Diamond Offshore & Statoil Deal Canceled - Analyst Blog

Diamond Offshore Drilling, Inc. 's ( DO ), a major contract driller, saw its share price fall 3.7% following the news of Norway's Statoil ASA ( STO ) having canceled its drilling contract for the mid-water semisubmersible, Ocean Vanguard.

Statoil terminated the rig contract nine months before the expected date. The contract provided a dayrate of about $454,000 per day. Per the terms of the deal, the rig was anticipated to be used till the end of Feb 2015.

Technical aspects related to the rig were cited as the reason behind the contract's termination by Statoil. No further details were disclosed by the company. However, Diamond Offshore Drilling challenged Statoil's basis for cancelling the contract and plans to protect its rights under the drilling contract.

Diamond Offshore Drilling provides comprehensive offshore drilling services to the global energy industry. The company's drilling fleet of 45 consists of 33 semisubmersibles (of which two are under construction), 7 jackups and 5 dynamically positioned drillship (of which three are under construction). The company's rigs operate in the Gulf of Mexico, the U.K. North Sea, South America, Africa, Australia and Southeast Asia.

Given oil's strong long-term fundamentals, the long lead times of deepwater projects, and the limited slack in the global deepwater drilling fleet, we do not expect any significant impact on dayrates. As a premium deepwater drilling contractor, Diamond Offshore Drilling enjoys strong leverage to this relatively favorable outlook.

Currently, Diamond Offshore Drilling carries a Zacks Rank #3 (Hold). Investors interested in the same sector could consider stocks like Encana Corp ( ECA ) and Matrix Service Company ( MTRX ), both of which sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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