Atwood Oceanics, Inc. (ATW)

F4Q2010 Earnings Call Transcript

November 19, 2010 10:00 am ET

Executives

Mark Mey – SVP & CFO

Rob Saltiel – President & CEO

Analysts

Dave Wilson – Howard Weil

David Smith – Johnson Rice

Waqar Syed – Macquarie

Arun Jayaram – Credit Suisse

Matt Conlan – Wells Fargo Securities

Matt Beeby – Global Hunter Securities

Presentation

Operator

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Good day, everyone, and welcome to today’s program. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during our Q&A session. (Operator instructions)

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I would now like to introduce our speakers for today’s call, Senior Vice President and CFO, Mark Mey; and President and CEO, Rob Saltiel. It is now my pleasure to turn the program over to Mark Mey. Please go ahead.

Mark Mey

Thanks Lindy. Good morning and welcome to Atwood Oceanics conference call and webcast to review the company’s operating results for the year ended September 30, 2010. The speakers today will be Rob Saltiel, President and CEO, and myself, Senior Vice President and CFO.

Before we begin, let me remind everyone that during the course of this conference call we may make forward-looking statements based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us, and therefore, involve a number of risks and uncertainties.

We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. The words “believe,” “estimate,” “impact,” “intend,” “anticipate” or “predict,” convey the uncertainty of future events or outcomes. Undue reliance should not be placed on these forward-looking statements, which are applicable only on the date hereof.

Let me now turn the call over to Rob.

Rob Saltiel

Thank you, Mark. Good morning and welcome to all of you joining today’s’ call. We’ve had a busy and successful fourth quarter to end our fiscal year 2010. I’ll offer a few words on our financial and operational results, comment on the key developments since our last earnings call and share perspectives on the market before turning it back to Mark for the financial details and outlook.

Our financial results for the fourth quarter enabled Atwood to mark fiscal year 2010 as our fifth consecutive year for record revenue and earnings. For the full year, our revenue increased by 11% over 2009 levels to nearly $651 million, while earnings grew to just under $257 million.

We are proud of this financial performance. And it would not be possible without the fine efforts of our rig operations teams around the world. Their focus on client service and their commitment to high-quality execution has enabled solid reliability performance and strong revenue recognition from our drilling contracts.

I’d also like to comment on Atwood’s 2010 safety performance. It was simply the best in our company’s 42-year history. We concluded fiscal year 2010 with a total recordable incident rate, which is the industry benchmark measure for injury frequency of less than 0.8 incidents per 200,000 man hours. This represents 13% improvement over Atwood’s 2009 results and most importantly enabled us to avoid any fatalities or debilitating injuries on any of our rigs.

We also made significant strides on process safety initiatives in the wake of Macondo that have improved our personnel training, our drilling procedures and our critical equipment maintenance and testing practices.

I’m very proud of the job our rig operations teams did in keeping our people safe last year, and we are committed as an organization to achieving further safety improvements in the current fiscal year.

Perhaps, the biggest news item since our last earnings call was our announcement to construct two Pacific Class jackups at the PPL Shipyard in Singapore. These high specification jackups are scheduled for delivery in late calendar year 2012, and they will make excellent additions to our existing jackup fleet. They provide drilling capability in up to 400-foot water depths, offline handling efficiencies, and expanded accommodations. We believe that our timing was quite good in committing to build these rigs at a relative low point in the build cycle since it afforded us attractive pricing and terms.

Turning to our market outlook, we believe we are seeing an improvement in overall market conditions since our last call. Confidence in the world economic recovery is increasing and oil prices have moved above $80 a barrel, aided by upward demand revisions and a weakened dollar. As a result, we are seeing increased optimism in the deepwater floater segment worldwide as new builds continue to find attractive contracts and demand visibility increases. In particular, deepwater drilling activity in Brazil and West Africa is anticipated to pick up as we head into 2011.

We also expect that the Gulf of Mexico will see its first deepwater exploration well drilling permit issued since Macando within the next three months and perhaps by year end. This milestone will be important for reestablishing deepwater drilling activity in Gulf and for setting a baseline for the future regulation of our industry.

Shifting to the jackup market, we continue to see the high spec segment remaining solid with recent fixtures supporting improved day rate and utilization trends. Future pick-ups and jackup activity are expected as we go forward in Mexico, West Africa, and South East Asia among other markets.

On the marketing front, Atwood announced extensions on two of our three deepwater floaters since the last call. The Atwood Falcon was extended by Shell on their Gumusut development in Malaysia by a period of three to five months that will keep the rig busy until at least the end of November next year.

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