Diamond Offshore Drilling Inc., the largest U.S. offshore rig contractor, jumped the most in more than two years after reporting earnings that beat analysts’ estimates and buying back shares.
Adjusted first-quarter earnings exceeded the 65-cent average of 33 estimates compiled by Bloomberg, according to a statement from the Houston-based company today. It repurchased stock for the first time in a decade in the period.
Rig contractors are facing a slump in how much they can charge for their vessels as 100 new floating rigs are on the order books for delivery in the coming years, Todd Scholl, an analyst at Wunderlich Securities in Houston, said in a phone interview.
“Investors like the fact that Diamond is drawing a line in the sand with the share repurchase,” said Scholl, who rates the shares at hold and owns none. “The shares of Diamond have really been hammered over the past six months, and were trading at levels below where they were at during the financial crisis in 2008.”
Diamond Offshore rose 6.5 percent to $51.69 at the close in New York, the most since August 2011.
Drilling costs in the first quarter fell 1.4 percent to $370 million, lower than the company’s guidance range of $405 million to $425 million. Part of that improvement was due to the company delaying some rig inspections until the second quarter, Scholl said.
The company purchased $86.4 million of its shares in the first three months of the year and another $1.4 million so far in the second quarter, today’s statement showed.
Dividends remain the priority for returning cash to shareholders, Chief Executive Officer Marc Edwards said on a conference call. The company announced today a special dividend of 75 cents a share and a regular return of 12.5 cents.
The company was the worst performer in the Philadelphia Oil Service Sector Index in the past six months before today, falling 23 percent compared with a 6.4 percent advance for the 15-member group.