Diamond Offshore Drilling Inc (DO) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Diamond Offshore Drilling first-quarter 2012 earnings results 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. Darren Daugherty, Director of Investor Relations. You may begin your conference.

Thank you, operator. Good morning, everyone, 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, Senior Vice President of Marketing. Before we begin our remarks, I should remind you that statements made during this conference call may constitute forward-looking statements, which are inherently subject to a variety of risks and uncertainties. Actual results achieved by the Company may differ materially from projections made in any forward-looking statements.

Forward-looking statements may 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 10-K and 10-Q filings with the SEC. Investors and analysts should not place undue reliance on forward-looking statements. Forward-looking statements reflect circumstances at the time they are made, and the Company expressly disclaims any obligation to update or revise any forward-looking statements. After we have discussed our results, we will have a question-and-answer session. We ask that you please limit it to one question and one follow-up so that we can open the floor to as many people as possible. And now I'll turn the call over to Larry.

Thank you, Darren, and good morning, and welcome to our first-quarter conference call. As noted in the press release, we were very pleased with our results for the first quarter, really as a factor of two things. One, on a current basis, we're very pleased with the -- our performance on rigs, avoiding downtime. There's always going to be some sort of downtime. We've had quarters in the past year where we just absolutely had minimal, in terms of just a few days of downtime, and that's an anomaly and not something that can be repeated. But the amount of times where we had rigs that were off contract were well within what our expectations are, given the high standards that everybody looks for these days. And so that obviously impacted our results.

We were pleased with our costs as well. We were on a rigid budget system and try to control costs, whereas at the same time, we're making sure that our vessels are maintained and are in proper working order. We don't view those as trade-offs. We think you can achieve both if you stay on top of your game. And I think some evidence of that is we sold, during the quarter, the Ocean Columbia to Hercules, and they were very pleased with the condition of that rig and were glad to take that over. And then secondly, we'll talk about the market. And most of our [signings] that we have are for future impact, but obviously, everybody's following the trends and what's happening with day rates in the current period.

In the fleet status report that we released just last night, not sure that we had anything all that significant. We've announced that we have a follow-on job for the Saratoga when it completes its well down in Guyana with CGX, that we have one well prospect back in the Gulf, and we've got interest from several other customers for follow-on work. There's really no other vessel in that class currently in the Gulf of Mexico. So it's limited in water depth to right around 2,000 feet. But there's still a great number of prospects and workover work and various projects that could utilize that rig on a go-forward basis. So we're pleased to bring that back to the Gulf of Mexico, which will in effect double our US fleet, because with the sale of the Columbia, we're now down to just one, the Ocean Victory. We announced a future commitment on the Ocean Victory, not in this fleet status report, but one earlier in the month. We took a year commitment on that rig and priced just a hair under $420,000 a day.

The vessel previous to that, and is currently working at a [3.25] rate, and of course the dates that one commitment was made versus another don't always line up, but still, almost $100,000 jump well to well certainly indicates, again, the few rigs that are in that class that can service the 4,000- to 5,000-foot market on a moored basis shows that there's great demand for that. So that rig will be available in 2013. And then shortly after our pricing, one of our competitors announced a similar-capacity rig in the Gulf of Mexico at an even higher rate. So again, this reflects the few number of rigs, which I think is somewhat related to the Macondo events, as we and others took a number of rigs out of the Gulf of Mexico to pursue opportunities around the world. There were just actually very few of those rigs left here in the Gulf of Mexico. And so with more buyers than you have sellers in there, then it's natural that those rates have risen and continue to rise. Now we're going to be able to service that market potentially in the Gulf of Mexico. In addition with the Victory with the Ocean Onyx rig, which is currently in Brownsville, not due out till the middle of next summer, but our expectations are that in a market similar to this, that we'll be able to take some of the interest, and we've had quite a bit of interest in that vessel, and turn that into a commitment in advance of that.

I think around the rest of the world, we haven't really had anything that's all that significant. We signed a commitment to take a rig, a jack-up currently operating in Egypt, the Ocean Spur, down to Ecuador, and bareboat, that vessel had a $30,000 a day charter fee, which we're pleased to do that. We drilled off Ecuador previously, and we had to take a rig out of Indonesia to service that. And it just shows you that there are no available jack-up rigs on the West Coast of North and South America that you've got to go that far to get a vessel. But that sort of reflects that jack-ups, there are good prospects for those. There continues to be interest in some of our older rigs, in reselling those, and we are -- we will pursue those opportunities, or opportunities such as we've had in Mexico, where we've been able to put rigs to work. So I think that's the general survey of what's going on.

