Diamond Offshore Drilling Inc (DO) 2009 Q4 法說會逐字稿

My name is Melissa and I will be your operator today. At this time, I would like to welcome everyone to the Diamond Offshore Drilling fourth quarter 2009 results 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 session. (Operator Instructions).

Thank you. I will now turn the call over to Les Van Dyke, Director, Investor Relations. Mr. Van Dyke, you may begin.

Good morning.Thank you for joining us. With me on the call are Larry Dickerson, President and Chief Executive Officer, John Vecchio, Executive Vice President, Gary Krenek, Senior Vice President and Chief Financial Officer, and Bob Blair, Senior Vice President - Contracts and Marketing.

Before Larry begins his remarks, I should remind you that statements made during 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, a discussion of future revenues and earnings, capital expenditures, industry conditions and competition, dates the drilling rigs will enter 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, 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 for changes and events, conditions or circumstance in which any forward-looking statement is based. After we have discussed our results, we will have a question-and-answer session, during which we ask that you please limit yourself to one question and one follow-up so that we can open the floor to as many people as possible.

And with that, I'll turn the meeting over to Larry.

Thank you, Les.

Welcome everybody to our fourth quarter conference call, ending out the year of 2009. I'll talk first about the earnings that we just recently reported. Obviously, they're down quarter-over-quarter, perhaps the quarter compared to expectations, and certainly according to what we had planned on. I would point out that all of the negative items are below the rig operating line, our top-line revenue was as expected, which was the day rates that we had less downtime for either mobilizations or repairs or within our allowance for equipment downtime, in fact, well below that.

And so let me concentrate on the items that were the cause of our decline in reported earnings. Primarily that's a tax rate of almost $0.29 changeover, and I'm going to allow Gary Krenek to explain that to you in greater detail. We had a $0.05 reduction on our earnings due to bad debt expense arising out of Egypt. We had a customer on one of our jack-ups that effectively ran out of money through declines in oil prices during the year and then their CapEx, which sucked up much of their cash. Under ordinary circumstances, we would expect to only be exposed to much less in terms of unpaid day rate. But in this particular contract, they had the ability to withhold day rate to cover importation duties that may be on the rig until the conclusion of the contract, so that's responsible for the size of that bad debt. It was offset by about $0.04 on the sale of the Ocean Tower, which if you recall, was the rig that was damaged in Hurricane Ike. And then we sold it to some parties that were going to use the rig for an accommodations unit. If you recall, we lost the drilling packages and derek, the whole cantilever group went over the end and everything else, though, was in really great shape. And we had a $0.03 currency loss, and most of the other item items were also below the line and were negligible in total.

During the quarter and extending here into the first part of this year, we have had a couple of rig relocations. The Ocean Courage arrived in the Gulf of Mexico right at the end of last December and is continuing with load-out and operations for acceptance by our customer here in the Gulf of Mexico. The Ocean Sector has returned from Argentina, and just this last week, off loaded in Corpus Christi Bay and has a job as reported that we will be going into the US Gulf of Mexico. The Ocean Star has arrived in Brazil, although it's not fully off loaded yet. Also during the quarter, the Ocean Lexington came from Egypt also to Brazil.

I think, if we also simultaneously today released a rig status report -- and I guess the one new item that's on there is the Ocean Voyager, which returned from Mexico. That's not a very long mobilization, or is in the process of returning from Mexico, and then we have a couple of well jobs to put it to work here in the US Gulf of Mexico. So that's -- that's a good thing for us. We didn't report on the Ocean Nomad, but I can say that we have paper going back and forth that will put the rig to work. The rig has been idle throughout the winter season. Coming up here in the spring, because the paper is not finalized, we're not going to disclose day rates or customers on that unit. But I think that's in general what the trend is on the sea where we see a number of the idle rigs going back to work as we exit the rough winter season; and of course, our customers have greater confidence in the price of product.

Talking about our other new rig that we bought, the Ocean Valor, the Valor is still in Singapore, and we are completing testing and review on that rig, and will probably be available to depart that area at the end of the month, first part of March. We have multiple programs that are expressing interest in that rig. I think the real advantage that we have on the rig is near-term viability. And quite a bit of reliability versus any of the other new construction items that will be delivered later in the year or in '11; and the fact that our rig is already well down the road on already having been tested, we're very confident that we will land one of those programs. And finally, we again posted a combined special and regular dividend of $2 a share for the quarter, looked a schedule just recently that showed the combined return to our shareholders from the point in time that we initiated special dividends, adding the cash that we've turned over, plus the evaluation of the stock, and we are well above any of the other competitors in terms of total returns to shareholders and so we're very pleased to continue that process.

