Diamond Offshore Drilling Inc (DO) 2013 Q2 法說會逐字稿

Good day. My name is Maria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Diamond Offshore second-quarter 2013 earnings 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)

I would now like to turn the call over to Darren Daugherty, Director of Investor Relations. Please go ahead, sir.

Thank you, Maria. 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; Kane Liddelow, Director of Contracts and Marketing, and also joining us on the call today from Aberdeen, Scotland is Richard Male, VIce President of Contracts and Marketing. Following our prepared remarks this morning, we will have a question-and-answer session.

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. Given these factors, 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.

Now, I will turn the call over to Larry.

Thank you, Darren, and welcome to our second-quarter conference call. I'm going to expand on some of the issues that I spoke on in our press release, and I will also address some of the delays that we put out there in our fleet status report. First, as I noted, we had another quarter of excellent results on two fronts. One, equipment downtime as a result of failures of equipment -- it's very hard -- we have no idea how to estimate that, although we know, through our systems, a range that we can operate in. We ended up with 97 days where we were off of contract due to equipment problems. Last quarter, we had 157 days. We had 100 days back in Q4 so we were within that range, and so I am very comfortable that we continue to put in maintenance procedures and equipment checks so that we can maintain performance within that range.

Although we have made that savings, we were offset by almost an equal amount of survey time that ran over 60 days. The primary component of that was we incurred 46 days off of contract. When I say surveys -- surveys and mob's due to the Ocean Lexington which relocated from Brazil to Trinidad. We had customs problems getting our equipment out of Brazil to be able to start the work in Trinidad. That cost us 46 of those 61 days. Certainly, that would have shown up quite a bit negatively if we hadn't been able to perform as we did on unanticipated equipment downtime.

On the cost front, which I think has been noted, our costs came in slightly below guidance. Our guidance is in a range that, in itself, I think reflects a number of programs that we have in place to try to control our costs, and make sure that we deliver every dollar of revenue that we can down to EBITDA and ultimately into earnings. We would expect that to continue as we go into Q3. We have given, effective July 1, a rig wage increase across the fleet. That will be a factor, and Gary will expand on that when he comments on some of the cost guidance going forward.

Now, let's talk about some of the equipment downtime. I will talk about the Ocean Confidence first. The Ocean Confidence is a rig that we delivered in 2001. It is a 10,000-foot DP unit, and we had -- that rig was at work in the Gulf of Mexico, and post-Macondo we relocated it to Africa, and at that point in time, we delayed and deferred a shipyard job where we had to bring it into (inaudible - technical difficulty) shipyard and do some paint work on that particular rig. Arriving into Africa, we have had well after well of customers -- it is very important for them to get each well documented through deadlines or we have worked on some high-profile wells that our customers are very interested in getting done. We've never really had the chance to do paint and other work.

Additionally, we have had some DP problems earlier in the year. This really is a result of the DP vendor was purchased by someone outside the industry, and the new owner of that organization is, frankly -- does not want to have any exposure to Macondo-like potential liabilities. So we have had huge problems in getting service out of that vendor. We have elected to take some steps to replace that system.

In addition to that, we need to do some crane work, and there is other things that have built up. The deferral of the paint work, of course, then does not allow you to stay on top of rust, and so the scope of that paint job has grown. Additionally, there is just not any facility in West Africa to be able to do this work. We need to take the rig up to the Canary Islands, which is a significant mob in terms of time. I do not want to take the rig up there and do less than everything that we need to get done. We have challenged ourselves to within a reasonable -- what we believe is a reasonable time to do the type of work that I have described, and get on top of the DP system, get on top of paint and maintenance issues, do the crane work, and several other systems that we need to work on. Frankly, counting -- inclusive of the mob up there and back, then that works out at our 10-month period.

Now, previously we were looking at a six-month all-in job. But there just was not time to do all of the work that needed to be done. This is a first-class rig, and we need to maintain it in first-class shape. Ultimately, we believe certainly such items as getting on top of the DP system will prevent future downtime when we have problems with the rig and we can't get any response from the vendor to help us solve those problems easily.

That pretty much explains the Ocean Confidence. Unfortunately, that will be 10 months out of 2014. That is just the way the business is going to work, certainly for us. I know other people face that as well when you are looking at maintaining these assets.