We also have the Ocean BlackRhino, which, again, has a delivery date in mid-2014. So we wouldn't really expect to be able to turn that into a job under normal circumstances till a little bit further down the road. And we're certainly very comfortable with that. As we survey the demand for those class of vessels, particularly in West Africa, but around the world, we think the demand is very strong. And so the BlackRhino, like its sister rigs, the Blackhawk and the BlackHornet, will be able to find a significant term commitment before it's delivered. So with that, I'm going to let Gary Krenek give you some more details on our costs and other financial matters that happened during the quarter. Gary?

Thanks, Larry. For the quarter, we had contract drilling revenues of $755 million, which is slightly above the prior quarter, when we reported $734 million. Likewise, net income and earnings per share were very similar quarter-over-quarter, with this quarter coming in at $185 million of net income and earnings per share of $1.33, as opposed to $1.36 last quarter. So even though things were fairly similar, there were a couple of items in our income statement that bear note, that were different. One was, as Larry said, we had the sale of the Ocean Columbia this past quarter. We recorded a gain of approximately $16 million after tax, or $0.12 a share, which increased earnings in the quarter. That was offset by a higher tax rate in Q1 than Q4.

The Q1 tax rate came in at about 26.5%, just slightly below our guidance, as opposed to last quarter's tax rate, which was 7.5%. And if you recall from our last conversation last quarter, that 7.5% was abnormal due to several year-end tax adjustments and accounting adjustments that were required for us to make. Looking at some of the specific line items in the income statement, contract drilling expense particularly, we guided to $405 million to $420 million last year, and we came in at $397 million. Two reasons for this. One, we did have a little bit of costs that have been shifted from Q1 to Q2 due to Baroness survey that we expected to do in Q1 has been shifted into Q2. And so that will drive a little bit of the costs in the second quarter. But the main reason was exactly what Larry said, the continued Company worldwide effort to control costs and keep things within our budgets. And, again, I'm happy to report we did a very good job on that in the first quarter. G&A and interest expense both came in close to where we expected. Depreciation did come in a little bit lower than what we expected at $101.4 million, and we will be adjusting our expectations for the rest of the year on depreciation, and I'll give that out in just a second. And as I said, our tax rate came in just a hair under what we had expected also.

Looking forward to the second quarter, one of the main drivers of the results in our next quarter will be some of the survey time we have on a number of our rigs. We're anticipating right now six rigs will be in the shipyard for survey during Q2, five semisubmersibles and one of our jack-ups. These are all scheduled surveys and things that we released earlier, letting people know that these rigs would be down in 2012. I would point you to the rig status report that we received last night for the individual rig names and the number of days and when these things are going to occur. But that will affect our results in Q2. Also, two of our mid-water rigs will be moving back to the Gulf of Mexico this quarter, both the Saratoga that Larry spoke about and the Whittington. So both of those moves we will expense the entire the entire move in Q2 in accordance with GAAP, as opposed to having it amortized over a longer period of time. So both of these, the surveys and moves, will affect both revenue and our cost lines in Q2.

Getting down to specifics, contract drilling expenses, again, we'll incur our normal operating cost, which we released by rig type and region last quarter. Those will be incurred. In addition, the six rigs in the shipyard doing their surveys, each of those surveys will run anywhere between 3 million and 10 million each. And combined, we're expecting an additional cost of anywhere between $35 million to $40 million because of those surveys. The cost to move the Saratoga and the Whittington back will add another 10 million to 12 million to our cost results. And in addition, the normal amortization of old moves that we have every quarter will add another $17 million. That $17 million of amortized move for the most part is offset by amortized move revenues also.