So with that, I'll turn it over to Gary, who will give you more color on some of the financial items and also give guidance on operating costs as we go forward into 2010.

Thanks, Larry.

Since Larry has already commented on several of the significant events which have effected our fourth quarter earnings, I'll give you a little more color on the quarter and then look forward to what we can expect in the coming year. First for the basics, in our last conference call, we indicated that our Q4 rig operating expenses, excluding reimbursable costs, were expected to come in between $315 million and $330 million. Actual costs came in within this guidance at $317 million. Likewise, depreciation, G&A costs, and interest expense were materially within expected amounts.

As Larry said, what did not come in within specific guidance from our last call was our tax rate. This was due to several fourth quarter items including an assessment on a Brazil earnings related to prior periods and currency changes in the last quarter, which changed the valuation of foreign tax credits we were able to book and recognize. While these two items caused an increase in our Q4 tax rate, the main impact was from our mix and domestic versus international earnings. As I stated in prior calls, because of work in multiple taxing jurisdictions with varying tax rates, our ultimate tax rate will depend on a mix of domestic versus international earnings and to a lesser extent, the mix of which tax season jurisdictions, the individual international earnings come from. In other words, the amount of earnings that come the UK and are taxed at 30%, versus the percentage that come from Brazil and taxed at 10%. Primarily as a result of this changing mix, our effective tax rate for the year 2009 changed from 24% to 26% in the fourth quarter, or just 2 percentage points. However, since this rate has to be applied to the year to date earnings, it caused a disproportionate effect on our fourth quarter tax expense and the result was to drive our Q4 tax rate was up to 34%.

Looking forward to 2010, we expect our tax rate for this coming year to be in the 24% to 27% range, but again, will ultimately depend on the mix between domestic and foreign earnings. As is our custom annually, we give everyone our expected cost of each of our rigs, by class and election in the fourth quarter conference call so as to aid in estimating our future rig operating costs, and so that this becomes public information, I'll do this again. Rig operating expense, daily expenses for 2010, excluding reimbursable costs are as follows. For our jack-ups, for standard jack-ups -- in other words non-scepter and shield -- in the Gulf of Mexico, we expect daily operating rates to be in the mid-$40,000s, in the Mideast, the high $40,000s, Indonesia low $50,000s, and Mexico in the upper $50,000s.

For our high-end jack-ups, the Gulf of Mexico in the mid-$50,000s, and Australia in the mid-$90,000s. For our conventionally moored floaters, for the conventionally moored mid-water floaters, the Gulf of Mexico in the low $60,000s, Mexico upper $60,000s, Vietnam low $70,000s, Faulkland in the mid-$80,000s, UK North Sea also in the mid-$80,000s, Brazil mid-$90,000s, Australia $100,000 to $109,000 a day, and Norway in the mid-$130,000s. For deep water high spec conventionally moored rigs, the Gulf of Mexico, mid-$80,000s operating rate, Malaysia $100,000 to $109,000, West Africa in the mid-$110,000, Brazil in the low $120,000s, and Australia in the mid-$120,000s. For our dynamically positioned (DP) floaters, mid-water rigs, Brazil in the upper $110,000, and for our deep water high spec DP floaters, Gulf of Mexico low $130,000s and Brazil in the mid-$130,000s.

We'll also incur an additional $30,000 to $35,000 a day related to spare equipment and extra crews that aren't associated with any individual rig. In addition to these normal daily operating costs, we expect to incur additional cost of rigs that will shipped to (indiscernible) in 2010, either doing survey work or maintenance work. The cost for these rigs are as follows. For the Spartan and Spur, $4 million to $6 million each. Clipper and New Era, $6 million to $8 million each. Winter and Alliance, $12 million to $14 million each, and the Vanguard will incur $16 million to $18 million of additional costs while it's in the shipyard. Again, these are costs in addition their normal daily operating costs. We also expect to incur some $70 million in amortized mode cost during 2010, approximately $20 million to $22 million in the first two quarters of the year and $14 million to $16 million in the final two quarters of the year.

