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Diamond Offshore Drilling, Inc. (DO)

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Diamond Offshore Drilling, Inc. (DO)

Q1 2017 Earnings Call

May 01, 2017 8:30 am ET

Executives

Samir Ali - Diamond Offshore Drilling, Inc.

Marc Edwards - Diamond Offshore Drilling, Inc.

Kelly Youngblood - Diamond Offshore Drilling, Inc.

Ronald Woll - Diamond Offshore Drilling, Inc.

Analysts

Gregory Lewis - Credit Suisse Securities (USA) LLC

Ian Macpherson - Simmons & Company International

Rob J. MacKenzie - IBERIA Capital Partners LLC

Jacob Ng - Morgan Stanley & Co. LLC

Samantha Kay Hoh - Evercore Group LLC

Eduardo B. Royes - Jefferies LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Diamond Offshore Incorporated First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Samir Ali. You may begin.

Samir Ali - Diamond Offshore Drilling, Inc.

Thank you, Grace. Good morning, everyone, and thank you for joining us. With me on the call today are Marc Edwards, President and Chief Executive Officer; Ron Woll, Senior Vice President and Chief Commercial Officer; and Kelly Youngblood, Senior Vice President and Chief Financial Officer.

Before we begin our remarks, I remind you that the information reported on this call speaks only as of today. And therefore, you're advised that time-sensitive information may no longer be accurate at the time of any replay of this call.

In addition, certain statements made during this call may be forward-looking in nature. Those statements are based on our current expectations and includes known and unknown risks and uncertainties, many of which we are unable to predict or control, that may cause our actual results or performance to differ materially from any future results or performance expressed or implied by these statements. These risks and uncertainties include the risk factors disclosed in our filing with the SEC included in our 10-K and 10-Q filings.

We further expressly disclaim any obligation to update or revise any forward-looking statements. Please refer to the disclosure regarding forward-looking statements incorporated in our press release issued earlier today. And please note that the contents of our call are covered by that disclosure. We will be referencing non-GAAP figures on our call today. Please find the reconciliation on our website.

And now I'll turn the call over to Marc.

Marc Edwards - Diamond Offshore Drilling, Inc.

Thank you, Samir. Good morning, everyone, and thank you for joining us today.

For the first quarter of 2017, we announced earnings per share of $0.17, which compares to earnings per share of $0.64 in the first quarter of 2016. The year-on-year decrease is, once again, a consequence of the ongoing decline in the demand for offshore drilling rigs and the impact this has on contract day rates.

With that said, we commenced two new contracts for our sixth-generation assets, the Ocean GreatWhite and the Ocean BlackRhino. And additionally, we secured a new term contract for our third-generation asset, the Ocean Patriot, as well as securing two new short-term contracts for the Ocean Monarch.

Overall, I'm pleased with these results, as it demonstrates our ability to employ all of our sixth-gen assets and find new work for a variety of asset classes while, at the same time, maintaining a relentless focus on cost management and increased operating efficiency.

So, allow me to give further color on the fleet itself. The Ocean BlackRhino commenced its three-year term contract for Hess in the Gulf of Mexico at a rate of $400,000 per day, and the Ocean GreatWhite commenced its three-year term contract for BP. Recall that the rig is currently in stand-by mode with reduced activity, allowing the contract margin to be maintained to that of the original contract rate of $585,000 per day.

Additionally, the Ocean Scepter returned to work in Mexico, maintaining a presence for us in a market whose importance will only grow in the years to come. I will remind everyone that we are uniquely positioned among our peers, as all of our sixth-generation assets are deployed under long-term contracts at rates of over $400,000 per day.

So staying with the sixth-gen fleet, Diamond Offshore set a new technical record during the first quarter when the Ocean BlackLion successfully drilled and completed one of the deepest and most challenging wells on record in the Gulf of Mexico. For the first time, an intelligent well completion system was successfully deployed simultaneously over three pay zones (4:15) at a depth of 31,000 feet. Our ability to effectively drill and complete such a demanding well exemplifies the Diamond difference, and is a testament to the quality of our operational and technical excellence.

This morning, we also announced that we secured two new contracts for the Ocean Monarch in Australia. These contracts will keep one of our premier assets in the region utilized through the end of 2018 and likely and beyond. The Ocean Monarch is currently completing her special survey in Singapore and will then begin working for BHP Billiton on the North West Shelf of Australia in June. Following this contract, the rig will be mobilized to the Bass Strait to begin drilling for Cooper Energy and then Origin Energy. Diamond has a strong reputation in the Australian market, and these two contracts ensure that we will continue to have a presence in the country for many years to come.

In the North Sea, our strong reputation also delivered a new two-year term contract for the third-generation Ocean Patriot with Apache, beginning in the second quarter of 2018. The rig is currently operating for Shell and will finish its program in October of this year. After Shell, the rig will complete a special survey and will then be returned to service early in 2018.

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