Diamond Offshore Drilling Inc (DO) 2002 Q3 法說會逐字稿

Good morning. My name is Debra and I will be your conference facilitator today. At this time I would like to welcome everyone to the Diamond Offshore Drilling third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star than the number one on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you. You may begin your conference.

Thank you Debra. Good morning everyone and thank you for joining us today for the Diamond Offshore Drilling 2002 conference call. Joining us today are Larry Dickerson President and Chief Operating Officer who is joining us from our North Seas Ocean Princess and here in our Houston office, David Williams, Executive Vice President and Gary Krenek Vice President and Chief Financial Officer. I'll begin with a safe harbor statement followed by opening statement from Larry Dickerson, which will then be followed by question and answer session.

Statements made during the scope of this conference call may constitute forward looking statements and are inherently subject to a 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 revenues and earnings, capital expenditures, industry conditions and competition, dates that drilling rigs were in service and management plans and objectives for the future. Discussion of the risk factors that could impact these areas and the companies overall business and financial performance can be found in the company's report filed with the 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 change in events, conditions or circumstances on which any forward looking statement is based which speak as of the date of the rig status report. I would now like to introduce Larry Dickerson who will begin with an opening statement.

Thank you very much, Karen. As indicated, I'm calling in from the North Sea so there may be a delay on my phone broadcast, so on question and answers, please don't assume that I'm not listening to you. My opening comments I'm going to talk about several things and I will turn to David Williams to let him make some opening market commentary and Gary perhaps to comment on our investment gains but three things I would like to talk about. One is the investment gains that were reported in the press release that was just issued. That is our seventh consecutive quarter of investment gains. We had significant ones in this quarter, much higher than we have had before. That was generally due to the very large drop in interest rates, which occurred during the quarter.

On a go forward basis, though, we have to a large extent no indebted gains left in our portfolio. We moved a lot of our money into short-term, government backed securities and although there have been some movement in interest rates recently and we may change some of that, we are not going into the quarter with a large amount of investment gains. Also, you'll note that there was stock repurchased that occurred during the quarter really from September through early October we bought 1.2 million shares at an average per share price of $19.30. We buy shares not to support the price and not as a part of a fixed program where we have an announced number that we're going to buy. But we do that when we believe that there is good value. Finally, I'm going to talk about market commentary and I'm going to comment specifically on the North Sea and then let David follow up with our other markets.

I'm here on board the Ocean Princess, which is idle right now, right off Envergordon (ph), right off the coast of Scotland. There are six rigs I can see from this location that are also stacked here. As you know the North Sea has been a weak market. However, we do have two rigs working in the market and one the Ocean Nomad we just return to work after a period of idleness. The two we have working Ocean Guardian and Ocean Nomad are scheduled to work through the end of the year perhaps a little beyond that in case of the Nomad. We are bidding the Ocean Princess currently but with a large number of rigs that are idle, we have given notice to the cruise that we are prepared to make them redundant if we need to go into a long-term idle mode.

The North Sea, in talking to customers here, it verified what we heard previously, the change in tax regime that came about has shocked the market tremendously and is responsible, we think, for a large part of reduction in activity. The North Sea is a high cost area to operate in. Our customers do not like to see changes in tax policy and changes in tax policy in which they were not consulted. Our hope is previously been the case that the UK government will change their focus and adapt tax policy as necessary because it is responsible for a large amount of employment here in Scotland and contributes greatly to the United Kingdom's economic activity.

I'm going to let David now talk a little more about some of the other markets and hopefully some of the positive signs that we are seeing.

Okay, thank you, Larry. I'll start with the Gulf of Mexico, which is obviously our largest market and one I think people are keenly interested in. The jacket(ph) market has plateaued a little bit. We are seeing rates for 300 footers in the mid to upper 20's or so now but work is fairly steady. One of our up grades, the Ocean Spartan is near the end of its leg extension process and should be available for work here in the next two weeks or so.

