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Diamond Offshore Declares Special Dividend

Diamond Offshore Drilling Inc (DO), the world’s fourth-biggest offshore driller by market value, reported a stronger-than-expected quarterly profit as contract drilling expenses fell.  The company rewarded investors with a special dividend payment.

On February 5, 2013 the board of directors at Diamond Offshore Drilling Inc (DO) approved a dividend of $0.75 per share and a quarterly dividend of $0.125 per share.  The combined special and quarterly dividends are a one-time yield of 1.2%.  Both dividends are payable on March 1, 2013 to shareholders of record on February 19, 2013.

Diamond Offshore Drilling reported net income for the fourth quarter of 2012 of $156 million, or $1.12 per share on a diluted basis, compared with net income of $188 million, or $1.36 per share on a diluted basis, in the same period a year earlier. Revenues in the fourth quarter of 2012 were $751 million, compared with revenues of $748 million in the prior-year quarter.

For the full-year 2012, the Company reported net income of$720 million, or$5.18per share on a diluted basis, compared with net income of$963 million, or$6.92per share on a diluted basis, in 2011. Revenues for the full-year 2012 were$2.987 billion, compared with$3.322 billionin 2011.

Diamond Offshore has great financial discipline, which is one of the best in the industry.  The company is also looking to increase its footprint in the emerging markets (like Brazil and West Africa) to reap benefits from the recently discovered deepwater fields. Further, improving activity in North Sea positions the company well. Diamond Offshore exhibits long-term earnings growth visibility based on its strong leverage to the offshore deepwater drilling market.

Diamond is expanding its ultra deepwater leverage through the construction of three drillships.  The company placed an order for its fourth ultra-deepwater drillship Ocean BlackLion, which is believed to be valuably utilized in the ultra-deepwater markets.  It is due for delivery by the fourth quarter of 2014. The increasing demand in regions of West Africa and North Sea is likely to benefit the existing fleet along with the newbuilds as they may be contracted at higher dayrates.

Diamond Offshore Drilling added 13 new contracts during the third quarter that augmented the Company’s revenue immensely and boosted contract drilling backlog by 12.1 rig-years.  This will provide sound earnings and cash flow visibility for years to come and be further strengthened by the company’s increasing focus on Brazil and the North Sea.  A combination of upgrades and new construction has been a long-term strategy and has allowed it to become a major in the industry.

Diamond Offshore Drilling has a 12-month price target of $80.

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