Diamond Offshore Drilling, Inc. Q1 2009 Earnings Call Transcript

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Diamond Offshore Drilling, Inc. (DO)

Q1 2009 Earnings Call Transcript

April 23, 2009 10:00 am ET

Executives

Les Van Dyke – Director, IR

Larry Dickerson – President and CEO

Gary Krenek – SVP and CFO

John Gabriel – SVP, Contracts & Marketing

Analysts

Ian Macpherson – Simmons & Company

Angie Sedita – Macquarie

Collin Gerry – Raymond James

Judson Bailey – Jefferies & Company

Arun Jayaram – Credit Suisse

Waqar Syed – Tristone Capital

Pierre Conner – Capital One Southcoast

Presentation

Operator

Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to the Diamond Offshore Drilling First Quarter 2009 Results Conference Call. (Operator instructions).

I would now like to turn the call over to Mr. Les Van Dyke, Director of Investor Relations. Please go ahead, sir.

Les Van Dyke

Good morning. 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 John Gabriel, Senior Vice President Contracts and Marketing.

Before Larry begins his remarks, I should remind you that statements made during this conference call may constitute forward-looking statements, and are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected.

Forward-looking statements include but are not limited to discussion 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 reports filed with the Securities and Exchange Commission. Given these concerns, investors and analysts should not place undue reliance on forward-looking statements.

The Company expressly disclaims any obligation to release publicly any updates to any forward-looking statements to reflect any change in the Company's expectation or changes in events, conditions or circumstances on which any forward-looking statements is based.

With that I'll turn the meeting over to Larry.

Larry Dickerson

Thank you, Les, and welcome everybody to our first quarter 2009 conference call with America's largest offshore driller. I like to begin by commenting on our dividend announcement that was included there. It's the same special dividend that was paid as the last quarter and same regular dividend. This brings our cumulative dividends paid since beginning of 2006 when we made our first special dividend to $15.88. We hope our shareholders appreciate that.

Talking about the results for the quarter, I think first of all I'm going to focus just a moment on cost. Costs were under the guidance that we had given last quarter. We gave a range, but taking the midpoint of the range of $335 million of drilling costs. We came in at $298 million or a $37 million advantage.

We have made it a – one of our key goals as we go into this year with the uncertainties involved in that to be very stringent on our cost to reduce cost wherever possible and defer other cost, but that's not responsible for the whole $37 million. It's about $11 million of deferral of cost on both the Quest and the Monarch, which we're preparing for contracts, which we had not included in our guidance.

And then we got a special survey that switched from quarter-to-quarter or didn't spend as much time in this particular quarter as we had thought on Ocean America which was worth another $4 million. So that leaves you about $22 million which we achieved through a combination of cost control and deferral of cost. I don't have an exact breakout of that number, but I'm going to guess that about 60% of that is cost reduction, 40% of that would be cost deferral. And that means on deferrals that means each quarter we constantly are re-examining, do we need to spend this now, does have to be done now. So I can't really tell you how that's going to swing back and forth, but it would be our goal to continue to achieve cost reductions as we go forward.

On the revenue side, we had very favorable results due to reduced amount of downtime due to failure or repair issues of only 58 days for the quarter. We had 159 days in the fourth quarter of 2008, so that was a – one of the lowest that we have achieved on record. And we hope to achieve that going forward, but I would imagine we would revert closer to mean as we go in there.

Now talking about markets and John Gabriel will certainly elaborate on this to your questions as we go through this. But talking right now about idle rigs, the Ocean Guardian is idle in the North Sea, continues to be following its release by Oilexco due to the failure of that and liquidation of that customer.

We do have an LOI for a one well job that should be starting very shortly. And we have a – we are working on a – taking a commitment to paper on a separate follow-on well, so we could have two wells that would take us well into the summer on that rig.

We have the Ocean Heritage as a jack-up that's idle in Egypt and continues idle, although we are continuing to market it and have some interest in the unit. And then in the Gulf of Mexico, all three of our mat rigs are idle and we also currently have the Ocean Spartan idle, which is a 300 foot unit.

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