Diamond Offshore Drilling Inc (DO) 2009 Q2 法說會逐字稿

I would like to welcome everyone to the Diamond Offshore Drilling conference call. (Operator Instructions).

Thank you, Mr. Les Van Dyke you may begin your conference.

Good morning, thank you for joining us. With me on the call today is Larry Dickerson, President and Chief Executive Officer, and Gary Krenek, Senior Vice-President and Chief Financial Officer. Before Larry begins his remarks, I should remind you statements made during this conference call may constitute forward-looking statements and are inherently subject to risks and uncertainties that could have results that differ materially. Forward-looking statements include but not limited to discussions about future revenues and earnings, capital expenditures, industry conditions and competition, dates of drilling rigs and service, as well as management's plans and objectives for the future. A discussion of the risk factors that could impact these areas and the Company's overall business and financial performance can be found in the Company's reports filed with the Securities and Exchange Commission. Given these concerns, analysts shouldn't place undue reliance on the 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 changes in events, conditions or circumstances on which any forward-looking statement is based.

With that, I will turn the meeting over to Larry.

Thank you very much and thank you all for joining us here for this quarterly conference call. It is an excellent quarter for Diamond Offshore. We are very pleased with the amount much earnings that we delivered here. And we will talk about how we achieved that and at the same time, it is a quarter where I can report as was previously announced that we closed on the acquisition of a new construction rig, through a foreclosure auction from the ship yard and that is renamed the Ocean Courage. We are in the midst of discussion was more than one operator for the use of that rig. So I won't go beyond that. It is an excellent rig and we have had employees staffed on board the unit. We are pleased with its capability and the construction quality that came from the shipyard and I think that will be an excellent source of earnings in the future. It as validation of our typical strategy, which is to try to acquire rigs at point insist time when the market may be a little weaker. That is reflected in the acquisition price we had on that.

At the same time, we announced a dividend over the last year or so, I would imagine that we received a number of questions along the ideas trying to probe and see whether or not there would be a conflict between our acquisition strategy and our ability to continue to make the dividend payment and of course, as everyone knows we don't give guidance on future dividends but looking back we were able to issue $500 million worth of debt in May of this year and subsequently spend a good portion of that on the acquisition of the Ocean Courage. We were pleased with the rate of just under 6% and there have been several other drilling company pricing points both before and after that at a substantially higher rate and again, I think the market reflected its confidence in our ability to perform.

The results that we had for the quarter, about 88% of our revenues are working off of contracts that were signed greater than a year ago. And in fact, we don't have any really large scales contracts to announce in the quarter and the things we do control are the utilization of our rigs. We had very few rigs in the shipyard. We had the Ocean Yatzy and the Ocean Ambassador and the Ocean Summit both doing some preparation in Mexico and other than that, by and large, our rigs were operating. And among the rigs operating, we did an excellent job of managing equipment down time and we had utilization and on the cost side we continued our effort to stay on top of cost. We had excellent results in the first quarter of this year. And then as I watched our competitors come out. That was an universal theme of everyone. And the uncertainty was staying on top of the cost and we continued that here into the second quarter. Not that we are lax and we are not going to forgo paint expenditure that is have to be paid for with additional steel and rust issues down the road. But there are a number of things we can delay, purchasing on. And we can refurbish rather than purchase new and variety of type items that is we can go forward with.

At the same time in the quarter, we did take our three jack-ups and have idled stacked them in the Gulf of Mexico in an a cluster, which is typical in the industry and have a skeleton crew to keep powered and rigs up to snuff and we have elected not to beat our heads against the mat jack-up area. Other two jack-ups, the Titan and Spartan have for a short term market some contracts that extend a good ways through the year. And we are pleased with our ability to operate there. The market for jack-ups here in the Gulf of Mexico is obviously very severely impacted. I don't think it is going to be difficult. You have to go all the way back to 1986 to see as few jack-ups operating that we have currently, but at the same time, there are still lots of demand for deeper water units. And prices have gone up and down, certainly at the point in time when prices were above $70, I was getting lots of positive feedback from more than one customer with the happiness they had with the rate. And everybody was looking for even higher rates and we pulled back a little bit and we are in much better shape than we have been early on and oil with a three handle on it.