So if you add all of that up, where you expect contract drilling expenses to be somewhere between $415 million to $430 million in Q2. As always, I remind you, that is for the line contract drilling expenses only. Reimbursable costs will be in addition to that amount. G&A, similar to going forward, $17 million to $18 million, just as we saw in the first quarter. Depreciation, I said we've come down a little bit on that. We're now expecting depreciation between $100 million to $103 million in Q2 and Q3, and more likely than not in Q4 also, but we will continue to monitor whether we have any changes later in the year. Interest expense also remains the same. Our gross interest expense is $22 million per quarter. We expect to capitalize about $7 million of that in the second quarter, for a net interest expense on our income statement of $15 million.

The effective tax rate, just a slight change. We now expect that rate to be somewhere between 26% and 29% for the remainder of 2012. And finally, capital expenditures, no change from prior guidance. We expect $330 million of maintenance capital for the year, and we also expect to spend about $220 million for our new builds. A small portion of that, the oversight of the drillships in Korea, but the bulk of the $220 million will be the Ocean Onyx being built down in Brownsville. And with that, throw it back to Larry.

Okay. I think we're ready for some questions.

Operator, at this time, we'd like to open it up for questions.

(Operator Instructions)

Ian McPherson,

Ian? Operator, why don't you see if you can patch him through on the next call and give us another one while we wait.

Robin Shoemaker, Citigroup.

Okay, thank you. So, in terms of the -- you've got the one uncommitted deep-water new build, but the recent announcements of new constructions indicate a very attractive pricing environment for new builds. So given the fact that beyond these -- looking beyond that one available rig, you would seem to have the ability to do quite a bit more. Is -- how do you assess the need for new builds if we were looking, say, for a new contract that would have a 2015 delivery? How far out do you see the demand for that type of asset? I'm talking about ultra-deep water now.

I think we have comfort in our visibility through 2014. As you get out into 2015, you can obviously construct a scenario based upon the results of the exploration that will be taking place in 2013 and 2014 that would further increase the demand. But it begins to be a little bit cloudy. Having said that, I wouldn't necessarily rule out that we would run from a commitment to build a new rig in 2015. As you rightly pointed out, the pricing is -- still remains very attractive and -- but beyond that, it's our standard. We're going to evaluate all opportunities to deploy capital to increase shareholder value.

Just wanted to ask you specifically about the deep-water market for West Africa. We've heard some very, very strong commentaries from others about that market. Now, you've got the Ocean Confidence there, but then that will be coming to the Gulf. And after that, I think you would not have a rig in that market. But do you share -- based on the inquiries and tenders and pre-tenders you see, do you share a view that the West Africa market -- not just Angola, but the whole region, has very -- is going to need a lot more rigs in the next few years?

Robin, yes, we do share that view. We've looked at the whole region country-by-country, and in particular Angola and Nigeria, you have the development work primarily, with some exploration. But all along the coastline, we're seeing exploration programs and demand for deep-water rigs that's developing for 2013 and 2014, as Larry said. So we continue to see that as to be a strong market and we have the Valiant, the Confidence there, and obviously we consider the Onyx for that area. So I believe it's going to be strong in the near future and a lot of opportunities.

Okay. Thank you.

Ian McPherson, Simmons.

Clean slate. How is the outlook for the Saratoga and generally the demand outlook for mid-water in the Gulf this year, with activity coming back? And do you anticipate a good, steady stream of work beyond just the odd well contract after this Nexsun project?

Yes, Ian, we do. We've got this contract with Nexsun once we come back on the Saratoga, but we're in discussions currently with some other operators, and we believe that we can line up some fairly good term for the Saratoga. As Larry said, there's significant interest and not a lot of -- the only asset, really, in that class here in the Gulf of Mexico. So we're confident in the, that we can, over the next year or two, line some work up for the Saratoga and keep it busy here in the Gulf.

Apart from the possibility of commencing another fourth-gen upgrade from one of your other cold-stacked holes, is there a thought process right now for unstacking one of your other couple of mid-water rigs for the Gulf or for elsewhere?

I think you're right. We really have just one final Victory-class haul, and our decision whether or not to go forward on that would be dependent upon what that cost is. At the same time that you've got low new construction costs out there, we certainly don't want to start spending upwards of that. So it's highly dependent upon our decision to go forward as to what costs come forward on that. As to the rest of the fleet, they don't present the upgrade opportunities inherent in the Victory haul, in our judgment. And so you're right, we would be talking about unstacking a rig for a particular market, and, again, that's dependent upon what the make-ready cost is of the rig. Certainly in the Gulf of Mexico, there may be demand, but we need to get the Saratoga put to bed before we would address that. We have the Ocean New Era, which is idle here, and we're returning the Ocean Whittington out of Brazil into the Gulf of Mexico. We need to assess the condition of that rig before we make a decision there.

