July 22, 2010 / 8:06 PM / 9 years ago

WRAPUP 1-Diamond, Ensco aim to buy rigs as others flee

* More rig sales seen likely on new rules post-spill

* Diamond cuts dividend, partly to hoard cash for M&A

* Ensco pressing ahead in improving its fleet profile

* Diamond shares close down 2.85 pct, Ensco off 1.6 pct

By Braden Reddall

SAN FRANCISCO, July 22 (Reuters) - Two of the world’s top five oil rig contractors, Diamond and Ensco, are gearing up to buy more rigs as many seem even more likely to be sold due to the regulatory backlash over the Gulf of Mexico oil disaster.

The BP Plc (BP.L) well blow-out off Louisiana has shaken the industry, and while the British oil company may be close to sealing the well, activity will remain subdued even after the Nov. 30 expiration of the U.S. government’s drilling pause.

Diamond Offshore Drilling Inc (DO.N), the second-largest rig contractor by market value, said on Thursday it had cut its dividend for the second time this year both as a defensive move and to free up funds to snap up rigs at good prices.

“We prefer to emphasize that we are shepherding cash for the opportunities that we see will develop from the moratorium rather than just as a cautionary, ‘Oh, we don’t know what’s going to happen with the moratorium, let’s build cash’,” Chief Executive Larry Dickerson said on a call with analysts.

He expected that concerns about the Gulf of Mexico would change the way customers sign contracts for rigs, offering more opportunities to bigger, better-capitalized players as smaller players seek the easiest way out.

“There’s not sales on the courthouse steps at this point in time, but there is uncertainty in the market,” Dickerson said.

If a company lacks the deep pockets and geographic reach to move rigs elsewhere, a sale to the big five — also including No. 1 Transocean Ltd RIGN.VX, Seadrill SDRL.OL and Noble Corp (NE.N) — becomes even more attractive. [ID:nN30218160]

No. 5 Ensco Plc ESV.N has made no secret of its desire to accelerate efforts to add high-end rigs to its fleet. In late May, the London-based company lost out to Seadrill in a bidding battle for Scorpion Offshore SCORE.OL. [ID:nLDE64R0P5]

“Unfortunately, you can’t just call up the rig broker and say, I’d like to sell 10 old assets and buy 10 new assets,” Ensco Chief Financial Officer Jay Swent said on a conference call, adding that it had to leap on opportunities that arose.

In March, for instance, Ensco sold two older shallow-water jackup rigs due to lack of opportunities to lease them. [ID:nN19173556] Then, earlier this month, Ensco bought a high-specification jackup from Diamond now at work in Australia. [ID:nN07156792]

From the seller’s side of that deal, Diamond’s Dickerson said, “We kind of view that as a one-off sale and not as a strategic indication of what’s going on.” Dickerson explained the rig was fairly isolated from the rest of Diamond’s fleet and dayrates there were heading downward.

Diamond on Thursday reported a 42 percent drop in second-quarter net profit to $224.4 million, or $1.61 per share. Analysts, on average, had forecast earnings per share of $1.78, according to Thomson Reuters I/B/E/S. [ID:nN22172661]

Late on Wednesday, Ensco posted a better-than-expected profit of $124.8 million, or 89 cents per share, down from $197.9 million, or $1.41 per share.

Unlike its larger rivals, Ensco’s earnings did not suffer much from the U.S. moratorium. The company credited the strength of its deepwater contracts and steady work for its jackups. [ID:nN22212987]

Even before the Gulf spill, all the rig owners were facing a decline in rig rates.

Diamond shares fell 2.85 percent to close at $62.31 while Ensco was off 1.6 percent at $41.20, as earnings misses for Diamond and Noble weighed down drillers despite a rise in the broader Philadelphia Stock Exchange oil service index .OSX, which also includes contractors who do not own the rigs. (Reporting by Braden Reddall, with additional reporting by Matt Daily in New York; Editing by Gary Hill)

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