Diamond Offshore Drilling Inc (DO) 2010 Q4 法說會逐字稿

Good morning. My name is Melissa and I will be your conference operator today.

At this time, I would like the to welcome everyone to the Diamond Offshore Drilling fourth-quarter 2010 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 would now like to turn the call over to Les Van Dyke, Director of Investor Relations. Please go ahead.

Good morning and thank you for joining us. With me on the call today are Larry Dickerson, President and Chief Executive Officer; John Vecchio, Executive Vice President; Gary Krenek, Senior Vice President and Chief Financial Officer; and Michael Acuff, Vice President of Marketing.

Before we begin our remarks, I should remind you the 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, dates that 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 expectation or any changes in events, conditions or circumstance 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'll turn the meeting over to Larry.

I'm going to comment this morning on several areas and then Gary Krenek, our Chief Financial Officerwill follow as we typically do at the beginning of the year with some detailed cost guidance and down time guidance as we see it going forward. The results for the quarter, I think, reflect a couple of positives. Clearly, everybody's focused in on our tax rate decline due the -- some provisions which were included in the -- right at the end of the year tax agreement that was hammered out between the administration and Congress and this favorably impacted the way Diamond Offshore was taxed, and so we had a catch-up adjustment to our tax rate to reflect the lower the effective tax rate that had been in the place for the first three quarters of the year.

In addition to that, I think our revenues, we were pleased with where they were. We had less rigs actually on the high seas moving from location to location and although you can do your best to negotiate mobilization either day rate or fixed rates, the FASB requires us to suspend recognition of any of that revenue and defer it into the future, so we go to 0. Theoretically, if we had huge chunks of our fleet mobilizing then we would be reporting nothing. But anyway, that wasn't taking place during the quarter, and then we were pleased with -- we've had several initiatives in place to lower preventable down time due to equipment failures, and there's always some risk of that in the business, but we're pleased with the progress we've been making on that month after month. I think that showed up to a slight degree in the results for the quarter. At the same time, our costs were where they needed to be. We devote efforts certainly in all markets to cost control, but as we had positioned rigs into new markets over time we were able to get on top of some of that.

Secondly, I'll talk about our construction program. We announced the commitment of our second option with [Handi] for construction of a 12,000 foot drill ship, and indicated that this vessel and the previous vessel would be named Ocean Black Hawk and Ocean Black Hornet. Our thought process in both the option and the original commitment was based upon clear high product prices that we see out there and our expectations that they would continue due to demand growth and despite all the efforts out there, slow supply growth, augmented then by the low construction costs that we began seeing towards the end of last year; and we're ready and had been doing the work so that we could go forward and make a selection.

The one thing that we're missing right now is to have ready contracts. When we bought what became the Courage and the Valor, those were great purchases because we knew the market was such that not only did they have existing contracts, but we could bid for alternative contracts. Although we don't have the contracts, we've got high product prices and low construction cost. As 70s star, Meatloaf, would sing, two out of three ain't bad. So we think that's great. The other comment I would make is we were pleased with acquisitions such as the Courage and Valor but our assessment of the market out there was there were too many players and too few equipment that would come to market here in the short term and so that new construction was the appropriate place for us to continue to try to seek high returns by controlling the amount of capital that we spend out there.

Third area I'd like the to talk about for a moment is Egypt. Diamond Offshore has three rigs in Egypt, the Ocean Endeavor, a large scale 10,000-foot semi is drilling in the Mediterranean. We have two jack-ups, the Ocean Spur in the Mediterranean, the Ocean Heritage in the Gulf of Suez. Combined those vessels produce day rates just a little bit under $350,000 a day. That's under 5% of the total day rates that we're earning presently, so it's a small piece. First item was to make sure that our people were secure and we have successfully to this point in time evacuated administrative people and dependents -- are either all out of the country or there may be one or two that are still in the Cairo airport, but we're comfortable that we've secured that.

Other than that, we still have operations folks there and we're continuing to work as directed. Some of the rigs may not have active activity going on at the moment, but other rigs are continuing to make whole. We're dealing with crew change issues. It's obviously challenging for everybody, but we're continuing on. We do have, as in all contracts, force majeure provisions in there. None of those have been exercised to date, but our biggest rig, the Ocean Endeavor, has a provision in there that on force majeure we would continue on day rate for 30 days before cancellation could go forward. At present, as I said we're continuing to work those particular issues.