Okay, makes sense. That's it for me. Thanks, Larry.

Waqar Syed, Goldman Sachs.

Hi, Larry. I joined in late, so if you've already addressed this question, I apologize for that. But the Whittington, as it comes in here and you go to the five-year service, what's the prospect for that rig? And where do you think the day rate is for that rig going forward?

Well, again, I just said that we need to assess how much it costs to see what it does and then what kind of demand flows from the Saratoga and commitments that we get there. We're certainly not going to flood the market. So those are the two variables that we still have to work out. We have a guess on what both of those will -- how those will come out. But the Whittington's a 1,500-foot rig, and it really, dependent upon how much it costs, and the demand in the Gulf of Mexico, that will be likely where the rig would go to work.

If I throw out a scenario, if it costs maybe $15 million, $20 million to fix that, you'll probably go ahead, and what's the upper end beyond which you think that it's probably better to cold-stack the rig?

I don't know yet. I really want to see the vessel and have our guys here in the US go over it. Obviously, we've been on it down there in Brazil, and so we've got an issue. But we got to open up some tanks and assess that. And at the kind of day rates that you're looking out on the Ocean Saratoga, if there was demand for an additional unit, you could easily bear costs that you described and more. And -- but the question is we have a standard that we want this rig to meet, and we want to assure ourselves that it's not just a 2- or 3-year life, that we can get it out there and be competitive for the next 10 years. I really can't answer that till we perform our studies.

Okay, and now how long does it take to complete those studies? Is it like a couple of weeks, couple of months? How long does it take?

Once we get the rig here, we'll get a team on there, assess it. The assessment will take a few weeks on board the rig, because we're going to have to open tanks and things like that. Then when we get all reports, and it will take a few more weeks. So I would say you're probably looking at a couple months.

Okay, great. Thank you very much.

Dave Wilson, Howard Weil.

Larry, I know there's some pride in being the largest US offshore driller, but any updated thoughts on redomestication, especially considering the smaller presence in the Gulf of Mexico than you've had historically? I know it's been talked about in the past as competitors have done it and I know you probably get a lot of questions during that time, but just wanted to know if you guys looked at that again here recently?

Yes, we do look at it. I think one of the factors, and I don't know the answer to it, but I think it would be certainly a concern, is that you need to relocate to a jurisdiction that you have a significant business presence in. And Rowan and ENSCO had that presence in the UK, and I don't think that we do with three rigs in the UK. And in fact, our fleet is so widely dispersed, the only place that we have such a significant concentration would be Brazil. And I don't believe that that's an appropriate -- even the Brazilian tax regime itself is not welcoming, and I'm not sure that we want to be a Brazilian company.

Got it. Thanks for that. Gary, just a housekeeping item. On the op costs for the Spur as a bareboat charter, how should we be thinking of those?

Minimal. We'll have a couple of guys on there and rig insurance, so $2,000 a day, $2,500, something like that.

Great, perfect. Thank you. That's it for me, guys. Thank you.

David Anderson, J.P. Morgan.

Thanks. Good morning, guys. Question on your costs going forward. First of all, did I hear you -- did you make any changes to your full-year cost guidance?

No, we did not. We stand behind what we said last time.

So it seems like the last year or so, the entire industry has struggled getting a handle on costs. Seems like everybody seems to have gotten a much better handle on that. I was wondering if you could talk through what are some of the variables as you think about your cost structure? What have been some of the changes? Obviously, with your position in the Gulf and how everything's changed there, what's different now than a couple years ago? What's harder to manage, and where do you see some of the variables? I'm just wondering if maybe some of the costs that we're forecasting our models actually might be conservative at this stage.

Well, the two big variables, and it's the two components, the central components of our costs, are labor and then expenditures on maintaining rigs and for rig supplies. And I would caution anybody to say that we're being too conservative on our numbers. The labor, as you know, there's a -- if you calculate all the rigs that are coming out of new construction rigs, will require almost 20,000 trained personnel to step into those positions. So we believe that competition for labor will continue to be fierce, and so that's an area where we would see increased costs potentially, and some of that is baked into our numbers. But other parts of it, we don't really control. We want to be competitive. We want to compensate our people appropriately.

