Diamond Offshore Drilling Inc (DO) 2011 Q1 法說會逐字稿

Good morning. My name is Julianne and I will be your conference operator today. At this time, I would like to welcome everyone to the Diamond Offshore Drilling first quarter 2011 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 conference over to Mr. Les Van Dyke, Director of Investor Relations. Please go ahead, sir.

Good morning and 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; Moe Plaisance, Vice President of Marketing; and Michael Acuff, Vice President of Marketing.

A discussion of the risk factors that could impact these areas in 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 publicly update any forward-looking statements to reflect any changes 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'll turn the meeting over to Larry.

Thank you, and good morning as well. We were very pleased with the operating results which we were able to report this morning. Couple of comments around that. We had some of the lowest unanticipated equipment down-time that we've recorded in many, many quarters; fell from Q4 of '10 of 142 days to only 72 days in Q1 of '11. Now, we worked very hard. We've got lots of programs dealing with trying to do preventative maintenance such that we don't have this but it is -- we believe that's related to that but it is an event that will come and go. We're very pleased with that.

We also had a very low amount of shipyard and job preparation and [mobe-time] in the quarter, over 168 days, which is down 100 days from Q4 of '10 and significantly from Q3 of '10 where we were over 570 days in that nature. So more effective day rate utilization out there through a combination of preventative maintenance to prevent things from breaking, and a schedule where for this quarter and year we'll talk a little bit about as we look to the next quarter, we actually have very few rig moves or contract preps or scheduled shipyard time, all of which benefits us greatly.

Now having said that, I would point out that we have 3 big rigs that are scheduled to return to work or begin recognizing higher revenue in the coming quarter. Let's start with the Ocean Monarch, which has been idle really since shortly after the events of a year ago. Today we have an approximate 60 day job with Marathon in the 290s where we'll be working here in the Gulf of Mexico. The Ocean Victory has been recognizing a standby day rate primarily. We do have some future commitments from its customer, above 500,000, which we will begin we believe recognizing some of that day rate in Q2. And then there are some farm-out opportunities for that rig to work for additional folks, not at the 500 rate, but significantly above what we've been enjoying on a standby rate.

And then the Ocean America, which has a contract that will last into next year with Woodside in Australia, has finished some shipyard modifications and special survey and has returned from Singapore and is working today and that's in the low 400s, so all those things will be positives that will come about as we go forward into Q2. Now, looking down the road at Q3 and Q4, that's when we begin to have a number of rigs that are scheduled in the shipyard, so those will be some negatives that will hit us in Q3, Q4.

But again, we're certainly pleased with this, $1.80 total earnings included a recovery of about $0.06, I believe, related to collection of a bad debt. This was from the financial crisis where we continue to work for a company that went bankrupt. We lost all of our future contract but for that work period of time that was a claim that we were able to file in court and have the final disposition of assets came through and we collected that. So whether you want to look at $1.80 or I think discounting a couple of other very minor nonrecurring items, we're down to $1.73. So that lays the table as we go forward. We'll talk about the market and how we see that and prospects for our new drill ships through your Q&A. I'm going to turn it over to Gary Krenek to make some additional opening comments.

Thanks, Larry. As Larry pointed out for the quarter, we made $251 million of bottom line net income or $1.80 a share based on revenues of $789 million. This compares to last quarter when we made $242 million in net income, or EPS of $1.74 on $824 million.

Getting right into some of the specific line items on the income statement, the balance sheet was pretty clean as normal so there's really nothing to comment there. On the income statement, looking at contract drilling expenses, those came in at $362 million, which was below our bottom line guidance. Our guidance last conference call was for it to come in at $370 million to $380 million. Two reasons for coming in below that low end of the guidance. One was we decided to cold stack the Ocean Epic, our rig that's located in Australia, Southeast Asia area. That rig, we had scheduled to come in to do a survey on it; because of the excess cost of what we were going to have to spend on that survey, we decided to cold stack that rig. So the fact of not having operating expenses for the second half of the quarter, plus saving the survey cost, lowered our contract drilling expenses somewhat. Also, our continuing efforts to control cost continue to pay off and bring us in at the low end of our guidance.

Larry talked about bad debt expense. That was a negative $8.5 million as a line item. I won't talk any more about that. Depreciation came in slightly below our expectations at $101 million. We had guided to $103 million to $106 million per quarter for this year. Based on the information we have available now, we're expecting future quarters to come in at between $101 million to $104 million per quarter.

