Diamond Offshore Slips to 52-Week Low on Weak Pricing

Shares of Diamond Offshore Drilling Inc. DO, a major contract driller, fell more than 6% on NYSE to touch a 52-week low of $16.00 on Jan 19. The weakness can be blamed on the still dull crude pricing environment. Finally, shares closed the session at $16.14.

This drop in price continues the recent downtrend for Diamond Offshore, which has lost about 21% over the past month and is down nearly 49% over the past one year.

What Led to the Share Price Decline?

The West Texas Intermediate WTI crude has been trading around the $28 per barrel threshold for quite some time now. This is owing to plentiful supply of the commodity especially in the face of lackluster global demand. The U.S. shale producers and the Organization of the Petroleum Exporting Countries (OPEC) continue to produce more of the commodity for fear of losing their market share. This has affected the performance of offshore drillers in general and Diamond Offshore in particular. In the third quarter, revenues from the Contract Drilling segment plunged 17.7% year over year to approximately $599.0 million.

Further, higher rig availability is a major concern in 2015 as the global floater market is poised to remain considerably stressed through 2016. As a result, major operators are reducing their spending extensively, postponing projects and reviewing their cost structure.

Hence, with a drastic fall in oil prices, upstream energy players will ask for lesser drilling rigs for exploration and production activities. Also, with crude prices falling amid abundant rig supply, we don't see this offshore driller earning significant cash flows for its shareholders.

All these are reflected in the 52-week low share price of the company.

Zacks Rank & Stock Picks

Currently, Diamond Offshore carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy sector are EXCO Resources Inc. XCO, ReneSola Ltd. SOL and Boardwalk Pipeline Partners, LP BWP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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