Diamond Offshore Drilling Inc (DO) 2003 Q1 法說會逐字稿

Good morning. My name is Ashley, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Diamond Offshore Drilling first 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 and then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you Ms. (inaudible), You may begin your conference.

Good morning, everyone. Thank you for joining us today. Today we have Larry Dickerson, President and Chief Operating Officer, David Williams, Executive Vice President and Gary Krenek, Vice President and CFO. (inaudible) during the scope (ph) of this conference call, it may constitute forward-looking statements and is subject to 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, states that drilling rigs will inter service and well as management's plans and objectives for the future.

A discussion of the risk factors that could impact these areas of the company's 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 any change in events, conditions, or circumstances on which any forward-looking statement is based which speaks as of the date of the FAS (ph) report. I would like to introduce Larry Dickerson.

Thank you, and welcome for listening in this morning. We're obviously disappointed with a loss of this size. This is mainly reflective of idle time within the fleet. Our cost are in line, and in fact, are down from budget we reigned in spending to the extent that we can. However, reflective in this loss were a large number of downtime that occurred throughout the fleet, and I think this is reflective of what you will see in a well-to-well market, and I'm going to go through little segments of the fleet initially and talk about the amount of down time that we had.

In our high specification rigs, we had 84 days down on the Ocean Valiant. The Ocean Valiant is a fourth generation rig working in the Gulf of Mexico. It had previously been working at $80,000 a day. If you take virtually the entire quarter down at $80,000 a day of lost revenue, that's almost $7 million alone right there that we lost. The Valiant remains idle today, although, we have several prospects. It is one of presently three similarly equipped rigs which are down in the Gulf of Mexico, Valiant being our rig and the two owned by Noble and Trans-ocean.

Additionally, the Ocean Baroness has 37 days we were had not at full day rate as we were prepping for our 400-day contract with Unican (ph) Indonesia. That contract has begin, and so that should be going forward. Looking at the rest of our higher specification fleet, although we're on well-to-well and wells can end at any time, it's our belief that most of the wells in progress and/or committed behind existing wells will carry us well throughout the second quarter. Our intermediate semi fleet, talking domestically right now, we took 25 days down on the Worker, we had 43 on the Lexington, 48 on the Saratoga, and 33 on the Ambassador. And this was virtually a total step up from what the fleet had suffered or total step up in downtime versus highly utilized fleet, domestically in Q4.

We've got a number of special surveys which are the five-year - four to five-year regulatory required period downtime where rigs are inspected structurally and it's also a time where typically you utilize this time to do things to equipment that if it's being worked cannot be accessed, such as the draw (ph) works and drill floors and other pieces of equipment. We have a number of rigs that are scheduled this year, so as we've taken market-related downtime, we used this opportunity wherever possible to go ahead and schedule a special survey. We did that on the Valiant. We've been doing that on some of the other rigs so that is one way that we're able to utilize this downtime.

However this does require additional expenditures even when you're in the idle mode, so it does impact your costs. The fact that our costs are flat, I think, indicates that we are controlling those costs even in this down market. Going on into this existing quarter, the worker has been returned to work. Lexington and Saratoga are working again. Only the Ambassador is idle at the moment, and we don't have work plans on the horizon for that. We're completing a special survey on the Ambassador, and we will assess what we need to do with that particular rig.

Internationally in the North Sea, we're in pretty good shape right now, but for the quarter, we took a large amount of down time. We had down time on both the Guardian and the Princess for virtually the entire quarter and then the Whittington in West Africa was also down. We did some special surveys on those. The Princess has gone to work for Shell on a one-year contract - I'm sorry, the Guardian has gone to work for shell and the Princess has returned to work, and we have enough work in that market that we think we will be able to keep these rigs working going forward. The Epoch was down in southeast Asia and we took a small amount of down time on the Bounty. The Epoch remains stag (ph) today.

In general, we took a large amount of idle time. I think for the coming quarter, we've put a large number of those rigs to work within our floater fleet, so we would expect that to pick up. Within our jack-up fleet in the Gulf of Mexico, we've had the Tower is a rig that we've been doing an upgrade on and that is now completing its work. We've had the Columbia took 53 days of down time and then the Spartan and Spur, which were upgrade rigs, as we completed those jobs, it was a mixture of either down time after the shipyard or shipyard time, we took about 80 days down time on those rigs.