And then finally, let me close out on the dividends. Dividends have been an important part of our method of returning value to shareholders. We've got a long history going back, have paid out significant sums of money to shareholders and that continues to be something that we value highly. As you know, we do not give forward guidance and we set most of the dividend in the form of a special dividend that we say. It will be re-addressed and reassessed by the Board at each particular step. However, I would note that we have already made payments of $300 million for the down payments on the two vessels. We do not have payments due again until their they're delivered in 2013 and we made the Board assess the dividend for this quarter in light of knowing that we had had those commitments and chose to continue our payment. We had $1 billion of cash as we went into the quarter. We've since drawn down $300 million of that, but we are not in a position at the moment where the construction program is something that we have to do at the cost of the dividends through this particular quarter.

With that I'm going to turn it over to Gary Krenek to give you some more cost guidance.

As Larry said, he went through the operating results. Most of our cost for the fourth quarter came in within our guidance, except for tax rate which he explained. One thing that I would like, before going into talking about this coming year, is to remind everyone that in the fourth-quarter conference call of last year, we guided our rig operating expense cost to -- we said it would be approximately $1.5 billion for 2010, and actual year-to-date numbers for 2010 came in at $1.4 billion.

Favorable variance was a result of two things. First of all, we had four rigs, three floaters, and one jack-up that we made a marketing decision to cold-stack during 2010 and so those costs during the year were reduced to very small amounts. While they were cold-stacked, it brought the cost down. The second thing, as Larry talked about, when we [mobe] rigs, not only do we defer revenue as he said, but we also quit recognizing expense and we defer those expenses that we incur while those rigs are mobing and amortize those costs over the length of the working part of the contract in accordance with Generally Accepted Accounting Principles. So, we had, because of the moratorium, the Confidence and the Endeavor, unexpectedly left the Gulf of Mexico during the year and we reduced our costs. The costs, taking that into account, brought our costs down somewhat. These are all things that we have made known during our conference calls and our rig status reports. So if you made that adjustment to our original guidance, we were pretty much spot-on with the guidance we gave for our contract drilling costs in 2010.

Looking forward to 2011, we again expect contract drilling costs to be around $1.5 billion. It's going to increase over 2010 this past year for a couple of reasons. First of all, we'll have a full year's operating cost on the Courage and the Valor, the two new rigs that we acquired put to work during the year and incurred only a portion of a year's cost in this past year. Second, the amortization of those mobe costs that we had during 2010 when we suspended recognizing costs was not only for the Confidence and Endeavor, but we also the mobed the America, the Baroness and the Scepter out of the Gulf of Mexico that we had anticipated. So all five of those add to amortized costs in 2011. And finally, the fact that those five rigs are working in international areas, which are a higher cost area than the Gulf of Mexico. All totaled, we'll bring our cost up to about $1.5 billion.

As is our custom, annually we give everyone our expected cost for each of our rigs by class and location in the fourth quarter conference call, so it can aid you in estimating our future rig operating cost. Save time, rather than me give those costs here, we've listed them in our Rig Status Report that we filed last night. I'd refer you to that document so you can see that. Again, to be perfectly clear, these costs represent contract drilling expenses only and exclude reimbursable costs. Take those operating costs by day that we listed. In addition to those costs, what we will incur is approximately $100 million of amortized mobe cost. Those costs are going to be broken down to approximately $20 million in Q1. We go up to $40 million in Q2 and back down to $20 million again in Q3 and Q4. That's due to just how some contracts roll over and expire and we changed the way we amortize these things due to some accounting rules.

We will also incur some $70 million to $80 million worth of survey costs during the year. That's going to be broken down between four jack-ups, the Nugget, Heritage, Summit and Sovereign, which will incur about $3 million to $5 million each; the Saratoga and the Princess, $5 million to $7 million each; the Clipper and the America, when they're in the shipyard doing their surveys, will incur $9 million to $12 million each; and finally the Whitington and the Epic $12 million to $15 million each. Again, these are costs in excess of the normal daily operating costs that we've listed in our Rig Status Report. In order to get the associated down days and other down days with these rigs, and also to be able to tell which quarter we expect at this time those surveys occur, please look at that Rig Status Report that we filed last night.

