The company has another long-term contract reamining with Petrofact which could also be at risk as industry conditions continue to deteriorate with little sign of a recovery any time soon.

Things seem to keep getting worse for the already badly stricken offshore drilling industry and this time Diamond Offshore suffered the latest contract termination.

According to the company’s SEC-filing today,

On August 30, 2016, a subsidiary of Diamond Offshore Drilling, Inc. (the “Company”) received notice of termination from Petróleo Brasileiro S.A. (“Petrobras”) of its drilling contract on the Ocean Valor. The drilling contract, which was extended in 2014, was estimated to conclude in accordance with its terms in October 2018. The Company does not believe that Petrobras had a valid or lawful basis for terminating the contract, and the Company intends to defend the rights of its subsidiary under the contract.

Clearly, Brazilian national oil company Petrobras continues to play hardball with its contractors as the company has cancelled or re-negotiated dozens of contracts over the last two years.

The recent contract cancellation is particularly disturbing as Diamond Offshore has already dealt extensively with Petrobras over the last two years, resulting in a reduction of contracted rigs from six to just two before today’s announcement.

Moreover, the 2009 built, ultra-deepwater semi-submersible rig Ocean Valor was operating under a high-margin contract at a dayrate of $455,000. The backlog loss associated with the termination calculates to a whopping $360 mln or close to 10% of Diamond Offshore’s entire remaining backlog.

Source: Seeking Alpha