As we stand today, we have commitments on most of the jack-up fleet that we're actively marketing. The Champion is a rig that we put into cold stag (ph) mode, but all other rigs are working. We also had a number of surveys that I mentioned before within the jack-up group. The Warwick is just about to begin a survey going into Q2. The Drake will have a Q2 scheduled survey, and then looking back at the floaters, both the Nomad in the North Sea and the Bounty in Australia will be completing their surveys.

Internationally though, the two jack-ups that we have there have been completing their upgrades. The Heritage has completed its work and has returned to work and the Sovereign is still in the shipyard in Singapore and is completing its work and in which case it can then go out. That's a general overview of rig-by-rig what has occurred primarily to impact our loss for the quarter, and a slight look forward on what the work prospects are for those rigs. In general, rates were not as important as idle time. I think rates have been steady quarter to quarter with slight downtrends in certain areas. Certainly the jack-up renewal rates have fallen, and I think you see this on our competitors, as well. So with that general opening statement of what's going on, I will now take some questions.

At this time, if would you like to ask a question, press star one on your telephone keypad. Your first question comes from Roger Reed (ph).

Good morning. Looking at the Gulf of Mexico mid-water market, you had quite a bit of down time here. Obviously, rates are a little soft well to well. What do you see in terms of rate, rate expectations, term expectations for rigs like the Quest or the Valiant or the Victory?

Well, those are in the higher spec area, and we'll talk about both those and the intermediate floaters and I will let David Williams comment on that.

David Williams; The shallow water upset 2,000 feet of water, which we have four of those and then we had the Worker that we consider also one of those rigs working (ph) in 3500 feet of water that market is right now purely well to well or one or two wells at a time. The rates have suffered, but as Larry indicated, it's kind of generally flat, around the high 30s, low to mid-40s in range, and I would expect that to continue for the next foreseeable future as we continue to try to put backlog into that marketplace. The deeper water rigs, you asked about the Quest and the Valiant, that market also is well-to-well at this point. We've had some success keeping the rigs busy on a well-to-well basis. We have right now all the rigs committed except for the Valiant. Our expectation is that we'll have a job for the Valiant very quickly, maybe as soon as next week, but expectation is that that market is going to be well to well and any well-to-well market, there's going to be pressure on rates.

I understand. A couple of other questions on rigs. The Rover - you announced a contract, the rig status sheet didn't show that. Has there been a change in that status?

No. We did an assess (ph) that we don't have any issues with that. It hasn't showed up on the rig status sheet because I don't think we've completed the contract yet.

Thanks. And a final question, share re-purchases, any, I mean, you mentioned in the press release that any immediate plans and/or, can you give us an idea of what your authorization is?

We don't have a formal plan per se. As we say in the press release, we do it in the marketplace from time to time, and that remains our policy going forward.

Was any completed in the first quarter?

We did not buy any shares in the first quarter.

Thank you.

Your next question comes from Mike Urban (ph).

Thanks, good morning. You obviously said that, you know, utilization is the biggest issue at this point. I guess specifically the mid-water depth market, and certainly tough to tell in a well-to-well market, but do you have any sense for what you might be able to do in terms of keeping rigs in the mid-water depth market working, like a Concord or I'm sorry, like Lexington and Saratoga?

Our expectation is that we will be able to keep those rigs generally busy. We have pulled several rigs out at market and cold stacked it. We currently have five rigs that operate in the mid-range. The only rig that's not committed right now is the Ambassador, and there are some other competitor rigs out there that are not working so, you know, the rates are not going to move much in a well-to-well market with rigs down. There is pressure on rates. I would expect that the rates would generally hold in and around the area they are now, for at least a short term.

Okay.

I think the industry has responded by cold stacking a number of units, both at Diamond offshore and from our competitors and that has had a positive impact. There are 20 mid-water fleet, mid-water semis in the Gulf of Mexico and the number working is right around eight. Yet rates are reflective not of a 40% utilization market. They're still cash flow positive, although David indicated they're somewhat down and as long as we can continue to do that and as long as there's demand to work them in that range, I would expect that rates should be able to stay close to where they are.

Okay, great. And I know in the past you've been hesitant to take a look at PMX, and I know that was something you were evaluating. Where do you stand on that and what are you hearing generally from PMX and what are your opportunities specifically?

