Oil price and economic troubles sink drilling giant

GLOBAL drilling rig contractor Diamond Offshore has filed for Chapter 11 bankruptcy in the US blaming the decimated oil price and general economic woes brought about by the COVID-19 pandemic, making it the second major oil price causality so far after Whiting Petroleum.
Oil price and economic troubles sink drilling giant Oil price and economic troubles sink drilling giant Oil price and economic troubles sink drilling giant Oil price and economic troubles sink drilling giant Oil price and economic troubles sink drilling giant

Paul Hunt

Deputy Editor: Energy & Commodities

Paul Hunt

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This week Diamond, which has five deepwater rigs in Australasia including the Ocean Monarch, filed for Chapter 11 in Houston, amid oil prices and operational restrictions which have crushed profit margins. 

It seems to have been a long time coming for the drilling giant, which has suffered financial losses for some time, but recent months have seen industry "worsened precipitously" after the Russia and Saudi Arabia ‘oil price war' and COVID-19 shutdowns. 

Moody's noted just a fortnight ago that Diamond Offshore was expected to be one of the worst in the global oilfield services sector to be affected by the economic downturn and low oil price. 

The group has more than US$2.6 billion of debt. The Chapter 11 filings come just days after the company missed an interest payment worth US$500 million on bonds. 

"Diamond's decision to not make an interest payment shows that the coronavirus induced crash in oil prices and corresponding capital spending cuts by oil and gas producers has indefinitely deferred any potential recovery in offshore drilling activity and dayrates," Moody's senior vice president Pete Speer said. 

Moody's warning came the same day S&P downgraded the company's debt and said it may have no option to file for Chapter 11.

According to its last financial report, Diamond's losses had nearly doubled to more than $350 million in 2019. Revenues fell by $20 million. 

Earlier this year Diamond's famous Ocean Monarch deepwater rig was shut down after a major safety incident when a drill line fell from a broken winch assembly. 

The rig is currently in Australian waters.

Beach Energy advised last week it had deferred its Otway drilling program after cancelling its contract with driller Diamond Offshore over the later delivery of rig the Ocean Oryx .

It issued Diamond  a notice to terminate its contract for the rig, which was already in Victorian state waters.

The Ocean Onyx and Ocean Apex are still positioned in the Asia Pacific region and are expected to continue to complete work even while the company is in Chapter 11.