Although the price of crude has fallen in recent months and volatility has been a watchword for the commodity, the offshore rig market continues to climb, according to a report by Bernstein Research. The report focused on two of the largest offshore drillers, Noble Corp. and Diamond Offshore, which both posted better-than-expected second-quarter 2012 earnings.

According to the report, which was authored by Scott Gruber, David X. Liu and Helin Shiah, the Noble Bob Douglas was recently contracted at $618,000 per day, while the Noble Homer Ferrington added three months at $500,000 per day. A Diamond rig, the Ocean Onyx, was contracted at $300,000 per day, and several Transocean rigs (the Discoverer Deep Seas, the Marianas and the Trident 15) saw rate increases.

“We expect that deepwater tightness will continue through 2014 due to the growth of deepwater development projects in the next few years, while cyclical rate momentum in jackups should continue for another three months,” according to the report.

The report noted that Noble’s large construction program includes seven uncontracted rigs, and that the company’s management is optimistic one of its Mediterranean rigs, the Paul Romano, will be contracted at a strong dayrate. The Paul Romano is currently earning $325,000 per day.

“We expect that Noble’s strong construction program with standardized rigs will yield greater cash-flow growth than most other drillers in the peer group,” according to the report.

As for Diamond, the company will benefit from potential midwater-to-deepwater upgrades. According to the report, Diamond recently contracted the Ocean Onyx at $490,000 per day for delivery in the third quarter of 2013 following upgrade, and discussed a potential timeline for similar upgrades to the Ocean Bounty.

Diamond also expressed confidence that it will be able to contract the Ocean Ambassador and the Ocean Lexington for $490,000 per day once the rigs’ current contracts with OGX expire. The company also told Bernstein it viewed the contracts with OGX for the Ocean Quest and the Ocean Star to be safe.

“We expect that the lower level of investment in upgrading the fleet will contribute to cash-flow growth that lags behind peers,” the report said. “Diamond’s sale of five jackup rigs lowered their expected tax rate going forward.”

Bernstein revised its 2012 EPS estimate for Noble down 1% to $2.79 (2% above consensus) and revised the 2013 estimate up 4% to $4.75 (8% above consensus). Bernstein revised its 2012 estimate for Diamond down 1% to $4.38m (3% above consensus) and revised its 2013 estimate down 1% to $5.38 (in line with consensus).

Offshore