Diamond<DO.N> up in Q3 but sees Q4 decline
HOUSTON, Oct 15 (Reuters) - Diamond Offshore Drilling Inc., reporting a 39.7 percent rise in third-quarter earnings that beat Wall Street expectations, said on Thursday fourth-quarter earnings would be lower.
"Certainly earnings are scheduled to decline in the fourth quarter, but the impact on 1999 really depends on where oil prices are," Diamond Offshore President Larry Dickerson told a conference call.
Despite a decline in demand and prices for offshore drilling services in recent months as a result of the protracted slump in oil prices, Diamond Offshore said third-quarter net income rose to $108.7 million from $77.8 million in the same period of 1997.
Diluted earnings per share rose to 75 cents in the third quarter from 54 cents in the year-ago period, roundly beating First Call Corp.'s consensus of Wall Street analysts' estimates, which stood at 68 cents.
Dickerson said Diamond Offshore had been able to post higher earnings despite weakening markets because many of its 46 offshore drilling rigs were earning daily rental rates that were negotiated before the third quarter.
However, as contracts come up for renewal, rigs will be rented out at prevailing market rates, which in many cases are lower.
Dickerson said jack-up rigs operating in the shallow waters of the Gulf of Mexico had been earning daily rates of about $40,000, but that current rates were around $20,000 or lower.
"As those roll over, we would expect to see earnings decline," he said.
The market for semi-submersible rigs, which operate in deeper waters, had also softened, but not as severely, he said.
Dickerson said Diamond Offshore currently had five jack-ups "stacked" in the Gulf of Mexico awaiting work and had also withdrawn two semi-submersible rigs from service there.
"We don't think there's sufficient demand to employ all of the rigs in the Gulf of Mexico," he said.
Offshore drilling markets had also weakened in West Africa, the North Sea and Australia, he said.
Dickerson said Diamond Offshore had a superior free cash flow, compared with many of its peers, and that share buybacks were one way in which this cash could be put to work.
The company spent $88.7 million buying back 3.5 million of its own shares in the third quarter. Dickerson said this would add 11 cents to earnings per share over the remaining shares.
On Thursday at midday, Diamond Offshore's stock was up 1-7/16 to 22-1/2 a share in composite New York Stock Exchange trading.
20:21 10-15-98
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