Then, at the same time, the Ocean Black Hawk, which is the first of our four drillships out of Brazil, we announced a two-month additional delay where the rig will now be available in late February. That is where it will be available and ready to go to work in the Gulf of Mexico. It is out of the dry dock, and we're doing commissioning tests, and we discovered on the Ocean Black Hawk problems with the engine cooling water -- that there had not been inhibitors placed into that system that would prevent damage to the engines themselves. This damage would manifest itself over the life of the rig where we would take additional downtime and have power problems down the road.

We have elected to make sure that we can fix that. We are replacing the damaged engine parts. Additionally, now that we know of the problem, we are on top of what is being done by the subcontractors in the shipyard so that we can assure ourselves that that will not be the case. We do not have any of these problems presently on drillships 2, 3 or 4, which is the Hornet, the Rhino and the Lion. In addition, we have got procedures to make sure that we will not have this problem introduced into the system.

I think if there is good news, it is that the delay is exposed just to the Black Hawk. Additionally, I think John Vecchio will give you some color as to how the status of the construction on the subsequent rigs is going compared to the Black Hawk, so we can -- I think we are very comfortable that we're much more on schedule with the subsequent units than we are presently with the Black Hawk.

Additionally, we had a couple-month delay on the Onyx coming out of Brownsville. That is due to equipment deliveries; it is due to some manpower issues in the shipyard, and due to the amount of work that we did on steel replacement on the existing [hull we've] utilized to construct the Ocean Onyx. But we are still very excited about having a rig of that capability coming into the Gulf of Mexico.

With that, I will pass it over to you, Gary, to make your comments.

Thanks, Larry. As in the past, we will talk a little bit about what happened in this past quarter, and then I will give you a little more details on what to expect for the next quarter and the second half of 2013. For the quarter just ended, we had bottom line net income of some $185 million, or $1.33 per share. That was based on contract drilling revenues of $745 million. This is $0.09 better than the first quarter, and most of that was driven by the increase in drilling revenues that increased some $45 million.

Larry talked about some of the items in -- what drove revenue. We did have -- while we had survey downtime in the second quarter, it was a little bit less than what we had in the first quarter. We had forecasted that, and given that guidance in our last conference call. That was to be expected. That had a positive impact. And then, of course, the decrease in equipment repair downtime that Larry talked about also helped. That was offset by the Lexington, and the delay in that rig going to work down in Trinidad. But all net total drove an increase in our revenues.

The quarter, otherwise, was pretty clean. Not a lot to talk about. We will give you a little bit of color on the contract drilling expense. I know it gets a great deal of scrutiny every quarter. That came in at $369 million, as Larry said. We had guided to $375 million to $395 million. We came in just under the lower end of the guidance. Part of the reason for that is the Lexington.

When we are preparing for a contract, accounting rules call for us to suspend recognition of operating expense, and rather defer that and amortize it over the length of the contract. We did that. And because it took longer than we thought, we saved some $7 million of operating expense. I say saved -- we did not recognize it to deferred. We will incur that and amortize that over the 18 or so months that the Lexington is working in Trinidad.

So if you add that $7 million to what we reported, we come in at the very low end of the guidance, but within the guidance that I gave. Again, we come in at the low end of the guidance. Excellent cost controls that continue to signify how we are running the Company. We're very happy with that.

Looking at the other line items and income statement, depreciation, G&A, interest, tax rate, those all came in relatively close to where we guided. I won't go over that, to save time, but rather let you look at that on our press release.

Looking into the next quarter, some of the things that are going to drive our next quarter's earnings -- the Ocean Nomad will be in port for survey during the quarter. Also, the America, Valiant and Princess will begin their surveys in the third quarter, with some of that dragging over into the fourth quarter. The Ocean Saratoga is currently preparing for a contract in Nicaragua, and doing some contract prep work. Then we have to mob down there before beginning that work later in the quarter.

Also, we expect the Ocean Patriot to complete its contract out in southeast Asia, and go into the shipyard to begin its preparation for its North Sea upgrade that ultimately will result in that rig mobing to the North Sea and beginning a three-year contract with Shell that we have announced previously. I will refer you to our rig status report that we released yesterday for the exact timing of all of this work and the exact number of days we expect these rigs to be down both in the third and the fourth quarter.

