Diamond Offshore Drilling Inc (DO) 2010 Q2 法說會逐字稿

Good morning. My name is Christi, and I will be your conference Operator today. At this time I would like to welcome everyone to the Diamond Offshore Drilling second quarter 2010 results conference call. (Operator Instructions) Thank you.

I will now introduce to you Les Van Dyke, Director of Investor Relations. Please go ahead, sir.

Good morning. Thank you for joining us. With me on the call today are Larry Dickerson, President and Chief Executive Officer, 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, discussions about future revenues and earnings, capital expenditures, industry conditions and competition, days 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 & 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 or any changes in events, conditions, or circumstances on 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.

With that I will turn the meeting over to Larry.

Thank you and good morning. I have several topics I'm going to talk to -- talk about this morning. First of which would be the moratorium and its ongoing continuing impact on Diamond Offshore.

During the quarter we have announced two relocations of rigs which I believe were certainly the Endeavor was the first, and I think the Murphy was the second. There has also been other announcements of modifications of contracts and various things from other drilling contractors. I think pretty much each company and each rig plays out differently depending upon its circumstances and situations, so I will give you a little color behind ours. The Endeavor, which was our first rig that we announced is relocating to Egypt, was under contract to Devon. Devon sold all of their offshore properties well in advance of the moratorium and -- but retained contract on the Ocean Endeavor, expected I believe to work perform outs and they were very keen to assist us in coming up with a plan where we could relocate the rig. I think we disclosed the terms of that. The general scheme was that between the day rate that we would receive from our contract in Egypt and the termination payment from Devon that we would be placed in the same economic position as if we'd stayed in the Gulf of Mexico. We believe that not only we got that advantage of being able to preserve some US jobs, that we would also have a rig, a very good rig, relocated to the Mediterranean which is a good market and certainly has more certainty going forward than the US market.

Subsequent to that, about a week later we announced although the rig actually left earlier, was modification to the Ocean Confidence contract with Murphy. We have a little over 20 months left with Murphy, and agreed to drill a job of theirs in the Congo in West Africa where they would relocate the rig, and they were committed to bring the rig back for a year under the original terms of the contract at such point in time that the situation in the Gulf of Mexico was cleared up. If there is time to host our arrival in our drilling in the Congo, then we will be free and we'll be responsible for chasing other work in West Africa. So we were pleased with that arrangement. There is less revenue coming to us than if had we stayed in the Gulf of Mexico, but we think that was a net win for everybody.

Among our other rigs that are in the Gulf of Mexico our floaters Ocean Voyager finished its series of wells subsequent to the events of April 20, 2010 and the moratorium, and that rig has now been cold stacked. Saratoga was permitted to continue on. The Victory is also continuing on on some production related drilling. And the Ocean Monarch is our large rig with a big contract which is still yet to be determined. The rig was assigned from its primary contract Anadarko to Cobalt. Cobalt had a certain commitment and working through that commitment at which point in time, sometime in August we would expect the rig to be returned to Anadarko. All of that is still open. So that's the primary impact on our floater business, our jackups. We've had mixed results seeing our customers being able to get permits, so we have had some impact there, but we have less rigs there.

Let me now switch and talk about a general overview of the results that we had for the quarter. And I am going to focus on some of the impacts we had that resulted in operating performance that was less than I think the first call view of where we would be. We had about $0.05 directly related to the moratorium of hit, and that was when we agreed to relocate the Confidence to West Africa, we moved up a survey by about two years and -- I am sorry, not quite two years, but performed that in the Gulf of Mexico and so that cost us $0.05 in revenue that we might otherwise have had. Additionally, the Ocean America we had committed sometime in advance of the moratorium to relocate that rig out of the Gulf of Mexico down to Australia, and that was done at a time where we just wanted to have more diversification among our fleet and reduce our concentration of rigs in the Gulf of Mexico, and I think that was fortuitous, obviously. But the rig arrived in Australia, and we had about a month later acceptance and going on full contract than we had anticipated just contract acceptance issues, some repairs that we needed to do, and that cost us about $0.07 off of our guidance. We also suffered in the quarter equipment downtime on the Ocean Epoch and Ocean Patriot, both of are operating in Australia which cost us about $0.06. And then we had a $0.02 impact on tax rate and Gary Krenek will expand on that a little bit later on. That was offset by about $0.05 positive on our costs throughout the rest of the fleet which I think is good news that indicates that we're on top of costs. But revenues obviously have been impacted in the quarter more down time or acceptance issues.

