The tide is slowly changing for offshore drillers, but the sector still awaits smoother sailing based on analysts’ and company earnings reports.

Houston-based Diamond Offshore Drilling Inc.’s (NYSE: DO) reported Feb. 6 a profit of $73 million for fourth-quarter 2016, compared with a loss of more than $245 million a year earlier. The company—which has a fleet of 19 semisubmersibles, four drillships and a jackup—has been clawing its way back from the downturn that slowed offshore drilling as oil and gas companies clamped down on spending.

Lower demand for rigs and lower day rates have sent revenues tumbling for many offshore drillers. Diamond saw its total revenues fall to about $392 million for the quarter, compared with more than $555 a year earlier. Improved market conditions pushed up revenues by 12% in the third quarter.

The offshore drilling market has so far gained the most from OPEC members’ decision in November 2016 to cut production, according to Barclays analysts. In its offshore driller quarterly update, analysts said offshore drillers’ stock performance saw a 20% improvement since the cut was announced, surpassing nearly every other oilfield service sector except proppant and offshore service vessels.

“Subsequently, investors are taking another look at the offshore sector as the cycle is clearly turning,” Barclays said in the Feb. 3 update. “But recent [international oil company] commentary shows that offshore spending is not imminent and we remain very cautious on the offshore drillers.”

Like many of its peers, Diamond survived tough times by slashing expenses and focusing on efficiency in hopes of keeping contracts and landing new ones.

Diamond Offshore CEO Marc Edwards said he was pleased with the company’s fourth-quarter results, despite the challenging market environment. He attributed the results to “continuing cost controls and improving rig efficiencies” and highlighted how the company has managed to snag first-quarter 2017 contracts for three of its drillships: the Ocean GreatWhite, Ocean Scepter and Ocean BlackRhino. The latter is set to join Ocean BlackLion on a three-year contract for Hess Corp.’s (NYSE: HES) Stampede deepwater oil and gas field in the U.S. Gulf of Mexico. Hess will pay a day rate of $400,000, Edwards said on an earnings call Feb. 6

Diamond Offshore said about 94% of its ultra-deepwater rig days for 2017 are under contract.

Diamond’s Ocean Monarch drilling unit was among the latest to land work—for BHP Billiton in Australia from mid-January through early June. In addition, the company has taken delivery of all five of its sixth-generation newbuilds and all of its sixth-generation assets are contracted at “solid day rates,” Edwards said.

The improvements, however, have not swayed Diamond Offshore’s market outlook.

“Offshore drilling is cyclical in nature and, despite some stabilization in the price of oil, we have yet to see a floor of the declining demand of deepwater assets,” Edwards said. He later added, “the offshore drilling market continues to be oversupplied in the near term. Deepwater fleet utilization continues to decline.”

Floater supply and demand is not improving, Barclays said.

The number of floaters available has dropped to 286, following the retirement of 25 floaters, over the past 12 months. Barclays analysts project the supply will grow to 326 by year-end 2018—if 40 newbuilds are delivered as expected and no more floaters retire during this time.

“Based on our assumption that 40% and 60% of floaters [are] rolling off contract in 2017 and 2018 are retendered [respectively], we currently forecast the contracted rig count to bottom at 120 rigs by year-end 2017 and rebound to 140 rigs by year-end 2018,” Barclays said.

Diamond Offshore, drilling, oil, Barclays, analyst

The analysts also pointed out that the offshore floating rig contracts have been short-term, less than six months for one or two wells for the most part, “with the only real long-term contracts from NOCs such as ONGC and Pemex.

“Recent 1-well fixtures for Seadrill’s West Saturn and Pacific Drilling’s Pacific Scirocco of $225,000/d [are] indicative of spot market rates, Barclays said.

Barclays analysts maintained that a day rate assumption of $235,000/d will start to rise in 2018, eventually reaching $410,000/d by year-end 2021.

But for now, offshore drillers are coping with another year of low offshore spending, with the price for a barrel of West Texas Intermediate crude going for about $53.

Edwards said Diamond Offshore is positioned to take advantage of a recovery in 2019, which is around the time its sixth-generation rigs will wrap up existing contracts, or in 2020.

Atwood Oceanics (NYSE: ATW) reported Feb. 3 its net income more than doubled to about $9.7 million for fourth-quarter 2016 when compared to the previous quarter. The results, however, were substantially lower than the $39 million reported for fourth-quarter 2015.

Noble Corp. (NYSE: NE) is scheduled to report its fourth-quarter results on Feb. 9; Transocean Ltd. (NYSE: RIG), Feb. 22; and Rowan Cos. (NYSE: RDC), Feb. 24.

Velda Addison can be reached at vaddison@hartenergy.com.