When you take all this information into account and add in the fact that operating cost or immobilizations are deferred and amortized over lengths of applicable contracts, total rig operating expenses, excluding reimbursable costs, should total approximately $1.5 billion in 2010. This increase in operating expense over our 2009 operating expense is the result of several items. First of all, operating costs of the Courage and the Valor as they begin operating this year; additional rigs that are moving into international markets and moving into higher operating arenas; the mode cost to get our rigs into the international markets, which we incurred both in 2009 and will incur in 2010 and will be amortizing in 2010; and we've also anticipate a slightly weaker dollar in 2010. I will point out that of those items I just talked about, three of the four, everything except the weaker US dollar, is associated with additional contracts and additional revenues this Company will be earning.

With respect just to the first quarter alone, we expect rig operating expenses to be somewhere between $335 million and $350 million for the quarter. Looking at a few other cost areas for 2010, we expect depreciation expense to be approximately $420 million for the year, and G&A expense is expected to increase in the 9% to 11% range year-over-year. Interest expense will increase in 2010 as a result of two debt offerings the Company did during 2009. That expense should be around $88 million for the year spread equally in each of the four quarters. And finally, for capital expenditures, we're expecting to spend approximately $365 million for normal maintenance capital items in the coming year and are expecting to add an additional $75 million in total to complete commissioning of the Courage and the Valor. Adding all of that up, it will give us some $440 million worth of CapEx for 2010.

I'd like again to remind everyone, as Larry said, that we filed our rig status report on a monthly basis and we filed an update version this morning, which can be fumed on our website. Today's report lists the total amount of downtime which is set for our rigs during this coming year. I will not reiterate the information here, but suffice to say we expect just little over a thousand down days in 2010 for our fleet. Almost half of the days mean mode, contract prep, or acceptance days for rigs that will be starting new contracts during the coming year.

And with that, I will turn it back over to Larry.

Okay, so I think we are now ready for questions.

(Operator Instructions). Our first question comes from Angie Sedita of UBS.

Thank you. Good morning, guys.

Good morning.

Good to see the Ocean Nomad going back to work in North Sea, and it sounds like it's ticking up a bit. Could you give us a little bit of color (indiscernible) the market, or are you seeing some interest in term, and then you also have the Bounty in the far east that's stacked, and can you give us some thoughts there on the outlook for that rig to go back to work?

I'll let Bob Blair talk about the North Sea, and I'll come back to Bounty.

Okay. Well, in the north sea, we have been in conversation with numerous operators. The programs that we -- that we're talking about are multi-well programs that will -- they're relatively short duration, though, so we're not talking about term work at this stage.

The Bounty, Angie, is a rig that we had a two year contract on, but we had quite a bit of CapEx that required both a contract and just general maintenance and catch-up and life extension on the unit, and we came to the conclusion that the best way to maximize our cash was to cold-stack the Bounty, bring the America out of the Gulf of Mexico so that it's away from hurricanes and have it finish out that particular job. So the Bounty is really on hold.

What we're trying to do is get a gauge on where shipyard costs are going to end up, and then we will come up with a plan potentially to figure out where is the sweet spot of spending money on that unit to -- and how should it finish out its life? I mean, at the high end, I guess we could spend as much money as we did on the Monarch and Endeavor and that class of rigs for a super upgrade; but at the moment, I think that's off the table.

Okay.

And so we're looking at smaller items, but I would not expect it to come into service at all in 2010.

Okay. Fair enough. And then, following up on the term with the Ocean Valor, are you seeing interest in term for as long as three years, or one to two years? What are you seeing for term there?

Well, we've had a lot of discussions with many operators in various -- in all sectors of the world. But -- so we're talking about all different types of programs from short-term well-to-well-type work in the near term; but also with the longer term programs of three to five years.

I would say three is the preponderance of the kind of term work that we look at.

Two to three years

Okay. And then finally, staying on -- going back to the mid-water, on the New Era, which is in Pemex should that assume -- should we assume that comes back to the Gulf --US Gulf as well? And is there any chance that we may see a tender for mid-water work for Pemexican in the future?

We are actively discussing the future of the new era with Pemex if they have some interest in retaining the unit, and we're talking about different scenarios in the type that they are interested in, so it's not necessarily coming back to the US Gulf of Mexico.