Looking forward to the contract drilling expenses, as always, I would remind everyone again that I will be talking about the line, Contract Drilling Expenses, on our income statement only. These numbers do not include costs incurred in the line, Reimbursable Expenses. We estimate that contract drilling expenses in Q3 will be between $385 million and $405 million. This will be comprised of normal operating costs as always, but then also the survey cost for the America, Valiant and Nomad that I talked about earlier. These rigs are some of our larger expense items in the surveys for this year, and a little bit above the average of all of our surveys, and we believe will drive approximately $28 million of operating costs in the quarter.

Amortized load cost, and that includes contract prep costs, will add another $12 million to $14 million of cost. And as Larry spoke about, we did give a pay increase to our rig hands effective July 1, and so that will affect our cost on a go-forward basis. So you take all that together, we do expect an increase in the costs because of these bigger surveys and the pay increase driving it, as I said, to the $385 million to $405 million.

I'll take this time to address a question that I and Darren have been getting quite a bit, and everyone else may be interested in the answer. We have gotten questions as to when will we start recognizing operating costs on the Ocean Black Hawk and the Ocean Onyx, and just explain our GAAP accounting and our policies. Looking at the Black Hawk, we will capitalize any type of rig-based cost while we're in the shipyard and during our commissioning period. So, we will not see any operating expense. Rather, those costs will be capitalized and appreciated over the life of the rig. After we finish commissioning, we will mob back here to the Gulf of Mexico, part of beginning the Anadarko work. Those mob costs will be also deferred and amortized over the length of the contract.

After getting here, as per our rig status report, we expect to spend about 30 days on the final outfitting of that rig and some acceptance testing. Those costs also -- the rig operating, the crew cost, everything else -- those costs will be deferred and also amortized over the length of the contract. So we won't be seeing any type of rig operating cost hit our Operating Cost line for that rig until we actually go on contract with Anadarko.

The same can be said for the Onyx. Until we begin our contract with Apache, cost will either be capitalized or deferred. So, you can expect that on a go-forward basis.

Looking at some of the other lines on the income statement, G&A for the next quarter we expect to remain constant at something between $16 million and $18 million -- the same that we've been saying. Similar with depreciation, going forward, $97 million to $100 million per quarter.

Interest expense is where we will have a change because of the down payment that we made on the BP rig that we are building, and also the ongoing costs that we continue to capitalize with our other projects. We're now hitting a point where virtually all of our interest expense is going to be capitalized interest. We have $22 million worth of gross interest expense in the quarter, and we are expecting anywhere from $0 to $1 million -- a resulting net interest expense -- that is both Q3 and Q4. Virtually no interest expense. Tax rate will remain somewhere between 27% and 29%. I think that is just a little bit lower than our prior guidance; that is what we see on a go-forward basis.

Finally, capital expenditures for the year -- we still maintain the $325 million of maintenance capital. With the BP rig, we're raising our guidance for the new build, CapEx to a little over $1.5 billion. So, you add those two together, total capital expenditures for 2013 should come in around $1.9 billion.

With that, I will turn it back to Larry for any further comments.

And let's take some questions, Darren.

Operator, we will open it up for questions now.

(Operator Instructions)

Our first question comes from the line of Ian Macpherson, Simmons & Company International.

Larry, thank you for the description of what work you are doing and the Confidence. It does sound like that 10 months is pretty exceptional with regard to the circumstances of that rig. Can you -- can we draw any sort of broad characterizations of regular maintenance creeping up for the fourth and fifth generation rigs now relative to the past two years, or do you think this is really rig specific here?

I believe it is rig specific. The factor that it is in West Africa. Our only other rig in West Africa is the Ocean Valiant and the special survey that we have been performing, we've been trying to do that in bits and pieces, and we're not anticipating anything similar to that. And then the unique part of the Confidence, the way that we have essentially skipped out on work that we plan to do to get it located -- relocated out of the Gulf of Mexico impacted that. The other rigs that we pulled out of the Gulf of Mexico, the Endeavor, the Monarch, the America -- the Endeavor and Monarch just recently have been constructed. They were and continue to be in very good shape.

The best thing that you can do on rigs is maintain them constantly and not let them get behind. The Confidence got behind due to the quick move out of the Gulf of Mexico, and then we have fallen behind in West Africa. It is always difficult to do things there. Just because of the environment that you work in. I would not say that that extends throughout the flee, although from time to time there will be a rig in our fleet and in other companies' fleets -- that get us in a situation like this where we have got to maintain that asset.

