Leading contract drilling company, Diamond Offshore Drilling Inc (DO) has recently awarded a contract to Singapore-based Jurong Shipyard for converting an out-of-work rig built in 1976 into a deepwater driller at a cost of about $370 million.
The rig will be named Ocean Apex and is expected to be delivered by the second quarter of 2014. Ocean Apex will utilize an existing hull of Ocean Bounty, a cold stacked unit of Diamond Offshore. This would inevitably reduce the cost as well as the time required to construct the rig.
Ocean Apex will be designed in a manner that it would surpass the specifications of a fourth-generation newbuild unit. It will be operational in water depths of up to 6,000 feet and will possess a variable deck load of 7,000 long tons. The rig - with an employee capacity of 140 - will also comprise a 15,000 five-ram blowout preventer. Apart from these, it will also feature a hook-load capacity of maximum two million pounds as well as one of the largest deck area of any semisubmersible rig in the world.
Diamond was encouraged by the strong demand for another moored semisubmersible rig, the Ocean Onyx, which just landed a contract for $490,000 per day starting when its conversion is complete next year.
Earlier in the year, Ocean Onyx had been ordered to be constructed utilizing an existing hull of Ocean Voyager, a cold stacked unit of Diamond Offshore. Recently, the Ocean Onyx secured a $490,000 per day contract and is expected to start work once it is delivered by the third quarter of 2013.
Hence, a combination of upgrades and new construction has been the long-term strategy of the company and has allowed it to become a major player in the industry. We expect the rig order to present significant opportunity for Diamond Offshore's deepwater operations.
Ocean Apex is expected to emerge as the perfect choice to meet the rising demand in midwater and deepwater segment. This will be further strengthened by the increasing focus on deepwater drilling by the world's leading oil companies and a recent find in Brazil.
Diamond Offshore - whose rival Ensco Plc (ESV) recently placed an order for a new sixth-generation ultra-deepwater drillship for $645 million to be delivered by the third quarter of 2014 - holds a Zacks #2 Rank (short-term Buy rating). We maintain a Neutral recommendation on the stock for the long term.