Diamond Offshore Drilling Q3 2010 Earnings Call Transcript

Diamond Offshore Drilling Q3 2010 Earnings Call Transcript
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Diamond Offshore Drilling (DO)

Q3 2010 Earnings Call

October 21, 2010 10:00 am ET

Executives

Gary Krenek - Chief Financial Officer and Senior Vice President

Lyndol Dew - Senior Vice President of Worldwide Operations

Les Van Dyke - Director of Investor Relations

Analysts

Collin Gerry - Raymond James

Unknown Speaker

Ian Macpherson - Simmons & Company

Geoff Kieburtz - Weeden & Co. Research

Judson Bailey - Jefferies & Company, Inc.

Arun Jayaram - Crédit Suisse AG

Matthew Beeby - Global Hunter Securities, LLC

G. Scott Burk - Oppenheimer & Co. Inc.

John Lawrence - Morgan Keegan

David Wilson - Howard Weil Incorporated

Douglas Becker - BofA Merrill Lynch

Robin Shoemaker - Citigroup Inc

Scott Gruber - Bernstein Research

Daniel Boyd - Goldman Sachs Group Inc.

Presentation

Operator

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Good morning. My name is Wes, and I will be your conference operator today. At this time, I would like to welcome everyone to the Diamond Offshore Drilling Third Quarter 2010 Results Conference Call. [Operator Instructions] I will now turn the conference over to Mr. Les Van Dyke, Director of Investor Relations. Please go ahead, sir.

Les Van Dyke

Good morning. Thank you for joining us. Larry Dickerson, our President and Chief Executive Officer was called to Washington, D.C. at the last minute along with other industry representatives and won't be joining us today. However, with me on the call are Lyndol Dew, Senior Vice President of Worldwide Operations; Gary Krenek, Senior Vice President and Chief Financial Officer; and Bill Long, Senior Vice President and General Counsel.

Before we begin our 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 of 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 change 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. And with that, I will turn the meeting over to Lyndol

Lyndol Dew

Thank you, Les, and good morning, everyone. On behalf of Larry, I will address four topics prior to turning the call over Gary, the first of which is the moratorium in the U.S. Gulf of Mexico and its continuing impact on Diamond Offshore. As I'm sure you are all aware, the moratorium has been lifted. While we consider this a positive step in the right direction, it is just one step toward resumption of normal exploration and production drilling in the Gulf. Drilling cannot commence until our customers obtain permits.

It's all about the permits. If we look to shallow water permitting, where there was no moratorium as a guide, we believe that permitting process will be slow for the foreseeable future, especially for new deepwater oil wells. Since early June there have been only 15 new well permits issued for water depths less than 500 feet according to the BOEM website. The BOEM needs a clear roadmap and additional resources to process a approve the permits. We hope the U.S. government makes this a top priority and that approved permits will begin to appear sooner rather than later.

To update you as to the status of our remaining rigs in the Gulf, all three of our marketed floaters have had their BOPs independently certified in accordance with NTL 5 and that certification has been accepted by BOEM. Our two marketed jack-ups are presently in compliance and are working. Additionally, we are presently evaluating the impact of the interim final rules that were published in the Federal Register on October 14.

As reflected in our rigs status report, we have had several rig relocation since our last conference call. The Ocean Confidence, mobilized across the Atlantic to Congo for Murphy and commenced operations in mid-September. The Ocean Baroness completed Petrobras acceptance in early September and commence it's three-year contract in Brazil. The Ocean Endeavor, arrived in Egypt on October 18 and is completing formalities prior to moving onto its first location. And the Ocean Scepter is presently in Brazil awaiting contract commencement during the first week of December for OGX.

In general, our traditional market remains stable and looks good, with the exception of the U.S. Gulf of Mexico. This should come as no surprise if oil price is above $80 per barrel. We see that high-end jack-ups and floaters have a small amount of the pricing power and market bright spots include West Africa and the Mediterranean. With the exception of the Ocean Sovereign, all of our rigs with contract end dates before the middle of next year have good prospects for continuing work.

And finally, a short comment on the dividends. The dividends remain an important part of our philosophy of returning value to shareholders. As stated in our press release, the board has decided to declare a $12.05 regular and $0.75 special dividend, which is the same as last quarter. The board will continue implementing our policy of evaluating the use of cash on a quarterly basis.

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