Looking at just the first quarter, some guidance there. If you take the net normal operating costs and the other guidance I just gave you, we expect rig operating expense to come in at about $370 million to $380 million in Q1 in this coming year. Looking at some of the other line items, we believe G&A will be consistent year-over-year, $17 million to $18 million per quarter during 2011. Depreciation expense will increase slightly, primarily due to the Courage and the Valor being out there a full year, plus other CapEx that we've spent in the past couple of years. $103 million to $106 million is what we're estimating per quarter right now. Interest expense should be flat at $22 million per quarter or thereabouts. We are expecting our effective tax rate, taking into account the extender's bill and also the geographic locations of where we're earning our moneys -- believe the rate will go down to 24% to 26%. Also like to remind people now the extender's bill is in effect for all of 2011, but as of now that bill is set to expire on December 31 of 2011.

And finally, capital expenditures, we're looking at maintenance capital of approximately $320 million for the coming year; and as Larry said, we spent slightly over $300 million on the down payment on the two new builds which will go into CapEx for 2011.

And unless Larry has any other comments, we'll turn it over for questions.

Okay. Thank you.

Thank you. (Operator Instructions). Your first question comes from Daniel Boyd of Goldman Sachs.

Can you give us an update on just what you're hearing from customers on the mid-water side. You had three rigs that were coming up on contract. You were able to get some contracts for those, but they were pretty short-term. What are customers telling you? What are the opportunity to actually start getting some term on those rigs.

Good morning, this is Michael. In our talks with our customers you characterized it correctly. We're seeing the three wells, four wells, more shorter term work when we're having conversations. I think over time as we go throughout the year, we may see as things pick up a bit more, start to see some more term, but it's pretty consistent right now in that three, three to four, five well time frames is what we're seeing across the board with our customers in the mid-water segment.

How about on the day rate side, what are you seeing in terms of your ability to potentially push rates a little bit higher? Can you actually characterize what you've seen over the past three or six months in terms of customer inquiries on the mid-water side.

We continue to get inquiries with the customers. The day rate tends to be flat in that segment right now. We've not seen too big of a drop and we've settled out here, it appears to be the first part of the year. And again, as we see the activity pick up, we think then of course pricing follows that, pricing power potentially follows that.

We're having a lot of interest, in particular -- we're seeing interest in Asia and West Africa a bit, but more in the Asian area, and of course the North Sea is strong, seems to be steady to strong there in that and we're maintaining rates there. So, we're confident we're going to see fairly strong 2011 in the mid-water.

Okay.

And then Gary, just one more, house cleaning for you. When we look at the mobe cost about of $100 million, is there anything we should be expecting offsetting on the revenue side from an income statement perspective?

Yes, Dan. Right around the same amount, between $90 million and $100 million of mobe amortized revenue.

Okay. Thanks. I'll turn it over.

Your next question comes from Angie Sedita of UBS.

Good morning guys. Larry, I like that Meatloaf reference. Pretty good.

I was going to try to work in the Bengals and "Walk Like an Egyptian," but there just didn't seem to be an opportunity.

Meatloaf was better.

Following up on the mid-water commentary, you have five mid-water rigs and semis rolling off in the first half of 2011, two in Australia, the Epic and the Patriot, February and January, and then the General in Indonesia, Ocean Guardian in the Falklands, and Saratoga in the Gulf of Mexico. Is there any risk for, of those five rigs of rigs, becoming warm-stacked? Either warm-stacked, idled, what's the demand for those five rigs as they roll off early this year.

There's always the risk of that. The one that everyone needs to focus on is the Epoch.We've got a special survey coming up and it's time to invest quite a bit of money on that rig, just due to some age issues and we're still trying to get a handle on that. In all likelihood, that rig will be off-contract and off day rate earning potential for that period, but at the same time, that should help prospects on renewal of both the Patriot and the General in that region.

The Falklands, we're really dependent upon some small operators who have raised money and whether or not they go or don't go, we've got a nice de-mobe to receive that will get us back to the North Sea, should they choose not to do that. But again, you go into a de-mobe situation for accounting purposes, we go to zero.

