Diamond Offshore Drilling (DO)

Q2 2010 Earnings Call

July 22, 2010 9:00 am ET


Gary Krenek - Chief Financial Officer and Senior Vice President

Robert Blair - Senior Vice President of Contracts & Marketing

Les Van Dyke - Director of Investor Relations

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


Ian Macpherson - Simmons & Company

Arun Jayaram - Crédit Suisse AG

Judson Bailey - Jefferies & Company, Inc.

Waqar Syed - Macquarie Research

Robin Shoemaker - Citigroup Inc

Joe Hill - Copia Capital

Angie Sedita - UBS Investment Bank

Daniel Boyd - Goldman Sachs Group Inc.



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

Les Van Dyke

Good morning, 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 Bob Blair, Senior Vice President, Contracts & 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 that drilling rigs will enter service, as well as management’s plans and objectives for the future. The discussion of the risk factors that could impact these areas and the company's overall business and financial performance can be found on 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 that 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 Larry.

Lawrence Dickerson

Thank you, and good morning. I have several topics I'm going to talk about this morning. First of which would be the moratorium and its ongoing continuing impact on Diamond Offshore. During the quarter, we have announced two relocations of rigs, which I believe are for the -- certainly, the Endeavor was the first, Confidence is the second. There's also been other announcements of modifications of contracts and various things from other drilling contractors.

I think pretty much each company and each rig plays out differently, depending upon its circumstances and situations, so I'll give you a little color behind ours. The Endeavor, which was our first rig that we announced is relocating to Egypt. It was under contract to Devon. Devon sold all their offshore properties while advancing more plan and retain contract on the Ocean Endeavor. We expected I believe to work with some farm-outs and they were very keen to assist us in coming up with a plan where we could relocate the rig. I think we disclosed the terms of that. The general scheme was that between the day rates and when we receive from our contract in Egypt and the termination payment from Devon that will be placed in the same economic position as if we stayed in the Gulf of Mexico. We believe that we have that advantage of being able to preserve some U.S. jobs that we would also have a rig, a very good rig relocating to the Mediterranean, which is a good market and certainly has more certainty going forward than the U.S. market.

Subsequent to that, about a week later, we announced, although the rig actually left earlier, was a modification to the Ocean Confidence contract with Murphy. We have little over three months left with Murphy and agreed to build a job of theirs in the Congo in West Africa, where they would relocate the rig and then we committed to bring the rig back for a year under the original terms of the contract. At such point in time that the situation is almost cleared up. If there is time that host our arrival in our drilling in the Congo, then we will be free and will be responsible for chasing other work in West Africa. So we are pleased with that arrangement. There is less revenue coming to us than probably staying in the Gulf of Mexico, but we think that was a net win for everybody.

Among our other rigs that are in the Gulf of Mexico are floaters, Ocean Voyager finished its series of oil subsequent to events of April 20 in moratorium, and that has now been cold-stacked. Saratoga was permitted to continue on. The Victory is also continuing on some production-related drilling. And the Ocean Monarch is our large rig with a big contract, which is still yet to be determined. The rig was assigned from its primary contract Anadarko to Cobalt. Cobalt had a certain commitment. And they're working through that commitment at which point in time, sometime in August, we would expect the rig to be returned to Anadarko. All that is still open. So that's the primary impact on our Floater business, our jackups. We've had mixed results. I'm seeing our customers being able to get permits. So we've had some impact there, but we've had less rigs there.

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