Q2 will be a little bit -- will be toward the high end of that guidance, simply based on the number of days. We have one more day in Q2 than we did in Q1. G&A was $18 million, within our guidance of $17 million to $18 million. And we expect that to continue on a go-forward basis also.

Now, looking at our tax expense line where we had the biggest variance to the guidance we gave in our last conference call, we had an effective tax rate of approximately 16% for the quarter. Contributing to this low rate was a reduction to deferred income tax expense related to undistributed earnings from certain foreign subsidiaries. Due to a tax law change enacted late December of 2010, and in light of our new rigs being constructed, the Company determined during the quarter that it would be more tax efficient to redeploy earnings of the foreign subs into new rig construction rather than repatriate it and get earnings to the US. This resulted in an approximately $15 million one-time reduction to our current quarter's tax expense. Disregarding this reduction to deferred tax, the annual effective tax rate would have been approximately 21%. Our original guidance last quarter was for a tax rate of between 24% and 26%.

This reduction this quarter is due primarily to differences in the mix of our domestic and international pre-tax earnings, as well as a mix of international tax jurisdictions which we operate or expect to operate throughout 2011. Based on the current information now available, we're revising our estimate for our tax rate on a go-forward basis to be somewhere between 21% and 25% for all three of the quarters remaining in 2011.

Looking forward to 2011 for the rest of the items; big 1, contract drilling expense, we gave out normal operating costs by rig type and location last quarter and those numbers remain consistent. If you calculate those numbers, you need to also add an additional $21 million worth of amortized mobe expense. Our per day cost does not include amortized mobes because that number can vary from quarter to quarter. So if you take the normal operating cost plus the $21 million amortized mobe, we expect to see contract drilling expense of somewhere between $360 million and $375 million in this coming quarter.

As Larry pointed out, Q2 will be a very low quarter as far as rigs going into the shipyard for either some type of equipment modification or repair or their 5 year surveys. As per our Rig Status Report that we released yesterday or this morning, we only have 21 days expected in Q2. Q3, we will be up to 366 down days for rigs in the shipyard surveys. That would include 7 rigs and at that point we will -- we will incur additional costs for those rigs going into the shipyard. So Q2 will be as I said before somewhere between $360 million to $375 million, expect to see those costs to go up in Q3.

Again, G&A, $17 million to $18 million for the rest of the year. The effective tax rate as I said, 21% to 24%. And finally, our CapEx guidance that we gave last quarter, which was $320 million worth of CapEx, that is in addition to the down payments we made on the new builds that we did during the first quarter of slightly over $300 million. That guidance remains in place and we will continue to see -- we continue to expect to see that for 2011. And with that, I'll turn it back over to Larry.

So we'll take questions.

Operator, we're ready for questions.

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

Hi, Larry, maybe you could give us just a little flavor of what you're seeing out there in the market in terms of what regions are stronger from a tendering activity specifically in the mid-water fleet, but I would also like to get a little more color on the rate you might expect for the Monarch if you were to get a longer term contract. I think we've seen recent contracts well above the rate that you recently secured. But recognizing that is for maybe shorter term, you just want to get back to work for now.

Yes, I would say that the Gulf of Mexico rate is a special situation where we're putting it to work and we met with the customer and sort of came to a conclusion, certainly came to a positive to us. We would be bidding that rig at higher rates in international markets. I think everybody needs to understand that there would be a long mobe to get there where move to zero recognition of both revenue -- cost which would be spread out into the future, so that would be the near term impact would actually be -- it would be positive from where we've been, where we've been idle incurring costs but it would be negative versus finding jobs here in the Gulf of Mexico, and that just depends upon the market where we're bidding it.

I just broadly stated we're in the 300s on up into the 400s, depending upon the kind of application and the term that we would be looking to put it. It certainly is working at a discount to DP units because of the fact that there's a low cost involved. But there are a few markets where this type of tool would be -- would competes very well.

Are you seeing opportunity for it to get more term or are you in negotiations on that or bidding it in anything?

Certainly, we have 60 days here, so yes.

Okay.

Any of the jobs that we're talking about with any kind of term are going to be in international market rather than Gulf of Mexico. So we would be looking at additional term. I'm not sure at this point that we had our hands around anything that's 3 years, but anywhere from pieces that we might put together of wells that would be small term on up to maybe reaching out to 2 years would be things that we've looked at up-to-date.

