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Gold/Mining/Energy : Diamond Offshore DO -- Ignore unavailable to you. Want to Upgrade?

To: Aggie who wrote (54)	12/25/1998 12:48:00 AM
From: Aggie	Read Replies (1) \| Respond to of 101

To All, Answered my own question: Credit Suisse First Boston: Diamond Offshore, Inc. (DO, $22.63, BUY) Target (12 Months): $35 Diamond and British Petroleum (BP, $88.25,Buy) terminated the contract for the deepwater drillship the Ocean Clipper. The rig has been plagued by equipment problems since delivery in mid 1997, particularly related to the BOP, and will be in the yard for BOP repairs and other upgrades into Q299. The Clipper will be capable of drilling in 7,500 feet of water after being repaired. The contract with BP was to run into 2001 at a dayrate of $114,000. 1999 earnings could decrease by approximately $0.19 per share if no substitute work is found for the Clipper. This is an unlikely scenario, as rigs capable of drilling in these water depths have recently signed contracts at dayrates of $135,000 to$180,000. We maintain our view that deepwater activity will be stronger than shallow water activity in the current cycle. However, the deepwater is not immune to the effects of the downturn in oil prices. Operators are attempting to reduce spending commitments where contractually possible. Diamond is attractively valued, with an enterprise value of approximately 42% of estimated replacement cost, and more than $600 million in cash. We are not changing our estimates as the Clipper could earn a higher dayrate on a new contract. Maintain Buy Annual EPS 12/99E 1.72 12/98E 2.59 Well folks......this is the start of a particularly ugly trend, IMHO. But this particular case looks like it has something to do with (reluctantly) planned upgrade work encountering E&P budget cuts than with an expedient dismissal to get out of a contract. The rig had been working off Mississippi Canyon (GOM) in 6600' of water. Can't say that I buy CSFB's assertion that better dayrates are on the horizon. Regards to all, Aggie