There have been some jack-ups that have been sourced out of MX. There were a couple of semis in the last round. There will be some semis coming up. We're continuing to evaluate that, but at the moment, the only companies that have accepted the liability issues that are present in that contract are the companies that have been down there previously. A number of larger drilling contractors have not been willing to accept the liability that's resident in those MX contracts. We would love to work down there. We like the terms. We like the rates, but the liability issues are something that we're still trying to work through.

Is there any sense that PMX is willing to compromise on that or shift at all to some more favorable terms?

I think our rates so far is the contractual terms will remain the same.

Okay. Thank you.

Your next question comes from Terry Darling (ph).

Thanks. David wanted just to follow up on your comments on the Valiant or that market, generally. You indicated that you expect to put that back to work but there are pressures on rates. Can we translate that to mean that the rates have fallen below the $80,000 a day range as Larry mentioned earlier and to assessing how much the downtime on that rig this quarter impacted results?

Terry, there are a number of opportunities for these classes of rigs. I don't want to get too much into rigs because the deal on the Valiant is not done yet. The rates for those rigs generally range from around the low 60s or say around, plus or minus 60 to as high as 80 depending on the term, and you can -- there is pressure on those rates, so you know, there is interest by, I think, all three of us that have those rigs down and put them back to work.

Are you coming into shallower water depths to do that, or, you know, are the quality of the jobs still there?

No, we're really not, you know, we're really not trying to compete with the other rigs. We are really trying to get jobs that fit the spec of these rigs. You know, these rigs, if the rig works at 5,000 feet of water, it doesn't mean that we're not going to work in 500 feet of water or 500 feet of water. It just depends on what the spec of the well requires. It just gives you a broader capability. Certainly, from a pure marketing standpoint, you want your most versatile rig available. If you have a job at 350 feet of water, you can put a smaller rig on it, do it. The jobs that we are chasing for the Valiant and the jobs we chased for other rigs in that market would be specked for those classes of rigs.

Okay. And on deep water Brazil, I don't think you have anything coming up for renewal in the second quarter, but I think you've got some things, the Yorktown, I think, in the third quarter and perhaps the Winner later on in the year, as well. What is the read on Brazil at this point on those rollovers, or is it too early to be talking on that market yet?

It's very early right now, Terry. Right now, Petrabras (ph) is working on their forward land plans. Obviously, they've gone through some changes in their organization and in their government, and so they're working now on their forward plans right now. I think it's a little early to comment. Our expectation is, and obviously our hope is that we will keep those things busy in Brazil.

Do you expect there to be rate softness down there, or is it too early to call that one, as well?

I think it's a little early to call that. I think you can expect that generally rates are going --you're going to see pressure on rates in all markets to the extent that you have oversupply. You know, market work that way, and I think that's reasonable. The one issue in Brazil is there's just not a lot of rigs down there, so you know, any time that you've got a rig in country, you're in a little bit of an advantage if they're going out for public tender over somebody who has to move in. But we're going to make the best deal we can based on what term and what work they have available for our specific rigs.

And on the ultra deep water market globally, be it back half of the year or sooner, do you -- you know, are there incremental opportunities to bid rigs? Right now, you talked about the BP (ph) Atlantis job for a while, and I would love to get an update on that and any incremental rig demand in West Africa or elsewhere in that ultra deep water market?

BP (ph) Atlantis, you better talk to them. They're still moving ahead. It's just a very slow process. There are a limited number of contractors involved, drilling contractors involved. We are still one of those. We continue to have discussions with BP about the opportunities that may be available to them from our fleet, but there are others that are continuing to have those same discussions, so it's just a company of the size of BP, they don't move very quickly, and that's an ongoing process.

Internationally, incrementally, yes, we do see some opportunities. I think it's, you know, we're pleased with the opportunities we had with the barrenness and the rover in Asia. I think there may be some additional opportunities for some other classes of equipment in that part of the world, India, Australia, maybe even some more southeast Asia work for some deep water assets. Whether or not it makes sense for us or somebody else, you know, that remains to be seen exactly how it's put forth, but there's going to be some opportunities in west Africa, and potentially some other more opportunities in Brazil, you know, Petrabras (ph) came out for a solution 1500 meters late last year. We (ph) decided to defer that.

