OREANDA-NEWS. Diamond Offshore Drilling, Inc. (NYSE: DO) today reported results for the second quarter of 2016.

   

Three Months Ended

    

Thousands of dollars, except per share data               

  

June 30,
2016

  

March 31,
2016

  

Change
   

Total revenues

  

$   388,747

  

$    470,543

  

(17)%
             

Operating (loss) income

  

(626,669)

  

111,569

  

(662)%
             

Adjusted operating income

  

51,476

  

111,569

  

(54)%
             

Net (loss) income

  

(589,937)

  

87,425

  

(775)%
             

Adjusted net income

  

22,295

  

87,425

  

(74)%
             

(Loss) earnings per diluted share

  

($4.30)

  

$0.64

  

(772)%
             

Adjusted earnings per diluted share

  

$0.16

  

$0.64

  

(75)%
             

"Despite facing both market and operational headwinds during the quarter, Diamond was able to record adjusted earnings per share of $0.16," said Marc Edwards, President and Chief Executive Officer.

Results for the second quarter were significantly impacted by impairment charges and related taxes of $612 million, or $4.46 per diluted share, primarily relating to the carrying value of eight semisubmersible rigs and associated inventory.

Operational efficiency of the Company's fleet was 92.7% in the second quarter, compared to 98.2% in the first quarter of 2016. The decline in operational efficiency was primarily driven by issues experienced within the ultra-deepwater floater category, specifically as it relates to four unplanned retrievals of blowout preventers.

Utilization in the deep-water segment increased by 25% in the second quarter of 2016, compared to the first quarter of 2016. The increase was driven by the Ocean Apex beginning its 18-month contract with Woodside in Australia at a rate of $285,000 per day. The rig was recently awarded a three-month extension at $205,000 per day, which will keep the rig working until February 2018.

During the quarter, the Company elected to cold stack the Ocean Endeavor and Ocean Scepter. The Company's decision was guided by its desire to minimize costs associated with the rigs, while ensuring the rigs are preserved in such a manner as to enable a quick reactivation when the market recovers. Additionally, the Company intends to scrap the Ocean Quest and Ocean Star.

As of June 30, 2016, the Company's total contracted backlog was $4.4 billion, which represents 28 rig years of work. Approximately 86% of the Company's available ultra-deepwater rig days for the remainder of 2016 are contracted with top tier customers.

Edwards also commented on the recently announced Helical Buoyancy™ riser joint development agreement with Trelleborg, stating, "This is another example of Diamond Offshore differentiating itself in an oversupplied market. As with our Pressure Control by the Hour™ service model, Diamond Offshore is providing the industry with thought leadership to drive efficiencies and lower the cost of operating offshore."

Reflecting on the market, Edwards went on to say, "Although the market continues to be challenged, our focus is on striking a balance between controlling costs and laying the foundation to ensure Diamond Offshore is well positioned for the recovery."

ABOUT DIAMOND OFFSHORE

Diamond Offshore is a leader in offshore drilling, providing contract drilling services to the energy industry around the globe.

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)
 
   

Three Months Ended

  

Six Months Ended
   

June 30,

  

June 30,
   

2016

  

2015

  

2016

  

2015
                 

Revenues:

                

           Contract drilling

$

357,409

$

617,442

$

800,932

$

1,217,019

           Revenues related to reimbursable expenses

  

31,338

  

16,590

  

58,358

  

37,069

                     Total revenues

  

388,747

  

634,032

  

859,290

  

1,254,088
                 

Operating expenses:

                

           Contract drilling, excluding depreciation

  

198,336

  

342,869

  

411,177

  

693,527

           Reimbursable expenses

  

16,527

  

16,336

  

43,318

  

36,428

           Depreciation

  

105,016

  

123,329

  

209,256

  

260,628

           General and administrative

  

18,139

  

16,548

  

33,537

  

34,000

           Impairment of assets

  

678,145

  

--

  

678,145

  

358,528

           Restructuring and separation costs

  

--

  

993

  

--

  

7,161

           Gain on disposition of assets

  

(747)

  

(164)

  

(1,043)

  

(775)

                     Total operating expenses

  

1,015,416

  

499,911

  

1,374,390

  

1,389,497
                 

Operating (loss) income

  

(626,669)

  

134,121

  

(515,100)

  

(135,409)
                 

Other income (expense):

                

           Interest income

  

269

  

584

  

442

  

1,167

           Interest expense

  

(24,156)

  

(25,468)

