Diamond Offshore Drilling's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Diamond Offshore Drilling (DO)

Q3 2011 Earnings Call

October 20, 2011 10:00 am ET

Executives

Darren Daugherty -

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

Michael D. Acuff - Vice President of Contracts and Marketing

Morrison R. Plaisance - Vice President of Contracts & Marketing

Unknown Executive -

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

Analysts

Douglas L. Becker - BofA Merrill Lynch, Research Division

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

Michael W. Urban - Deutsche Bank AG, Research Division

Geoff Kieburtz - Weeden & Co., LP, Research Division

Robin E. Shoemaker - Citigroup Inc, Research Division

David Wilson - Howard Weil Incorporated, Research Division

Darren Gacicia - Morgan Stanley

G. Scott Burk - Canaccord Genuity, Research Division

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

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Diamond Offshore Drilling Third Quarter 2011 Results Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Mr. Darren Daugherty, Director of Investor Relations. Sir, you may begin your conference.

Darren Daugherty

Thank you, Paula. Good morning, everyone. 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; Moe Plaisance, Vice President, Marketing; and Michael Acuff, Vice President, Marketing.

Before we begin our remarks, I should remind you that statements made during this conference call may constitute forward-looking statements that 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 that 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're 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 will turn the meeting over to Larry.

Lawrence R. Dickerson

Thank you, Darren. Welcome also to our third quarter conference call. I'd like to talk just a little bit about the contracts that we've signed in the quarter. They have been disclosed all along as we report our contract backlog every 2 weeks, but it's appropriate time to look back upon them. And I think we summarized them in the press release that we added 14 new contracts with 18 rig years and $1.3 billion of revenue backlog. And I think those, really, if we look at them by market, I think Mexico is significant for us. We signed 4 contracts in this period, running up here to just a few days into October.

The Summit, which is already been down there achieved a 2.7 year extension at a nice rate. And then we brought 2 rigs out of Brazil, the Yorktown and the Scepter. Yorktown will be going down there. Yorktown's a semi for 2.5 years rate in the 180s. And then the Scepter, a newly constructed jack-up, which had been working in Brazil. We had some permit issues down there, and so we arranged to be released. We'll come up here and work this end of the market, hopefully, while they get everything straightened out down in Brazil.

And then these 2 rigs were also joined by the Ocean Titan, a 350-foot unit that they have been working in the Gulf of Mexico, which obtained 2.1 years of backlog. So Mexico has been building for some time with bidding contracts out, but actual activity has been down. But the ongoing depletion of their fields and the needs to get some work done have continued to push them in this direction. And so it's been very beneficial for Diamond and I believe some our competitors as well have put a number and expect that, that's an important market.

In the North Sea, we signed our 2 floaters that we have in there, the Ocean Nomad and the Ocean Princess, to contracts that take us through the winter. The Nomad is working for BG, and the Ocean Princess signed a 600-day approximate contract with Enquest which will start shortly. Then in Brazil, most of our backlog came from extensions to existing contracts, Petrobras took the Ocean Valor and Ocean Baroness contracts, which had been 3-year contracts and they had an option to extend them to 5 years and they took advantage of that. So that added quite a bit of backlog. And then also our other good customer down there, OGX, put one year extensions in each of the Quest and Star.

So those 4 markets or 3 markets, Brazil, North Sea and Mexico, have been very strong for us. That really releases our Gulf of Mexico fleet now to just 3 active rigs, 2 floaters and 1 jack-up. We have one floater that's down just coming out of the shipyards, so we only have 2 rigs working today.

The permit situation is certainly improving, and we see some optimism out there in some of the big contracts that have been signed. However, on the coal phase, when we deal with customers on a day-to-day basis, we still deal with many people that don't know the permit situation that are waiting on permits. It's not at a smooth flow situation, which we really need to encourage ongoing work. It sort of started to stop. So hopefully, we'll continue to make progress in there. But at the end of the day, we just don't have that many rigs left in that market. The Ocean Victory is a rig that we have that's a 5,000-foot capable rig that's drilling in the 3,000-foot level. And really there's very, very few rigs left there in that category.

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