Diamond Offshore Drilling, Inc. Q1 2010 Earnings Call Transcript

Diamond Offshore Drilling, Inc. Q1 2010 Earnings Call Transcript
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Diamond Offshore Drilling, Inc. (DO)

Q1 2010 Earnings Call Transcript

April 22, 2010 10:00 AM ET

Executives

Les Van Dyke – Director, IR

Larry Dickerson – President and CEO

Gary Krenek – SVP and CFO

Bob Blair – SVP, Contracts and Marketing.

Analysts

Dan Boyd – Goldman Sachs

Angie Sedita – UBS

Jim Crandell – Barclays

Ian McPherson – Simmons & Company

Dave Wilson – Howard Weil

Joe Hill – Tudor, Pickering, Holt & Co.

Robin Shoemaker – Citigroup

Scott Burk – Oppenheimer

Geoff Kieburtz – Weeden & Company

Philip Dodge – Tuohy Brothers Investments

Presentation

Operator

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Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Diamond Offshore Drilling First Quarter 2010 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

(Operator instructions).

I would now like to turn the call over to Les Van Dyke, Director of Investor Relations. Please go ahead, sir.

Les Van Dyke

Good morning. 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 Bob Blair, Senior Vice President Contracts and Marketing.

Before Larry begins his remarks, I should remind you that statements made during this conference call may constitute forward-looking statements, and are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected.

Forward-looking statements include but are not limited to discussions about future revenues and earnings, capital expenditures, industry conditions and competition, dates the drilling rigs will enter service, as well as management’s plans and objectives for the future. A discussion of the risk factors that could impact these areas and the company's overall business and financial performance can be found in the company's reports filed with the Securities and Exchange Commission. Given these concerns, investors and analysts should not place undue reliance on forward-looking statements.

The Company expressly disclaims any obligation to release publicly any updates to any forward-looking statements to reflect any changes in the company's expectation or changes in events, conditions or circumstances on which any forward-looking statements 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.

Larry Dickerson

Thank you and good morning. I want to get right to the news everyone’s focused on today, which is the new level of our special quarterly dividend. We know how important the special dividend is to all of our shareholders and even post this cut, it remains an important part of our effort to enhance shareholder value. However, day rates on renewal contracts for our industry have declined from peak levels which will impact revenues, earnings and cash flow. With that in mind, the company’s Board of Directors has elected to reduce the special quarterly dividend by $0.50 from a $1.875 a share to $1.375 a share in this particular quarter.

So the combined special and total dividend – combined, I am sorry, regular and special dividend declines from $2 a share to $1.5 share a quarter. I am making this decision the company also believes is prudent at this time and to retain some cash for potential rig acquisition opportunities and other corporate purposes.

I would remind everybody that since the company began paying a special dividend in January 2006, we paid our total dividends of $23.88 per share, which aggregates to a total over $3.3 billion. At $1.50 per share, our combined current level of regular and special dividends continues to lead our industry. The industry – the company believes that this new level of special quarterly dividend could be maintained through at least 2010, subject to of course, the changes in the company’s financial situation, our capital spending plans and other relevant factors, which we disclosed in our press release.

I think that looking at this, the dividend reduction is not so much a reflection of our future expectations of the day rates, which happens to be positive, as we comment upon where days rates are currently. Again, we are no longer at peak levels and that is being reflected in new contracts that we and others in the industry have signed. I think one data point would be to look at the mid water semi rates. Transocean has recently reported rates this week which are in line with the rates which we previously reported, which falls somewhere between $240,000 and $280,000 a day dependent upon the market and the individual rigs. These are solidly profitable rates and anytime up until the last three or four years, that had been banner rates for the industry. However, they have declined from peak rates that we were signing in the mid to high 300s and in some cases over $400,000 a day. So I think that's just reflective of a type of day rates that has declined.

Day rates do appear to be relatively stable right now with oil prices above $80 and while per barrel we would expect that, and as the global economy begins to show signs of improvement, then we would expect that that would also yield a great demand for oil. In this environment, it seems possible that the uncontracted new bill floaters can be absorbed without much of any negative impact on the market, but we don't have a crystal ball. If industry conditions should deteriorate, we want to be in a position to maintain at given levels special quarterly dividend over a period of time as well as retaining cash, take advantage of any attractive rig acquisition opportunities that may arise. As an example, both in the past 12 months, we acquired rigs that renamed Ocean Courage and Ocean Valor at very attractive rates.

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