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Diamond Offshore Drilling Inc. Raj Dhawle Pratik Kamdar Jinglin Pan. http://www.diamondoffshore.com/ourCompany/ourcompany_rigamarole.php. Agenda. Company Overview Macro-Economic Industry Overview Porter’s Five Forces Competitors Company Performance SWOT Analysis Valuation

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Diamond offshore drilling inc l.jpg

Diamond Offshore Drilling Inc.

Raj Dhawle

Pratik Kamdar

Jinglin Pan

http://www.diamondoffshore.com/ourCompany/ourcompany_rigamarole.php


Agenda l.jpg
Agenda

  • Company Overview

  • Macro-Economic

  • Industry Overview

    • Porter’s Five Forces

  • Competitors

  • Company Performance

    • SWOT Analysis

  • Valuation

  • Recommendation


Holdings history l.jpg
Holdings History

February 2008

  • Purchased 100 shares @ $122.90 for a total cost of $12,290

  • Give portfolio exposure to oil and drilling sector

    November 2008

  • Purchased 50 shares @ $72.96 for a total cost of $3,648

    September 2009

  • Written call option exercised, sold 100 shares at adjusted price of $76.25 totaling $7,625

  • Strike price adjusted to $76.25 from original strike price of $80.00 due to a special cash dividend of $1.875 paid twice over the holding period of the option

  • Realized loss of $4,665

    November 2010

  • Purchased 100 shares @ $68.10

    As of 02/28/2011

  • Diamond offshore closed @ $78.23

  • Currently have 150 shares with unrealized gain of 12.20%

  • Currently represents 3.45 % of the portfolio by holding value


Company overview l.jpg
Company Overview

  • Among the largest deepwater drilling contractors

  • Provides drilling services to large Oil and Gas companies

  • Operates one of the largest fleets of deepwater drilling rigs

  • Key Facts:

    • Headquartered in Huston, TX

    • Currently employs 5300 people

    • Stoke trades under ticker symbol ‘DO’

    • Current Price: $78.23

    • Market Capitalization (as on 02/28/2011) : 10.88 B

    • Area of Presence: USA, Australia, South America, Middle East, Asia, Africa

      Source: www.finance.yahoo.com/www.diamondoffshore.com



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Key Revenue Drivers:

Day Rates:

The rate that driller charges an operator for each day over contract period for the use of rigs

Utilization Rate:

The actual percentage of time in a year a rig would be utilized

  • Both variables mentioned above depend on exploration expenditures set by oil and gas companies which in turn depend on Political, Regulatory and Economic factors

  • Availability of rigs in an area of potential exploration also affects day rates and utilization rates


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Peer Group Stock Movements

DO current stock price: $78.28

Source: Google Finance


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Energy Outlooks

  • Short Term Outlook

    • Average $93 per barrel in 2011

    • Average $98 per barrel in 2012

    • World real GDP grows at 3.9% and 4.0% respectively

Source: EIA


Energy outlook l.jpg
Energy Outlook

Long Term Outlook

Total energy demand in non-OECD countries increases by 84% vs 14% in OECD countries between 2007 and 2035

Core growth in non-OECD:

Brazil, China, Middle East

Industrials sectors such as:

manufacturing, mining,

construction, agriculture

Source: International Energy Outlook 2010, Highlights

http://www.eia.doe.gov/oiaf/ieo/pdf/highlights.pdf


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Source:http://www.mcclatchydc.com/2010/05/07/93754/gulf-spill-reminds-america-the.html


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The End of ‘Easy Oil’

  • Exploratory efforts across the globe

    • Detected hydrocarbons off the shores of Sarawak, Western Australia, Vietnam, Bahamas, Congo etc

  • Future giant oil fields projected to be in Middle East

    • Iraq (relatively undeveloped fields)

      • contracts with Exxon, Shell, BP, China National Petroleum to develop its oil fields.


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Source: Financial News for Major Energy Producers, Third Quarter 2010, Page 5

http://www.eia.gov/emeu/perfpro/news_m/q310.pdf


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Industry Outlook Quarter 2010, Page 5

  • Oil and gas exploration industry grew at a healthy rate from 2005-2007.

  • The global economic crisis has led to rapid fall of prices in 2009.

  • Sector production volumes increased with a compound annual growth rate (CAGR) of 1.2% between 2005 and 2009 and hence reach a total of 49.8 billion barrels in 2009.

Source: Marketline Database

http://library.marketlineinfo.com/library/DisplayContent.aspx?Ntt=oil+and+gas+exploration&Ntx=mode%2bmatchall&Nty=1&D=oil+and+gas+exploration&Ntk=All&Ns=


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Future Growth Quarter 2010, Page 5

Source: Marketline Database

http://library.marketlineinfo.com/library/DisplayContent.aspx?Ntt=oil+and+gas+exploration&Ntx=mode%2bmatchall&Nty=1&D=oil+and+gas+exploration&Ntk=All&Ns=


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Sector Value Forecast Quarter 2010, Page 5

Source: Marketline Database

http://library.marketlineinfo.com/library/DisplayContent.aspx?Ntt=oil+and+gas+exploration&Ntx=mode%2bmatchall&Nty=1&D=oil+and+gas+exploration&Ntk=All&Ns=


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Porters Five force Model Quarter 2010, Page 5

Threat of New Entrants (Low): The oil drilling industry is highly capital extensive. The cost of equipment is high and the skilled labor is also very expensive. Due to high capital and very specific technical knowhow that is required in this industry. It makes the threat of new entrants very low.

Power of Suppliers (Medium): The rig builders have more bargaining power is directly dependant on the demand for oil. If the demand for oil and hence the rigs is high, it makes the power of suppliers high. If the demand is low than it gives the drillers a better bargaining power.