Okay. As a follow-up, I wanted to see if you could give us some perspective on some of your near-term Deepwater rollovers and how the market prospects look from rigs such as the Ocean Victory, which is rolling off contract next quarter, as well as the Valiant, which I believe is completing its backlog with Murphy at the end of this quarter. Can you comment on either of those rigs and what you see in the future?

I am going to let Richard Male, who is on the line from our Aberdeen office -- he is our Vice President of Contract Marketing, who was recently over here and called on a number of customers for Deepwater and Ultra-Deepwater -- I will let him make some comments on that.

Sure. We are continuing to see opportunities for the Valiant. We've had some recent pre-qualifications that we have responded to. I think at the moment, we still feel that we will be able to utilize the rig in the West African area in the sort of Cameroon, Gabon, Equatorial Guinea - we still see a lot of demand in that area for that rig. The Victory, again, the Victory we're seeing signs, we are beginning to see some interest in the Gulf of Mexico. Relatively short-term at this point in time, but we hope that that will change as we progress through the year.

Does that contrast with the opportunities that you see in Africa for the Valiant that are longer term in nature?

A little bit. The Valiant we have been running relatively well by well, but we know that there are some upcoming development work in some longer-term exploration work coming up in West Africa. We have probably got more opportunity to secure some longer-term work on the Valiant in West Africa.

Okay. Thank you very much.

I would just close that out by saying that the Deepwater market has fewer assets in there, and typically will be reverting, I think, to shorter-term work opportunities and we will be working at a couple of wells getting a six-month to one-year contract on many of those assets and continue to roll them that way. Next question.

Dave Wilson -- Dave Wilson, Howard Weil.

Good morning gentlemen. Thank you for taking my questions. I wanted to talk a little bit about the Ambassador. I noticed that on the rig status update yesterday, the special survey was delayed. Should we read that -- from that delay that there has not been any productive conversations taking place for that rig? Knowing that you are not going to re-certify it unless you have something to do?

I do not think in the US Gulf of Mexico there is much demand for a thousand-foot rig. That is just not something that is there. We've had some opportunities in Mexico and other markets, but in all likelihood, you are right. We will not do the survey until -- commit to the survey plans -- until we have a better perspective on when that rig might go into work.

When does the certification for that rig collapse?

Right now.

Got it. All right. Just kind of a follow-up on the Confidence. The maintenance, how should we think about the costs during that 10 months? It sounds like some of that stuff should be capitalized, I'm not sure of the breakout between what will be expense and what will be capitalized?

We're still evaluating that, Dave. It is possible that we may capitalize virtually all of the costs and actually have a positive impact next year. But I cannot tell you that until we finish the scope of work and determine exactly what all we're doing to that rig. Will make that decision here in the next quarter, and by the next conference call, I will be able to answer that more succinctly.

Okay. And then one final one if I can sneak one in. Regarding your cold stack rigs, I want to get a status update there. I know you're taking some write-downs there. I wanted see if there is any interest in them, perhaps, the jack-ups, and I wanted to see if because you took the write-downs, there is anything that forces your hand to do something like selling them for scrap from a tax perspective?

We said at the time that it was our belief that we would be able to sell those within the coming year, we are actively working on that. We have just got the one jack-up, and we have got three floaters, in that group. The floater demand is pretty thin out there. There is not huge numbers of people.

We get a lot of folks with no cash that want to come forward and tie up the rig, go bid it somewhere. That, to me, is not a sale. And so we are actively pursuing the sale opportunities on those, and we will continue to push it through the year. Should scrapping be one of the best alternatives, we will certainly look at that as well. We wrote them down such that we felt like it adequately reflected all of those possibilities.

Great. I appreciate the answers.

Our jack-up does have some good interest in it.

Jud Bailey, ISI group.

Thanks. Good morning. Larry, I was wondering if you could just make a market comment on how you see Deepwater rates overall relative to Ultra-Deepwater. Obviously there is a lot of discussion in the industry. It seems like Deepwater rates have slipped a bit and the demand is going to be a little more spot-oriented; I was wondering if you could just give us your thoughts on how you see the market for the 5,000-foot to 6,000 foot moored asset class progressing over the next 6 months to 12 months?

