UPDATE 1-Diamond Offshore profit beats estimates on lower drilling costs

* Ocean Patriot rig hired by Shell for three years

* 4th-qtr earnings $1.12 per share vs $1.36 year earlier

* Revenue rises less than 1 pct to $751 million

* Total contract drilling expenses fall 7 pct

Feb 5 (Reuters) - Diamond Offshore Drilling Inc, the world's fourth-biggest offshore driller by market value, reported a stronger-than-expected quarterly profit as contract drilling expenses fell.

The company, controlled by hotels, energy and financial services conglomerate Loews Corp, also said on Tuesday it had won a three-year $439 million contract from Royal Dutch Shell Plc for work in the North Sea.

The $400,500 per day contract for the Ocean Patriot demonstrates the ongoing strength in the North Sea market, Diamond Chief Executive Larry Dickerson said.

Contract drilling expenses at the Houston-based company fell 7 percent to about $378 million in the fourth quarter.

"While there is some cost inflation pressure in our industry, we remain focused on controlling and reducing expenses," Dickerson said.

Utilization rates rose for Diamond's highest-earning floating rigs in the quarter, the company said.

Utilization rates measure the number of rigs being used as a percentage of a company's fleet.

Rival Noble Corp said last month that its fourth-quarter profit was hurt by higher costs even as utilization and day rates rose.

Diamond said fourth-quarter net income fell to $156 million, or $1.12 per share, from $188 million, or $1.36 per share, a year earlier. Revenue rose less than 1 percent to $751 million.

Analysts on average had expected a profit of $1.10 per share on revenue of $740 million, according to Thomson Reuters I/B/E/S.

Shares of Diamond Offshore, which has a market value of about $10.6 billion, closed at $76.48 on the New York Stock Exchange on Monday.