Diamond Offshore Drilling Inc (DO) 2002 Q2 法說會逐字稿

Good morning my name is Tiffany and I will be your conference facilitator today. At this time I would like to welcome everyone to the Diamond Offshore's second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will a question and answer period. If you would like to ask a question during this time simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you Ms. Steffes, you may begin your conference.

Good morning and thank you for joining us today. Today, joining us is Lawrence R. Dickerson, President and Chief Operating Officer, David W. Williams, Executive Vice President, and Gary T. Krenek, Vice President and Chief Financial Officer. I will begin with the safe harbor statement followed by an opening statement from Lawrence R. Dickerson. Statements made during the conference call may constitute forward-looking statements and are inherently subject to variety of risks and uncertainties that could cause actual results to differ materially from those projected. Forward-looking statements include, but are not limited to discussions about future earnings and revenues, capital expenditures, and existing conditions and competitions, rates for drilling rates and services as well as plans and objectives for the future. The discussions of risk factors that could impact these areas and the company's overall business and financial performance can be got on the company's report filed with SEC. Given these concerns, investors and analysts should not place undue reliance on forward-looking statements. The company expressly disclaims any obligation to release publicly any updates to any forward-looking statements to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which any forward-looking statement is based, which speaks as of the date of the rig status report. I will turn it over to Larry now.

Thank you very much Caren, and I would like to welcome everybody to our second quarter conference call. At this time last quarter among the events I discussed was a failure of the riser connection system on the Ocean Baroness at the conclusion of its first well.Just to close the loop then we issued a press release on this. We incurred 26 days downtime in the quarter related to that particular incident. We manufactured some new bolt connections, air freighted those over there, went through a highly involved and highly challenging recovery process since the riser itself was separated and hung upon the door string at a point about 2300 feet below the surface of the ocean. But with some help of some outstanding vendors and our own technical expertise, we recovered that riser, brought it up, have been engaged in some inspection activities, and then utilizing the newly manufactured nut and bolt system put the rig back to work on its subsequent well. We have successfully drilled a second one, and we are engaged right now in the third well. So we are very pleased to recover that. I think, in general the quarter is doesn't represent a lot of changes in the marketplace. There have been direct changes in various sub categories and David Williams will answer your questions on that. But in general, I would say, if you look at the total rig fleet, it is holding steady, out of our utilization, I think at this moment is doing very well. Out of our 45-rig fleet we have 4 of our rigs that are currently in the shipyard as a part of our ongoing upgrade program. Those include the Ocean Rover, which is similar to Ocean Baroness, fifth generation capability upgrade, that is continuing very successfully and we have three of our Jackups in the yard and currently we have a six-ship Jackup program, the three that ran are all 250 feet independent cantilever rigs that we are adding leg to reach 300 feet status doing some other minor upgrades and repairs while and we are in, we have two in the Gulf of Mexico, the Spur and Spartan and then Heritage in Singapore undergoing that program. We have currently two semi-submersible stacked, warm stacked with reduced crew in the Gulf of Mexico. We have a rig in West Africa also stacked at that level and in on a cold-stack basis we have four semi-submersibles and one jackup. So currently, if we add all the idle rigs up together that leads us to 32 rigs that are active as we speak today. So with that general opening remarks, I would be glad to answer questions aided by David Williams, and Gary Krenek our CFO.

At this time I would like to remind everyone in order to ask a question please press star, then the number one on your telephone keypad. Your first question comes from Bill Herbert of Simmons International.

Thanks. Good morning guys.

Hi Bill

Larry and David, could you provide us perhaps with a little bit of commentary in terms of what you are seeing in the UK sector of the North Sea and you have got a couple of rigs, which I think are rolling off the current really not securing projects some time this fall. Are you guys nervous about the visibility there? Give us a sense as to what you guys are seeing with respect to prospects there?

Bill, this is David Williams. The North Sea, we are seeing some signs of slippage. We have three rigs operating in that market right now. As you know that market gets a little more stiff in the winter time than is the summer time. So far we have been able to keep our rigs busy. We have had some exposure on two rigs but it looks like at least in both cases for the time being we have been able to secure ongoing work for the rigs to stay busy. Right now, at least until say September, October timeframe for those two rigs as it sits right now. We are seeing some other possibilities later on but that, that is where we are committed to you now. So, we think we will be able to keep them busy but we think it is slightly going to be pressur all right.

Given what you see today, in terms of the visiblity going in to the winter season is it reasonable to expect that we are probably going to expect witness some downtime with respect to some of these rigs, may be in the first quarter?

I think there is going to be pressure on that market as we go into the heart of the winter timeframe. So yeah, late this year or early next year, I think that that entire market is going to see some pressure.

Okay, thanks.

I think, from the customers that I have spoken to, the change in the UK tax regime or they have both taken away and given something, taxed different customers in different ways and certainly introduced uncertainty and with the winter season I would be prepared for some sort of fall in that market.

Okay, secondly shifting gears to the deep water of the Gulf of Mexico, the Star and the America, and I guess even the, well, the Star and the America look to be rolling off contracts sort of mid to late this month. Give us a sense as to what the prospects for contract roll overs on those rigs are?

The star is actually going to finish early,

Okay...

And it will be available immediately within the next week or so.

Yeah...

We are in negotiations with an operator for a program that we think will get worked. I don't know exactly when is going to start. I don't know whether it will start, we will have some downtime, I don't know whether it will be three weeks or a month or may be a little bit longer.

Okay...

