25 million to $30 million. This includes a decrease in revenue, a net increase in contract drilling expenses due to the insurance deductible, and an increase in other operating income from the expected receipt of loss of hire insurance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.