On rig expenditures, under -- this is -- would be a change. A couple years ago, we would have said, okay, we know the condition of our rigs. As they get older, we have to spend a little bit more money. We understand that, and we could project that. But as we stand today, there are increasing variables with -- to take an obvious example, BOP maintenance procedures, BOP inspection procedures that are being promulgated by various regulatory agencies, and they also impact other things on the rig. So those are costs that are potentially going up. And those regulations are not all fully in place yet. So those are the things that I would look at, that would have the ability to increase our costs, even in the short term.

The only other thing I would add is for Diamond Offshore specifically, you talk about a couple years ago versus now, and our costs have increased because of our relocation of rigs outside the Gulf of Mexico. It certainly -- the Gulf is one of the cheapest areas in the world to work right now, and as we have relocated our rigs overseas, we have seen our costs increase because of that.

I would have thought in some respects that as you move out of the Gulf, you would have less pressure on the maintenance side. Is this not just -- it just seems to me obviously there's been a big focus on the Gulf, but this has also been translated to all the other regions. Is it just because the operators are all global, or --?

Well, there are other regulatory regimes--Brazil, UK, Norway, Australia--which are -- also have standards. But we can't just take a rig and go overseas and say, well, don't worry about that anymore. We try to run a consistent operation. Our customers expect that, and we expect that of ourselves. So that's not the case. And Gary mentioned increased costs. Brazilian labor is very expensive right now. It exceeds US labor probably, with all the benefits and burden that goes along with that. You've got travel costs as you bring people over. Brazil, you've got upwards of 40% to 60% duties on various pieces of equipment that you bring in. You've got the cost of transporting that equipment. Angola, where we operate, is a very high-cost environment as well. Everything that you bring into the country, food and all that stuff, is much higher. And it's those kind of factors that really drive up the costs. So that even if we said, and we're not, that okay, we're going to slack off on paint jobs, all these other costs would more than offset that.

Speaking of Brazil, obviously they got this big new-build program going on, and most people seem to think it's going to get delayed, but as you think a little bit further out in terms of that market, do you get concerned that this could be a place you could get squeezed with the local guys? And how do you protect against that risk?

We know there are -- we have competed with local guys down there for a long time, and they have a particular share of the market. I think what I'll characterize as the traditional legacy contractors that we provide a particular service that gets contracted, and as you noted, it's not going to be easy to build the number of rigs that they are talking about in brand-new drill -- shipyards in Brazil. They are going to give it a good go. They are intelligent people, but I think that will not transform overnight. And when you look at the size of their geological prospects that they are drilling on, it's going to require active, high-efficiency rigs going at it now. If you wait the period of time that it's going to take to deliver all of these rigs and then get started, you've taken significant cash flow from increased production and kicked it down the road 7 to 10 years. So if you do all the math on that, I think in the foreseeable future that US guys are not necessarily going to be squeezed out, whether or not Brazil build rigs locally or continues to contract from the outside.

All right. Great color. Thank you very much.

John Lawrence, Tudor Pickering.

Hi, good morning, guys. Just a question on the General, which is idle in Malaysia. What is the opportunity for that rig in the near term?

John, we have had a period where the rig's been idle after the shipyard, but we're currently in contract negotiation with a couple of different customers that I think once we get the rig going back here in the next couple months that we'll see some term work build up behind the rig. We've just had a period here that kind of caught us out a little bit, and there wasn't a lot of work coming out of the market at that time. But we're confident in the rig going forward in that area, and I think you'll see some terms start building up behind the rig.

Good. Okay, good to hear. And then just a question on asset sales. Are they rigs that you are actively marketing now for sale?

I -- some of our older jack-ups we've had interest in. It's really the market that generates. We don't -- we're not out there with a big sales banner that says come and get it. And some of our idle semis have some interest in there. And this is no different, I believe, than programs that are being followed by many of our other competitors that have a substantial older jack-up fleet, that there's quite a few number of those rigs out there for sale. And it seems like to me that the buyers, their discriminating factor is the condition of the rig. That puts you at the top of the line. And in general, I'm very pleased with the condition of some of our rigs. So naturally, we had quite a few inquiries.

