2nd UPDATE: Offshore Drillers Look Abroad, Conserve Cash

22nd Jul 2010 19:29

(Updates with comments from conference call, stock price information and context) By Jason Womack Of DOW JONES NEWSWIRES HOUSTON (Dow Jones)--Offshore drilling contractors are looking abroad for work and conserving cash in order to navigate the uncertain waters of the U.S. Gulf of Mexico. Diamond Offshore Drilling Inc. (DO) has already relocated two rigs and cut 250 jobs following the latest federal order to halt new offshore drilling. On Thursday, the company said it would slash its special dividend by 45% to 75 cents in a move to build up cash and prepare for new rig acquisitions from cash-strapped drillers. At the same time, London-based offshore drilling contractor Ensco PLC (ESV) said it was exploring options in other deepwater markets as a result of the BP PLC (BP, BP.LN) oil spill in the Gulf. These efforts by offshore drillers to keep company coffers full during the drilling ban underscore the clouded future energy companies now face in the Gulf, which until the deadly April 20 accident on the Deepwater Horizon rig was a robust offshore drilling market. Before the accident, deepwater drillers had been less vulnerable to the slumping demand that hit other oilfield-services companies last year because long-life deepwater offshore projects are less subject to short-term swings in commodity prices. Larry Dickerson, chief executive of Diamond Offshore, said he expects more rigs will leave the Gulf and compete for jobs in other offshore markets and new rigs will be delivered to contractors that may not be "well capitalized." "We are shepherding cash for the opportunities that we see will develop from the moratorium," Larry Dickerson said during a conference call to discuss the company's second-quarter earnings. Diamond Offshore's profits were stung during the second quarter as a result of the drilling moratorium and as rates fell on contract renewals. The earnings miss and the dividend cut are "not a winning combo" for Diamond, analysts with Simmons & Co wrote in a note to clients Thursday. Shares of Diamond were recently off 1.8% at $62.99 apiece. The company, which is majority owned by Loews Corp. (L), reported a profit of $224.4 million, or $1.61 a share, down from $387.4 million, or $2.79 a share, a year earlier. Revenue decreased 13% to $822.6 million. Analysts polled by Thomson Reuters most recently had forecast earnings of $1.78 on revenue of $863 million. Ensco's chief executive, Dan Rabun, said Thursday the company is "evaluating work outside the Gulf including contract assignments to other oil and gas companies." The executive noted, however, that offers for new work and contract awards in other markets have slowed since the spill. -By Jason Womack, Dow Jones Newswires; 713-547-9201; [email protected] (Tess Stynes contributed to this report.) (END) Dow Jones Newswires July 22, 2010 14:29 ET (18:29 GMT)