I think the fourth-gen market is in the 4s, and the Ultradeeps in the 5s, would be my belief. There's always exceptions based upon capabilities of rigs for a unique market. Not that that would be a general rule of thumb. And then -- I know it is a wide range within that group. But I think that would cover it.

Would it be fair to say that on Deepwater, in the 4s, maybe leading edge has slipped 10% or 15%? Would you agree with that statement?

I will let Kane Liddelow, who is in our Marketing Department, make that comment.

I would probably describe it as more flat. Certainly in discussions with Victory, we have had several operators talking to us about different terms, but I would say the rates are comparable with what we're seeing now, and our expectations and the customers' are much aligned.

Okay. As a follow-up regarding Brazil. You have a couple of rigs rolling down there with OGX later in the year. Can you talk about the prospects on those rigs and has OGX -- they are obviously having some of their own issues -- what are the prospects of those rigs later in the year, and then just -- the overall comments on what you're seeing out of Brazil after the recent [lease-sale]?

We have the Star and the Quest down there. The Star is farmed out from OGX, to a Brazilian company. We're discussing with other Brazilian companies additional farm-out availability. You are right, there is a significant interest there. The Quest continues with OGX. Should OGX not elect to renew, which happens end of this year, beginning of 2014 on both of those rigs, I would think there would be markets that would be able to take those. It is not something that we can just immediately go find a job, but the Star is a 5,000-foot rig. The Quest is in the mid-3,000s. Think of the Quest really as grabbing higher spec third-generation type jobs. The Star would be would be one of the Deepwater market-type assets, and there is active demand for that, in the Carribbean and in West Africa. Would be closer markets to Brazil.

Okay. If I can just speak on one last question for Gary. You mentioned the -- given the high capitalized interest for the rest of the year, I believe you said you're going to have virtually no interest income on the income statement. How do we think about that for next year? Will that continue into 2014, or does the capitalized interest scale-down a bit, and can you give us any sense of how quickly that may happen?

It varies, Jud. We probably, when we take delivery of the Black Hawk, we will remove part of the base that we are working off of. But at the same time, we have other things going in. I would imagine we would have some interest expense in 2014, but it will not -- we certainly will not go back to our full interest expense. We will be capitalizing quite a bit of it. Of the $22 million per quarter, 75% of it at least will be capitalized, would be my estimate at this point; as we do our budget this coming several months, we will have a much better guidance in our next call.

Got it. Thank you very much. I appreciate the color.

Next question comes from the line of Todd Scholl of Wunderlich Securities.

Good morning, guys. I had a question on the delay in the Black Hawk. It sounds like that was a bit of a shipyard issue. If that is the case, you guys have any recourse there for the delay? Or is that just kind of like the cost of doing business? Can you give us a little bit more color on that?

There will be provisions, generally, in shipyard contracts, that past a certain point, there will be some potential fines for the shipyard. I'm not saying that that applies in this particular case, but that is negotiated, and I am not aware of any contracts with shipyards where they take consequential damages or lost day rates that you have. There is just not -- when you look at the cost that you're paying for these assets, there is nothing in there for that.

Right, okay. Let me ask you this. Because you guys have now done -- you have an upgrade that you're working on, and you have some rigs that you have built on spec in yards, and you have also got one that you're starting that has a contract now. You do not have any more rigs that you could upgrade. I guess this is more of a question -- that, do you think that if you are likely to pursue another new build, it would be something similar to the rig that you have with BP that will have a contract, or do you think that you would likely built on spec again? Can you talk about some opportunities out there that you're seeing to build with a contract?

Building on contract is -- there is not huge numbers of those. If you set yourself up for that, then there is not a lot of opportunities to pursue that. We're comfortable with having a certain amount of rigs on spec, and we have got two drillships and the Ocean Apex that need to go to work. Probably before we would consider adding more to our spec construction backlog, we would assess the market at that particular time. I think the harsh environments, similar with what we're constructing for BP, might be something that might be appealing to replicate that, but that market itself is not huge. We would have to assess all of the construction out there and make sure that we're comfortable with our prospects before we would initiate a spec construction in that area.

Okay. Great. I will turn it back.

Ian Macpherson, Simmons & Company International.