One of the things they're discussing with their plant is whether or not they want to look at more solutions for later this year. I think there are some opportunities. I think the -- at least from my perspective, of course, it's self-serving to say this, but I think the opportunities are better for the semi-submersibles than they are the drill ships ...

I would like you to look on the low end or semi-sea market for a little bit. I think you have done a better job than others of keeping some of your units active down there. I'm wondering if you look out toward the latter part of '03 and '04 at what is going to turn that market around, are you encouraged by the property transitions? Are you encouraged by some recent changes in the tax treatment potentially? What is it going to take to get that north sea low end market a little bit stronger here?

I think everything you said is -- are things that we've been watching, the change in the tax regime is beneficial. The biggest issue in the North Sea right now is a very slowly evolving transition from a major, dominant environment to independent -- independence, and I think the governmental regime in the north sea intimidates a lot of people, and so it's been very slow to evolve. You know, with what we talked about last quarter, BP selling some prospects or selling what have been core properties to Apache is a good thing. I think if you look at who the largest lease holders are in the Gulf of Mexico and large lease holders are in the North Sea, you'll see that it's very heavily weighted toward the majors, and I think the size of the reservoirs and the opportunities they have don't really meet their drilling hurdles, and so to the extent that they move forward with plans that we think many of them have to divest themselves to some of these non-core properties, that will be a huge benefit to those markets.

Until they do that, many of the independents who have cash and have the desire don't have the mature prospects to go drill, so it's, you know, we're kind of sitting around and waiting on some of those guys to do it, but the signs are there that they intend to do it, and you know, when is it going to happen? I don't know. I appreciate you noticing that we've done a good job. I think our guys have done a good job in the north sea. We are entering the good part of the year, the summer drilling season, and I am pretty comfortable through the season. I'm not totally comfortable with the winter time, but you know, at the end of this year, we have to see how it develops.

I think also it draws attention that our purchase of the Vanguard in Norway, which we hope to work in Norwegian market, but would be pleased to work in the UK is an indication of our belief long-term in that market, and even really in the short term. The Vanguard has continued to work, as has the patriot, which we bought in South Africa, so we're pleased with those two acquisitions, lastly, Larry, can you review with us capital spending? Any numbers changed there, and can you break that out in terms of maintenance and any other components you have for us there?

This is Gary. Really no change from what we gave in the first quarter indications. We still expect to spend $240 million for the year. $130m of that on major upgrades to Rover and the completion of our jack-up work that we had announced earlier and 110 on maintenance. During the quarter, we spent $70 million, $40 million on upgrades and $30 million on maintenance capital.

Thank you.

Your next question comes from Aaron Gerond (ph).

Good morning, guys. There are some results that impact the level of downtime. As you look at Q2, do you look at current expectation of downtime that you will get back to profitability?

Well, I don't want to go so far as to do that. We're going to have rigs returning to work, but we've had some idle time running here through April. You know, if you -- I think you can do the math on what the day rates are out there.

Okay.

We would expect, despite the fact that we're returning rigs to work now that in a well-to-well market, there's the possibility that later in the quarter, a rig or two could be idle, so I'm not sure I would go all the way to that possibility.

Secondly, you're about half way through your jack-up upgrade program?

We're further than that. We really only have one rig that is not in the shipyard, the Titan. Virtually everything else has been delivered and the tower and the heritage is almost ready to return to work.

Okay. Are you seeing any of the benefits in terms of earning power from the upgrade program, and can you just highlight some examples?

Well, I think in this kind of market where you've got -- I mean, you can look at a company that has 350-foot cantilevers versus other cantilevers, and look. There's not as large of premiums as we would like to see in this particular market. It doesn't surprise us on that. There's no question in our mind that you will earn more money, that you will have more working opportunities. Certainly, there's a lot more idle equipment in the 250 cantilever class than the 300, so we're going to make it up on utilization, so we're pleased with that. I think when you take the Titan and the Tower and the heavy-duty drilling equipment that those rigs have, we're very comfortable, certainly on the titan that already has a lot of that stuff that when it does step out, that it will earn the kind of differential that we went into this thing expecting that it would average over time, so we are pleased with the upgrades.

And one of the operators yesterday was mentioning that, you know, for the rigs with three mud pumps, they're getting up to $9,000 a day of premium. Final question is, operating costs for the mid-water semis is a little bit higher than we had pegged. Was there anything unusual in terms of deferred maintenance?

