Diamond Offshore Drilling's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Diamond Offshore Drilling (DO)

Q4 2011 Earnings Call

February 02, 2012 10:00 am ET

Executives

Darren Daugherty -

Lawrence R. Dickerson - President, Chief Executive Officer, Director and Member of Executive Committee

Gary T. Krenek - Chief Financial Officer and Senior Vice President

Michael D. Acuff - Vice President of Contracts and Marketing

Analysts

Ian Macpherson - Simmons & Company International, Research Division

Collin Gerry - Raymond James & Associates, Inc., Research Division

Judson E. Bailey - Jefferies & Company, Inc., Research Division

David Wilson - Howard Weil Incorporated, Research Division

John D. Lawrence - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Todd P. Scholl - Clarkson Capital Markets, Research Division

David C. Smith - Johnson Rice & Company, L.L.C., Research Division

G. Scott Burk - Canaccord Genuity, Research Division

Andreas Stubsrud - Pareto Securities AS, Research Division

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 Fourth Quarter 2011 Results Conference Call. [Operator Instructions] I would now like to turn the call over to Darren Daugherty, Director of Investor Relations. Please go ahead.

Darren Daugherty

Thank you, Brandy. Good morning, everyone, and thank you for joining us. With me on the call today are Larry Dickerson, President and Chief Executive Officer; Gary Krenek, Senior Vice President and Chief Financial Officer; and Michael Acuff, 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 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 10-K and 10-Q filings with the SEC. Given these concerns, 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'll have a question-and-answer session. [Operator Instructions] And now I'll turn the call over to Larry.

Lawrence R. Dickerson

Thank you, Darren, and good morning and welcome to our end of the year and fourth quarter conference call. Well, I'm going to start off by talking a little bit about the market. We do not have any banner dayrates to announce today nor have we announced any recently, but that doesn't mean that there's not intense interest in a number of our rigs across a number of markets.

If we just back up for a little bit and put this in perspective on where the market is now versus where it was a year ago, we're seeing a very strong market. We're seeing that the continuation of oil prices at or above $100 for that time period is obviously having, in our judgment, an impact on our customer as they take this oil price in and become increasingly comfortable that, that is the go-forward price that they can count on.

We've had the North Sea firm up a year ago. We had very little forward visibility. We're concerned about working rigs through the winter, and now we've got backlog in place. We're returning the Guardian from the Falkland Islands to that market for a term contract.

And in addition to that, Mexico has really come on very strong. We currently have 4 jack-ups and a semi in that market. A year ago, we had 2 jack-ups there, with less than a year of forward visibility. And now we're right at 10 years of commitment spread across those 5 rigs. So Mexico stepping forward, taking up jack-ups, bringing in floaters, is certainly also a real net positive we believe. In the Gulf of Mexico, we continue to take rigs out of that market, so we're now down to one jack-up and one semi, the Ocean Victory. We've got good demand for both units. We're seeing in the jack-up front that there's a number of small players that are seeking to find well places, oil plays, among other things to put jack-ups to work. And then really with just our sole semi and the 3 of 6,000-foot market, with very little competition, we're seeing great interest in that particular unit as well.

Over in Indonesia, where we have had a presence since the early '80s, we were down to our core jack-up over there. The Ocean Sovereign has since been cold stacked, and we had the Ocean Rover working in that market for a short-term period. But since then, we've committed the Ocean Monarch for a full year program, so we're glad to continue in that area. And I think that also shows just that you've got lots of interest around the world in areas that people believe that they can develop lots of production that will be profitable at these type of dayrates.

And then the most recent activity that we've gotten is the announcement of the construction of the Ocean Onyx. That has begun in Brownsville, and we're targeting a mid '13 delivery on that unit. So the quick turnaround is certainly an advantage to us as is the low capital cost of approximately $300 million, and we've got interest in that unit already. We're not ready to comment particularly on where that market is. But I think if you watch the Ocean Victory, which is a similar rig, the Onyx will have more capability for sure, but they will service similar market. And as you see what sort of commitments we may have on Ocean Victory going forward, I think that will give you a good clue on where the demand might be for the Ocean Onyx, certainly, in the.Gulf of Mexico. And of course, there was new interest in it in other Atlantic Basin areas that we could put the vessel to work.

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