* Ocean Patriot rig hired by Shell for three years
* 4th-qtr earnings $1.12 per share vs $1.36 year earlier
* Total contract drilling expenses fall 7 pct
* Higher downtime for 2013 weighs down shares (Adds analyst comment, details from conference call, share price)
Feb 5 Diamond Offshore Drilling Inc, the world's fifth-biggest offshore drilling contractor, saw its shares tumble 4 percent on Tuesday as it warned that a number of its rigs were to head into the shipyard for maintenance.
Increasing spells of shipyard work have been a challenge for Diamond and its larger rivals over the past few years, and analysts had hoped the issue had been put behind them as offshore drilling opportunities increase worldwide.
But Angie Sedita, analyst at UBS, said Diamond's initial 2013 downtime disclosure of 1,383 day came in "significantly above" her forecast of about 975 days.
Diamond shares fell 4 percent to $73.42 in morning trading on the New York Stock Exchange.
The company, controlled by hotels, energy and financial services conglomerate Loews Corp, which reported stronger-than-expected quarterly profit, also said it had won a three-year $439 million contract from Royal Dutch Shell Plc for work in the North Sea.
The $400,500-per-day contract for the Ocean Patriot demonstrates the strength in the North Sea market, said Diamond Chief Executive Larry Dickerson. But he added that the shipyard work needed to get the rig ready had contributed to a rise in anticipated downtime for 2013.
Diamond said fourth-quarter net income fell to $156 million, or $1.12 per share, from $188 million, or $1.36 per share, a year earlier. Revenue rose less than 1 percent to $751 million. Analysts on average had expected a profit of $1.10 per share on revenue of $740 million, according to Thomson Reuters I/B/E/S.
The higher-than-expected profit was helped by a 7 percent decline in contract drilling expenses to $378 million.
"While there is some cost inflation pressure in our industry, we remain focused on controlling and reducing expenses," Dickerson said.
Utilization rates rose for Diamond's highest-earning floating rigs in the quarter, the Houston-based company said. Utilization rates measure the number of rigs being used as a percentage of a company's fleet.
Rival Noble Corp said last month its fourth-quarter profit was hurt by higher costs even as utilization and day rates rose.
Diamond has reclassified four out-of-service rigs as "held for sale" and recognized an after-tax impairment charge of $40.6 million, or 29 cents per share in the fourth quarter. (Reporting by Garima Goel in Bangalore; and Braden Reddall in San Francisco; Editing by Don Sebastian)