Okay. And then anything on, I guess since last quarter, any changes in international market where you're seeing either strength or maybe weakness in particular?

I'm going to let Moe and Michael comment on that.

We're seeing some strengthening in the certainly in Southeast Asia, mid-water and deepwater, West Africa continues to show some activity, proactive there with both the Ocean Valiant and the Ocean Confidence. So other than the Gulf of Mexico, we see the market as doing well. We've got so many of our mid-water rigs locked up in Brazil that continue to be, so --

Yes, we have 4 mid-water units that are cold stack, the Epoch and the Bounty which are facing some investments and the market, although it's improving is not at the level that we're comfortable making those investments and we've got 2 idle in the Gulf of Mexico which is as much related to the permitting issue as age of equipment and decreased demand frankly probably for mid-water units here in the Gulf of Mexico.

That brings up an interesting topic because there especially if you look back a year with the events in the Congo, there's a lot of fear out there that your rigs would become either obsolete or just require a significant amount of CapEx to work to operate safely. Have you had the opportunity now as the year's gone by to go look through your fleet? Are there any -- do you feel comfortable with beyond the 4 that are currently stacked, not requiring significant CapEx down the road? Have customers required you to do checks and now that has given you more comfort? Or where do we stand on that in terms of potential CapEx?

Most of the focus with any sort of specificity has been the deeper water units where you've got more room and typically larger stacks so that you can beat those kind of standards. The smaller typically have 4 ram stacks and we may make some changes down the road but we're not really looking at anything immediately that needs to be done to those rigs. Certainly having brought up the 1 year anniversary, I can say the most significant things that we have done at Diamond Offshore is to ensure that our procedures and our personnel are in place and that we will continue to follow prudent drilling practices that have kept the industry safe and productive these many years and I think that's what everybody needs to work on.

We will meet the standards that our customers require of us. Obviously, I think everybody would recognize that certain older equipment, there's just not space to significantly increase the size of the BOP or, say, the number of rams that you handle. But again, to come back to that to date, that has not been an issue.

Okay. I recognize the market clearly isn't strong enough today to reactivate some of the stacked rigs that you have and the Voyager, for example, in the Gulf of Mexico. But if we look out a year given where commodity prices are, the recovery in the Gulf, would you be surprised if you still had 4 rigs stacked? And if you could just comment on which 1 you think is the best candidate to come back.

I would say the 2 in the Gulf of Mexico would be our -- they're not facing the amount of modifications necessary that we feel on the 2 in Asia. So it's just magnitude of dollars, and you've got Mexico as a potential market for those units and really if you look at the Gulf of Mexico, we have the Ocean Saratoga there as our only mid-water unit. Transocean may be taking a rig out. So there really won't be much competition there. So it's going to come down to the demand. And you're right to hit the issue of high oil prices. High oil prices have traditionally brought for us more demand.

I would say the biggest issue in the Gulf of Mexico is so many people are pursuing deeper water opportunities, so we just don't know yet who is going to operate in the mid-water. But I would think that there is an opportunity there, that if you have permitting return that you've already got infrastructure in the mid-water, and you've got very high product prices and you've got lower drilling cost to get these things hooked up and developed. So I would hope something would shake out there. But two big things. One, somebody's got to step up and do that and two, the permits have to return.

Great thanks, appreciate all the talk.

Your next question is from the line of Dave Wilson, Howard Weil.

Just kind of as a follow-on and to the previous questions, and thinking about your fleet and the upgrades that you've done over time, are there any rigs left where you see major upgrades that make sense to become more competitive, given the high oil prices, maybe rigs like the Saratoga or the General, for example?

As we sit today, we're attracted by the low capital cost of new equipment in Korea and so that forecloses a lot of things. Our engineering group continues to look and see where we can bring stuff up a notch or 2 and earn a return. But I don't see significant kind of upgrades as we've done in the past where, say, at Monarch or Endeavor, where we take a less than 2,000-foot unit and put it out to 10,000 feet with modern borders and modern drilling equipment and all that stuff. You're just better off, we think, going to Korea or Singapore to build something new.

Sure. Larry, thanks for that. And then along those lines, you have been very good allocators of capital, making investments when the timing was right. Now with this third option pending, how do you view that as far as allocating more capital at this time in the cycle? As you mentioned, equipment prices are cheap but are there any concerns that you guys are having about kind of putting all your chips on the table here at this point or are you looking at it that way at all?