That's sort of the way we continue and having made the comments I will let Gary Krenek, our Chief Financial Officer, give you a little more color on the cost and tell you how that might be on a go forward basis.

Thanks, Larry. Happy to report for the quarter ended June 30, Diamond Offshore net income of some $387 million on revenues slightly under $1 billion. This is earnings of $2.79 per share, which is the second best quarterly earnings in the history of the Company.

Now to dig a little deeper in the numbers concentrating on expenses. Unlike last quarter when we came in below guidance, very little of this quarter's favorable variance was due to timing differences or any type of quirky accounting items. It was more the result, as Larry said, to control cost. The Ocean America survey which concluded in the second quarter came in $5 million under our expectations with part of of the savings being in the cost to mode the rig in the shipyard and back out to work. It is spread throughout the fleet and direct result of the cost control program. The rest the income statement for this quarter is routine. With G&A cost, depreciation expense and our tax rate coming in within the guidance we gave out in the last quarterly conference call. The only line item that came in over guidance was interest expense which should surprise no one it is the $500 million debt issuance that Larry spoke about.

Now looking forward to the third quarter, we expect to incur daily operating costs for our rigs as outlined in the last rig status report we filed on July 15th. In addition to the normal operating costs we expect to incur $3 million to $5 million to complete the survey of Ocean Yatzy, which was begun in the second quarter and $4 million to $6 million to mode and work on the Ocean Bounty which is located in Australia. We will also record in the upcoming quarters some $6.5 million in amortization mode and contract preparation cost that had been previously deferred. Off setting the cost would be a reduction in our daily operating expense of approximately $7 million as we defer operating cost incurred during the contract preparation time by the Ocean Ambassador and Ocean Valiant, which relate to term contracts in Brazil and West Africa respectively. We will also save another approximately $10 million per quarter, as a result of our cluster stacking of the three mat jack-ups in the Gulf of Mexico. If you do the math correctly, this should result in expected rig operating cost, excluding or reimburseable cost of $305 million to $315 million for the quarter of 2009.

We are revising our guidance for DDA and interest expense as a result the acquisition of Ocean Courage and our most recent debt issuance this last quarter. Depreciation expense should run about $91 million to $92 million in both the third and fourth quarters of this year. Interest expense should be approximately $14 million per quarter for the rest the year. As I pointed out earlier tax rate for the second quarter came in with the prior guidance of 25% to 27%. We expect this range to hold for the rest the year and but as always, the actual rate will depend on the ultimate breakdown between US and International income and where that International income is earned. Our capital expenditure guidance for 2009 is for us to spend some $425 million for maintenance capital, additional spare parts and also for required upgrades needed to comply with the International contracts we have been awarded. We expect to spend $510 million, which will include acquisition Ocean Courage and other upgrades completed earlier this year, primarily the completion the Ocean Monarch.

And finally as always, I refer you to the rig status report, which can be found on the website for the expected down time of the rigs for remainder of this year, for any contract durations, timing of contract roll overs and other pertinent information. You will note that as of this date, expected down time for our fleet continues to be very close to the guidance we gave back in the January conference call.

With that, I will turn it back over to Larry.

Okay. I think we are ready for questions. Les?

Operator, we are ready for the questions.

Thank you. (Operator Instructions). Your first question comes from Ian Macpherson with Simmons and Company.

Good morning, Ian.

Ian, your line is open.

Sorry, I hit the mute button. Good results. I wanted to ask you about the dividend versus acquisitions per se and I didn't want to ask you to talk about further acquisition possibilities beyond the Ocean Courage because you still have seemingly a lot of balance sheet capacity and I imagine there are some other rigs out there in play. Are you happy with what you have or still looking?