It would have been the special survey impact more than anything else.

And actually, cost were down considerably from the last quarter. We did do the surveys on the Princess and most -- almost complete all of the Ambassador survey work so that would have driven it up slightly.

Okay. Thanks a lot, guys.

Your next question comes from Wes Maat.

Hi. Could I just hear you elaborate a little bit on the North Sea market? Obviously, the Guardian had been signed up in the low 50s for a year, starting in April, I believe. You're entering into the summer season. With the traditional seconds, the Nomad and the Princess, what types of day rates are reasonable in this environment? Usually, on, you know, on near-term contracts during the summer season, you would get a premium. Could you give us a flavor about what to expect in terms of day rates over the next couple of quarters for those?

Well, there are still a number of pretty -- hefty number of rigs in the North Sea that are idle. The Guardian rate is actually in the mid-40s elevating to 50 in the not too distant future. We would expect that the Nomad and Princess would be in the 40s.

Low to mid?

Low to mid.

Okay. I didn't get a sense that you're too comfortable after the traditional end of the summer season. You've kept those working in the past, and you know, as Terry pointed out, you've done an excellent job in keeping them utilized, and plan on doing the same, or if things get tight enough, would you bring one of them down for the winter?

I didn't mean to say I'm not uncomfortable. It's well to well. North sea is highly seasonal. We're not yet, with the exception of the Guardian, committed through that season. One of things that we try to do is steer ourselves to jobs that would take us through that season. Both the Nomad and the Princess, we spent money on the Princess, put a large crane on it and did other work to it to enhance its sub-sea completion on rate (ph). It's one of the things that we did to the Nomad three years ago and the Nomad has been busy for the last few years. Our expectation is that to the extent there's work that those rigs will stay busy. You talk again some of the things we talked about earlier with the change in the tax regime and the evolution of that market, my expectation is there's going to be work as we head through the third quarter and into the fourth quarter.

We're not seeing, you know, at this point, it's just too early to identify it he is sinking (ph), but our expectation is that we will be able to keep the rigs busy. We wouldn't expect pulling one out unless it made sense. You know, putting them down and starting them up is not what we're here for. You know, we really want to keep people on the payroll. To the extent that we lose less money stacked, this then would certainly have to take that decision, but we are certainly not take taking that position now.

Okay. The Patriot, formerly the Omega, which is in South Africa, your thoughts about the outlook of working that market and what kind of day rates would you expect in that niche market?

The Patriot has gone to work now for Pioneer on a two-plus options program. I would expect that that program will last, oh, at least 60 days. Probably ail little bit longer than that. We are in discussions with more than one operator about continuing work either following the primary term or following the options. Our expectation is the rig is going to continue to work, and we don't have a commitment yet, but our expectation is the rig is going to continue to work. I would expect the rate to be plus or minus the same rate we're getting now. I think we're getting below 60 right now, and I would expect that the rate was going to be somewhere, you know, in the 55 to 65 range, somewhere in that band.

All right. If it doesn't work out that there's work there, what would you do with it? Where would you bring it?

Well, our expectation is there is going to be work for it. If there is not work for it, we will look at a number of different opportunities. The rig has work up to 3,000 feet of water. It's got three pumps. It's worked in Norway and all over the north sea. It's working the Gulf of Mexico. I think there are a number of opportunities. We like that asset. It's a very robust haul at $65 million following the special survey and the upgrades that we wanted the seller to do, it was a very good buy so where would we take it? We would look at a multitude of different areas that we would have opportunities. Our expectation is that it's going to stay in Africa.

In southeast Asia the Epoch is idle. What kind of downtime should we expect and what is the day rate probable range when it goes back to work?

We have a number of bid opportunities for the Epoch right now. None of them are real exciting to me. Meaning that I don't see anything that is imminent. I see a number of potential opportunities, but nothing that is imminent. The day rate range depending on whether it stays in Australia or goes back to Asia proper is very, very broad. It could be in the 40s in Asia or in the 70s in Australia. When that will be, I'm not sure.

Your next question comes from Jeff Keeber.