We expect the rig will be committed to come out in a -- at a rate in the mid 20's or so, maybe a little higher. But we're looking forward to it coming out. The Spur is a little longer than that but it will come out early next year and likewise we think it will go to work. The semi submersible market in the Gulf of Mexico, we had a number of rigs down in the quarter particularly the quest Victory were down. The American Victory has gone back to work. The Quest, actually is scheduled to sail this weekend to go back to work. All three of those rigs with our other deep water rigs in the Gulf of Mexico will make the year on commitments that they have gotten now. And we see a good prospect for those rigs on a go forth basis. We don't expect a lot of term but we do expect a good well-to-well market and we do expect we will be able to keep those rigs busy at rates we think are reasonable and rates we're comfortable with. Generally in the 60, 70's, 80's and maybe some cases a little hirer than that, depending on the term.

The shallower water depth rigs, second and third generation rigs we're working five of those. We have some intermittent stacking on those rigs but we can keep them busy again well to well. There is not a lot of growth potential in rates yet but we believe that they are the rigs we're working we'll be able to keep them busy which is good. Those rates are generally in the high 30's to low mid forties. And so we're seeing strength there we think we'll be able to keep those rigs generally busy as well.

Abroad, the market is flat but fairly stable with the exception of the North Sea that Larry has already described. Our South East Asia market is flat and stable but we're starting to now build some backlog for some of those rigs. Brazil is still a very good market for us and we expect it to continue to be good with some potential we hope for additional equipment there in the next year or so. And that is the market. So with that, we would like to take questions if anybody has questions.

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 key pad. We'll pause for just a moment to compile the q and a roster. Your first question comes from John Dowd.

Good morning. I guess I have two quick questions. The first is on Slumberges (ph) guidance, they were talking about beginning of a downturn in the international markets and they sighted specifically the North Sea and Nigeria. Now the North Sea I can definitely understand. Are you seeing comparable weakness in Nigeria or other foreign markets?

We're not currently active in Nigeria. We have two semi-submersible in West Africa, one is a lower speck second generation rig that has been working well to well really unsuccessfully in the last year and our current plans are to take it and put it in Laup. The other rig, the Wittington that has worked in South America we'll move to Africa this year. It has busy. It finished his promises although it is uncommitted but we have a number of opportunities hanging so we expect we'll be able to keep it busy in Africa. Nigeria specifically we're not currently there. We actually have some bids outstanding there in Nigeria but we're not currently active there so I cannot give anymore information than that.

Okay. The second question is EXON announced going forward with the Urhop project in Nigeria. Is that a project you're bidding into and how material that is project in its ability to soak up some rig capacity?

Well, Erha has been a project that EXON has had on the board for a long time. We have had a number of conversations with EXON. Yes, we bid it some time ago. Those bids in conjunction with Nigerian partners has a very long life. We have not yet been advised formally one way or the other whether we got it. It is going to be a one rig job but it's about a three year job for a deep water (inaudible) semi-submersible. Thank you.

Your next question comes from Doug Becker.

Good morning. I was hoping to maybe get an update on the upgrade programs, the jack up swells the Rover.

Okay. From a ... Yes, we -- go ahead, Larry... Go ahead, David. From a practical standpoint, the Rover is going very well. It's currently in Singapore. It's 60 percent complete. We're very comfortable with the work that is going on by the shipyard in terms of quality and pace. So the rig is still on track to be delivered mid year, 3q mention year. We currently don't have a contract for it but we are actively bidding the rig. In terms of the upgrade program itself, we're very happy with it. The jack --up program, the Spartan and Spur which are the leg extensions in the Gulf of Mexico are both currently in the yard. As I talked earlier, the Spur, the second of the rigs will be delivered later this year, early next year and again we don't have firm work for either rig but both we expected will come out and work the mid to upper 20's or in the 300-foot market, wherever that market happens to be when they're delivered. We have one rig in the shipyard for the same type of work in South East Asia, currently in Singapore undergoing a leg extension. That rig will be delivered in about, oh, 60 days. Which time we will bring the other rig in, the Heritage is in the yard now. When it comes in we'll bring the Sovereign behind it. And it will fill the Sovereign. It will be in the yard about five months or so. The other jacket upgrades we have on going are the Titan and Tower. The Tower is currently in the shipyard for its (inaudible) upgrade. It's kind of in the early stages of it. Should be delivered in about another four months. The Titan will go into the yard probably the middle of the first quarter of next year. And it will be about a six-month program for it. Both of those rigs obviously working in the short-term market will be available for the upper end, 350-foot class Cantilever (ph) market when they come out. The only other ships in the ship yard going on today is the Clipper doing a special survey in Brazil.