Power of Buyers (High):Buyers set out tenders and the bidder who bids with the lowest wins. The oil industry is going to grow in the future. However, there is going to be an oversupply of rigs as the number of rigs is likely to increase to 811. Around 45% of them are still without contract. This gives the buyers high bargaining power and may drag the day rates down.

Threat of Substitutes (Low): There are many alternatives to oil and natural gas including coal, solar, and wind power. Coal is already well established in the market place while other alternative technologies are still far too inefficient to compete over the next decade.

Industry Rivalry (High): There are high exit barriers due to the costs of the rigs and the lack of alternative uses for them. Therefore, companies want to stay in the industry, increasing rivalry. Bids to get contracts is very competitive and lowest cost wins the bid.


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Competitors Analysis Quarter 2010, Page 5

Types of Rigs

Source:

http://www.noblecorp.com/Fleet/FleetOverview.asp

http://www.enscous.com/Rig-Fleet/default.aspx

http://www.diamondoffshore.com/ourFleet/ourfleet.php

http://www.deepwater.com/fw/main/Our-Rigs-14.html


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Competitors Analysis Quarter 2010, Page 5

Source:

http://library.marketlineinfo.com.proxy2.library.illinois.edu/library/DisplayContent.aspx?Ntt=diamond+offshore&Ntx=mode%2bmatchall&Nty=1&D=diamond+offshore&Ntk=All&Ns=


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Average Daily Rates Quarter 2010, Page 5

http://library.marketlineinfo.com.proxy2.library.illinois.edu/library/DisplayContent.aspx?Ntt=diamond+offshore&Ntx=mode%2bmatchall&Nty=1&D=diamond+offshore&Ntk=All&Ns=


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Average Utilization Rates Quarter 2010, Page 5

http://services.corporate-ir.net/SEC.Enhanced/SecCapsule.aspx?c=113031&fid=7409300

http://www.diamondoffshore.com/investors/investors_secfiling.php

http://esv.ir.edgar-online.com/fetchFilingFrameset.aspx?FilingID=7749323&Type=HTML

http://phx.corporate-ir.net/phoenix.zhtml?c=98046&p=IROL-secToc&TOC=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDA5NTAxMjMtMTEtMDE4NjA3L3RvYy9wYWdl&ListAll=1&sXBRL=1


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Transocean Forecasted Daily Rates Quarter 2010, Page 5

http://services.corporate-ir.net/SEC.Enhanced/SecCapsule.aspx?c=113031&fid=7409300

http://www.diamondoffshore.com/investors/investors_secfiling.php

http://esv.ir.edgar-online.com/fetchFilingFrameset.aspx?FilingID=7749323&Type=HTML

http://phx.corporate-ir.net/phoenix.zhtml?c=98046&p=IROL-secToc&TOC=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDA5NTAxMjMtMTEtMDE4NjA3L3RvYy9wYWdl&ListAll=1&sXBRL=1


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Key Ratios Quarter 2010, Page 5

Source: http://finance.yahoo.com


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Stock Performance Quarter 2010, Page 5Stock appreciated almost 43% after bottoming out in June 2010

Source: http://finance.yahoo.com


History l.jpg
History Quarter 2010, Page 5

  • In the Oil Crisis of 1980, Jim Tisch of Loews Corp bought out all drilling assets of Diamond M Drilling Co. owned by Kaneb Services Inc. at substantially distressed prices

  • In 1992, Diamond M Drilling Co. under the ownership of Loews purchased all outstanding stock of Ocean Drilling and Exploration Co. , through which it acquired 39 rigs which still remain with DO’s fleet today

  • In 1993, Loews renamed Diamond M Drilling Co. as Diamond Offshore Drilling Inc.

  • Loews Corp took the company public in 1995 by selling 30% stake in an IPO

  • Jim Tisch of Loews Corp still holds 51 % stake in the company


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Nature of Operations Quarter 2010, Page 5

  • Oil and Gas companies carry out geological surveys and based on that give a drilling contract to a driller on designated area.

  • Drilling company performs following operations:

    • Exploratory Drilling: Drill a new well for exploration

    • Development Drilling: Dig new wells in areas of successful exploration and complete wells for continued hydrocarbon extraction by operators


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The Fleet Quarter 2010, Page 5

Different types of rigs/equipments:

High Specification Floaters(Submersibles & Drillships):

  • Capable of working in water depths of 4000 feet or greater and harsh environment

    Intermediate Submersibles:

  • Capable of working in maximum water depths of 4000 feet

    Jack-ups:

  • Capable of working in water depths of 20 feet to 350 feet


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Rig Locations and Revenue Drivers Quarter 2010, Page 5


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Breakdown of Revenues Quarter 2010, Page 5

  • Revenue in GOM has decreased due to moratorium on drilling activity in GOM after Macondo

  • Incident

  • Diversification strategy is paying off as revenues from international regions have been increasing

  • Approx 85 % Revenues come from high specification floaters and intermediate submersibles


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SWOT Analysis Quarter 2010, Page 5


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ROE Breakdown Quarter 2010, Page 5


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Base Case Revenue Quarter 2010, Page 5


Valuation l.jpg
Valuation Quarter 2010, Page 5


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Other Scenarios Quarter 2010, Page 5

Positive: Anticipation of utilization rates in the 80s% with slightly higher day rates

On average, revenues are higher by 9%

Fair Value Estimate: $91.90

Negative: Oversupply leads to lower utilization rates and lower day rates.

On average, revenues are lower by 10%

Fair Value Estimate: $61.66


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Multiples Valuation Quarter 2010, Page 5


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Recommendation Quarter 2010, Page 5

  • To place a limit sell order@$80.00. (for 50 shares purchased in Nov 2008 @ $72.96)

  • Long Term Capital Gain of: $352 (4.82%)


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