Finally, let me talk about the dividend. The dividends remain an important part of our philosophy of returning value to shareholders. However, we believe that the events subsequent in the Gulf of Mexico primarily and the moratorium and the uncertainty that's hit the industry calls for us to make a reduction in that dividend. We're still maintaining a healthy dividend that we think shows our commitment, and if you look over time the total amount of dividends that we distributed I think have been very significant and had a annual run rate, the $0.75 per share special dividend, combined with the regular dividend would be an annual run rate of $3.50 is still a very decent yield.

Now, in my statement in the press release, the earnings release, I think covers all the reasons behind it, but we put particular emphasis on the need to deploy cash if and when we get that opportunity to buy rigs into the fleet. Last year our acquisitions occurred in Valor I think were especially timely. We got great prices and at a point in time when it was pretty clear that we would be able to put those to work at near full payout contracts. So we prefer to emphasize that we are shepherding cash for the opportunities that we see will develop from the moratorium rather than just as a cautionary, oh, we don't know what's going to happen in the moratorium, let's build cash.

And finally, I will just close out again coming back to the moratorium, I had an opportunity to testify with Jay Collins at Oceaneering over the first hearing of the National Commission on the BP Horizon Oil spill and offshore drilling as it is styled, and used the most of my time to make the case that moratorium was economically hurtful to the employment opportunities in affected states of Louisiana, Mississippi and Texas, made arguments that did not make sense, Jay Collins joined me in that. Senator Mary Landers was over there testifying as well as local Congressman, and a lot was put forward before the Commission, but the most effect-- all of that paled to the eloquence of an oilfield wife who testified at the conclusion that during the three minutes that she was allotted for the public to make comment, and I would encourage everybody to check that out. That's posted at YouTube under the title if you search "oilfield wife at oil spill". I think you can see that, and I think that reminds everybody really the employment prospects and how much -- how important it is for the people in that area that we continue to push to return to safe operations in the Gulf of Mexico as soon as possible.

So with that, I am going to turn it over to Gary to give a little more elaboration on the numbers.

Thanks, Larry.

I really don't have a lot to add to the second quarter results. Larry went over that in some detail and did a good job on that. The line items that he did not address were pretty much consistent with what we expected in I believe everybody else did. So if anyone has any questions on those, I will certainly address them in the Q&A portion.

Looking forward to the third quarter, just a little bit of guidance there. Rig operating expense, in the main one, we expect to see somewhere between $380 million to $390 million worth of costs in the third quarter. Again, you can compute that by taking our daily operating costs that we had given out earlier in the year, adding to that is in the third quarter we'll recognize some $34 million, $35 million worth of amortized deferred mode costs and start up costs so that needs to be added to our normal operating costs. In addition, the VanGuard, the Winter, Alliance and Spur will all be in the shipyard for surveys during the third quarter or expect to be. That will cost us another $20 million. Costs will be reduced by approximately $30 million for the Valor, Confidence, Baroness as they mobe or in acceptance testing for contracts in international markets. Remember, when we are mobing or doing acceptance testing we defer those costs and defer them over the length of the contracts. That's where the original $34 million that I gave you came up with as we amortize those out.

So, again, that all will net down to approximately $380 million to $390 million. That is an increase from the third -- from the second quarter which was approximately $350 million, and that increase is due to two things. One, we had several rigs that were mobing in the second quarter to a various locations. They're now operating in the third quarter and so we'll be recognizing their costs. Also, we have some of our major project that we account for as an expense projects that are back loaded into the second half of the year. This is normal for our business. We do the budget in -- we budget in the fall of the previous year. We right AFEs, place orders for equipment the first half of the year, and a lot of that equipment comes in and the work is done in the second half.

We had previously said that we expected rig operating costs for the year 2010 to be right at $1.5 billion. We now expect that to come in slightly below that number. Two reasons. One, as Larry said, a concentrated effort by operations group to control our costs, and they're doing a good job on that. Also, we cold stacked a couple of rigs, the Bounty and the Voyager, and so those costs will not be incurred, operating costs will not be incurred, and we have other fleet reductions.

