NEW YORK ( TheStreet) -- Results from Halliburton ( HAL) earlier this week showed that the narrative for land-based drilling hasn't changed: North American pressure pumping remains a juggernaut while international drilling recovery a work in progress.

For the offshore drillers, the story isn't quite as straightforward but there are a few general catalysts to keep in mind. Noble Corp ( NE - Get Report) and Diamond Offshore ( DO - Get Report) are slated to deliver their reports in the next two days.

Here are six earnings drivers for the offshore drillers.
  • Is the Worst Already Reflected in Shares of Noble?
  • On July 6, Noble released a fleet status update that revealed a much higher shipyard rate than previously anticipated. Notably, two of the driller's newer builds had downtime during the quarter. Shares of Noble pulled back, down close to $3 since July 5, but is it enough, or too much?

    Since then, Wall Street's consensus view for second-quarter earnings has come down to 27 cents a share from 43 cents, but Noble could come in as low as 20 cents. The low estimate on Wall Street is actually 17 cents. The wiggle room for the company is on the cost side of the equation, since revenue for offshore drillers is easy to track from the fleet status report day rate information and days at work for each rig.
  • Gulf of Mexico to Slow in Third Quarter
  • In its earnings commentary on Monday, Halliburton said it expects permitting activity for the Gulf of Mexico to slow down in the current calendar third quarter. That's relevant to Noble, which has more exposure to the Gulf of Mexico than Diamond Offshore, for example. Diamond had pulled most of its rigs out of the Gulf even before the moratorium.

    Since most of the major drillers are global, the Halliburton comment impacts the Gulf-specific, smaller drilling companies the most, companies like Hornbeck Offshore Services ( HOS). Whereas the second quarter could include a positive surprise based on the permitting rush, the third quarter may disappoint for the drillers most exposed to the Gulf permitting issue.
  • Jackup Market Recovery, Pricing Could Surprise
  • A recovery in the international jackup rig market may be the biggest catalyst for drillers. In the past quarter, there's been a growing utilization of older jackup rigs, both in the Gulf of Mexico and internationally. As new jackups were being brought online at the beginning of the year, the conventional wisdom was that the older jackups were bound for obsolescence.

    But instead demand has grown since January, especially in the international market. Noble saw 63% of its older jackups in use in the first quarter, which is expected to rise to more than 70% in the second quarter, and possibly more than 80% in the fourth quarter of the year.

    Ensco ( ESV) is guiding to 85% jackup utilization by year-end. The financial benefit to the companies is significant, taking a jackup rig that investors thought might be idled to a margin of $50,000 per day.

    But investors won't believe the pricing power in the jackup market until they see it. History has shown that the jackup market can tighten quickly, and if the drillers' commentary this quarter includes talk about higher bid rates, older jackups going back to work, and a tightening of the jackup market, it will be a catalyst for the entire sector. A driller that stands to benefit from this trend in particular is Rowan Companies ( RDC), which has among the best lineup of international jackup rigs.
  • Are There Hints That Ultradeepwater Rates Rise?
  • The jackup day rate positive surprise could occur more quickly than a pricing rebound in ultra deepwater rig pricing, but it remains the other major theme for investors to pay attention to in forward looking earnings commentary. Day rates on ultradeepwater rigs have been flat for a year and a half and the pace of contract activity has been light.

    If a new build for the ultra deepwater is receiving a day rate around $450,000 currently, there should be upside over the next year. Though demand has been creeping up, investors will be looking for more specific positive commentary from the drillers.
  • Labor Costs Becoming a Headwind
  • Labor inflation is again becoming an issue for the drillers. It's not a matter of whether the drillers meet their spending guidance in this quarter, but whether they revise guidance going forward because of labor.

    To some extent, all drillers will need to guide to opex increases because of labor inflation on a global basis. It's not a one-quarter, one-time event, but over a multi-year period can have a significant impact on earnings power as labor can comprise as much as 50% of a driller's costs.

    Back in the 2007-2008 period before the financial crisis, labor inflation was in the mid-to-high teens. With an expected long-term recovery in the Gulf of Mexico and jackups that had been idled getting back to work, labor inflation will become a larger issue for drillers, and it will be a headwind for companies that have had better utilization rates.

    Drillers like Ensco, Atwood Oceanics ( ATW) or Seadrill ( SDRL - Get Report), which have had good utilization rates for their fleets relative to peers, will feel the labor pinch more acutely than drillers including Noble and Transocean ( RIG - Get Report), where the upside in utilization rates is a more important near-term driver than the labor issue.

  • Risk of Dividend Cut from Diamond
  • Diamond Offshore post its best performance in the past several quarters because of its relatively low shipyard time for rigs. A rig in yard is an operating expenditure albatross, so the quarter should reflect higher revenue on a lower cost structure. The lower cost structure is the more important factor since the revenue is implicit in the fleet status reports that are issued regularly.

    A bigger issue for Diamond is how the driller finances the three new ship builds it has planned. The ship builds will cost roughly $1.5 billion to Diamond's spending before getting it all back upon delivery to customers in 2013 and 2014.

    This creates a short-term cash flow issue, and the risk that Diamond could decide to cut its dividend. With rigs rolling off contracts and labor inflation, Diamond may have to raise money in 2013, and lowering the dividend could produce substantial savings, possibly around $500 million.

    The driller could also tap the credit markets, though the availability of financing is never assured. In any event, how Diamond manages its cash flow amid the new ship builds will be an important issue for the buy side.

    -- Written by Eric Rosenbaum from New York.


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