Good. So would you say interest is picking up?

I think when you looked at the market itself as picking up, that we've got this job for the Spur, that we've got other jobs that are out there. I think that goes hand in hand with generating interest from folks that may want to acquire a rig or two.

Got it. Thanks a lot, guys.

Robert MacKenzie, FBR.

I don't know if everybody could enjoy that like we did, but are you there?

He has withdrawn his question. Douglas Becker, Bank of America Merrill Lynch.

Want to dig into the operating costs just a little bit more. How much did the Baroness gain push to the second quarter save in the first quarter?

Somewhere in the order of probably $4 million or $5 million.

Okay, so you still would have come in toward the low end of the guidance you had provided. Where are you finding the cost savings? And as we think about second quarter, what would drive costs toward that high end of the range, just the surveys taking longer?

That's one potential. Where we're finding the cost savings, Doug, is really just in the normal operation of the rig, and a lot of our repair cost supplies, things like that, and we continue to hold those costs down, what we call S and R, supply and repair. What could drive that cost up, of course, are the surveys, the fact that we have six of them. And $35 million to $40 million, hard to really judge exactly how much you're going to spend when you're in the shipyards. Also, just, again, normal breakdown of the rigs, normal repair of our equipment could drive it into the higher end of that range, and we've seen that in the past. We've done a real good job on holding those down, and we're really proud of that.

No, definitely. And then a question for Larry, a little perspective here. How would you compare the floater market today to 2006, 2007, maybe early 2008 as things were tightening up, particularly as it pertains to the mid-water? There are some differences. We have more speculative capacity coming in on the ultra-deep water side than we did back at that point in time. But your perspective on the differences from that cycle?

I think that they are very similar. I don't know what -- where we compare to the point in time in that cycle, which really kicked off in the summer of 2004. So we're probably -- this is similar to 2005. I guess one big difference is in the 2004/2005 cycle. When that kicked off, rigs were -- you had many more idle rigs and you had much lower day rates. The valley between that last period of appropriate returns for drilling contractors and today is -- was really not that bad. You had the financial crisis impact things and all that, but we rolled into this with many rigs working at substantial rates of return and substantial income. So the moves, I think, have not been as dramatic on a percentage basis. And when you're coming off a place where fourth-generation rigs were going into the cycle at 70% and 80% and ultimately finished at $500,000 to $600,000, there was a huge room to move, and here you're coming off rigs that were in the $300,000s for that class of rig, maybe $200,000s in some cases, and we're headed now into the $400,000s. So -- but again, each time, we never -- as in 2004, if you asked me, I wouldn't have predicted that we would have ended up through that cycle with rigs in the upper $500,000s and $600,000s for the fourth-generation rigs. So I'm hesitant to say what the cap is going to be in this cycle.

I appreciate the perspective.

Okay. Operator, if -- I don't know if Robert MacKenzie, if we can get him in again after the echo, we'll take his question and one more.

Okay. Robert MacKenzie, FBR.

Hi, this is Megan (inaudible) calling in for Rob MacKenzie. Can you hear me?

I think we're going to have to end the call because of the echo. Operator, let's try another line and see -- one more question, see if we get a normal line. And we'll have to encourage --

David Smith, Johnson Rice.

Good morning. Thank you. I was enjoying that remix.

It's a full-service firm there.

Quick housekeeping question. I caught the 2Q 2012 OpEx guidance. I didn't catch the full-year OpEx guidance update.

It remains consistent with what we said before, which was $1.650 billion.

Okay, appreciate it. And one other follow-up question. With the shipyard activity picking up, do you see risk to survey costs trending higher over time, or is that a service that doesn't fluctuate much?

It will fluctuate, as you see in certain areas, particularly, say, in Singapore and places like that. We will see it increase in cost as they contract more and more, some maybe even in the Gulf of Mexico.

And with your past experience in the up cycles, is that something that can be 5% to 10% inflation, or is that a higher number risk?

It just depends on each particular yard and how hungry they are. Normally, we can maintain a pretty level standard by picking and choosing and doing certain analysis to go to the particular yards.

Makes sense. I appreciate it. Great quarter. Thanks.

Thank you very much. We'll see everybody at various events and talk to you again next quarter.

This concludes today's conference. You may now disconnect.