But we expect that we will be able to secure this work. We do not have it signed it yet. But we believe we will be able to get it. But we are going to have some short-term downtime. The America is still working. I am not, you know, it is still a little up in the air on this one well, when we are going to be available. Likewise, we had discussion with actually more than one operator on it. Again, we don't have a job, but in general, the deep water Gulf of Mexico, the rigs that we think we got to work it now. We believe, we will be able to keep them reasonably busy, Bill, but there might be some sporadic downtime which is going to be worldwide.

Okay, given that, do we expect, you know, the correct fixtures in terms of day rates to be treading water or do we expect a little bit of downward pressure in order to get work for these rigs?

Well, the logic would dictate that there is going to be some downward pressure to the extent there is some rigs down,

Okay

But you know we are trying to hold our own. It is too early to tell you now whether it is going to fall, but it is you know now it is a lot more rigs come into this market. So to the extent to accept the work, you could, we will try to maintain them, the rates.

Okay and last question, and this is for Gary. Gary, we had a pretty good chunk of other income in the quarter. Was that related to the gain on sale of fixed income based paper?

Yes, it is a sale of security. Yes it is. We had about $8.7 million dollars worth of gain on sales.

Okay great. Thanks guys. Thanks very much.

Thank you. Your next question comes from Ken Sill of CSFB.

Hello guys. Wanted to talk a little bit about what is going on in the cost side? You know you had a nice boost on operating expenses for the deep water on high spec semis with The Baroness come out. Was there any extra cost in the quarter that might go away in the third quarter related to the rise of separation?

Oh, a little bit. A million dollars may be, a million and a half. A good bit of the cost that we incurred were part of our insurance claims to recover the riser that didn't hit operating expense, we had a little bit.

So would we expect the operating expenses to kind of trickle along where they are here or may be or will they come down little bit with some of these warm-stacked rigs?

Well, when you warm stack them you don't cut your cost, when we keep our cruise on board. As a matter of fact it normally the cost will increase a little bit because now we have to pay for fuel, both in helicopters, planes which the operator normally picks up. So I would expect the cost to continue to run approximately what they were in the second quarter. However, bear in mind, we have three to five rigs that we are planning on a, do a special survey sometime in the second half of the year. A number of those are planned for around September, which means a good fall in September could be pushed back into the fourth quarter. So we will have to see where that goes. So, If that occurs you will see a slight increase in cost.

And you know could you guys give us a little bit about outlook about what is going on in Asia. I am hearing talk about people looking for deep water rig in Australia, India is looking for small rigs. You know what is the timing on any further rigs going to work in Asia?

There, we were, you know, Asia is the market that when the rest of the world started taking up years ago, a lot of rigs left that market and it never has really kind of come into its own. We see that there is real potential in that whole Austral-Asia region for some rig growth. I mean, we obviously have a deep water rig over there and we have actively pursued a number of opportunities over there with the Baroness. We have done some moderate upgrades to both the Epoch and the General Nape. They have been very active since we have done with upgrades and the Bounty has been very busy. So we have done well. Whether or not the market can stand a lot more rigs right now. Still I am not sure, India has always kind of a wild card, there has been talk of some oil rigs has been going on there for a good period of time. We like you believe that it is going to be sooner rather than later now because we have been hearing about it for a long time. So we are watching that market. We think that there may be some opportunities over there for some additional assets, be with from our fleet or from the industry and we would like to anticipate.

do you think that is probably that is eary next year or any chance falling out anything happening this year then?

Which, which prospect are you talking about?

Well, I guess, the one in Australia, the India stuffs still haven't been tendered yet, so that clearly is going to be a while, but the stuff in Australia?

I think it could be late this year and there is some other stuff over there as well.

Okay.

There is, I think we could see the Australia program that I think you are talking about late this year or early next year.

Okay, let somebody else ask some questions thanks.

Thank you.

Your next question comes from Mike Erwin of Deutsche Banc.

Good morning.

Good morning.

Given those high gas prices certainly pulled back a little bit here. Have you seen any caution on the part of your customers or any kind of delays or any noticeable change versus the last quarter in terms of their interest in putting rigs back to work or demand in the shallow water Gulf.

We haven't seen a lot of, we haven't seen a lot of concern because with this recent pull back in gas prices, I think there are customers out there that are just concerned about prices in general. But I think there is a lack of confidence in the product price with some of our customers having said that, we have seen some reasonable growth in the jack-up market. There is also resistance as we try to push rates up but I think you will continue to see jack-up rates improve till the end of the year. I think what we are pointing out, we do have one of our shallow water semi-submersible that is drilling in fairly shallow waters doing a jack-up style deep water drilling program. I don't think that is indicative of the trend, but there is the opportunity for some of our rigs to do that sort of work.

How many rigs might you expect to compete in the jack-up market?

Well it is not enough to suddenly involve the whole fleet, but currently we have one. I think it is a question of if we can demonstrate, we are certainly comfortable that we can demonstrate it to the operators' comfort that we can do the job and do it as effectively as I saw for stack rigs platform and jack-ups, then there is going to be some more opportunity.

Is that market, the jack-up market tightens up, would that be something that would cause you to bring semis, you know unstack those and put those to work or would you only bring those out of your backlog in deeper water?

We need to have backlog before we bring that. You know, we want, but the fleet that we have employed today which as I indicated is still remastered in here, we could put to work closer or warm stack but we need to get some backlog on our existing fleet before we add to it.

Okay guys, thank you.

Okay, I certainly appreciate everybody's attention and we will talk to you next quarter.