I'd say that was 1 of the many ways that we're looking at it. Also looking at these capital costs may be as low as they're going to get and the potential out there in deep-water is significant. Around the world, with many, many customers, and so there's a lot to be said for reasons that we would exercise that option. But we're going to let it -- we're going to keep it in place as long as we can.

Alright. Great. That's it from me. Thanks.

Your next question if from the line of Ian Macpherson, of Simmons.

Larry, can you talk about the Endeavor and what your hopes and aspirations are for after Borealis mid-year.

I'm going to turn that over to the marketing group, Michael.

Okay.

Yes. Ian, as the report stated, we've got an option on the Endeavor which at this time we feel like we have a good chance of exercising. So that would take it out for another 8 months or so. We've seen a lot of interest in the Endeavor there in the Med. It's not a matter of that not having interest. It's really a highly sought after rig there. With that being the case, we think Borealis is probably interested in keeping that rig for a while.

Okay. And when it says price, that's the same price that we see, mid-220s?

No, no, I think --

It's higher but it's still in the 200s.

Yes, it's in the high 200s.

Okay.

That was part of the deal that we cut when we tried to get the rig out of the Gulf.

Your friends at Nobel were pretty bullish about the jack-up market globally tightening on their call a little while ago and I wonder what your perspectives are with regard to standard jack-ups seeing improved demand in your interest of operation?

Yes I would say we've generally seen more demand than we probably had 6 months ago but it certainly hasn't bust out yet on the rigs that we're operating. I mean, we've got 2 Egypt that will be tied up for a while, we've got 1 in Thailand is 1 that we're -- has near term availability that we're marketing and we've got an idle rig in the Med, just a very poor location for it, so that's probably the 1 that we'll look at relocating somewhere.

Okay. Thanks.

Your next question comes from the line of Doug Becker with Bank of America.

Was just hoping to get your thoughts on the Brazilian market in general and specifically the pulled 1500-meter tender and the 3000-meter marketing inquiry, what your expectations are there.

Yes, Doug. On the 1500-meter inquiry, there was some procedural issues there that made Petrobras pull back on that, but we're very confident that they're going to come back out with a similar tender to try to fill those slots and we continue to see that demand probably a couple 3 rigs at least with that tender is what my expectations would be.

On the 3000-meter, that's a market inquiry where it's more aimed towards the pre-salt. Again, we think they're going to take a couple of rigs there. And we're very positive on Brazil. We continue to see the market there. It's just a matter of procedure and getting through the various processes and tendering processes they have to take the rigs. But every day we see more demand as they make announcements and we're very high on Brazil.

And then I think it's pretty clear why the Epoch was stacked. What do you make of Transocean stacking a number of semis. Does that give any indication of how they see the market?

I can't really guess, but when you look at a fleet, you're talking about their older semis, any of the issues that we're facing with required investment to keep them competitive are not unique to us, should be clustering around most rigs of that age. So that would be my guess but that's --

Fair enough. And then just a quick one for Gary. If the options exercised, another rig is being built, is the potential for another one-time benefit to the tax rate?

No, no. The decision here was one-time and we cleared everything out with that.

Fair enough. Thank you.

Your next question comes from the line of Janice Rudd with Pritchard Capital.

Just to clarify, do you have a CapEx number for the first quarter and did that include all the down payment that you needed to make?

Yes, that was all the down payments. We paid approximately $310 million, between $300 million $310 million and then on maintenance capital we incurred about $45 million in the first quarter.

Great. Thank you very much.

Your next question is from the line of Arun Jayaram with Credit Suisse.

Larry, just wanted to discuss your philosophy regarding fleet renewal. Historically in the space, offshore drillers such as yourself have built rigs when conditions were getting better and kind of distinct periods. Was wondering if as you think about fleet renewal, could we go to a situation where you do announce a couple of rigs every year and you methodically look at renewing the fleet, rather than these distinct periods like we saw in '96, '97, '98 and things like that. So just maybe your philosophy regarding fleet renewal going forward.

Well, as you know, the return on capital employed, the record that we have goes back 10 years, and so the way we're able to pursue that is to constantly look at what it costs us to put money to work and what the prospects are. So a phased 10 year plan where we did something like that might make a lot of sense, but it would be only something you would see in retrospect. We're not going to commit and say we're going to go on a 10 year plan, everybody needs to be prepared for 1 rig a year, because I think we'll maintain that, do our best to maintain our capital allocation best if we do that constantly gauging the market. For instance here, if we exercise this option, in a very short period of time we will put a $1.6 billion or $1.7 billion to work improving the fleet at this 1 time.