  

(49,672)

  

(49,450)

           Foreign currency transaction (loss) gain

  

(3,513)

  

(3,473)

  

(7,121)

  

2,117

           Other, net

  

(12,046)

  

264

  

(11,468)

  

485
                 

(Loss) income before income tax benefit (expense)

  

(666,115)

  

106,028

  

(582,919)

  

(181,090)
                 

Income tax benefit (expense)

  

76,178

  

(15,642)

  

80,407

  

15,767

Net (loss) income

$

(589,937)

$

90,386

$

(502,512)

$

(165,323)
                 

(Loss) income per share

$

(4.30)

$

0.66

$

(3.66)

$

(1.21)
                 

Weighted-average shares outstanding:

                

           Shares of common stock

  

137,170

  

137,159

  

137,166

  

137,155

           Dilutive potential shares of common stock

  

--

  

42

  

--

  

--

                Total weighted average shares outstanding

  

137,170

  

137,201

  

137,166

  

137,155
                 

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS

(Unaudited)

 (In thousands)
 
   

Three Months Ended
   

June 30,

  

March 31,

  

June 30,
   

2016

  

2016

  

2015
             

REVENUES

            

 Floaters:

            

   Ultra-Deepwater

$

214,102

$

325,961

$

315,670

    Deepwater

  

67,191

  

59,117

  

181,104

    Mid-water

  

56,694

  

47,672

  

96,926

      Total Floaters

  

337,987

  

432,750

  

593,700

  Jack-ups

  

19,422

  

10,773

  

23,742

Total Contract Drilling Revenue

$

357,409

$

443,523

$

617,442
             

Revenues Related to Reimbursable Expenses

$

31,338

$

27,020

$

16,590
             

CONTRACT DRILLING EXPENSE

            

 Floaters:

            

   Ultra-Deepwater

$

127,185

$

123,736

$

161,485

    Deepwater

  

34,776

  

47,509

  

86,464

    Mid-water

  

25,862

  

23,884

  

66,735

      Total Floaters

  

187,823

  

195,129

  

314,684

  Jack-ups

  

6,876

  

6,055

  

20,873

  Other

  

3,637

  

11,657

  

7,312

Total Contract Drilling Expense

$

198,336

$

212,841

$

342,869
             

Reimbursable Expenses

$

16,527

$

26,791

$

16,336
             

OPERATING (LOSS) INCOME

            

 Floaters:

            

   Ultra-Deepwater

$

86,917

$

202,225

$

154,185

    Deepwater

  

32,415

  

11,608

  

94,640

    Mid-water

  

30,832

  

23,788

  

30,191

      Total Floaters

  

150,164

  

237,621

  

279,016

  Jack-ups

  

12,546

  

4,718

  

2,869

  Other

  

(3,637)

  

(11,657)

  

(7,312)

  Reimbursable expenses, net

  

14,811

  

229

  

254

  Depreciation

  

(105,016)

  

(104,240)

  

(123,329)

  General and administrative expense

  

(18,139)

  

(15,398)

  

(16,548)

  Impairment of assets

  

(678,145)

  

--

  

--

  Restructuring and separation costs

  

--

  

--

  

(993)

  Gain on disposition of assets

  

747

  

296

  

164

          Total Operating (Loss) Income

$

(626,669)

$

111,569

$

134,121

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)
 
       

June 30,

  

December 31,
       

2016

  

2015
         

ASSETS

        
         

Current assets:

        
 

Cash and cash equivalents

$

103,279

$

119,028
           
 

Marketable securities

  

57

  

11,518
           
 

Accounts receivable, net of allowance for bad debts

  

324,588

  

405,370
           
 

Prepaid expenses and other current assets

  

112,293

  

119,479
           
 

Assets held for sale

  

6,200

  

14,200
           
   

Total current assets

  

546,417

  

669,595
         

Drilling and other property and equipment, net of

        

     accumulated depreciation

  

5,848,172

  

6,378,814
           

Other assets

  

110,689

  

101,485
   

Total assets

$

6,505,278

$

7,149,894
             

LIABILITIES AND STOCKHOLDERS' EQUITY

        
         

Short-term borrowings

$

327,300

$

286,589

 

Other current liabilities

  

300,688

  

339,134
         

Long-term debt

  

1,980,324

  

1,979,778
         

Deferred tax liability

  

114,384

  

276,529
         

Other liabilities

  

164,505

  

155,094
             

Stockholders' equity

  