Well, I think we would like to have rigs that we see excellent possibility for putting them to work. And so it all depends on the acquisition price. And depends on the number of other bidders that may come forward. As you noted, I think we have the balance sheet capacity to add more rigs in to our fleet mix. And I think also, would be influenced by what ever contract we would be able to put in place on the Courage before we move on to the in next one.

I assume we would see a contract for the Courage before we see another rig acquired without a contract?

We like that sequencing for sure, but, you know, it would all depend on what sort of opportunities might be out there.

Okay. Second question, unrelated, regarding the contract that you are renegotiated with ATP for I think it was the Victory. Just accounting wise, are you going to be recognizing, Gary, the full day rate or will you be sort of recognizing only the cash portion of that for the foreseeable future?

We will record that as normal GAAP accrual accounting. We will be recognizing $540,000 a day. And we have additional $20,000 since there is a deferral of the payments and that additional $20,000 per day will be recording as interesting income.

Any other contracts out there in the backlog that might be similar to the type of renegotiations at this point?

We like cash. Cash is good. I think there was unique circumstances here and we are not actively seeking these kind of things and this was because of a net profit interest, it was more of a deferral than an equity participation at wells, which we not interested in that because I don't think that's our business and I don't think there's a strong history of drilling contractors getting into the gas business and having that successfully reflect in the stock price. Having said all that, we under from time to time, our customer base is stressed in one fashion or another. And within our limited abilities given that we still have to shear the shareholders and still need to turn our revenue into cash, we will look at certain opportunities that is might make sense. I would say this is more of a one off type event than something that would be repeated on a larger scale.

Okay. Thanks. Good Job.

Next question comes from Joe Hill from Tudor, Pickering.

Joe, is your mute button work also? Joe, I am not hearing you. Want to move on to another question, we could come back to Joe. Put him back in the queue.

Operator, we will move on to another question and we will come back to Joe. Operator?

That was in queue.

Joe?

Yes, sir.

We didn't hear you. I don't know if the rest of the conference call heard you. I heard you say 2Q, so if you could summarize your question again.

The Ocean Courage, what are your current operating costs and how much of those did you recognize in 2Q?

The vast bulk of the cost on the Courage right now is being capitalized as we complete the commissioning of the rig and virtual nil cost in the second quarter and virtually no cost in the third quarter as recognized expense.

Okay, and with regard to work prospects for the Guardian and Nomad in the North Sea post the current contracts, how do those look?

We have seen some interest in the North Sea and in some other markets that those rigs could potentially relocate and we don't have anything firm to announce. And the level of discussion and the level of interest has improved over where it was say, 90 days ago.

Are there any developments for the Ocean Star here domestically?

No, the Star remains idle. We have been pursuing International opportunities for the rig. We have some discussions of Gulf of Mexico jobs, but I would suspect that those would not occur until after hurricane season.

Okay. And finally given some of the developments in Brazil with the incremental tenders perhaps being locally focused and local content requirements, can you give us an update as to what your opportunity set is to put more rigs into the market?

Well, I think over the years we have grown our Brazilian fleet from four to 11. And we did that by Petro Bras taking an interest in our second generation rigs. So we upped the Petro Bras four to eight and then put three rigs to work for OGX, this new company down there. And I think most of the focus is not in the class of rigs but is in new ultra deep type equipment. So I would suspect our ability to put rigs in that market would likely come from potential acquisitions that we might make.

Okay. That's it for me, thanks a lot, guys.

Thank you.

Our next question comes from Collin Gerry from Raymond James.

Good morning. I am going to pry on the Courage, I don't know if I'll get an answer. We saw a nice contract on the 8500-foot rig out of Petro Bras. And the 500 range from one of your competitors. Does that set the bar as far as with a we should expect from the Courage? Maybe the day rate. And give us color for what the opportunities on that are?

