We warned investors that Diamond Offshore Drilling (NYSE: DO) was at risk of going bank on April 16. DO lost over $350 last year which was 2x the loss in 2018. Diamond has almost $2 BILLION in debt and only $156 million cash.
By the market close on Friday, April 17, 2020, DO was trading under $1.00 and reports suggested it was in the process of retaining restructuring advisors as a result of the a “double-whammy” from the Covid-19 related demand decrease combined with an unsustainable debt level. In addition to DO’s stock trading under $1.00/share, its $2 billion in bond debt is now reflecting massive discounts as well, some trades at 15% of face value or even lower.
The 5.7% bonds are rated B/Caa2 and priced around $13.75
The 3.45% bonds are rated B/Caa2 and priced around $15.875
The 4.875% bonds are rated B/Caa2 and priced around $13.75
The 7.875% bonds are rated B/Caa2 and priced around $14.00
The oil price war by the Saudi and Russians, along with the extreme drop in demand were too much for DO.
“After a careful and diligent review of our financial alternatives, [we] concluded that the best path forward for Diamond and its stakeholders is to seek chapter 11 protection,” said Marc Edwards, CEO. “Through this process, we intend to restructure our balance sheet to achieve a more sustainable debt level to reposition the business for long-term success.
Sadly, Do is just one of many energy companies that will file bankruptcy in the coming months.
Diamon Offshore Investor Claims Against Financial Advisors
Stockbrokers and Financial advisors that sold DO are getting claims/lawsuits filed against them by clients. Haselkorn and Thibaut, a national investment fradu law firm, has started an investigation in the sales practices of stockbrokers and financial advisors that sold energy stock and notes to clients. It is alleged that many investors bought high-interest notes and bonds without fully understanding the risk or were over concentrated.
Today’s Oil Price Report
During the Asian session today, oil prices were rising moderately, approaching the level of $14 per barrel. The bullish oil price is supported by growing hopes for a gradual recovery in energy demand, as many countries expect to begin a gradual relaxation of quarantine restrictions in May.
Also, from May 1, a new OPEC+ agreement should begin to operate. It is aimed at reducing the production of “black gold” by 10 million barrels per day.
Oil prices were also supported by published data on the dynamics of oil reserves from the US Department of Energy. During the week on April 24, the supply of oil in warehouses in the US grew by 8.991 million barrels after an increase of 15.022 million barrels over the previous period. Analysts had expected the reserves to increase by 10.619 million barrels.
Oil Price Bottomline
On the daily chart, Bollinger bands are moderately reduced. The price range narrows from below, reflecting the emergence of upward trading dynamics in the ultra-short-term. The MACD indicator is growing, maintaining a relatively strong buy signal (the histogram is above the signal line). Stochastic continues a robust upward trend but quickly approaches its highs, which signals that the instrument may become overbought in the ultra-short-term.
It is better to keep the current long positions until the market situation becomes clear.
Resistance levels: 13.84, 18.00, 20.00, 21.90.
Support levels: 10.00, 6.29, 3.39.