Okay. Great. Thank you.

Your next question comes from Dave Wilson of Howard Wile.

Good morning, guys. Just a real quick question here. On the recent fleet report, you had a lot of near-term activity, and Larry, you mentioned some near-term possibilities for the Valor, which is nice to see. But, is there anything happening mid-term, longer term, especially with regards to the floater market that you can comment on as far as activities when the rigs roll off in say, late 2010? Is there any interest out there for getting those contracted?

It varies by market. I think we've generally seen there are some farm-outs in the near term. So I don't think there's farm-outs for longer-term to any great extent, but near-term is impacted by that, but then in a market, all of the sudden, as we get into the summer, which we certainly expected to see a rise of activity, all of a sudden, we're getting quite a bit of activity out of that market, and then there's other jobs that appear on the horizon.

I mean, it's certainly a different market than it was two years ago. Our overall push was for our customers. It would disappear if we didn't act quickly. I think that's certainly gone from the market. There's still healthy activity as you would expect with oil prices in the 70s.

My follow-up to that would be from a standpoint of how we think about modeling everything in, should we be expecting some downtime when one rig rolls off before it gets another contract farther out as far as not rolling from one contract to another, but there might be a few months of downtime or it has to roll -- or has to be re-located from one market to another?

I think that would be fair to say.

One of the things that I will say is -- I think the oil company's budgets are complete or in from the -- their planning process is complete for the year, that we've had numerous companies that appeared ready to release the rig or are not talking about the future of a rig, to begin talking about ongoing work programs, which has been of kind of a bright sign. When we thought they wouldn't continue with the rig. Now all of the sudden they're talking about continuing it for the full year.

Okay. Thank you, gentlemen. Very helpful.

Your next question comes from Dan Boyd of Goldman Sachs.

Hi, thanks. Hey, Gary, had a question for you on costs. I was just trying to follow you as quickly as I could on the expected cost for the different types of rigs, but it look like generally, they were all coming in with some decent amount of cost inflation relative to what you gave last year. Can you just give us some guidance on where those costs are currently, how you expect them to trend as the year goes on and where the inflation pressure is coming from?

Well, it -- normally what we have seen is the cost that I gave will come in a little bit lower in the first half of the year and escalate a little bit in the second half, whether it's -- we built in just a slight amount of industry inflation. We'll see whether that occurs or not. But as to what is included in those costs are what we call major expense, our bigger projects that we incur, and those things are approved in our budget process.

It takes a while to get them approved, the (indiscernible) written, equipment ordered, et cetera, et cetera. So some of the costs will come in later in the year. So normally it will escalate a little more in the back half of the year. As to comparing it to what we've seen in the past, most of them are -- can be fairly similar. If you see some that are about normally higher than last yore, it could mean that you have an area that has only one or two rigs and that individual rig may have some specific projects associated with it, and so the nuts and bolts may be close to being the same, but the specific projects will drive that per-day cost up for that class of rig in that area.

In general, if you look at the total cost where Gary talked about, remember, we're including now costs on Courage and Valor, which we didn't have last year as an inflation. I mean, as an increase in quantity of rig expenditures. And then we have rigs that are relocating between markets, a number of rigs going into Brazil, which is a higher-class market than the markets that they came from. The America leaves the Gulf of Mexico and goes to Australia. That's a higher-class market. So the actual underlying inflationary provisions that are in there for paying a higher rate than we did last year is actually pretty lost.

Okay. That's helpful. This is what of a follow-up to the prior questions; but on the Ocean Baroness, specifically, are you seeing term opportunities in the Gulf, or do you think there are better markets out there to lock that up over a time period?

We're talking to customers both here in the Gulf and outside of the Gulf about term opportunities.

At day rates similar to what that is getting currently?

It really depends on the term -- the term we're talking about and the costs associated with the area.

Okay. Are there -- maybe just to push a little bit on that one -- are you seeing any pressure on that class of rig to get rates lower than -- in the low $300,000s, they've come out around the mid-$300,000s regardless of term?

When we sit down with a customer, they bring the pressure to bear in all markets. Two years ago, they didn't have -- they had bigger concerns on getting rig and afraid that it would leave. That has abated. So the cost pressure is more severe today than it was in the future. But where we end up, we'll just have to wait and see, but it would be difficult for us to raise rates certainly in this environment.