As Larry said, the tax expense for the second quarter was slightly higher, actually was at the high-end of our guidance, and that was driven by the fact that we have, as we've announced, the sale of Ocean Scepter, while that is not occurring until actually in the third quarter, for accounting purposes we computed what that tax would be and you're required to spread that tax equally throughout the year. And based on that, that changed our tax calculations and resulted in 30% tax rate for the second quarter. We expect the tax rate for the third and fourth quarter to be somewhere between 29% and 31%.

Depreciation expense, interest, G&A, for the third quarter should all be consistent with the second quarter, so we're not expecting any surprises there.

And finally, looking at capital expenditures, we're now forecasting $485 million worth of maintenance capital for the year, and an additional $70 million which much of it has already been incurred but the complete the commissioning of the Valor and the Courage. That will give us a total CapEx, expected CapEx for 2010 of $555 million. The maintenance capital is up slightly from our last projections, and that's driven primarily by some equipment requirements and also additional rigs leaving the Gulf of Mexico and going overseas and some equipment that we need to purchase with that.

Larry, unless have you any other comments.

Let's open it up to questions.

Thank you. (Operator Instructions) Your first question comes from the line of Dan Boyd, Goldman Sachs.

Hi. Good morning, guys.

Good morning, Dan.

Larry, just wanted to start off asking you a little about the better understanding the go forward strategy. I thought it was to improve the fleet with high spec assets and that always included floaters floaters and jackups, but with the recent sale of a high spec jackup, can you help me understand that? Is it to, one, maintain a certain dividend yield? And, number two, add deep water rigs? What was the thought process behind wanting to monetize that asset?

Well we kind of view that as a wild sale and not as a strategic indication of what's going on. We like the price, the asset was all alone. Our only premium asset jackup was in the Asia Pacific and there is a lot of assets being delivered there. So, and day rates in Australia were at a low point. So weighing all of that together, we elected to take the price that was offered with the idea that we would put that into higher spec acquisitions on the floater side.

Okay. And have you seen anything on the acquisition side of of the number of opportunities increased over the past three or four months? Or is this in anticipation with the moratorium you think number of opportunities will increase?

I think it is more our projection of what's going to happen. There is not sales on the court house steps at this point in time, but there is uncertainty in the market and there will be additional assets leave the Gulf of Mexico and compete for jobs that are out there. And then there is an impact on the operator side, the uncertainty that they've got in the Gulf of Mexico I think will impact how they contract. So we will we believe that that will help yield some additional opportunities on either newly delivered or rigs that is are in the hands of folks that may not be as well capitalized as (inaudible) --

Okay.

-- in this industry.

That also means that the current dividend is a reflection of not only opportunities that might arise, but it is a reflection that market conditions very realistically could deteriorate from here. And then you just want to be ahead of that?

We're more focused on building cash, but you can see that the day rates have even before the moratorium were breaking a little bit. There is solidly profitable, but we're not at peak rates. If you want all that line on a continued down slope, or make the future projections, we just -- we don't give guidance on that.

Yes, I guess I was just saying, though, the, the current rate is -- if things were to stay as they are today, the dividend would likely be higher. However, you have cushion in there should things deteriorate, but I understand if you don't want to answer that on a conference call, so --

(Inaudible)

All right. Thanks, guys.

Sure.

Thank you. Your next question comes from the line of Joe Hill with Tudor Pickering.

Good morning, guys.

Good morning.

Larry, where do you think leading edge day rates for deep water assets are today?

Depends on the market, but certainly in West Africa we're seeing in the $300s.

Okay. And then, are you still booking revenue on the Monarch? Or has the force majeure attempt forced you to not do that?

As of the end of the second quarter that has had no effect on us.

Okay. Thanks, Gary. And then shipyard costs are evidently coming down a little bit. I am wondering if there is a price at which you guys would rather build a new asset as opposed to buy a new asset without a contract?

I think that's probably no because of the time differential and even if there is a price today, if it takes you three years to build a new rig, even at a discounted price, then we think we have a good handle on that. The price of existing assets could easily move down while you are waiting.

Okay. And then finally, Gary, are there any issues surrounding the contract with ATP on the Victory due to the moratorium, or is that pretty much as is?

No issues, as is.

Okay. Sounds good. Thanks a lot, guys.

Thank you. Your next question comes from the line of Ian Macpherson with Simmons and Company.