Do you know roughly how much has been spent on the Rover as well as the jack up (ph) program at this point?

This is Gary Krenek. So far we have spent a little less than a hundred million on the Rover out of a projected 2 hundred million total cost. The jack up work all six rigs combined is budgeted at $100 million and I don't have the exact figures but we spent maybe 30, 35 percent of that money so far.

Okay. Have there been any delays on the jack up site specifically with the Spartan, it seems like the delivery date has been pushed back a few times.

We did some hull work on the rig that we knew we might have some. We didn't know to what extent. We did some of that. The other delays have been weather delays. We've had -- you know, we have to -- we have to take care of the rigs in the yard just like we do the rigs offshore. To the extent storms come through, we -- you know we have to evacuate those. We had delays there. They have not impacted the cost. All of these projects are on budget and on time. And they're in good shape.

Good deal. On the other semis, looked like cost came down a little bit from the previous quarter. Is that primarily labor related?

No. During the second quarter we had a survey and some repair costs on the Ocean General out in Southeast Asia and that was completed in the second quarter and ran the cost up a little bit. Also, you know, our totaled operating cost increased from last quarter to this quarter. Company wide and there is a number of reasons. First and foremost I think is a concentrated effort by the company to try to hold down costs. I think we have done a real good job on that. Some of the other reasons before I get to the question of why those costs did go down, you also remind everybody with the Heritage and the Tower, the two jack-ups that David just talked about going into the ship yard, those were operating in the second quarter. They go into the shipyard in the third quarter so we lose those operating costs. We also had a little hire cost on the Baroness on q2 because of the riser incident that we had and, therefore, you saw a slight decrease in operating costs for us in the fourth quarter.

Going forward something around the same level maybe a little bit higher?

I would anticipate it going up slightly in the fourth quarter. Number one, you've got the Spartan coming out of the shipyard so we'll begin operating that and possibly the Spur. Also as David talked about, you have the Clipper going into the yard right now for its survey and a little bit of related repair work that always occurs when you do these five-year surveys. Also, historically we have seen our major expense project cost go up in the fourth quarter. We budget that at the beginning of the year. Start placing orders for that and normally by the time that work occurs it comes up more in the fourth quarter.

Okay. Thank you very much.

Your next question comes from Bill Sanchez.

Good morning, David I was hoping you could comment on the Ocean Baroness and what the expectations are not that (inaudible) has finished using that rig.

Well, they're not finished with the rig yet. The operation of the Baroness has been very good with the exception of the instances that Gary alludeded to earlier. The risers incident we had in the second quarter, the rig has operated very well since then. The rig continues to work for Murphy and will continue to work for them through the current well which should take it close to say the middle of December, maybe a little bit longer, depending exactly on how the well operation goes. Following that, we will demote the rig to Singapore and we are currently marking the rig on a number of projects around the world, both in the area and in other parts of the world. Some of these projects, if they come to fruition will commence quickly, we have to load the rig in short order. A little longer in lead-time.

The Baroness is a fairly specialized tool. We have had a lot of interest in it for the right kind of projects and I suspect we'll get something fairly soon. I just don't know exactly what it is going to be or where it is going to be.

Do those right kind of projects equate to a day rate as to what it is earning right now?

I would say they are six figure numbers. I'm not going to say -- when you say the day rate it's earning right now I'm not exactly sure what your information is, there are certainly numbers over -- 100,000 plus numbers.

