Atwood Oceanics' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Atwood Oceanics (ATW)

Q1 2012 Earnings Call

February 02, 2012 12:00 pm ET


Mark L. Mey - Chief Financial Officer, Chief Accounting Officer and Senior Vice President

Robert J. Saltiel - Chief Executive Officer, President, Director and Member of Executive Committee


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

David Wilson - Howard Weil Incorporated, Research Division

G. Scott Burk - Canaccord Genuity, Research Division

Brian Uhlmer - Global Hunter Securities, LLC, Research Division

Rhett Carter

Anders Bergland - RS Platou Markets AS, Research Division

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



And welcome to today's First Quarter Results for Fiscal Year 2012 Conference Call. [Operator Instructions] Please note today's call is being recorded. Today's program will be presented by Robert Saltiel, President and CEO; and Mark Mey, Senior Vice President and CFO. It is now my pleasure to turn the program over to Mark Mey. Please begin, sir.

Mark L. Mey

Thanks, Kevin. Good morning, and welcome to Atwood Oceanic's conference call and webcast to review its company's operating results for the first quarter ended December 31, 2011. The speakers today will be Rob Saltiel, President and CEO; and myself, Mark Mey, Senior Vice President and CFO.

Before we begin, let me remind everyone that during the course of this conference call, we may make forward-looking statements, which are not historical facts and are based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us. These statements involve a number of risks and uncertainties, including the risks which are described in the company's most recent Form 10-K and other filings with the U.S. Securities and Exchange Commission.

We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements if one of these risks or uncertainties were to occur or assumptions prove incorrect. Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof.

Now let me turn the call over to Rob for opening comments.

Robert J. Saltiel

Thank you, Mark. Good day to all of you joining us for our discussion of Atwood's fiscal 2012 first quarter results. I will make a few comments on the significant developments since our last call and then provide some color on Atwood's market outlook and contracting activities before turning it back to Mark for the financial details.

The first quarter saw our company achieved another record for quarterly revenue at $184.7 million, which resulted in earnings of $65.5 million or $1 per diluted share. Because we experienced higher than normal downtime on 2 of our highest revenue rigs, the Atwood Hunter and the Atwood Osprey, our revenue recognition was significantly lower than we are used to achieving.

In addition, our quarterly drilling costs were impacted negatively by certain repair and maintenance items that were more concentrated in this quarter. The net effect of these 2 factors, which I will discuss further, was to reduce our earnings below what we had expected for the quarter. The issuing of our first public debt offering in early January, $450 million of 8-year 6.5% coupon bonds, was a major milestone for Atwood Oceanics in diversifying our debt profile and enhancing our financial flexibility. We are very pleased to have completed this offering during the prevailing market uncertainty, especially in Europe. With this initial bond issue behind us, Atwood now has the capability to access the public debt markets in the future on an expedited basis should we decide to do so.

The downtime that occurred last quarter on the Osprey and the Hunter was related primarily to subsea equipment maintenance and testing. The root causes of these incidents have been addressed through equipment modifications and/or refinement of our BOP maintenance and testing procedures. While many of our competitors have commented extensively on their issues with BOP reliability, Atwood has largely avoided significant BOP performance issues.

As part of our operations' integrity initiative, we've been working continuously since the Macondo incident to bring greater transparency and consistency to our BOP maintenance and testing. Three things are worth sharing in this regard. First, all maintenance performed on Atwood BOPs is planned well in advance by the collaboration between our headquarters subsea specialists and our rigs subsea engineering teams. The work scope, parts requirements and testing protocols are all agreed upfront. Second, execution of all agreed tasks occurs under continuous supervision that follows a prescribed plan. There are no decisions about work scope that are left to the authority of an individual subsea engineer. Also, there is no pressure to work fast, only to do it thoroughly and according to the plan. And third, the BOP stack is not approved for deployment on a well until both our headquarters' team and our rigs offshore and onshore management teams have given the go ahead. Like all of our major competitors, we assess competency of our subsea personnel and invest significantly in training. But we believe the rigor of our management process will provide a key differentiation in our performance.

I mentioned at the outset of the call that our drilling services for the quarter were higher than expected. This is primarily a timing issue as we expected drilling costs for the full fiscal year will come in at the low end of the guidance that we provided on the last earnings call. Mark will provide further color on our cost outlook in his remarks.

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