Amid uncertainties associated with BP Plc.’s (BP: 36.80 +2.75 +8.08%) leaking Macondo well, Diamond Offshore Drilling Inc. (DO: 64.05 -0.35 -0.54%)announced for the first time that it will redeploy its deepwater drilling rig (Ocean Endeavor) from the Gulf of Mexico (GoM) to offshore Egypt immediately. The decision is reflective of the Obama administration’s ban on deepwater drilling and consequently Diamond’s increased focus on the international agenda to keep its rigs fully employed.The Ocean Endeavor semi-submersible will now shift to Egypt under a new contract with Burullus Gas Co. through June 30, 2011. Burullus Gas is a joint venture of Egyptian General Petroleum Corp., BG Group Plc and Petronas Dagangan Bhd.
Following the federal moratorium on drilling in more than 500 feet of water, Ocean Endeavor has received a force majeure declaration from Devon Energy Corp.(DVN: 63.49 +0.14 +0.22%), which was contracted to pay about $290,000 per day.
Devon will pay a $31 million early-termination fee, which along with the new contract would generate combined maximum total revenue of $100 million for Diamond. Previously, Devon was paying about $265,000 a day for Ocean Endeavor, which will now decrease to $225,000 per day. With the termination fee, however, the realized dayrate will be $285,000 per day.
Recently, Diamond also offloaded its 350-feet high-specification jackup Ocean Shield to Ensco Plc (ESV: 40.48 +0.28 +0.70%) for $186 million in cash, reflecting the company’s intention to utilize the amount for deepwater drilling assets.
We believe the shift of Ocean Endeavor, which was lying idle, from the GoM to Egypt is a positive move and aids the company in preserving its backlog. However, the deepwater drilling ban could instigate dozens of rigs to flee the U.S., creating more job losses and ringing an economic warning for the Gulf Coast states.
Diamond is highly leveraged to the deepwater markets and draws most of its revenue from high-spec deepwater and ultra-deepwater rigs. However, Diamond is experiencing dayrate pressure in the deepwater segment where it lacks a significant increase in tendering activity for projects.| Analysts' Targets | |
| Stifel Nicolaus | $54 |
| Hold | |
| Tuesday, June 08, 2010 | |
| Needham & Co. | $75 |
| Underperform | |
| Friday, April 16, 2010 | |
| Credit Suisse | $79 |
| Hold | |
| Wednesday, March 17, 2010 | |
| Dougherty & Co. | $118 |
| Buy | |
| Monday, January 04, 2010 | |
No comments:
Post a Comment