Yeah. I'm looking at the one twenties as mentioned as the range for it.

They would be in that neighborhood. I don't want to say one way or the other over and above but they're over $100,000.

Larry, last question for you, what are the latest thoughts on additional conversions of the existing fleet of low respect semis on what you have done on the Baroness and the Rover?

We have the Endeavor and the Voyager that are class rigs we have idled those and they are stacked in the Gulf of Mexico. Those would be our next candidates. Our plan is to try to get a long-term contract acceptable long-term contract on the Baroness or the Rover. I would like to get the Rover out and test it before be put that out in the market. We are looking within the rest of our fleet for some projects to do. We're constantly balancing the amount of money we have to put into it versus what we can get. We're also hopeful that in this market there may appear some secondhand rigs that we can buy for attractive prices and that that would be an alternative. You've got to --we have a market that moves all the time. You've got to be prepared to adjust your sites.

Certainly without a doubt on the background of this company, we know what will come, after the success of what happens with the Rover and Baroness that the Endeavor would be there and then in the meantime, look what we did with the quarter with the share we purchased. That is also an attractive use of funds.

Thank you.

You're next question comes from Mark Urness.

Good morning. David, I guess your plans to cold stack the Liberator indicate the demand for second generation equipment in West Africa has been pretty weak; is that right?

Well, Mark, I'll tell you, the demands for 600-foot rigs in West Africa has been pretty weak. The Liberator is a rig that, you know, we haven't spent lot of money on since we have owned it. It is an unenhanced 600-foot rig. Its range of opportunities is pretty slim. With the Wittington over there in the short-term market we think this is better.

With regard to Brazil you expressed some hope perhaps there may be some more contracts coming up down there. What about with the election coming up, are your people down there concerned about the impact of a new president?

We have heard no concerns whatsoever from our people or our contacts with Petrobrass with changes in philosophy or political Regime. Our view is that things will go on. What I was referring to with regard to more equipment is Petrobrass is out with a (inaudible) department which is a little kind of off their beaten track. You know, they prefer the DP vessels so a (inaudible) requirement fits our fleet good. We don't -- you know, we view it as a good thing for us and also think that Brazil needs the dollars and we think that work will keep right on going.

Okay. I have a question for Gary. Could you give us, Gary, the projected CAPX for O3?

We're still in the midst beginning our budget process and so we have not gotten that lined out totally right now. But normally historically we spent about $100 million on maintenance capital for the last several years. I would imagine it would be somewhere in that neighborhood and we'll refine that through our budget process. Then we will -- the additional monies will be whatever upgrades we decide to do. We have to complete the Rover and the jack up rigs and depending on how much we spend in the fourth quarter will -- I estimate going into 2003 anywhere from 75 million to maybe $125 million to complete those.

Thank you.

Your next question comes from Ken Sill.

Good morning. Two questions. First, you know, one of the things that we're hearing out of the oil companies is they're really trying to find ways to lower the cost of the deep water wells. You guys tested the dual grading system on one of your rigs. Any update on the potential for that technology or something like the Monobor (ph) technology to allow you to push the envelope for second and third generation rigs in your fleet?

Ken, there are a number of technologies that are emerging we believe are going to give us an opportunity to push the envelope. Technology is slow to emerge. We think due radiant technology is something that will find its way in the offshore arena. We dug our test well and we think we're going to see it again. Monobor (ph), they just completed the first Monobor (ph) well on shore and we ran expand results on shore and think that is going to move offshore and deep water boring. So, yes, we think it is coming. It is slow to come but it is something that we are paying a lot of attention to and eager to participate in.

How much water depth increase can you get using the Monobor (ph) technology? I understand it saves in weight and stuff but there is some things you can do as far as riser tension and stuff.

There is going to be limitations what you can do. Riser tension and capacity is something you can add. You know, there are limitations of how far you can push these things given the current technology but I don't --you know, I'm not an engineer. How far we can push it, you know, you have to keep in mind when the Victory was built it was built for 600 feet of water. We worked at a rig at almost 6000 feet of water. What we can contemplate sitting here today certainly I can tell you we'll exceed that.

