Diamond Offshore Drilling's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Diamond Offshore Drilling (DO)

Q1 2012 Earnings Call

April 19, 2012 10:00 am ET

Executives

Darren Daugherty -

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

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

Analysts

Robin E. Shoemaker - Citigroup Inc, Research Division

Ian Macpherson - Simmons & Company International, Research Division

Waqar Syed - Goldman Sachs Group Inc., Research Division

David Wilson - Howard Weil Incorporated, Research Division

John David Anderson - JP Morgan Chase & Co, Research Division

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

Douglas L. Becker - BofA Merrill Lynch, Research Division

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

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Diamond Offshore Drilling First Quarter 2012 Earnings Results Call. [Operator Instructions] Thank you.

I would now like to turn the conference over to Mr. Darren Daugherty, Director of Investor Relations. You may begin your conference.

Darren Daugherty

Thank you, operator. Good morning, everyone, and 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; and Michael Acuff, Senior Vice President of Marketing.

Before we begin our remarks, I should remind you that statements made during this conference call may constitute forward-looking statements, which 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 the 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. Investors and analysts should not place undue reliance on forward-looking statements. Forward-looking statements reflect circumstances at the time they are 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'll turn the call over to Larry.

Lawrence R. Dickerson

Thank you, Darren, and good morning, and welcome to our first quarter conference call. As noted in the press release, we were very pleased with our results for the first quarter, really is a factor of 2 things: one, on a current basis, we're very pleased with the -- our performance on rigs avoiding downtime. There's always going to be some sort of downtime. We had quarters in the past year where we just absolutely had minimal in terms of just a few days of downtime, and that's anomaly enough, something that can be repeated. But the amount of times where we had rigs that were off contract were well within what our expectations are, given the high standards that everybody looks forward these days. And so that obviously impacted our results.

We were pleased with our cost as well. We run a rigid budget system and tried to control costs, whereas at the same time, we're making sure that our vessels are maintained and are in proper working order. We don't view those as trade-offs. We think you can achieve both if you stay on top of your game. And I think some evidence of that, as we sold during the quarter, the Ocean Columbia to Hercules, and they were very pleased with the condition of that rig. And we're glad to take that over.

And then secondly, we'll talk about the market, and most of our signings that we have are for future impact, but obviously, everybody's following the trends on what's happening with day rates in the current period. In the fleet status report that we released just last night, not sure that we had anything all that significant.

We've announced that we have a follow-on job for the Saratoga when it completes its well down at Guyana with CGX, that we have one well, a prospect back in the Gulf, and we've got interest from several other customers for follow-on work. There's really no other vessel in that class, currently, in the Gulf of Mexico. So it's limited in water depth to around 2,000 feet. But there's still a great number of prospects and work-over-work in various projects that could utilize that rig on a go-forward basis. So we're pleased to bring that back to the Gulf of Mexico, which will, in effect, double our U.S. fleet. Because with the sale of Columbia, we're now down to just one, the Ocean Victory.

We announced a future commitment on the Ocean Victory, not in this fleet status report, but one earlier in the month. We took 1 year of commitment on that rig and priced just a hair under $420,000 a day. The vessel previous to that and is currently working on a 3.25 rate. And of course, the dates that one commitment was made versus another don't always line up. But still, almost a $100,000 jump well-to-well, certainly indicates, again, the few rigs that are in that class, that can service the 4,000- to 5,000-foot market on a mobe [ph] basis, shows that there's great demand for that. So that rig will be available in 2013. And then shortly after our pricing, one of our competitors now announced a similar rig -- similar capacity rig in the Gulf of Mexico at an even higher rate.

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