We would be more than pleased to look at the number you have spoken about. I think that is a unique situation and I just don't have all the facts on that, numbers that we have been talking about are one you know, given what we paid for it, we would be more than pleased to get a number in the fours. And what we want is obviously high a day rate as we can and obviously it would depend on whatever market it ended up.

My next question, I hate asking you jack-up questions on the newer builds you have on the fleet, what would you say leading edge for something of that caliber would be in the International community for the 350-footers?

Well, it varies by market and they are down from the rates we had a rig in the 190s and a rig still in Australia working in the 200s. I don't think we are going to see those type rates. Because you have the number of the new builds. The new generation of jack-ups that they are rolling and you continue to have new units delivered.

So, would you say closer to 100 or 150?

I think you could bracket it in that. And some circumstances, you could exceed the 150, probably a little ways away from 100.

Appreciate it, guys.

Thanks.

The next question comes from Jim Crandell of Barclays.

Outside of Petro Bras, do you see any market for new build, new generation floating rigs over the next say six to nine months? From IOCs or NOCs.

More, well, I think West Africa is a market you have heard positive stirrings out of there. And you have other independent oil companies that are looking for some deep water rigs. And I mean, the psychology is not where it was a year ago. Where you have this mass rig, kind of movement, and it is by no means dead.

I mean, would they consider signing a three to four year contract at a minimum for a new build in this market?

Perhaps some of them would. And I don't think this is a five year type market. My expectation would be two to three would be more typical.

Okay. What do you see from the IOCs outside of Brazil, especially from India and China and their willingness to sign contracts for new builds?

We haven't really, we just got our new build. And I don't have any data to reveal coming out of those two markets.

Okay. If there was interest in your clients in new builds, do you think you would you be among the leaders in building them if they did receive, three to four year contract.

I would be surprised. There is enough uncommitted capacity. And some rigs such as the Courage that might be available for purchase. That those would fill and fill quicker than an order for a new bill. I don't see a big market for new builds being constructed. And with the exception of Petro Bras and their unique needs and their desire to build down there. And then perhaps even China. And a lot of that may be driven to having the ship yards staying busy.

How many more floaters and jack-ups that are new builds today that are being built could be to Petro and come on the market for sale over, let's say a six to nine month period?

I don't know. Too many factors to really tell who might be in those particular positions and you know, it is more than zero. And I don't think it is as many as 10.

How do you think that mix would be in terms of floating rigs and jack-ups?

I am just talking about floaters.

How about jack-ups, do you expect jack-ups to come on the market as well?

Yes, I would think so, just from the shear number of them and the size of the company that is are billing them.

Plenty of opportunities to buy equipment construction in your opinion over the next six to 12 months?

I would think so.

Okay. Good. Thank you.

Our next question comes from Dan Boyd from Goldman Sachs.

Thanks. Back to the Ocean Courage, you mentioned you would be happy with something in the $400,000 range. And that makes sense given what you paid for the asset. And would you consider that a one off rate and would you consider that the market rate at this point?

There is going to be some other renewals. And you have the one data point that everyone is making reference of near 500. And then what we would expect for a Courage data point going forward. But you know, length of term, where the rigs are working. And all those things would come to bear. I wouldn't take the Courage's one single data point as where the --

You know, I guess. That's what I am getting to. Given that the rig did have a prior contract with Petro Bras, I would think what ever rate you end up getting if it is with Petro Bras, its not necessarily the market rate. Is that a correct way of looking at it?

Yes. There is a single point and you know, backing up a year. Year and a half ago. There was a ongoing series of plenty of transactions. And you can see where markets were and how it was evolving. And at least, I think going forward to the balance of the year. There will be few data points and great differences between the circumstances surrounding the equipment capability and customer and who wants and timing. And that you will see a much more scattered result.

Okay. And then just looking at your most recent new build purchase, if your recent purchase did mark the bottom in terms of access prices would you be interested in making further acquisitions or will you potentially look to the jack-ups market where prices may be more depressed?

