Diamond Offshore wins ruling in Brazil

A Brazilian appellate court ruled that stateowned Petrobras illegally canceled a contract with Diamond Offshore Drilling, offering a financial reprieve to the Houston company.

The court upheld a ruling that the scandalplagued and financially struggling Petrobras couldn’t cancel its offshore drilling contract with the Ocean Valor deep-water rig. Petrobras can still appeal to a higher court.

Petrobras had sought to cancel the contract back in August. The deal pays Diamond $455,000 a day through October 2018. Raymond James analyst Praveen Narra called it a surprising ruling that would give Diamond a significant financial boost through most of next year.

The ruling especially helps Diamond because the offshore drilling sector continues to struggle even as onshore U.S. shale sector recovers.

Several offshore drillers have seen contracts canceled from companies and countries ranging from Brazil to Saudi Arabia. Last year, for instance, Danish rig contractor Maersk Drilling cut 120 Gulf of Mexico jobs when Houston’s ConocoPhillips and Marathon Oil Corp. canceled rig work for its vessel, the Maersk Valiant.

All of this has contributed to several offshore drillers filing for bankruptcy. Houston-based Hercules Offshore filed twice. Houston’s Paragon Offshore remains mired in bankruptcy. Vantage Drilling, also of Houston, just emerged from bankruptcy last year.

Seadrill and Pacific Drilling are teetering on the edge of bankruptcy or some other restructuring.

Big players like Atwood Oceanics, Transocean and Noble Corp. are still struggling. Atwood, for example, cut its workforce by about 60 percent in two years, from nearly 2,000 workers to just more than 800.