And then, one last follow-up. Relative your prior strategy, do you feel any pressure at all to lock rates up for a longer term given your preference for the dividend to have that assurity of cash flow?

You know, we would love to ladder our fleet at term, because then you can plan your business better. I think, if you ladder it over time, you'll do just as well as constantly trying to work the spot market. But I wouldn't say that we have any increased pressure today than we had two years ago.

Okay. Thanks. I'll turn it back over. Appreciate it.

Your next question comes from Collin Gerry of Raymond James.

Hey, good morning, guys. A quick question. Looking through the fleet status on the downtime, looks like we're seeing less downtime in 2010 thus 2009. That's certainly a positive trend. If I look to the guidance for 2011, that looks even better. Comment to us-- is that something that can change to the upside quite a bit? Obviously there's not a lot of mobilization that we don't know about in there yet. But is that a big deal?

Yes. One thing to keep in mind, when we give that 2011, that's downtime we know we're going to incur. Those are five-year surveys that are going to occur during the year. So what you can look at, is that's the minimum amount of downtime; if we continue to get contracts in different markets, we're going to have to mold rigs to those markets. We're going to have to take downtime to prep for those contracts, perhaps acceptance testing, so those days will go up at some point. We can't give you any type of guidance, because we don't know what will happen in 2011. So take the 2011 as the minimum amount of downtime we're expecting at this point.

Okay. Fair enough. What I'm getting at is the roughly 350 days -- and it looks like it's down on some smaller rigs -- is that, from looking two years out, is that lower than what you have seen if we're looking at the same analysis last year or the year before in terms of visibility? Is that a small number or would you expect that if we're in the same position from a year or two ago.

It varies depending on the number of five year surveys we have. It's probably close to what we had a in '09; it's significantly less than what we had in '08 and '07. Because of five-year cycle, you will see 2012 go up again, because we hit the same thing that we had in 2007.

Thanks. Last question. Recently we've seen -- Daewoo had some contracts for three new deep water rigs and it looked like the cost came down quite a bit, maybe even closer in line with what you guys paid for the two new rigs. Could you maybe talk to us about what that means for leading-edge day rates? If new build costs are coming down, does that mean that new build day rates are coming down and that could be something that brings deep water rates down?

Well, certainly increases in the cost of rigs drove rates up, so yes, I would say probably on a long-term basis, but -- and we have talked, John is in here, was just in Singapore, was talking to people there, and we talked to Koreans, and so we've been quoted these decreased prices. You often have to check and see what's included, really, because we've seen some prices quoted that are down, but there's no sub-sea equipment or visor, which is a huge number.

Right.

But certainly -- I mean, I think the $750 million was the number, which doesn't necessarily always include all of the post-commissioning testing. $750 million was the peak number, I would say, on most normal equipment. There were exceptions to that, and probably that $750 million number is probably at $650 million, wouldn't you say, gentlemen?

In around that range.

Yes. When you hear a $600 million, I'm not quite sure they're there yet. So it's certainly moving down. We paid $490 million for the last. And then we've got some commissioning costs will put us in the mid-$500 million, so we still have a discount, plus we've got our rig now, and then we don't have to compete with as many uncommitted rigs that you're looking at in late '11 and '12.

Okay. That's very helpful. Thanks, guys.

Your next question comes from Robin Shoemaker of Citi.

Thank you. I wanted to ask if there's anything you can tell us relative to Petrobras' requirement for 2008 ultra deep water rigs. Our understanding is nine that they would build for themselves, 19 would come from contractors. Supposedly the tender is out there. The bids are due the first weeks of March. Is it likely to go forward on that time frame from your perspective? Is there likely to be a delay, and where -- if you can tell us anything about your interest in that tinder process?

Well, Petrobras is our largest customer, and they have an ambitious program; and, I'm not going to comment on what their motives would be or what our bid processes would be just because we feel a certain loyalty to them. They have an enormous resource that has been very active and very successful in developing, and that has involved most of the legacy drilling contractors and their high-performance standards and helping them achieve that, and our expectation is, regardless of how they deal with it, that we bring value to the table, an we'll continue to be involved.

Okay. And can you broadly comment on the mid-water floater market? The Voyager day rate, we can see, is a good rate, given the number of mid-water rigs that are currently idle worldwide. But just in terms of what you see in terms of potential demand for mid-water rigs and the lack of new supply. Obviously, we're not building any. Is there a potential for that market to stabilize at this current level and then potentially improve based on what you see as potential demand for mid-water rigs?