Okay. And then

Ken, I would like to add that one of the biggest gains in efficiency is just from all the equipment that has been delivered and the experience that it gets. We're getting wells down much quicker than we were certainly before this generation of rigs was delivered and certainly following the break in of this equipment. The Ocean Victory, which had worked for VP just broke tremendous records. We're doing the same thing and the confidence and I understand our competition is in Austin that is part of the problem we get these wells down pretty quickly and the operators are having to adjust to make sure that they get the geologist lined up and have a prospect ready to go following that.

That capacity issue is coming in here. One other follow up question on the upgrades of the Titan and the Tower, are they going to have three mud pumps? Do you have any rigs that the jack-ups have three mud pumps that are good for the deeper gas drilling people are talking about?

The Titan and Tower both have three mud pumps - The Titan has had 3 mud pumps actually three 312b160's for years and years but in the slot configuration didn't get to take advantage of some of these things. The Titan had heavy drilling equipment and enhanced the capacity forever of what we're doing now. It is really strictly the cantilever. The Tower we're upgrading the capacities on it. It had three mud pumps. The third is a smaller one but all three will be 1600-horsepower pumps. Both of those rigs will participate in that market))

Are any of your other rigs suitable for that or are they more standard?

The jack-ups (ph) in our fleet have two pumps but they'll participate in the market to the extent they fit the technical specs. We have used some floaters on those wells, you know. We have three pumps on just about all of our floaters that are working now. So they are actually in the Gulf of Mexico co-drilling some of those wells in less than 250 feet of water.

That answers another question. Thank you.

Your next question comes from Roger Reed.

Good morning, gentlemen. A little more clarity if we can get it on the North Sea. Looking at the three rigs an the stories that are out in the press and 20 rigs being stacked, is it reasonable to assume in the first part of those three zero activity for Diamond out of North Sea?

Is it reasonable to assume... Go ahead, Larry.

I just -- it is our intent to try to work rigs, but when you're fighting a market that has a large number of idle rigs you can't assume that you're automatically going to go to the front of the pack. I think on a performance basis level that we should be able to keep at least one of those rigs working and I mean just the odds are we'll win that and we will certainly try hard to keep two and if we can get three, we'll get three. If you want your projection, I would say conservatively you'll say one will be down in the quarter and one will be based on how you feel in the market.

looking at the Gulf of Mexico floating market a pretty wide range of rates, 60, 70, 80, how do you handicap that market at this point in terms of rates, say, over the -- through the remainder of the fourth quarter and into the first?

Well, our rigs are all -- our rigs are all booked through the fourth quarter and most of them into the first. That is the range -- it is a wide range, but it's a pretty -- it's a pretty variable market in terms of water depth and well speck. So it is a little bit wider range. We had three rigs stacked during the quarter in that market and they have all three gone back to work. We do that as a very positive sign. We sit today with prospects we think on an ongoing basis for those rigs into next year so we feel fairly comfortable about that market.

Okay. Then a final question from me and then I know Bill Herbert has one question. On the jack-ups in the Gulf of Mexico, any direction on day rates? It seems generally to be flat. I'm wonder if you see anything different than that.

No. That is how we would characterize it, yes, flat. The rigs are busy. Utilization is not too bad but the rates are flat.

Hi. It is Bill Herbert.

First of all, good opening summary, that was helpful. David Williams, with respect to the Baroness, getting back to that issue, we're talking about sort of day rates in the neighborhood of where you are now bidding on several projects. You know, if you stated this I'm sorry, I didn't hear it. What kind of term are we looking at for these projects which these several projects as you characterized it that are suitable for the -- I guess the Baroness here?

The term -- the different term and the different projects we're looking at range from very short-term, you know, just one to a few wells up to more than a year.

Yeah.

And in one case pushing a couple of years. So, I mean, the term is pretty wide. So it's...

