RRC Range Resources Corp

Diamond Offshore Drilling Inc. (DO) reported first quarter 2014 earnings of 93 cents per share, comfortably surpassing the Zacks Consensus Estimate of 67 cents. The outperformance was mainly backed by higher dayrates and lower contract drilling expenses. However, the quarterly results decreased 26.8% from the year-earlier earnings of $1.27 per share.

Total revenue in the quarter, decreased 2.8% year over year to $709.4 million but beat the Zacks Consensus Estimate of $704.0 million.

Dividend Story

Diamond Offshore declared a special dividend of 75 cents per share in the quarter, unchanged from the prior quarter. The company will also pay its regular quarterly dividend of 12.5 cents per share (50 cents per share annualized). Both dividends are payable on Jun 2, 2014 to shareholders of record on May 7.

Operational Performance

In the first quarter, revenues from the Contract Drilling segment fell 2.1% year over year to $685.3 million, mainly due to a 3.9% decrease in total floaters revenue. These floaters accounted for 93.1% of the total contract drilling revenue, while jackups contributed 6.9%.

Ultra-Deepwater floaters recorded an average dayrate of $387,000, up from $360,000 in the year-earlier quarter. Deepwater floaters realized an average dayrate of $418,000 versus $389,000 in the year-ago quarter. Mid-water floaters recorded an average dayrate of $276,000, up from $262,000 in the year-earlier quarter. Jackup rigs’ dayrates averaged $93,000, up from $85,000 in the first quarter of 2013.

Rig utilization for Ultra-Deepwater floaters decreased to 66% from 73% in the year-ago quarter. Utilization of Deepwater floaters decreased to 64% from 88% in the year-ago quarter. Mid-water category rig utilization was 64%, unchanged from the comparable quarter last year while jackup rig utilization increased to 79% from 71%.

Financials

As of Mar 31, 2014, Diamond Offshore had approximately $420.1 million in cash and cash equivalents, while long-term debt was $2,244.3 million. Debt-to-capitalization ratio at the end of the quarter was 32.9% (up from about 24.4% in the preceding quarter).

Outlook

Houston, TX-based Diamond Offshore exhibits long-term earnings growth visibility based on its strong leverage to the offshore deepwater drilling market. Additionally, the company’s significant free cash flow generation potential and healthy balance sheet enhance the possibility of further share buybacks and special dividends, going forward.

However, given the volatile oil and gas price scenario as well as geopolitical risks associated with international operations, we maintain a Zacks Rank #3  (Hold rating) on Diamond Offshore.

However, there are better-ranked stocks in the oil and gas industry, like Range Resources Corp. (RRC), Unit Corp. (UNT) and Helmerich & Payne, Inc. (HP), which appear more promising. All these stocks sport a Zacks Rank #1 (Strong Buy).

 
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
 
HELMERICH&PAYNE (HP): Free Stock Analysis Report
 
RANGE RESOURCES (RRC): Free Stock Analysis Report
 
UNIT CORP (UNT): Free Stock Analysis Report
 
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