Well, I think you have to look at various mid-segments around the world, the various market places, where there's going to be ongoing work in those areas. With the Voyager coming to the US Gulf, there's actually -- were many operators concerned about the exodus of that type of unit from the area, that they're worried -- getting to worry about getting Norton done in time frame that they're allowed to do their drilling. There just wasn't equipment available to them.

So I think they're very happy to see a unit become available, and there's different -- like I say, different stories in the various market segments. We feel like -- the most of the mid-water sector is going to continue to be short-term in nature, not -- but real long-term contracts except for there are term contracts in places like Brazil.

Okay.

I would say rates have come down, The rate that we had in Mexico, which was reflective of the market that existed two years ago was higher than we've got here in the Gulf of Mexico. We're comfortable with what we're getting in the Gulf of Mexico, so I think there's a little bit of that price pressure. Ultimately, where the new deep-water market goes, if that market is moving down somewhat, then it would be hard to push up on the second gen.

I see. Thank you.

Your next question comes from Ian Macpherson of Simmons & Company.

Hey, good morning. Thanks. I guess first question regarding the Valor. There are obviously numerous opportunities that are being contemplated here, so it's not a single-dimension answer. But what would you think would be the earliest that we might expect to see a contract commencing or the day rate commencing for the rig this year?

Well, unless we get a job and we do have some indication of interest in the far east -- but if we have to bring it over to the Atlantic, which is where most of the work would be, and there's a mode period. And we're not going to be ready to depart until the first part of March, you're out 60 to 70 days. Then once we get here, it takes 30 days to load the rig up and get it accepted. We're looking at a mid-year start date at the earliest.

Are you looking at customer requirements that want the rig soon you can get it, or are some of these starting no earlier than Q4, for example?

We're looking at -- we're looking at both. We're talking to some customers that are very much wanting to start as quickly as possible. .

Okay. Can I ask about your feeling on the Baroness, which is -- the current contract with HESS is expiring fairly soon. What's your confidence factor on keeping fairly seamless utilization for that rig this year?

We're talking to customers both within the US Gulf of Mexico and outside, so it would depend on whether it would move out or not.

Okay. Lastly,it's the Spurs, the rig that had the receivables issue in Egypt. What's the currently status of that contract going forward, and the backlog on the rig relative to what happened before?

Well, the -- we moved on from that customer, and our -- we're still working for some smaller Egyptian companies. We're reasonably comfortable with our due diligence that they're in much better financial shape than what happened with that particular company, and we have contracts that do not permit a greater withholding going forward, so I think we've improved our lie, but certainly, when you work for smaller guys, anywhere in the world, you do have some risk.

Now, in many countries, if it's primarily in the west, we're able to get either letters of credit, escrow agreements or something to protect ourselves, and in some of these other areas where we're at, you have to work under the in terms or conditions of the country or incur a big expense to move out the rig out. Bad debt expense is not normally a part of this business. We had one last year -- a significant one where we had a bankruptcy occur from a longtime contract for one, Paul Eska, who'd paid for many years. You do have that kind of exposure, but it's our goal to keep this part of the business.

Okay. And I would also add that we reserved that receivable for our accounting purposes and recorded it as a bad debt expense. We will continue to pursue collection of that receivable, regardless of what we've done for book purposes.

And we have, in past quarters, had slight gains as we've collected against things that accounting standards caused us to reserve against.

I see. So Webco, the customer on your status sheet now, through the end of August, is not the customer that you took this charge against?

No.

Okay. That was all I wanted to clarify. That's helpful. Thank you very much.

Your next question comes from Joe Hill of Tudor, Pickering, Holt.

Good morning, guys.

Good morning.

Most of my questions have been touched on, but I did want to ask you about your outlook for the Gulf of Mexico jack-up fleet and how you feel today relative to how you felt in the third quarter?

Well, of course, we made the hard decision last year to cold-stack the Mat rigs, which is where the big problem is in the US Gulf. The independent cantilever market is actually in equilibrium, and we've actually been able to push rates up here recently. We just had the Columbia come back from Mexico, and it's set to go immediately work for a major company. So we feel pretty well placed with our jack-up fleet in the Gulf.