Good morning. Larry, with the Courage and the Valor, your strategy was pretty effective with buying the rigs, getting contracts, secondarily, with the market still seeming to be on the downward trend or a lessening trend anyway. Does -- Is that still an advisable strategy? Or do you need to be more prudent in the way you prosecute acquisitions in terms of getting a contract ahead of time?

I think in the market today you're not going to have as many opportunities. There will be some, but to immediately contract. We were on a position that we would borrow, buy, and contract all at one time. And it just flew, or at least it worked twice. And if you bought stuff today when you look, I think some of the opportunities may come from uncommitted rigs that are out there. I think they will be able to work. But it would be challenging to find long-term contracts.

I agree. I believe that you're looking at being able to find work. It will be relatively short-term. You will have to piece a puzzle together to keep them working.

I am just -- I am trying to reconcile that outlook with how it makes sense to consolidate this spec capacity if, if in the near term returns are not quite --

We would look at the life of the rig. I mean, we're not going to go buy something and if we don't think it makes economic sense, if we can't make the numbers work for us, we're not going to buy it. Or, to the greater degree that you are speculating then you are right, that would indicate a (inaudible) price.

Okay. Follow-up question. Can you talk about what you're seeing with regard to prescribed BOP upgrade scenarios for the Gulf of Mexico? Granted you're only down now to the Victory and the Monarch I suppose. Any early read on what's happening there, what it might entail, what it might cost and what the likelihood is of BOP or other capital upgrades being prescribed outside the Gulf of Mexico as well?

I wish I knew. We have got people working on that. We have got folks working on industry task force that are dealing with all of those particular issues, and it is difficult to say at this point in time different rigs would have different upgrade requirements depending upon the final standards. We are sure that there will be additional specifications and additional inspections on BOPs, and exactly how those play out, I don't know. Spreading to other markets there will be an impact out of what comes out of the Gulf of Mexico.

We have seen people asking questions, but there are other markets, I think, where they have been through enhanced regulation already. If you look at the UK, following Piper Alpha, they had a pretty robust scheme put in place, and I think they're pretty comfortable with the effectiveness of what goes on there, so I am not sure that what flows out of the US will naturally flow overseas.

Okay. Well, a lot of moving parts. Good luck with it. Thanks.

Sure.

Thank you. Your next question comes from the line of Angie Sedita with UBS.

Good morning, guys.

Good morning.

Larry, could you give us an update on first the Guardian and the Nomad, both of them are up in September, one in November, midwater floaters, and the outlook for staying in the region and keeping those rigs working?

This is Bob Blair. First with the Guardian, there has been some success with the rig in the area. One of the operators is announced the Discovery. We are having actually currently having discussions with that operator to possibly extend the work program down there for the rig. And additional some of the option wells are still outstanding, the operators have also indicated an interest in exercising those options.

So we see that there is good possibilities of the rig staying in the area for some period of time. We're just trying to define that at this stage. And then there is also demobilization provision in that contract which allows for a full mobilization back to the North Sea.

On the Nomad we have received further commitment to the rig that takes the rig into November. We're just in the throws of finalizing that deal in the next few days, and there are prospects to continue with the rig although none of them have progressed to a,what I would call, a real solid stage. So we're still looking at this point in time trying to find work through the winter months in the North Sea.

Thanks. And then as a follow-up, you have six international jackups, one that is currently idle and then four that are up for renewal in November/October/August. Color there? Any additional rigs that could become idle or do you think the rigs will stay working where they are?

Discussions again with the existing contract operators indicate good prospects for all of them to continue work, and again we're still trying to define the timeframe that those extensions will be. They should be relatively short in nature at this stage.

And then finally, Larry, a question for you. Diamond Offshore did file a case in the Houston courts against the moratorium and can you give us an update on where this stands? I believe the judge put it on hold given the New Orleans case, but any color there?

Well, we can't comment on the case itself, but technically we moved our case and have joined the Hornbeck case and that's pretty much where we stand now, so we're following the Hornbeck. There didn't seem any purpose in pursuing a separate venue at that time.

Okay. Great. Thanks, guys.

Thank you. Your next question comes from the line of Waqar Syed with Macquarie.