Well, we are primarily a floater company and we would primarily stay interested in there. And we are driven by bargains, and if you get a bargain in the new build jack-up, you are getting a bargain because you have to endure some period of time of the depressed rates.

Well, historically that is what you have done, right, is counter cyclical acquisitions where you had to endure that, because you felt you were getting a good cycle return.

And I think the floaters -- you have much greater possibility to put them to work at nice contracts. And potentially even nice term.

This is the last one. Do you see any other opportunities to invest in your current fleet, given that some rigs will likely be idol and then if you could just update on your plans with the Bounty.

I think we have done a whole lot with the fleet. And there may be other opportunities. And when you look at the kind of discount we were able to get on the Courage versus new construction, I think that may be a better place to spend your money than upgrading older rigs. It is not as if we have a lot of rigs that haven't been dealt with. The Bounty, we haven't made the call yet and when we decided to substitute and bring in the Ocean America to work that particular job, part of that was to not to have to spend the amount of money we were looking for on the Bounty. So, in effect, we diverted that cash into the Courage acquisition. So, that there may be a likely hood that we hold that rig for some bit of time, before we decide what to do with it.

Sounds like you are making a committment to keep enough free cash flow available to maintain the special dividend.

We are not making a commitment. And if you look at the history, and we have sustained that dividend for some period of time. And we know it is an important thing to our shareholders. And we don't look at it lightly. Again, we always say that our dividend, if its going to go, will be set each quarter.

Appreciate it. I'll turn it back over.

Sure.

Your next question comes from Waqar Syed with Tristone Capital.

Good morning, Larry, a couple of questions. First on your jack-ups and the Spartan, Titan. Your contracts are expiring, do you expect them to work through the hurricane season? Do you see down time?

Well, as we presently sit, we are comfortable that we will be able to renew those. And have them continue to work.

Any prospects for Egypt?

Yes, there is some activity in that area that we are looking at. I don't think we have anything that we have announced yet.

Okay. And then for Columbia, Mexico, any tenders or renewals for that rig?

Well, we were able to extend it for four months. And it is our expectation that Mexico, just think through the expiration of existing contracts we'll have a few jack-ups renewals that will come out, because we are already in country. And have all the equipment installed, I think there will be some opportunities for that rig to be it, but we don't have a definitive schedule. And things sometimes get delays down there.

And final on the deeper water rigs, Victory and Baroness, is it too early for discussions to start and the contracts for 2010?

No. I think. No, we have been looking at bidding both of those rigs. Of course, we have the Star in front of those as well.

Sure. Victory ar Baroness, which regions do you expect to end up in? The same current places or move around?

Don't know. Between those two and Star, I think there is a good opportunity for at least one of them to leave the Gulf of Mexico.

Next question comes from Judd Bailey from Jefferies & Company.

Thanks, good morning. A broad question on the fourth generation rig market. One area where we haven't really seen fixtures so far in the downturn. Would you be able to give us broad range where you think we might see some of the rigs start to price over the next few months? I believe there are some opportunities out there for some decent term work internationally.

All I can do is point you to past fixtures. And we are lacking some data points. So I can't tell you where they would price. Going into the latter part of last year, the prices for fourth generation rigs were in line. And they closed gap. And pricing at, and some cases above fifth generation rates due to the availability. And that is not any longer the case. It will be a discount to fifth generation rights. And we just discussed, we don't yet know exactly where fifth generation rates are. And it is hard to say where the force will be. It will be at a discount.

Would it be fair to assume the discount could be pretty sizeable? And maybe see some fourth generations reprice and mid 300 type range?

Look, on a long term basis, we are more than happy with those type of rates. Because your operating costs are much less and you can make a solid amount of money. So we are not afraid of those types of prices. Again, we don't have any data, and I am speculating on where they might want to go and I would rather report to you guys hard and fast data.

Okay, fair enough. My follow up question is on the jack-up market or the potential tunes. One of your competitors sold a jack-up for about $175 million, which seems very high. Do you think that was more of a one off situation? I don't know if you have any insight and care to guess where the market would be for the type of rig that was sold?