3,618,077

  

4,112,770
             
   

Total liabilities and stockholders' equity

$

6,505,278

$

7,149,894
         

DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES

AVERAGE DAYRATE, UTILIZATION AND OPERATIONAL EFFICIENCY

(Dayrate in thousands)
 
 

Second Quarter
2016

First Quarter
2016

Second Quarter
2015
 

Average
Dayrate
(1)

Utilization
(2)

Operational
Efficiency
(3)

Average
Dayrate
(1)

Utilization
(2)

Operational
Efficiency
(3)

Average
Dayrate
(1)

Utilization
(2)

Operational
Efficiency
(3)
                   
                   
                   

Ultra-Deepwater Floaters

$452

47%

86.7%

$533

61%

98.4%

$483

63%

90.9%
                   

Deepwater Floaters

$301

35%

100%

$335

28%

97.1%

$451

63%

99.3%
                   

Mid-Water floaters

$313

30%

99.4%

$263

25%

97.7%

$278

32%

99.7%
                   

Jack-ups

$335

13%

100%

$118

18%

100%

$83

53%

98.6%
                   

Fleet Total

    

92.7%

    

98.2%

    

95.9%
   

(1)

Average dayrate is defined as contract drilling revenue for all of the specified rigs in our fleet per revenue earning day.  A revenue earning day is defined as a 24-hour period during which a rig earns a dayrate after commencement of operations and excludes mobilization, demobilization and contract preparation days.
   

(2)

Utilization is calculated as the ratio of total revenue-earning days divided by the total calendar days in the period for all specified rigs in our fleet (including cold-stacked rigs, but excluding rigs under construction).  As of June 30, 2016, our cold-stacked rigs included four ultra-deepwater semisubmersibles, four deepwater semisubmersibles, four mid-water semisubmersibles and five jack-up rigs. 
   

(3)

Operational efficiency is calculated as the ratio of total revenue-earning days divided by the sum of total revenue-earning days plus the number of days (or portions thereof) associated with unanticipated equipment downtime.

Non-GAAP Financial Measures (Unaudited)
 

To supplement the Company's unaudited condensed consolidated financial statements presented on a GAAP basis, this press release provides investors with adjusted operating income, adjusted net income and adjusted earnings per diluted share, which are non-GAAP financial measures.  Management believes that these measures provide meaningful information about the Company's performance by excluding certain charges that may not be indicative of the Company's ongoing operating results.  This allows investors and others to better compare the company's financial results across previous and subsequent accounting periods and to those of peer companies and to better understand the long-term performance of the Company.  Non-GAAP financial measures should be considered to be a supplement to, and not as a substitute for, or superior to, financial measures prepared in accordance with GAAP.
 
 

Three Months Ended
June 30, 2016

Reconciliation of As Reported Operating (Loss) Income to Adjusted Operating Income:
(In thousands)

  
   

As reported operating loss

$          (626,669)
   

    Impairments and other charges:

  

        Impairment of rigs and associated inventory (1)

678,145
   

Adjusted operating income

$             51,476
   

Reconciliation of As Reported Net Loss to Adjusted Net Income:
(In thousands)

  
   

As reported net loss

$          (589,937)
   

    Impairments and other charges:

  

        Impairment of rigs and associated inventory (1)

678,145
   

    Tax effect of impairments and other charges:

  

        Impairment of rigs and associated inventory (2)

(143,165)

        Discrete tax items (3)

77,252
   

Adjusted net income

$             22,295
   

Reconciliation of As Reported Loss per Diluted Share to Adjusted Earnings per Diluted Share:

  
   

As reported loss per diluted share

$               (4.30)

    Impairments and other charges:

  

        Impairment of rigs and associated inventory (1)

4.94
   

    Tax effect of impairments and other charges:

  

        Impairment of rigs and associated inventory (2)

(1.04)

        Other discrete tax items (3)

0.56
   

Adjusted earnings per diluted share

$                 0.16

______________________________

(1)

Represents the aggregate amount of impairment losses recognized during the second quarter of 2016 related to eight of our drilling rigs and associated inventory. 
   

(2)

Represents the income tax effects of the aggregate impairment loss recognized in the second quarter of 2016.
   

(3)

Represents the aggregate of certain discrete income tax adjustments recognized during the second quarter of 2016, primarily related to valuation allowances for current and prior year tax assets associated with foreign tax credits, which we no longer expect to be able to utilize to offset income taxes in the U.S. tax jurisdiction.