What do you think is likely?

I can't comment on that, Bill. You know, the first guy that says yeah is the guy that wins. We have a number of prospects outstanding. You know, we're pretty comfortable with the Baroness. We did that deal in a market that was -- the shipyard market was very favorable, the rig was down and it made a lot of sense. The economics of that thing are very compelling at $120,000 a day. You know, I don't know -- I don't know which one is -- we're going to go. We may go short to save ourselves for a better opportunity later. I don't know how it is going to play out yet, but we're not panicked yet.

Fine. Is it likely to stay in the region?

It is possible to stay in the region. I'm not going to say it is likely.

It's wide open?

It is wide open. We have prospects, talking to people about that rig for all deep-water markets.

Lastly with respect to Brazil, an observation, I mean, historically following a presidential election, I guess PETROBROAD (ph) there is a fair amount of paralysis that ensues there because it is essentially a quasi-government state enterprise irrespective of whether the victor is going to be a hard lined socialist or not. It is hard to envision, you know, and in this post election environment, you've got some issues with this P34 semi submersible as well there is going to be a lot of incremental demand for rigs down there. What is your response to that?

My response to that is they don't have the wherewithal to be able to shift gears very quickly in Brazil from an offshore operating perspective. The work down there is long-term. It tends to stay long-term. It doesn't roll very quickly. So to the extent that we are concerned about ongoing operations, that doesn't worry me. What I see, what I find interesting and good for our company in our shareholders is that PETROBROAD (ph) is talking about deep water (inaudible) solutions. In the past they have been the DP Mecca of the world. Every DP ship that could work for a long time would work in Brazil. So the fact we're now looking at, you know, 1500-meter MORTAR (ph) requirements is a good thing and we view that as a good thing.

We would agree with you. With respect to ongoing activity, that is not going to be interrupted and it will remain steady. I guess we just question whether you're going to see pronounced in (inaudible) metal opportunities. Time will tell and I did hope you're right.

We're optimistic

Thank you very much

Thank you, Bill.

You're u your next question comes from Kurt Hallead.

Good morning. My question is two-fold. I want to get a sense in how you guys view the market the way that I see it is that there is significant segmentation and differentiation taking place in a pretty stable and solid ultra deep water market. You have a third generation market depending on the North Sea then you really have a black hole with the second-generation market. I was wondering if you could provide some color commentary the way you see the world in those three market segments?

Well, I would never characterize the second-generation market as a black hole. I mean, we're working at fuel rigs in the Gulf of Mexico. We have a few more abroad. Certainly the Gulf of Mexico has more second-generation rigs than it can employ right now. But the rigs that we're currently working, we are -- we are confident we'll be able to keep working. As Larry talked earlier, we have another couple of rigs given upgrade candidates. We think those will make good conversion candidates for us that would reposition our fleet, continue to reposition our fleet from a second generation fleet to a third, fourth, generation comprised fleet. We think that is good for us. You know, anything we can do to reposition this market from a perspective taking a second chance up is good. So, you know, the second-generation market is tough right now but we still see opportunities.

And third generation market, would you agree with the commentary about it being dependent on the North Sea and, if so, I know you made some general comment and I may have missed the very first part of your summary, but do you have some general assessment when you think the North Sea market may show some signs of improvement?

Well, the third generation market, it depends on the North Sea, that is where most of them are sitting in the North Sea so I think that conclusion is reasonable. How long is the North Sea going to be down? It depends on product prices and that market is generally a little slower to slow down when things slow down and a little slower speed when things pick up because it takes large developmental prospects because of the regulatory regime and what goes on.

I think it is unlikely that the North Sea is going to pick up here in the winter. Winter is a higher cost, less efficient operation for them. Given that we're going into the winter with weakness, I would expect it would remain that way and that we would be looking at spring as the inflexion point, potential inflexion point.