I thought that was high and my understanding is there were circumstances there that helped put it in that place and the I would think, the market would seem to me for new construction rigs to be below that number.

Okay, great. That's all I have. Thank you.

Your next question comes from Tom Curran with Wells Fargo.

Good morning, guys. I heard with the Courage rig, there may have been up to $50 million worth of third party equipment on board the rig. The exact status of which wasn't clear at the time the auction took place. Could you just clarify whether or not at this point there is any additional potential investment you might have to make on the rig or was the price you disclosed the final all in cost the rig?

What we disclosed, was not the all in cost. As Gary indicated, we are capitalizing costs towards commissioning. And for instance, the rig did not have any drill pipe. There was not any material third party that we have to buy. The cement unit, the ROV's, those are third party and we take over the charter or charter from somewhere else. So far, extra money at that we have to put in the rig has been within our understanding of what we thought we would put in when we bid it. And no negative surprises on that.

Okay. I am sorry if I missed Gary's opening comments on that. Did you quantify how much that would be when all is said and done?

No. I don't think we have. And we announced that our winning bid was 460. And we have an estimate in there for commissioning. And then we knew we had to buy drill pipe. Some of which we already owned in stock. And it is not a huge number.

What we did. What I did say, Tom, in the opening remarks is we expect to spend $510 million for the acquisition of the Courage. And also included in that $510 million is a major upgrade of the Monarch, that we completed in the first quarter of this year.. So, we will bracket it with that number. We did not break it out into individual items.

So within that $510 million, its not just for Courage but it is a bit more for the Monarch as well.

That's correct.

Looking out to the next up cycle for mid-water, which markets are you guys looking to to sustain demand for the actual specs of the second really fourth generation semi? And not just demand at that water depth where we are starting to see obviously ever deeper and more complicated wells being, and which results in a requirement for later generation rigs because of specs. Which market are you looking to sustain demand for the actual drilling capabilities of the second and fourth generation rigs?

Well, I think the North Sea is a market for the wells drilled and it is not that complicated. Weather issues and all that. And the fleet there is designed for that market. So, it is just a matter of demand returning. I think in the Pacific area, it is so much coast that is unexplored, where a simpler rig that is designed 2,000 feet or something, can operate pretty well. We have got a number of rigs down in Brazil. And in Mexico; if Mexico gets kicked off on production, there could be a lot of rigs there and one market that is probably shrunk in the area is certainly the US Gulf of Mexico, where we have one now, the Ocean Saratoga is the second generation rig there. And [inaudible] have one and if you count Trans Ocean and somewhat less than a full fourth, there may be three. And there are a lot many more rigs interest two years ago than today.

Okay. When it comes to the North Sea, do you see it sustaining its share of global activity through the next three to five years? Is there enough remaining prospects there that based on consensus and oil price expectations, that it will be able to generate enough demand to sustain the 30% to 35% share of global mid water demand it has and also, which markets do you think could see the most incremental growth for that mid water, now, basic spec demand?

I would guess it would be Asia Pacific. I think the mid water fleet is going to have a future. I think, but it is all dependent on the price of oil and how that drives. I can tell you on the North Sea. And people said it was dead and all of a sudden, oil prices got really high and the advantages of infrastructure and shallow targets and the fact that there were a lot of things that had already been explored and identified and passed over because of previous pricing. All of those kind of things, I don't have the ability to quantify. I think those factors could line up and keep the North Sea going.

Yes, if the North Sea is dead and long live the North Sea again, huh?

I don't know that it is dead but we have prices, prices are down from where they were. And from what I hear, from the customers in the market, they are hoping for costs to also decline so they can have more activity.

Fair enough. I will turn it back.

Next question comes from Robin Shoemaker of Citigroup.