Thank you, good morning. I'd actually like to ask a couple questions about the cost side. You've mentioned that the -- you really got your costs down to as low as you feel they can be taken, but you mentioned also that the -- you got a lot of special surveys and in fact, you're taking advantage of the rather weak demand environment to, you know, schedule these surveys. Can you give us some idea of, I guess, two questions. Where you are in terms of maybe completing those special surveys for, let's say, the next 12 or 18 months, and if you get to that point before the demand picks up, how much could your costs come down from the rate that we saw in the first quarter?

Well, first, I mean, I don't -- I've been in this business 20 years, and we certainly know how to in an extreme, severe environment crank back on costs. We had pay cuts and all that kind of stuff, and those are not tools that we felt we needed to deploy. We're managing our costs, but we're managing to this environment, and we're trying to keep it flat and take advantage of reductions consistent with maintaining our crews, maintaining a safe work environment, maintaining the kind of quality that Diamond Offshore Drilling is known for with its customers and maintaining the rigs and we're comfortable that we're doing that. On the number of surveys we have, I don't have in front of me the number of surveys that are going to occur in early 2004, but we had some 20 surveys out of our 47-rig fleet that we were looking at doing this year and into early part of next year. We've accomplished nine of those surveys right now, so with three months out of the way, we've gotten -- well on the way to half.

Yes.

And so you, know, if this was a fully-employed environment, then we would have to forego work and bring those things out. You can only obtain so much delay before you do that, so I'm afraid in this environment that we will still be able to have plenty of opportunities to bring some of the rigs out. One of the rigs that's scheduled for a survey is the Ocean America, which does have work, but, again, with a large fourth generation fleet, say if it was fully employed, we would expect that probably in a well-to-well, we would be able to squeeze another rig in to take advantage of that. We do have some that are scheduled on cold stacked rigs, so we wouldn't be performing those, but we would do the survey when we bring the rig back to work.

When you talked about the 20 surveys that you had planned, some of those pertain to ...

Three of those are on rigs that are currently cold stag (ph), which are prospect or voyager and liberator.

So, in fact, of the rigs that you would really do the surveys, you're actually passed the 50% mark?

That's correct.

Okay. And if you got to the point, let's say, that the demand picture remained exactly as it is today, you completed the surveys, just sort of order of magnitude, how much would your quarterly operating costs come down?

Well, I'm not sure I have my hand on that figure. It's not a huge proportion of our costs that's out there.

Okay.

You know, some of that is just deferred maintenance and some of it is additional costs. If the market was as it is today, the biggest thing that we could do to reduce costs in a weak demand to market is to demand the rigs when they go down. It's difficult to do, and yo-yo the crews back and forth so what we would be faced are issues to cold stack and face the issues when we cold stack.

Right.

Once you de-man a rig and it's in a weak demand market and you're trying to market against a rig that's been hot stacked, you're going to be the last one picked, so you have de facto cold stack it whether you know it or not. That's the way we try to look at it, and that would be the biggest thing that goes forward. If we believed that we're going to be looking at this kind of demand scenario that we suffered in this quarter, we think it's actually picking up in Q2, but if we thought that that was going to be that way for a better part of the year, we would be much more active in trying to reduce our costs and -- but I'm not sure that you would see profitability improvement alone from that because you would be reducing day rates and reducing utilization at the same time.

I hear you. That pickup that you -- I think you've gone through the demand picture fairly thoroughly so it sounded to me as if the seasonality in the North Sea was one of the more predictable sequential improvements in the second quarter. Did I get that right?

Yes.

Okay. Last question, I notice a fairly significant decline in the marketable securities balance since the end of the year. Is there any explanation or elaboration on that one?

Well, I will let Gary comment from an accounting perspective. You really need to add in marketable securities, cash, and I think we have another category on the balance sheet.

These are the balance sheet items and look at that as our total amount of excess cash, and that has come down a little bit as we spend it on capital. The shift between cash and marketable securities is probably more related to the decline in interest rates. I think we said a conference call ago or two that although we've been making lots of gains on securities as interest rates have fallen, we were shifting out of investing on a longer-term basis going short because of the decline in interest rates and we wouldn't likely be having those kinds of gains and we didn't here in this quarter and the flip side of that is that the money then shifts into cash.

Actually, the cash balance is almost exactly the same from end of the year to the end of this quarter from $184 million $195 million. You do see a reduction in marketable securities from $627m to $495m, and that's $100 million decline, and as Larry said, you need to add those two together. That's reflective of just a decrease in the total amount of cash of about $100 million.