Good morning. This is Waqar Syed. Question on Mexico. Larry, are you hearing anything from PEMEX regarding their plans? And there was some talk of maybe ask for a budget increase? And also one of your peers in the drilling industry mentioned they may be looking for a number of additional jackups, I believe the number was twenty-one, not additional, but maybe send out a tender for twenty-one and maybe ten of those could be additional. Do you have any color on that?

Well we had meetings earlier in the week with PEMEX and certainly there are tenders in the process of being developed for jackup units for delivery before the end of the year. A lot of those are going to be against existing units, incumbent units. I think there is currently eighteen rigs that is are scheduled to come off contract before the end of this year, so certainly a lot of them will be renewed through this -- this new tender process. We have not heard an exact number on the number of new units that will be required, but there is indication that there will be some. Right now it is just the big question is when will the tenders come out, what PEMEX has been able to do if the tenders are delayed, they have been able to keep the existing units working through short-term extensions. So we feel like there are prospects for additional wells as well as keeping the existing fleet occupied.

Okay. And do you have any sense of what type of additional rigs would they be requiring? Would these be 350 plus or some of the lower end (inaudible) kind of units or more IC rigs?

At this time I think it will be primarily the existing units. There may be requirements for some additional 350 units. We do not have a full definition of that. We also had discussions about floating work with them that there seems to be some interest in retaining existing units as well as looking at some deeper water work.

And when you say deep water work, are we talking what, 3000 ft. to 5000 ft. water depth or more like 6,500 plus for the depth rating.

No, we're talking 3000 ft. to 5000 ft.

Okay, great. Thank you very much.

Thank you. Your next question comes from the line of Jud Bailey with Jefferies & Co.

Hi, good morning. Larry, question on as you're looking at potential acquisition opportunities, how do you, how do you think about the purchase price in such an uncertain rate environment and should we think about -- do you look at it in terms of around what new construction is? Is that kind of the one metric we should think about? Or do we think about where you think rates may ultimately be in a couple of years?

These are long-term assets, and in a boom time you have a luxury of saying, okay, can I pay this investment out over the next five years and those are fabulous opportunities and almost everybody recognizes how good they are, so you have lots of response in that area, and you have new entrants into the business. Now it will be a little bit more difficult, and you do have uncertainty and you do have the possibility of idle time and the job that you have will be shorter in duration, so you've got to build all of that, all of that into there, and I think that expresses itself, I believe, in terms of a lower price. And you are -- you should get a discount from peak pricing clearly, and you should get a discount also for current pricing because you are going to have to take that rig over the day. Where that discount is, we'll have our own view, but other bidders will have other views, and that will all come out in the wash as to how you weigh all of that stuff together.

You do have to get comfortable with the long-term nature of this business, and it is cyclical. It comes and it goes. As we sit today, we talked about the weakness out there, but we still have a very strong oil price. We still have decent demand, I think worldwide. We've got India and China are continuing to industrialize. Those are the things that drove us in the boom period and all of those factors will be here as rates slack off and eventually they will, I believe, result in higher prices than we're looking at today.

Follow up to that is, in your opinion is there any type of floor, any type of floor and asset value given there are some contractors out there who have a pretty substantial payment left to make to the yard, so does that theoretically could be above maybe the what some people are willing to pay? Does that mean you have to pay the yard no matter what in some instances?

Well, presently I don't think the yards are in the mode of taking a hair cut, but in a really terrible market they would have to do that. So, no, there is not a floor, but in a short-term basis for you to get a discount on an asset that's being constructed at a higher price, somebody has to take that hair cut.

Okay. And then if I could just clarify one answer from earlier. You'd indicated, you said, deep water rates you felt like in West Africa are in the $300s. Are you referring to ultra deep water? Or kind of deep water in the five to 6000-foot kind of water depth range?

Five-thousand and above.

Okay. All right. Great. Thank you.

Thank you. Your next question comes from the line of Arun Jayaram with Credit Suisse.

Thank you, gentlemen. Gary, I was wondering if you can help us on how you're going to account for the early termination -- or the $31 million in revenue from Devon. Do you recognize that in the current quarter or over the life of the contract with [Burlis]?

We have done the accounting on that, and we will recognize $31 million in the third quarter.

Okay. Second question is kind of a follow-up on the Confidence. During the mobilization period, is it zero revenue?

Yes.

Okay. So the $390 will be the day rate. What type of mobilization revenue will recognized on top of that? Ballpark is fine.

It will be minimal. We're earning $125.

