WRAPUP 3-New offshore rig orders a boon for NOV, Q4 strong

Thu Feb 3, 2011 5:23pm EST

* NOV Q4 EPS $1.05 vs Wall St view of 94 cents

* Diamond Q4 EPS $1.74 vs $1.56 expected by analysts

* Transocean to take $1 bln charge on older jackups

* Atwood EPS 81 cents vs Wall St view of 80 cents

* NOV shrs up 1.7 pct, Diamond up 0.8 pct (Adds Transocean charge paragraph 3, closing share prices)

By Braden Reddall

SAN FRANCISCO, Feb 3 (Reuters) - Plans for dozens of new offshore rigs fired up investors in National Oilwell Varco Inc (NOV.N), and Diamond Offshore Drilling (DO.N) is adding another rig to its fleet, as both companies posted better-than-expected earnings.

National Oilwell, the largest U.S. drilling equipment supplier, sees the rigs as part of a broader trend for offshore drillers, who are retooling after a few decades of relying on older technology, Chief Financial Officer Clay Williams said.

Industry leader Transocean Ltd (RIG.N)(RIGN.VX) underlined the point later on Thursday with a $1 billion charge to reflect the reduced value of its older shallow-water rigs. [ID:nN03151654]

The flurry of ultra-deepwater "newbuilds," priced modestly in the range of $600 million, had much to do with shipyards racing to get work and lower input costs. But Williams said rig prices were now likely to rise, along with steel costs.

"For customers listening, we would say order now," he said on a call to discuss fourth-quarter results on Thursday, in which NOV delivered earnings per share of $1.05, compared with analysts' average estimate of 94 cents. [ID:nN0363100]

Simmons & Co analyst Bill Herbert said the results validated a "building crescendo" for NOV, with greater oilfield activity giving a boost to other parts of its business, aside from its work fitting out new rigs that enter the market.

FLEET REFRESH

Rig contractor Diamond, which posted estimate-topping profits due to a favorable tax rate, said late on Wednesday it exercised an option on a second ultra-deepwater drillship, following the first one last month. [ID:nN03149967]

"Given the average age of Diamond's fleet we view the construction as a modest positive and strategically necessary," UBS analyst Angie Sedita wrote in a note to clients.

That follows ultra-deepwater newbuild announcements from Noble Corp (NE.N), Pride International Inc PDE.N, DryShips Inc (DRYS.O) and Atwood Oceanics Inc (ATW.N) in the past three months, which will all hit the market in 2013. [ID:nSGE6BD0B1]

Diamond Chief Executive Larry Dickerson said he would be more likely to exercise a third drillship option, which expires at the end of this quarter, if he saw more interest emerge in its existing fleet before the second of this year.

"A lot of the conversations we've had with customers and inquiries that we've seen ... are focused in the third quarter of 2011," Dickerson told analysts on a call, saying there seemed to be enough demand to put all the rigs to work.

"But there is that risk that the timing doesn't work out and there's short-term down time for some rigs rolling off."

Diamond's fourth-quarter revenue fell 12 percent on a drop in shallow-water rig earnings, but its net profit was $1.74 per share, compared with analysts' average estimate of $1.56 -- a difference largely due to a series of U.S. tax breaks.

NOV shares climbed 1.7 percent to $75.94, their best close in 2-1/2 years, while shares of Diamond, which is majority owned by Loews Corp (L.N), rose 0.8 percent to $72.90.

Late on Wednesday, Atwood reported a quarterly profit of 81 cents per share that came in just ahead of expectations, but its shares fell 1.5 percent. A client in Egypt is trying to get out of a contract due to unrest in the country.[ID:nSGE7100DS]

Atwood ordered a new drillship of its own, priced at about $600 million, earlier this week. (Reporting by Braden Reddall; Editing by Tim Dobbyn, Maureen Bavdek and Bernard Orr)

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