And we closed the purchases.

That's what I was going to say. The acquisition of the patriot was concluded during the quarter and some $65 million of the cash balance went to that.

Right. Great. Thank you very much.

Your next question comes from Dave Snow.

Yes. I'm wondering as you talk tour clients what is in their mind causing them to be holding back? Are they looking at the forward strip (ph) in the oil price? The current oil price is obviously pretty good. The gas price has driven good response onshore, but as soon as you get to the shore line, the jack-ups seem to be the doll drums. You can tell us what's going on in their mind and what may trigger a change?

I always hate to say I don't know, but I think you're asking what's going on in our customers' mind, I don't know. The biggest thing I think would be uncertainty over the war and the sustainability of prices have influenced that, and now that that issue has been put to bed and we're seeing products, price in this new market, I would think that you would get perhaps a change in behavior. We are encouraged by the low amount of gas and storage. We had a cold winter which we went through that pretty nicely, and we would expect that there's going to be a lot of pressure reflected in prices to do drilling to refill storage and be prepared for the coming winter.

Do you see any signs of an increased from in doing gas drilling in the Gulf yet?

We've had some. We returned some jack-ups to work and other people have, too. But it's not to the point where I would announce an increased interest.

Okay. Thank you very much.

Your next question comes from Pierre Conner (ph).

Hey, thanks very much, but really all of my questions have been adequately answered. Thank you.

Your next question comes from Ken Sill (ph).

Yes, just one quick question, Larry. You have seen this deep well relief proposed by the MX (ph) drilling in shall low water. Is any of that in the margin territory where some of your second and third gen semis can work, or do you really see that not being a factor?

We have drilled some of those wells where, and I can remember last year in particular where there weren't an adequate number of third pump equip and the jack-ups where they got a semi here and there, and it never seemed to be that it was a pronounced trend with royalty relief if that thing really kicks off, I guess, we could move in that direction.

Okay, and I'm sorry if I missed it, but did you give an update on the Rover, any change of scheduled costs there?

Unidentified; I was over there just about three weeks ago and everything's moving along fine, and we are on budget and on time and hope to deliver that here mid-summer and go to work for Murphy (ph) in the fact that David indicated, so that's doing very well.

Your next question comes from Bill Sanchez.

Just to follow up on the question on the cost side. Gary, can you tell us what the average cost per survey typically runs?

Bill, that can vary greatly, anywhere from an additional half a million dollars to as much as two to 2.5 million. I would say the average is probably lag cost of million dollars, million and a half.

Thank you very much.

Your next question comes from Andreas Vietor.

Good morning. Quick question. Longer term, what does it take to drive a recovery in the Gulf of Mexico mid-water semi market? Is it new geological play or what?

Well, it takes more activity, and that can be a result from that or higher prices. You know, the deep water fleet, that needs to be fully deployed so you don't have pressure going on from there in the mid-water market. We have seen the mid-water market go up and down over the years multiple times and really what was the factor in kicking it off, if you look back was not something that was generally anticipated.

One of the things that the mid-water depth range lacks is infrastructure, pipe line and support production infrastructure. You've got a lot of it on the shelf so there's a lot of low-hanging fruit, easy jacket work if gas prices are high. If the prospects are available, which as we talked about the majors are sitting on a lot of them and they're not drilling them. In the mid-water depth range, you just don't have the pipe line infrastructure, and the smaller reservoirs aren't as attractive if you have to drill the well and complete the well, set a tree and lay a pain line. I think, you know, as that becomes more fully developed, which it will with more deep water work that passes through the shallow water areas, that is something that will lead to some better opportunities for that water depth band.

Okay. Thanks.

Let's take one more question.

Your last question comes from Jonathan Baker.

Good morning. Could you explain a little bit what the liabilities are in the contract from MX, Gulf of Mexico?

Well, in essence, the biggest difference, there's a number of differences, but the biggest issue is the pollution and we only take responsibility for pollution that emanates from the rig and we expect for the operator to step up because he's in control of those issues, we don't understand the geology. We don't plan the casing program, et cetera, that he should take the liability issues that result from the well and in Mexico, there are not indemnities and there's -- that is not where they decided to draw the liability line.

I see. Okay. Thank you.

Thank you very much and we will talk to you again next quarter.

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