I got you. Second question, Larry, and I don't know if you can answer this or not, but pretty detailed description in the Pride proxy, a lot of people suggest that maybe DO at some point was interested in Pride. Was wondering if you could comment on your thoughts on M&A and consolidation going forward.

Well, we believe that the benefits of M&A accrue to everybody in the space because you have fewer bidders out there. But at the same time, it's not like we're going to consolidate down to 2 or 3 entities because you've seen few barriers to entry. There's a number of folks out there that are now competing in ultra-deep-water with vessels.

So that's hard to say. And then the acquisition 101 in this business is that there's very little premium that you can pay because there's very little cost savings to be had by combining 2 fleets together, so to me it's just very opportunistic. Oftentimes the combined entities are in a great shape, but if you go back and look, one side or the other of the shareholders had to take some value reduction to get the transaction done, seems to me.

Right. And my last question is for Gary. Gary, I think your previous full year 2011 operating cost guidance was around $1.5 billion. Any changes to that number? Are we at the same place as we were 90 days ago?

At this point we're still at that $1.5 billion. We'll have slight amount of savings from the Epic not working, but it's going to be lost in rounding. As I said, we're going to be under -- below the average in these first two quarters and the next two quarters we will definitely -- third and fourth, we will be above the average.

Number one, costs normally tend to increase in the second half of the year. You place your budgets. You order equipment, prepare to do the work in the first half, you do it in the second half so that normally drives cost up. But then with all of the down time for the surveys being second half loaded this year, we'll get hit with that also. So the $1.5 billion is still our best guess.

And the lower tax rate was just driven by the new builds and just a reassessment in where you thought the earnings was coming from?

Well, yes. And the new builds and the tax planning that we did, that's just $15 million. So that's not that much on an overall basis. The biggest thing is where we believe our earnings are going to come from, whether it's on our domestic, our rigs that are in our domestic structure versus international and then internationally the rates can vary greatly and it sits us as we continue to get more clarity on where the fleet's going to be.

Okay. Thanks a lot.

Your next question is from the line Robin Shoemaker with Citigroup.

Wanted to ask you about the very substantial jack-up tenders that are coming out of Mexico here recently and your rigs that might be suitable for that including the Columbia, Titan, Spartan. Also, I wanted to ask you about the price ceilings that are stipulated in those tenders. How do you feel about price ceilings?

I'll let marketing comment on that who is much closer to the --

Yes, Robin. No, it's been very positive with the -- as far as the number of tenders coming out. I think we are up to 15 or so jack-up tenders currently. With respect to assets, we've got several assets that we would consider. You have some here in the Gulf that are working that could possibly go down there and also then we have an international asset, say like the King, that it has a mobe to it but it might have a fit to working with TIMEX.

So we see these opportunities as good opportunities to put some of our rigs to work. With respect to the price ceiling, obviously we're not -- that's not the way we like to bid rigs, but since there seems to be their process at the moment, we're in discussions constantly about what that right number should be and where it should be and I think they're seeing that through their responses to some of their tenders. So it's continuing to be a developing thing but that's a process they use at the moment. Again, we're very excited about Mexico and the opportunities to put some rigs to work down there.

And also they had -- it was 15 jack-ups. There was 1 or was it 2 semi?

There's currently one semi out there, 1,000-foot tender for about 930 days starting in September. So that's a very interesting opportunity possibly for 1 of our mid-water rigs in the Gulf of Mexico or somewhere else. So again, we're starting to see these flow more which has turned positive for us.

Okay. Just one other clarification. You mentioned on the 1500-meter tender in Brazil that there were some procedural issues that led to the cancellation. There were some signs also that Petrobras felt the prices of the 10 rigs that were offered were a little on the high side, at least they were compared perhaps to what they signed the Ocean Courage and Valor for last year. So was that -- was your understanding that that was part of the reason for the cancellation?

From our view, no, we don't have any indications that that was the reason, no. We understand it was more procedural and it will be interesting to see where the 3000-meters come out and I think that will give us a better indication of where the market is down there.

Okay. Thank you.

Yes.

Your next question is from the line of Matt Beeby with Global Hunter Securities.

You all had mentioned the rigs, the jack-ups in the US Gulf as being candidates for Mexico. Would you potentially abandon the Gulf and would rigs going down there potentially include the Spartan that's now cold stacked?