Thank you. Just a couple of more? Follow-ups, if I may. Gary, could you -- since you updated us with the third quarter cost guidance, would you be able to provide us with a refresh on the full year, or just give us Q4 discreetly as well? And then secondly, I had a question about the Courage and Valor, which are going in for their first five-year pitstops next year, and what those might entail in terms of the time down and the cost associated with those? I presume it would be relatively benign compared to your typical surveys, but maybe a comment on that would be appreciated. Thanks.

We had previously given cost guidance for the year at $1.6 billion to $1.7 billion, and it is pretty evident that we're going to come in under that. That is driven by a couple of things. Receptor survey has been moved back, the Valiant and the Reliance surveys have also been moved back rather than incurring all of those costs in 2013. We will incur some this year and some in 2014. Also, the delay of the Onyx that we have been talking about, we are not going to have operating costs as soon as we expected. Frankly, our cost controls have been better than what we expected.

So I cannot really give you any kind of estimate for the fourth quarter. It -- a lot will depend on what all actually occurs in the third quarter. But for the year, we will come in under that $1.6 million. It is very evident at this point, so we will see -- costs for the fourth quarter. There are some large surveys there, and so it is going to be what we have this quarter if not a little bit more. Not this quarter, but the guidance for this quarter, or a little bit above that.

Okay. That is helpful. Thanks. And then on the Valor and the Courage?

John, do you have anything regarding the scope of work that we will be doing?

Basically, if you look at the survey, that part will not be the governing issue. Because that will be very quick. These rigs are virtually new. The maintenance will be the critical path on that. Even that should be pretty benign. I do not have a full scope yet. We're actually just starting to develop that right now.

This should come in where our average survey is. It will come in less than the Valiant and the Alliance, which were on the top end. So somewhere average if not a little bit below-average because of the age of the rigs, the newness of the rigs.

Okay. Thank you.

J.B. Lowe, Cowen Securities.

Good morning, guys. I just had a quick question on the wage increase that you said was put into effect July 1. I know that it is baked into your guidance for Q3, but what percentage increase was that; did you say that?

No, we didn't. We will comment on it after the fact. We're very competitive for labor, and it is a nice raise. But we do not want to give signals out there, specifically.

Okay. Just on the Ocean General in Southeast Asia, I know that it is rolling off for the end of this year, too. You guys have any options on that rig, or what is the outlook for that market for that type of rate?

We are seeing continued interest, and we are confident that we will be able to keep that working. She has got a good reputation down there, and we have a good reputation in that region. She is probably one of the rigs of choice in that class. We are in discussions for work within Vietnam and Indonesia. It will continue to be well-to-well-type prospects, which is typical of Southeast Asia. But we are not anticipating any problems keeping it working. There is the option to extend the current contract in Indonesia. We are hopeful.

Would that just be on a well-by-well basis for that extension as well?

That's right.

Okay. That is all I had.

Gregory Lewis, Credit Suisse.

Thank you. Good morning. Larry, if we could talk a little bit about the fleet in terms of -- I guess there is the Chinese/China oil field services out in the market looking for a rate to do some work in the Mid-water. I believe they are looking for maybe a second or third generation rig. Maybe not one that is stacked, maybe one that is in operation. Is there any thought about Diamond potentially offering up one of their existing rigs that is actually in operation as it rolls off-contract for sale-type situations like that?

We are not actively pursuing that, but certainly we would consider it. We have a substantial Mid-water fleet, and if somebody wanted a rig that was recently off contract, I think that we could probably accommodate that. It would be in their interest and our interest as well.

Have you had any discussions with anyone over in Asia about potentially selling any of your second-generation or third-generation semis, or is it still probably too preliminary?

We have had discussions. We just -- we get calls all the time.

Okay. Thank you.

One last question, please.

Final question comes from the line of David Smith, of Johnson Rice.

Thank you very much for fitting me in there. Sorry if you mentioned this, but did you have an estimate on what portion of the scheduled Ocean Confidence downtime is related to change-out of the DP system?

We are doing all of these things simultaneously. It is not like if we did not have to do the DP system -- I couldn't tell you necessarily that it would be shortened.

It is not the critical path.

Right.

I think the Asian Clipper also has a similar DP system. Do you have any other rigs with this manufacturer and if so would those likely be change-out programs in the future?

No. We do not.

Great. Thank you very much.

Thank you very much for your interest in Diamond Offshore. We will talk to you subsequently.

Thank you. This concludes today's second quarter 2013 earnings results conference call. You may now disconnect.