On May 10, 2016, we issued an updated research report on Texas-based major contract driller Diamond Offshore Drilling Inc. DO.The driller’s prospects still seem weak if we consider the U.S. Energy Department's latest inventory release which showed a rise of 2.8 million barrels in crude supplies to an all-time high of 543.4 million barrels. Things were further hampered by a soft April jobs data, underlining weak oil demand. West Texas Intermediate (WTI) crude futures dived 2.7% this week and are now trading at around $44 per barrel.To some extent, these factors were offset by the huge wildfire in Canada and the subsequent production disruption. Additionally, support came from the Baker Hughes Inc. BHI report that showed another drop in oil-directed rigs to a fresh six-year low, indicating a break in shale drilling activities.In such a scenario, the company aims to increase its footprint in emerging markets to reap benefits from the discoveries of deepwater fields. Also, gradual improvement in the Gulf of Mexico drilling market, along with better bidding activity, will prove beneficial for the contract driller over the long run.Diamond Offshore Drilling remains in good financial health and has a track of disciplined capital outlays and financial conservatism. As of Mar 31, 2016, Diamond Offshore had approximately $128.9 million in cash and cash equivalents, while long-term debt was $1,980.1 million.We believe that Diamond Offshore Drilling has solid fundamentals with significant free cash flow potential and a clean balance sheet. This enhances the possibility of further share buyback by the company in the years ahead.However, during the first quarter of 2016, Diamond Offshore Drilling’s revenues declined year over year. The deterioration was mainly attributable to lesser revenues from the contract drilling segment and lower utilization of ultra deepwater floaters and jackup rigs. Any delay or inability to manage these matters in time as well as failure to handle the repositioning of rigs will hurt the company’s profitability. Moreover, higher rig availability is a major concern in 2016 as the global floater market is likely to be under considerable pressure in the intermediate term. As a result, the major operators are extensively reducing spending, postponing projects and reviewing their cost structure.Zacks Rank and Other StocksDiamond Offshore Drilling carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same space are PetroChina Co. Ltd. PTR, and Braskem S.A. BAK. Each of these stocks sports a Zacks Rank #1 (Strong Buy).Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report BAKER-HUGHES (BHI): Free Stock Analysis Report PETROCHINA ADR (PTR): Free Stock Analysis Report BRASKEM SA (BAK): Free Stock Analysis Report DIAMOND OFFSHOR (DO): Free Stock Analysis Report To read this article on Zacks.com click here.