Michael, you have any color on that?

No. On the Saratoga, the one that Larry didn't comment on, we're continually talking to customers and we're in discussions right now regarding the Saratoga, so there's some interest on that rig also. Like Larry said, I think the biggest risk would possibly be the Epoch. The others, we're fairly confident on.

Okay. That helps.

Could you give us a little bit more color on what's happening with the Ocean Monarch. You have it listed as going back on contract on August -- well, give us just color of where it stands.Are you recognizing any standby rate with the force majeure and the outlook for getting that rig back to work.

We are in court; our customer sued to try to get clarity on the force majeure issue and we're not recognizing any income in the interim. We have an obligation to mitigate the damages, so we've bid that out of the Gulf of Mexico. Right now, there are a couple prospects for return to work on, not deep-water drilling, but completions and other type of activity that we think has a higher likelihood of being permitted. But, again, the Gulf of Mexico has this cloud over it of exactly when and how we're going to get back to work.

Okay.

As a follow-up to that, in the Gulf of Mexico from your customers you really haven't heard any change of conversation or pace on permitting, no change from only one month ago, two months ago?

They are -- they're working really hard on the issue of containment, which is a big part of their permit application. As you know, I'm sure there's two groups out there, and from my discussions with the customer, I'm sure Michael's as well, I think they're amazingly upbeat on that. Once they get over that hurdle, then the next hurdle is the actual application for permits and how the environmental standards go through. I believe that the vibe coming out of the regulators is that for certain of the operation that's were in progress at the date of the Macondo incident, they would not have to apply for a new environmental permit. Gathering around those particular rigs and operations, that would be -- everybody's thinking that those would be the first rigs to go back to work, but there's still hurdles to go over and oftentimes you find that there's new hurdles you didn't know about when you clear the last one.

Okay.

And then finally, on the third option on the new build rig, what will be the driver executing that third option? And can you extend that option if you need to?

I think the shipyards are pretty strict on a definitive date, because there is, as you know, lots of interest out there, so we've got that through this quarter. Certainly if -- and this is a low likelihood, but if we had some clear interest on our existing fleet then we would -- if in our mind we weren't necessarily making a jump to having three rigs on spec that would be a little bit easier. I can't always rule out that we wouldn't go that way. Options are good things to have and we've got it, unfortunately it doesn't go very long.

Thanks, guys.

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

Thanks. Question for you, Larry, or for Michael. The more fourth and even the more fifth gen and sixers have been distorted lately because of the tough circumstances getting rigs out of the Gulf, so with the Endeavor and the Clyde Boudreaux and others, I guess we've seen lower rates than we might have otherwise expected. Is there -- do you have any clear read on what the real sort of structural underlying rate structure should be for those moored deep-water rigs going forward? Are they being pushed down a notch in the ladder temporarily with more duration maybe, beyond 2011 or can you even tell yet?

The longer you're out there, you'll have a better feel. Certainly based upon the data out there, there is a definite discount that you take for a moored unit, primarily because of the cost of the boats and then some of the perceived additional time it takes to moore up on location. We have seen some jobs where the customer wants a moored unit for certain advantages they bring, but there's not enough yet to figure that out. As you indicated, you've got the Gulf of Mexico with a cloud over everything until that gets resolved, it's hard to say where everything is. I would expect with the large number of DP units that are being delivered, or will be delivered, that that is going to be what sets the market and we'll probably have to price off of that.

I didn't quite get your answer before on the prospects for the Monarch and your expectation to work that rig in the Gulf or versus international prospects.

Well, we've got some short-term prospects in the Gulf that I would rate as the highest likelihood and that bidding out of the Gulf into various markets and closer is better than further -- would be the next likelihood. But, what -- we'll probably work in the Gulf of Mexico while we continue to bid and then line up the bid to go overseas, if we're successful.

Okay.

Lastly, the daily OpEx, at the highest end of the range is now up to $155,000 to $175,000 for your DP units, which is a little bit higher than what we've seen. Is that representative of what we should be thinking about for the new drill ships or will there be efficiencies that keep them cheaper?

Well, I believe those numbers include mobe amortization.

