Diamond Offshore Drilling Management Discusses Q2 2012 Results - Earnings Call Transcript

Diamond Offshore Drilling (DO)

Q2 2012 Earnings Call

July 19, 2012 10:00 am ET

Executives

Darren Daugherty

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

Michael D. Acuff - Senior Vice President of Contracts and Marketing

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

Kurt Hallead - RBC Capital Markets, LLC, Research Division

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

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

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Presentation

Operator

Good morning. My name is Maria, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Diamond Offshore Second Quarter 2012 Earnings Results Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Darren Daugherty to begin. Please go ahead.

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; 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.

Given these factors, 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. We ask that you please limit it to 1 question and a follow-up so that we can open the floor to as many people as possible.

And now, I'll turn the call over to Larry.

Lawrence R. Dickerson

Thank you, and welcome again to everyone for joining us. We were very pleased, obviously, with the results that we reported for the quarter. And I will start by making some comments on the operating results and some of our future dayrates. So I'll be followed by Michael Acuff who will elaborate more on markets around the world in an opening statement. And then Gary Krenek, who's our CFO, will make some further commentary on the numbers that are in this quarter and how those may impact us on a go-forward basis.

First, on the operations, removing the items related to the sale of the jack-ups, we still substantially performed above our budget and the average industry consensus. And one thing I'd like to comment on there, we've got lots of initiatives ongoing that have been in place for a long time and some of those really were, included in this quarter, particularly efforts to reduce unplanned downtime.

We came in at 60 days of unplanned downtime. In other words, things that result from equipment breaking or being taken offline, where the rig has to suspend the operations during the quarter -- the past 2 quarters. And on a budgetary basis, we have experienced in the 140-day range and that's what we set as our budget for the year. We have previously performed better than that. We did a 110 days, I think, at end of last year. And we were in the 60s if you go back several years. But we were very pleased with that. And that's a reflection of our preventive maintenance program and the amount of spares that we have so that if equipment fails, we're able to very rapidly get that replaced.

And I'll just give you an example that's happened here right at the beginning of July. It wasn't in the quarter, but it's typical. On one of our rigs, during a routine maintenance inspection, one of our employees noted that some ships [indiscernible] on compensator on a big rig appeared to have a crack. And I've seen progress of what they've looked at. And given the condition with grease and sea spray and all kind of things on it, it was really a tremendous catch. The rig was able to obviously -- again on top of this, instead of having a catastrophic failure, that could have had -- been down for a longer period of time, but could have potential for injuries. We're able to get -- plan what we're going to do. Our initial plan was it may take 4 days, but due to the competency of our crews and great planning, they were able to execute this change in under 55 hours.

So those are the kind of efforts that are going on all of the time out there. And if you think about the difference between 140 days of downtime and 60 days of downtime, that 80 days of savings, if our average rate were at $300,000, that's $24 million in a quarter or about $0.12 to $0.13 that we would save as a result of that. So we're not always going to be able to achieve that, but we're certainly working hard to do that.

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