Thank you. Wanted to ask one more question on the Ocean Courage. Its availability in January of next year seems to put it in a unique competitive position and correct me if I am wrong, but in 2010 as opposed to 11, there is not too much availability like the Courage in the time frame. Is that roughly correct?

I think so. One of the things we liked is the near term availability of it.

So, we have seen a few cases in recent years where customers have had an urgent need for the rigs and day rates have gotten high in not a multi year time frame, but in a short year time frame, but it sound like your preference would be to look at the rig and go for a multi year contract in the 400s as you mentioned versus looking for the highest perhaps shorter term rig that it might be able to get.

I think so. We would like term and we would like a solid rate that gives us a great return on our money. And if we don't have to push it. Look, we want the highest day rate we can get but that's not necessarily the goal to go for the highest day rate and the Company would equally be well served by term by a reasonable day rate.

Right. Just wanted to ask that about Mexico which hasn't come up yet. Could you share with us your latest understanding of incremental needs that Pemex may have this year for either jack-ups or deep water rigs?

I think Mexico has a couple of deep-water rigs contracted to into their market, but I believe they would certainly like to have one sooner. Then on the jack-up side, there is going to be a number of renewals on the existing fleet as they rollover and I don't know. I have heard numbers of some incremental jack-ups going up there and low numbers, not huge numbers going on. I don't have a better feel than that. I think Mexico will continue forward. They have problems though with the currency that has worked against them. Peso has weakened versus the dollar. And there is so many factors in a market like that where you have one buyer, where he may be privy to Mexican budget issues and all kind of things that I don't have a sense of. It is not like I am trying to gauge a regular market, where all the data is on the table and I can estimate. But I would think rigs would continue to work there. And any growth that comes would be pretty small.

Just one other. On the broad International market for jack-ups. Would you describe the tendering activity internationally for jack-ups as having, remaining at a low level, any signs of say, fourth quarter, first quarter, tendering that may create a little bit of a pick up in activity or is it very, continue to be slow?

It is slower than it was. And it is not totally dead. I don't have a sense that there is anything that is going to make it pick up down the road that I think the market we have got right now and look at the number rigs and being delivered in the market and the rig that are rolling that I don't see pick up in rates.

Okay. Thank you.

We have time for one more question.

Your final question comes from Pierre Conner of Capital One Southcoast.

Thank you for taking the call. On the contract gaps on the Victory, how firm are the return dates? For example, if you had an opportunity that lasted longer than that window, obviously, will the customer take a deferral on the return date?

When we sequence wells, we have to have some ability to complete the well we are on. And that is understood in there. And we establish a date that he would get the rig back. That's the target date. So, having said that, if there is a 90 day window contemplated that we will take a three year job.

Just some flexibility in there.

Remember, we still have the Ocean Star to put to work. And it is not like we have to pass on some big opportunity.

Yes. On mid water equipment, this might be an academic question based on your commentary of some opportunities you might be pursuing in that region or elsewhere, but relative to stacking decisions, it seems on the jack-ups front, it is sort of six months out with no clear opportunities to moves in that direction. Can you bracket the window on the mid-water floaters and be longer, I assume and if your window has lack of visibility for what kind of time frame does it remove you for stacking equipment?

Well, something like the Bounty is like where we have a lot of money into the rig to keep it in class and to keep it up to standard would be a factor. We look at the whole market and where we see that going. I think we have a better feel for the floater market than the jack-up market because we are bigger player in it. The jack-ups, there is so much new equipment being delivered and there is gas problems here in North America. And so certainly, and lots of already, excuse me, idle mat rigs and so it is clear that we didn't see a future there. If we moved beyond the mat rigs and looked at any other rigs, it wouldn't be a formula, it would be our view of the marketplace. Probably longer than six months.

I appreciate it. Well, that's it. Thank you very much, gentlemen.

Thanks, Pierre. And thanks for everyone joining us. We will talk to you at various interim locations but certainly at next quarter's conference call in October.

Thank you, this does conclude today's conference call. You may now disconnect.