They do not. We have only limited number of rigs in that area or in those classes, so sometimes those things can be skewed by repairs or projects that we want to do on those rigs. So if you --

Those are our two Brazilian rigs, the Courage and Valor, and we do have a big mobe, but as Gary indicated, it's not in the number. We are running high cost in the initial years to make sure that we're shipping in parts. We've done some repairs and we would expect to do that. There's a high level of duty going into Brazil and then we're hit by the dollar, so I'm not sure that that's where everything is worldwide, but there is a trend for higher cost. There's huge demand for the skilled people that you've got on those type of rigs, so costs are moving up.

And also just to clarify, on the Courage and Valor down in Brazil, we're estimating in the mid-$150,000s. The higher one that you referred to, Ian, that's the Confidence in West Africa where we are doing some repair work on that rig.

And costs are very high, too.

Got it. Okay. Thanks a lot.

Your next question comes from Brad Handler of Credit Suisse.

Thanks guys. I'm chipping in for Arun Jayaram here.

Just wanted to ask you a little bit more on the Gulf of Mexico, please. You've given some customer perspective. That's helpful, but do you have any comments you can make on where you think [Boemer's] headed at, if you can resolve these containment issues? That sounds like it's -- it's the real issue today, but does that relieve the burden? Do they -- do you suspect that they become more accommodating about releasing some of the deeper water exploration type permitting work?

At this juncture, based upon the past history, I'm not willing l to hazard a guess as to what they're likely to do in the future. They say, Secretary Salazar says that the administration is committed to offshore drilling. They want to make it safe. That's their public statement.

So far, everything is continuing to move very slowly, but the customers, when I talk to them, although they get some frustration, they have -- they do have a good amount of optimism that they're making progress. So I would -- they're probably the best people to look at.

Okay. Fair enough.

If I could -- unrelated follow-up. On the shipyard opportunity side, I understand you're working from an option, but I'm asking, curious, more generally, some of the offers with respect to attractive payment terms, not to mention pricing, how do you see that evolving? Do you see, if you will, that window closing through the first half of '11? Have the orders filled that gap, so-to-speak, so that maybe some of the attractiveness starts to wane?

We just don't have enough data to realize. My expectations as a driller and the way we would price our product, as you get everything filled up and the order book is filled now through '13 and on into '14, that you would ordinarily expect to begin to see the way that you manage limited spaces is through pricing. But I --

you're not actively getting close, right? I take--

We have a fixed price option and that's the only one we've got. We're certainly not -- we've got two on order and we have an option for a third and we're not out there trying to get the seventh and eighth.

Understand. Okay. Guys, thanks very much.

Your next question comes from Collin Gerry of Raymond James.

Hi good morning guys. Just a follow-up on that theme. I wonder on your new build program, how much does the financing terms affect your calculation or your decision?

I think they're a nice add-on. I think the no or little money down, though, has its biggest impact on people that are not as financially strong as Diamond.

Right.

So, it's attractive to those kind of folks.

So, is it an issue where you can say it adds, 1% or 2% to the IRR calculation and, therefore, your day rate necessity or threshold comes down $20,000 or $25,000 a day? Is that part of the conversation when you're looking at those terms?

It's a nice add-on but we don't adjust our -- we look at everything as if our IRR, if it was an all-cash basis, because that's just more discipline. I'm sure that there's lots of people out there that leverage it all up and then calculate it on the margin, but --

All right. That's actually pretty helpful.

My second question is regarding the down time. Unfortunately, I'm somewhat of a pack rat and I have about three years of fleet statuses and I went back. It seemed that your guidance for the past three years would indicate over 1,000 days of down time in the upcoming year. And then for '11 and '12 we're at 744 and 530, so relative to the past 3 years it seems like fairly muted guidance in terms of down time. Is that intentional? Is that something where we see how the surveys line up and everything like that, that things are going to come down relative to the past few years or is that maybe some convenient -- ?

What you need to realize and everyone needs to realize, the guidance that we give for down time right now is what we know is going to be down, and so we're not going to have anything less than that, unless we can shave a few days off of surveys. Things will come up during the year. We will relocate rigs to other markets which will cause additional down time, et cetera, et cetera.