We'll give guidance on that as we settle it and now we have to get it through the accountants and do the calculations, but that'll, that'll be the place that will show it.

It is not going to have a real material effect.

Okay. And my final question, guys, obviously there is a lot of deep water rig availability next year. How do you think the interplay between the midwater and deep water plays out next year? Do you expect some substitution as operators maybe try to high grade towards deep water rigs? Or do you not expect that?

Depends on the market.

It depends on the operator's program as well. Some of the operators will not necessarily to want go to a higher tech unit for a lower spec program. There may be some of that, though.

Okay. And maybe a quick follow-up to that is for most of the period from '05 to '09, the industry was short deep water rigs. With the moratorium are you seeing some international opportunities step up for rigs? And could you highlight maybe some opportunities where there is some incremental demand in the deep water side?

I don't think operators had an opportunity yet to sort those type of things through. If that's going to happen, I think it will be down the line awhile, and they have time to rationalize the way their budget money is going, what type of spending and what prospects they have to look at. I think it is all happened a little quick for them to make those decisions today. I think one of the things you can see is that operators are willing to pay money to hold onto a core fleet rather than just making an attempt to release them. So certainly I think there will be some opportunity for that later, but it is all too early yet.

Okay. Fair enough. Thank you.

Thank you. Your next question comes from the line of Robin Shoemaker with Citi.

Thank you. Good morning. Wanted to ask you about the latest bidding round in Brazil, and we saw there that several local contractors submitted bids on new build multi-year contracts and most of the established contracts of course did not. So, can -- do you -- can you share with us any thoughts about where we go next in -- with regard to Petrobras meeting their ig requirements?

I don't know that I have an opinion that I have enough confidence in to put out there. It will be evolving. We were not surprised that local participants bid, and they do tend to bid at lower levels. They have got a different view of the situation. And I think -- there is a number of reasons for that, but as to what their capacity is, what shipyard capacity is, all of that stuff for subsequent rounds, we just we need to get a little further down the road before we have an opinion on that.

Okay. And for the more near term, are you seeing additional rig requirements for Petrobras?

Well Petrobras yearly puts out a plan. Typically it is about September, October every year, and so that plan should be coming out shortly. They filled out of their rig requirements for 2010, but they will be developing them for 2011 and announcing those soon.

Okay. I wanted to ask one other question, clarification on this whole M&A environment which you have already addressed, but it seems that in the sellers here are small, typically many of them start-up companies that either apart from the financing difficulties they may encounter, I wonder if there is a -- in the post Macondo world a challenge to them to get new contracts. And in other words, the two rigs you bought last year were from a -- had been built by a small operator and they had gotten five year contracts on those rigs. But is that likely to cause more of the small start companies to look to sell the difficulty they have of acquiring, or winning contracts from major operators in the kind of post Macondo world?

Well, I can give you our view. I don't know whether that translates in the market. But we believe that Diamond Offshore and other contractors of that size bring a lot to the table in terms of experience, personnel, depth of both spares and placement people available and experts in-house to address important issues of maintenance, equipment, reliability, and safety, and not just not hurting people, but operational integrity. We have got fleet integrity programs that go back a number of years which we have already addressed that, and we think those are important selling points. I think this is the kind of market where that should get some sort of attention, but ultimately you will have to ask the customers as to whether or not there is a price at which they would take the risk inherent with going with a new or less established contractor.

Mm-hmm. Okay. If I could ask Gary one final clarification. When you mentioned that the Monarch would have -- there would be no effect as of June 30, 2010, do you mean you're recognizing no revenue there?

No. We continue to recognize revenue through end of June.

Through the end of June. And then --

Right.

Subsequently?

As subsequently we're in negotiations and talking with our customer.

I would say in general I think most of your -- and I can't talk to other people, but force majeure issues ultimately deal with cessation of revenue at a contract cancellation point. But there is really not interim impacts on the revenue stream as you work off the number of days, and that's not addressing disputes that may exist between us and the operators as to whether or not that condition qualifies for force majeure.

Okay. Thank you.

All right. Well I appreciate the great amount of interest that we had in the quarter. Obviously there is a lot of things happening out there. We're in a market that's dynamic, and so we appreciate the opportunity to get that information out to everybody. And I thank you again and we'll talk to you at the next quarter.

Thank you. This concludes today's conference call. You may now disconnect.