Parker Drilling Company ( PKD) Special Call January 17, 2012 10:00 am ET Executives Richard Bajenski – Director of Investor Relations David C. Mannon – President & Chief Executive Officer W. Kirk Brassfield – Senior Vice President & Chief Financial Officer Analyst John Keller – Stephens Inc. Presentation Operator
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We also refer to non-GAAP financial numbers such as EBITDA and other items. These items are referred to in the same context as they have been employed in our past financial reports and filings. Please keep these qualifying conditions in mind as we proceed. Dave Mannon, will begin our review. David?David C. Mannon Thank you, Richard. Earlier today we announced that there will be further delays in completion of our advanced design Arctic Alaska Drilling Units or AADU. This delay is to allow the company to modify the rigs to meet their design and functional requirements. The need for the modifications was determined as a result of comprehensive safety, technical and operational reviews during the recent commissioning activities of these prototype rigs. The modification work will extend the commissioning activities and increase the rigs total cost. When bringing any prototype to market, unknown issues arise, especially when working with a multitude of interlink systems. Although we’ve identified solutions to resolve the issues identified during commissioning, I do not have a revised readiness schedule to share with you at this time. We are in discussions with our customer BP concerning, among other things, a revised schedule. In addition, commissioning and testing work is ongoing. We will update you on our progress in the future including during our quarterly earnings conference call in late February. We now expect the total cost of the rigs to be approximately $385 million, including capitalized interest. At these expenditure levels, we have determined that the total cost of the two rigs will exceed their projected cash flows. In order to adjust the rigs’ values to their estimated fair value, we intend to record a non-cash charge in the 2011 fourth quarter of approximately $171 million pre-tax, or $111 million after-tax. This will reduce 2011 after-tax earnings per share by approximately $0.95.
Successful innovation in drilling technology has been one of the hallmarks of Parker Drilling, particularly for applications in Arctic environments such as Heli-Hoist, rig design, and rig on wheels, which later led to self propelled rigs. These innovations greatly contributed to the development of Alaska’s Prudhoe Bay Field.When we undertook the AADU project in 2008, we set out to bring advanced drilling technologies to the north slope of Alaska believing that the new rig design would provide improved drilling efficiency, operational consistency and enhanced safety. Converting the AADU concept into a functional rig has posed significant engineering and construction challenges. We made efforts along the way to address these as they occurred. As the design evolved, we strengthened the design team, adding experienced resources. As the build schedule accelerated, we added support in critical trades and added work shifts. As the construction and integration complexities grew, we expanded our Management team with a new role focused on our engineering projects in general and the AADU in particular and staffed it with a proven leader in the field. Despite these responses, the AADUs have not met their scheduling cost targets. However, we continue to expect them to meet their design and performance objectives. In operational and strategic terms, we are looking forward to having these rigs in operation and validating our concepts of improved efficiency and safety in a demanding work environment on the North Slope. Earlier this month, we received a letter from BP stating their belief that the delay constitutes a default under contract. We disagree that default is in effect under the contract. We are in discussions with BP concerning the contractual and operational issues related to the rigs. These discussions are continuing and ongoing. While this project has commanded a lot of attention, particularly in addressing the current circumstances, we continue to execute Parker's business plan and the rest of our operations continue to perform inline with our expectations. I look forward to providing you an update on that progress and our results during our earnings call in late February. Read the rest of this transcript for free on seekingalpha.com