Okay. In the near term, you said the market's an equilibrium. Do you see anything pushing it to either side of the equilibrium in the next six months or so?

We actually brought one -- brought two back recently with the Scepter coming back from South America and the Columbia coming from Mexico. So we don't think there's a lot of excess work there, but we do have customers actually talking about getting in line for units rather than us having to do -- go find work for the rig.

I'm sure that's refreshing to hear. Thank you very much.

Your next question comes from Judd Bailey of Jeffreys and Company.

Thank you. Good morning. First a follow-up on one of the prior questions. To the extent that mid-water market and, to a lesser extent the lower tier of the deep water market, becomes a little more spot oriented than what we've seen the last several years and there's not as many term opportunities, can you -- how does that impact in your dividend decision if you don't have that level of backlog or not the comfort level you have as many long-term contract opportunities to lock up that cash flow ?

Well, on a standard basis, we've declared that our special dividend is set by the Board and lists a variety of factors, including investment alternatives and CapEx requirements and cash flow, and backlog would clear be one of those. But it's not -- and backlog certainly would come down, as you've point out, if we revert to a spot market, so I think it would be dependent upon our comfort level with that spot market, as long as the cash was made available from earnings, that would -- that would enable us to take that into account in setting the dividend policy. It's not just totally backlog.

Okay. That's helpful. A follow-up question -- another question, just on the Baroness. The various opportunities that you're looking at. I'm curious, are you -- are the jobs that are out there, are you fully utilizing that rig's capabilities, are you looking at opportunities where you're going down market, so to speak?

Well, it depends on the operator we're talking to. We have -- both scenarios that we're talking to -- not necessarily maximum capabilities.

And then my last question, and I apologize if I missed this, but the Voyager, bringing it back to the Gulf. Pretty nice contract. Are you having discussions for follow-on work beyond those couple of wells, and if so, should we expect a gap during hurricane season in all likelihood?

That's the biggest problem with more rigs in the Gulf of Mexico is the potential robs that operators have in getting permits, so it's short term in nature. We're booked right now to hurricane season. We just have to see which operators may have a portfolio of acreage that would allow drilling during the summer season.

Okay. Great. Thank you.

Let's take one more question, please.

Your final question will come from Waqar Syed of Macquarie Capital.

Good morning. My question relates to the UK North Sea market. There is a 26th licensing round coming up. It appears there will be a lot more acreage being offered and a lot of acreage that has been closed for the last ten years is being offered. So how do you see that impact demand this year then into 2011and beyond?

Well, I think it's a positive. It certainly takes a while for leases to be evaluated and awarded and all that stuff. So you can't have a lease sale and the next day, everybody goes to work, but I'll try to remind everybody, our customers generally find the North Sea. It can be a high-cost area. You have weather issues. But the drilling is very simple.

You have huge amounts of infrastructure all around the area, and as we've seen in the Gulf of Mexico and other places, you may have drilled to one depth and one horizon, and you can come back through the same fields and find additional horizons to drill to. So we think it's a market that makes sense, that we've certainly seen the UK government in the past take actions to encourage drilling as their production declines, because it's a big economic push for them. Were that that were the same in the US Gulf.

Lastly, are you considering other cold-stacking of rigs; and then, also, anything on -- any access that candidates for sale?

The driver on cold-stacking certainly with the bad rigs was just an assessment of the market. The driver on the Bounty was looking at the cash that we had to spend to stay in that -- keep the rig competitive, and we thought that we would rather use cash at that point in time on things like the Courage and Valor acquisitions. So those would be the two in the market or rigs that are faced with big expenditures.

So far as rigs for sale, we -- the best time to sell a rig is when you really don't want to, because the earnings look so good. That's when you get a better price. I think the prices for rigs today are generally fairly low, but we are always open to an opportune price if we sell that for a particular type of rig. We are committed to staying in the business. We've had lots of people come and express interest in Courage in Valor at slight profits from what we put in there, and we're not interested in selling those. Those are core assets that we're going to sign contracts on and earn great returns, and that hasn't been reflected in the prices we're offered.

Okay. Thank you very much.

All right. Well, I'd like to thank everybody for joining us. We'll be back in touch with you both at some investor conferences and then certainly coming up in April for our next quarterly release. Thank you.

Thank you for participating in today's conference. You may now disconnect.