There is a comment made earlier about the major oil companies looking at ever possible way to reduce their operating costs which includes, you know, drilling rates and so on. I get a very strong sense that there is an aversion to having to, say, pay $200,000 a day for an ultra deep water rig as a base rate. With that said, how do you guys envision that market and how do you envision extracting greater margin from operating rigs in the ultra deep water market?

I guess what I'm trying to say, sounds to me like the major oil companies are trying to put a cap on pricing for the ultra deep-water market. Do you have a way you can basically provide an incentive or incentive based rates where you can get some pricing power if the companies are going to try to cap the base rate?

Well, you know, operators don't want to pay -- operators, they're averse to rates at $50,000 a day and $200,000 a day. It doesn't really -- they don't want to pay over the market in general. You know, the good thing about our fleet is we don't need $200,000 a day to make money with the Baroness. It makes money with $120,000 a day. The conversion program that we've done, we've taken the QUEST, Star victory and the Baroness, we're working on the Rover, they don't need $200,000 a day to make money. So, to the extent that the operators can bring that force to bare and then force the market down, that is going to -- that is going to hurt some people. But operating companies never want to pay higher rates. I have been in fights with a number of operators paying $30,000 for a jack up. It's the same argument it is just a larger scale. Yes, they want to take cost out but it's not, you know the market drives -- demand drives the market.

Okay. I was just getting a stronger sense than I have in past years about this aversion and the desire to keep the operating cost down.

I don't see anything stronger on the operator side now than I have in the last 10 years. They may get more pressed but it is the same argument.

Great. Appreciate it.

Supply goes off when demand goes up.

Thank you very much.

Your next question comes from Pierre Conner (ph).

Good morning, guys. A question about the South East Asian market. I agree we have tightened up here within the last couple of months certainly from the sub80 percent utilization to some hundred percent in the floater markets there. Just in the last couple of weeks there has been some 80 percent type utilization. Is that just the variability on the margins? What is your thoughts on the market there?

Well, the floater market is not a huge universal rig so when you see one or two come to an end of the contract without another contract coming up, it tends to, you know, affect the numbers on a large number - in a large ,--

Oh, the utilization?

One or two rigs makes a big difference))

Okay.

We see that market as a market that has some potential over the next couple of years. It's a market that when the rest of the world was really turning up in a big way and in '96, '97, '98, that market was flat because of the local economies and a lot of rigs left the area and never came back. We've had very good utilization over there with the floaters we have been working this year. We don't see anything on the Horizon that gives us a lot of concern about the rigs that we've got in that area. You know, can the market stand another 10 rigs? I don't think so.

Sure.

But certainly the rigs there we believe we have good opportunities for them.

Would you include India in that market and I am certain there is the jack up we're talking about up but I'm sure there is one or two incremental floaters they were talking about.

Maybe four metal floaters. Where they are going to come from, we don't know. We expect one or two of them will be deemp water DP vessels. I think that -- I think that they are pursuing one very vigorously now and one out for another one very soon and behind that we expect a couple of more vessels as well. Whether they get all that on the table and get it all bid out and done, ONGC and India, in general, is pretty slow to move. These are prospects that have been on the table for a good period of time but certainly incrementally, you can see 2DP vessels and two more being, one being a deep water vessel, when I say deep water I mean 1500 meters and the other would be a conventional (inaudible) rig 2000 feet. I think you can see that in the first half of next year.

Great. One back in the U.S. Gulf, you have ought not been active in the PMEX but there is still an incremental medium water depth floater that could be picked up for PMEX here and that would obviously just help the utilization of the U.S. Gulf.

Anything that goes to the fact we don't participate in PMX doesn't hurt our fleet. The fact that rigs come out of the Gulf of Mexico and go down there. We think it's good for us. We don't like the risk profile.

Okay. Thank you for the information.

Your next question comes from Monroe Him (ph).

The question has been answered, thank you.

So there are no further questions at this time.)) I would like to thank everybody here from the North Sea. From Houston we appreciate it as well. We'll talk to you next quarter. Thank you.

Thank you for joining on today's Diamond Offshore Drilling conference call. At this time you may disconnect.