Well, the nice thing about Mexico is they give you a certain fixed number of days, most of which are fairly long, much longer than we're able to get in the Gulf of Mexico. So -- the US Gulf. So we would under those circumstances abandon the Gulf as you put it and move down there. I doubt, though, that demand would be such that we will totally remove our rigs from the Gulf of Mexico, that we would end up keeping some here. So on the margin you've got to look at what the rates are in the Gulf of Mexico to determine how many rigs we work.

If the demand was there, would all 3 of those plus the King have the proper specifications for working down there? The competition had mentioned something about the increase in specs over the recent years that TIMEX is now looking for.

Well the specs have gone up and down. Certainly the King and the Titan would be the first 2 rigs that we have that are most -- the Titan has been there before and the King we're comfortable that the spec would quickly meet Mexico. The Spartan would be a little bit more of a push for us to have that rig work down there.

Okay. One more quick one, if I can. The cash flow outlook for you is very compelling in 2012. How do you all look at potentially increasing your dividend? Can you talk about that a little bit?

Well, as we've said in the past, at each dividend the Board evaluates a number of factors in setting that dividend. So it would depend upon what's present. If you look in the past, our increases in dividends have generally come at a point in time where we've had increases in day rates, and although day rates are moving a little bit today, I don't think they've significantly moved. So that would be one thing I would look at. But again, everything's up. We recognize that dividends are an important part of our ability to return value to shareholders and looking in the rear view mirror, we will have paid $28 in total dividends once we began our special dividend program I guess 4 years ago.

2006.

2006. So it's something that we're committed to but we do say that we'll reset it each quarter.

Thank you.

Let's take one more question.

Your next question is from the line of Joseph Triepke with Guggenheim Securities.

Larry, a question for you. Last quarter you discussed higher costs in Brazil on demand for skilled labor. I was wondering if you foresee any sort of a bottleneck on skilled labor globally that could potentially accelerate cost inflation as we deliver new rigs here as an industry? And sort of on that subject, do you think the potential role of experienced crews from older rigs to newer equipment could help to kind of curve sort of the global inflationary outlook for labor?

Yes, you're right that there is a huge demand for skilled labor as I address the events that occurred a year ago, I said the number one thing is making sure that we've got procedures and personnel in place that can continually apply prudent drilling operations to deliver safe, environmentally non-risky results and so that does come down to people.

We've recently given very large raises. We've established retention policies for critical skills. So to some degree there will be people coming off of older rigs. The biggest thing, though, is we've got to attract new personnel into the industry and provide training and retention opportunities for that. I think we live -- we're in a world right now where jobs are in high demand. These are very high paying jobs. But we need to plan down the road. It's not something that we can just run an ad in the paper and then the skill set appears. And so I believe that us and the various other drilling contractors are engaged in efforts to increase training and to source personnel from around the world, and that's one of the things that just frustrates me so much about the slowdown, the moratorium, the lack of permits, the lack of clarity in the Gulf of Mexico is that if I don't have any rigs in the Gulf of Mexico where I can train these people, I'm not going to hire untrained Americans and put them on an airplane and fly them to some other location. That just does not make any sense.

So I would look in the absence of something stepping up that we will begin sourcing a number of our personnel from overseas. And so you're going to be taking these high paid American jobs and seeding them overseas, and as best I can tell, that is not having any impact. No one's really recognizing that in the government, and when we and others go down that path, it's going to be very difficult to reverse it. So that was my soap box today.

Thanks. Very excellent color as well. 1 unrelated follow-up if I may, for Gary. If I could ask you to kind of look into the crystal ball, understanding it's very early for any kind of guidance, can you give us any indication at this point as to whether 2012 and 2013 are sort of up, down or flat relative to 2010 and 2011 in terms of yard time and surveys on your fleet as it stands now?

Yes. 2010 -- I'm sorry, 2012 will be -- will have as many rigs in the shipyard as we did in '11. We're looking at 9 or 10 at this point. So, yes, we're going to have a large down time in '12, probably fairly significant in '13 again and then we go down for the next 2 years.

Okay. Very helpful. Thanks, guys. I'll turn it back.

Thanks everybody for joining us. We're going to return to work and try to continue to deliver results that will be pleasing to our shareholders.

Thank you all for participating in today's Diamond Offshore Drilling first quarter 2011 results conference call. You may now disconnect.