Diamond Offshore builds cash reserve, cuts costs in anticipation of drilling capacity oversupply

By Lisa Kerner

Charlotte, N.C., May 4 – Diamond Offshore Drilling, Inc. president and chief executive officer Marc Edwards believes the market “will have a significant oversupply of drilling capacity into 2016 and perhaps beyond.”

“Our industry will be challenged in the coming quarters as clients continue to adjust their capital expenditures in response to forecasted commodity prices,” Edwards said during the company’s first-quarter earnings conference call on Monday.

According to Edwards, Diamond is seeing minimal contracting activity, and some clients are canceling work.

In response, the company is “aggressively controlling costs” by cutting staff, reducing cap ex where prudent and negotiating discounts on capital equipment, Edwards said.

The company is also planning to scrap three rigs.

In anticipation of capital obligations associated with its new build program, Diamond has built up a “sizeable cash reserve” and increased its revolving credit to $1.5 billion, said Edwards. The result is added balance sheet flexibility and “more than ample” coverage for remaining existing cap ex needs.

The company expects to save $400 million annually through the previously announced elimination of its special dividend. A regular quarterly dividend of $0.125 per share will be paid on June 1 to shareholders of record as of May 15.

Diamond ended the quarter on March 31 with cash and cash equivalents of about $185 million and long-term debt of about $2 billion. This compares to $234 million and $2 billion at Dec. 31, according to the earnings news release.

The Houston-based offshore oil and gas drilling contractor reported a net loss of $256 million, or $1.86 per share, on revenues of $620 million in the first quarter of 2015.This compares to net income of $146 million, or $1.05 per share, on revenues of $709 million in the first quarter of 2014.

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