Diamond Offshore’s Utilization and Dayrates Increase

Diamond Offshore Drilling, Inc. operates contract drilling of offshore oil and gas wells. The company conducts deepwater drilling with a fleet of 45 offshore rigs. The fleet consists of 30 semisubmersible rigs, 14 jack-up rigs and one drillship. The company’s principal market for its offshore drilling services include the Gulf of Mexico, Europe, Africa, the Southeast Asia, Australia and South America. Through its wholly owned subsidiary, Diamond Offshore Team Solutions, the company also offers a portfolio of drilling services to complement the company’s offshore contract drilling business. These services include overall project management, extended well tests and drilling and completion operations. Semisubmersibles accounted for 56 percent of 1999 revenues; high specifications floaters, 32 percent; jack-ups, nine percent and integrated services, three percent. On March 7, the company elected Bill Richardson, the former Secretary of the Department of Energy, to its board of directors.

Utilization and dayrates for the company’s domestic jack-up market improved significantly in 2000 as independent producers acted quickly to take advantage of the high natural gas prices which prevailed throughout the year. Although the improvement in the jack-up market leveled off during the fourth quarter of 2000, it remains strong. The company’s outlook for this market is for continued strength, especially if the recovery of the international jack-up market creates a tighter supply of jack-ups in the Gulf of Mexico.

During 2000, there was increased interest in the company’s deepwater high specification rig fleet with both utilization and dayrates increasing. The company believes that prospects are good for further improvement in this market, as most recent dayrates are greater than rates under current contracts.

Most of the existing contracts are for short-term, well-to-well work and the company anticipates upward pressure on rates as these existing contracts are renewed or replaced.

For the company’s domestic semisubmersible rig fleet, the market began to experience growth in the latter half of 2000 with both dayrates and utilization increasing. Currently, all of the domestic marketed rigs in this class are working or have commitments. If the backlog for these rigs continues to build, the company expects further increases in dayrates.

The company believes that the international markets are also strengthening for all classes of equipment. Dayrates are increasing and that trend is expected to continue into the second half of the year. All three of the company’s rigs located in the North Sea have recently committed for work at dayrates that are well above their previously contracted dayrates. Five of the company’s six rigs operating in Brazil are committed under long-term contracts ranging from 18 months to approximately three years.

For the fourth quarter of 2000, the company reported net income of $28.7 million on revenues of $190.9 million compared to net income of $13.2 million on revenues of $170.9 million for the fourth quarter of 1999. For the year ended December 31, 2000, the company reported net income of $72.3 million on revenues of $659.4 million, compared to net income of $156.1 million on revenues of $821.0 million for 1999.