Diamond Offshore Drilling, Inc.

For Q1 2024, Diamond Offshore reported total revenue of $275 million and adjusted EBITDA of $64 million. Revenue excluding reimbursable revenue was $259 million versus $280 million in the prior quarter, and adjusted EBITDA was $64 million versus $72 million. Contract drilling expense was $184 million versus $189 million in the prior quarter. Operating cash flow was $59 million and free cash flow was $38 million, compared with negative free cash flow of $22 million in Q4. Management updated full-year 2024 revenue guidance to $925 million to $945 million, adjusted EBITDA guidance to $225 million to $245 million, and CapEx guidance to $135 million to $145 million. For Q2 2024, the company guided to revenue of $230 million to $240 million, adjusted EBITDA of $55 million to $65 million, and CapEx of $30 million to $35 million.

Bernie Wolford emphasized that contracting conditions are improving and that the company’s fleet is benefiting from tighter supply/demand in deepwater drilling. He pointed to $713 million of new backlog in the quarter, higher day-rate extensions on BlackLion and BlackHornet, and multiple follow-on opportunities for BlackRhino and Endeavor. His tone was constructive and opportunistic, especially around marketing rights for three stranded seventh-generation drillships, which he said could generate accretive fee income without added working capital.

Dominic Savarino focused on the quarter’s financial beat and the updated impact from GreatWhite. He said Q1 revenue excluding reimbursables was $259 million and adjusted EBITDA was $64 million, both above guidance, and explained that free cash flow improved to $38 million due to working capital release and lower CapEx. He estimated the GreatWhite incident would reduce EBITDA and cash flow by about $25 million to $30 million, with $32 million to $35 million of lost revenue, $3 million to $6 million of net contract drilling expense, $10 million to $11 million of other operating income from loss-of-hire insurance, and $15 million to $20 million of CapEx to be recovered under insurance. He also said 2025 has 73% of available days committed and 2026 has 41% committed, and that the company is on track to meet leverage and covenant requirements by the end of 2024.

Analysts focused heavily on the new marketing agreements for the Dorado, Draco, and Tidal Action, asking whether Diamond had a role in day rates, whether there was any path to ownership, and how long the management arrangements would last. Management said Diamond will lead commercial negotiations with owner input, the agreements are indefinite but can terminate under certain conditions, and there is no explicit path-to-ownership, largely because the bid-ask spread is too wide and Diamond’s equity currency is not favorable enough for acquisitions right now. Questions also centered on BlackRhino’s future work and the Endeavor’s 2025 visibility; management said BlackRhino is expected to be fully contracted through 2025, while Endeavor has four opportunities ranging from seven months to two years. Management also said the U.K. remains more volatile because of the energy profits levy and elections, while P&A demand remains relatively strong.