The fact that we are giving less down time than before is just the way that this works. We will give you everything that we know of. These rigs will be down during the year. We know that we will suffer other down time, particularly for relocating rigs from market to market. So, it is what it is.

Right. No, and that makes sense, a ton of sense. I guess your point would be that the risk is that things might move up as we learn more about what's going on in the market and contracts change. But, my question was relative to this point in time and prior years, your outlook seems that there is less down time on the horizon than we've seen the last few years, is that -- ?

As we said during the last few years, we've relocated a number of rigs to new markets. We've done upgrades to rigs related specifically to contracts that we've achieved. We've got an extension going on down in Brazil for the Ocean clipper and we agreed to do some things with that. The upside, the Gulf of Mexico, continued to deny us work and we would have more down time that would flow from that.

Of that, I think primarily is what the first thing Larry pointed out. We knew in the past we were going to relocated rigs out of the Gulf. Right now, we're not anticipating relocating anything at this time. That will be an add-on, if we do.

That makes perfect sense. Thanks a bunch, guys.

Your next question comes from Rob McKenzie of FBR capital markets.

Good morning. I had a question for you, a little bit away from the operation here today, on the tax effect and wondering if I can get some more detail on why it affected your GAAP taxes? I was under the impression that most of the tax effect was related to the full business expensing of new capital items, but didn't think that would hit the income statement, more likely the cash flow statement. Can you give us some more color there?

Much more complicated question than we can answer on the conference call here. All I can tell you is as part of this is that the tax rate is dependent upon the GAAP rules. A lot of the taxes that were related to this on APB23 are now not going to be recognized until we bring those taxes back to the US, and the tax rate is as we calculated.

I think in the announcement of the tax deal, there was high focus on personal rates and there was high focus on cap gain rates and as you indicated, changes in the way businesses were able to expense deductions, but most of our drivers on the tax rates were things that were not in the headlines but are routine adjustments that IRS makes and continues on. That was held up and had not been able to be passed and was bundled into the year-end tax bill, is my understanding.

On the cash tax front, then, how much of the -- how much do you expect to benefit in terms of cash taxes being lower from the full business expensing, given the context of your rig building?

I can't give you an exact dollar amount, but we will benefit from it somewhat. From the entire cash flow of the Company, it's not going to be a significant amount, but we certainly will benefit from it.

Okay. Great.

Shifting back to kind of a market related question, kind of more broadly it seems there's a fair number of deep-water and ultra deep-water rigs rolling off of contract in the next several months. There's also a lot of tender activity, but we haven't seen a lot -- a huge number of signings recently. How do you see that playing out and are we likely to maybe see some down time between contracts for some of the rigs?

Rob, this is Michael. I think in general there is that risk. What we're seeing for that market is an uptick, in particular the second half of the year. A lot of the conversations we've had with customers and inquiries that we've seen have -- a lot are focused in the third quarter of 2011. We think that there's going to be enough demand to utilize the supply that's going to be in the market. But again, there is that risk that the timing doesn't work out and there's some short-term down time for some rigs rolling off.

Okay. Thanks very much, guys. I'll turn it back.

Let's take two more questions, please.

Your next question comes from (inaudible) of Morgan Stanley.

Good morning.

Your line is open.

Your next question comes from Doug Becker of Bank of America-Merrill Lynch.

Good morning, Doug.

Excuse me, Mr. Becker, your line is open.

Perhaps, I should have said we'll take two more attempting questions.

He may have stepped away from the phone.

Your next question comes from Lukas Daul of SEB.

Hi good morning I was wondering on your OpEx that you have disclosed in the fleet update, when I look at what you disclosed a year ago I see that the OpEx in Brazil in particular is up on average by some 30%. So the question, is that the most (inaudible) market out there and do you have full cost escalation?

Part of that, again, can be driven by the amount of work that we're doing on our rigs, so that -- the change in the value of the US dollar also has some effect on that, Lukas. As far as whether we have cost protection, we do have cost protection out there. It's not full cost protection, but we have a substantial amount of it covered that we can increase our day rates.

All right. Thanks.

Alright well, thank you.

I appreciate every body joining in for Diamond Offshore. We'll talk to you again next quarter and various investor conferences in between. Thank you.

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