Rowan Companies Q3 2010 Earnings Call Transcript

Rowan Companies (RDC)

Q3 2010 Earnings Call

November 02, 2010 11:00 am ET

Executives

Thomas Burke - Chief Executive Officer of LeTourneau Inc and President of LeTourneau Inc

W. Ralls - Chief Executive Officer, President, Director and Chairman of Executive Committee

Mark Keller - Executive Vice President of Business Development

Suzanne McLeod - Director of Investor Relations

David Russell - Executive Vice President of Drilling Operations

William Wells - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Robert MacKenzie - FBR Capital Markets & Co.

Collin Gerry - Raymond James

Max Barrett - Tudor, Pickering & Co. Securities, Inc.

Ian Macpherson - Simmons & Company

Arun Jayaram - Crédit Suisse AG

Matt Conlan - MKM Partners.

James West - Barclays Capital

Robin Shoemaker - Citigroup Inc

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

Douglas Becker - BofA Merrill Lynch

Michael Urban - Deutsche Bank AG

Presentation

Operator

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Greetings, and welcome to the Rowan Companies, Inc. Third Quarter Earnings Results Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Ms. Suzanne McLeod, Director of Investor Relations for Rowan Companies, Inc. Thank you. Ms. McLeod, you may begin.

Suzanne McLeod

Thank you, LaTonya, and good morning. Welcome to Rowan's Third Quarter 2010 Earnings Conference Call. Joining me on the call this morning are Matt Ralls, President and Chief Executive Officer; Mark Keller, Executive Vice President, Business Development; Tom Burke, President and Chief Executive Officer of LeTourneau Technologies; and Bill Wells, Senior Vice President, Chief Financial Officer and Treasurer, who will have prepared remarks. Also in the room to respond to questions are David Russell, Executive Vice President of Drilling Operations; and Kevin Bartol, Senior Vice President of Corporate Development.

Before Matt begins his remarks, I'd like to remind you that during the course of this conference call, certain forward-looking statements may be made within the meaning of the Private Securities Litigation Reform Act of 1995, including statements as to the expectations, beliefs and future financial performance of the company that are based on current expectations and are subject to certain risks, trends and uncertainties that could cause the results to differ materially from those projected by the company.

With that, I'll turn the call over to Matt.

W. Ralls

Thanks, Suzanne. Good morning, everyone, and thanks for joining our third quarter 2010 earnings call. I want to begin by noting that in September, we completed our acquisition of Skeie Drilling in production and its three in class high specification jack-up rigs, and I want to take this opportunity to welcome the SKDP employees joining Rowan.

The talented team at Skeie has worked hard with the Keppel FELS shipboard in Singapore to help design and deliver this new generation of rig that will be certified to work in the demanding Norwegian sector of the North Sea, where we see increasing demand for high-spec jack-ups. This design also provides our customers the flexibility of using a jack-up for simultaneous drilling and production operations.

We are proud to own these exceptional drilling rigs and look forward to working with our new team members from SKDP to make this a successful investment.

On that note, I am very pleased to announce that we've received a commitment for the Rowan Viking, the first of the three in class rigs to be delivered. We are not yet at liberty to disclose the customer pending partner approval, but we believe the customer could have work in the U.K. sector for the rig well beyond our initial 19-month commitment. The rate is in the low 200s which is slightly below our target day rate to achieve a 12% internal rate of return. However, the anticipated contract commencement date in early March 2011 allows us to go straight to work following mobilization and operational and regulatory startup.

We thereby avoid idle time following operational availability, which was always a risk for this rig since we had so little time for marketing prior to delivery. We still see multiple opportunities which Mark will discuss in his comments for the second and third in class rigs that Rowan Stavanger and the Rowan Norway when they're delivered next year and continue to believe that we can meet or exceed our hurdle day rates.

This commitment continues our unbroken string of having work for our new builds following delivery and operational readiness. It also brings our total new contracts and commitments, added during 2010, to $1.3 billion, which is a significant achievement considering that utilization for the worldwide jack-up fleet has been in the low to mid-70% range this year. It is a testament to the ongoing demand for high-spec jack-ups.

I'm pleased with our results for the quarter, which reflect our continuing focus on cost-effectiveness and the progress we're making on reducing our effective tax rate. As Bill will explain, the quarter included a rate adjustment related to an expected full year tax rate of 26%. As our new rigs are delivered to our offshore drilling subsidiaries, our effective tax rate is projected to continue to improve.

Our balance sheet following the SKDP transaction remains quite strong, and we expect to extinguish all of the SKDP secured debt in the fourth quarter, utilizing cash provided by our unsecured debt offerings in 2009 and 2010. Capital expenditures related to our newbuild program, including the SKDP rigs, will largely be completed between now and the end of 2011 with an expected peak net debt to capitalization ratio in the mid-20% range, in line with our intention to maintain and invest in great credit profile.

Turning to LeTourneau. We are continuing to improve efficiencies and overall execution as new people are added to the management team and these strategic priorities are steadily bringing LeTourneau closer to an eventual separation from Rowan. In the meantime, the mining group continues to see strong demand for its innovative line of front loaders while the recent announcements regarding new and potential rig orders have boosted our optimism regarding improved demand for the drilling systems and offshore products groups.

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