UPDATE 2-Diamond Offshore profit higher, tops Street view

(Adds byline, analyst comment, details from call, share activity)

By Anna Driver

HOUSTON, July 24 (Reuters) - Diamond Offshore Drilling Inc (DO.N), a drilling contractor, reported a better-than-expected 65 percent increase in second-quarter profit on Thursday as tight supply and high demand lifted rates for its rigs.

But shares of the company fell more than 1 percent, following the decline of other energy stocks. Energy shares were hit after a report showed a build in natural gas stocks and worry about a global recession.

"Diamond's results were very good, yet the market is ignoring them," Mark Urness, oilfield services analyst with Calyon Securities, said. "The market is ignoring fundamentals and is being driven by fear."

Profit rose to $416.3 million, or $2.99 per share, from $251.9 million, or $1.81 per share, a year earlier.

Wall Street analysts had expected, on average, a profit of $2.77 per share, according to Reuters Estimates.

Revenue jumped 47 percent to $954.4 million.

Diamond and other drillers have seen dayrates soar as high energy prices prompt demand for offshore rigs from exploration and production companies. Dayrates have topped $500,000 for rigs used to drill in deeper waters.

The Houston company which has a fleet of 46 rigs, also set a special cash dividend of $1.25 per share, a figure that might have disappointed some investors who were hoping for an increase, analysts said.

On a conference call with analysts, Larry Dickerson, Diamond's chief executive officer, declined to speculate on when the dividend might be raised.

He would say only that Diamond's board would continue to consider the dividend as a means of returning cash to shareholders.

In the quarter, the company said the average rate for its floating rigs used to drill in deeper waters was $385,000 per day, up 26 percent from a year earlier.

Diamond also said it had signed letters of intent for four of its rigs at rates of $520,0000 to $540,000 per day, which analysts said were rates that are in line or exceeded expectations.

Dallas-based driller ENSCO International Inc (ESV.N) also reported a second-quarter profit that topped analyst expectations.

ENSCO said second-quarter net profit was $296.7 million, or $2.07 per share, compared with $254.4 million, or $1.72 per share, in the same period a year earlier.

Analysts on average had expected ENSCO to report a second-quarter profit of $1.98 per share, according to Reuters Estimates.

Shares of Diamond were up $.25 at $116.86 in early afternoon trade on the New York Stock Exchange. ENSCO shares were off 1.6 percent, or $1.21 at $71.59.

Those declines compare with a 2 percent drop in the Philadelphia Stock Exchange index of oilfield service companies .OSX. (Additional reporting by Matt Daily in New York; editing by Gunna Dickson)