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Diamond Offshore Drilling, Inc. (DO)

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Diamond Offshore Drilling, Inc. (DO)

Q2 2017 Earnings Call

July 31, 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

James West - Evercore Group LLC

Sean C. Meakim - JPMorgan Securities LLC

Eduardo B. Royes - Jefferies LLC

Waqar Syed - Goldman Sachs & Co. LLC

Judson E. Bailey - Wells Fargo Securities LLC

Ian Macpherson - Simmons & Company International

Haithum Nokta - Clarksons Platou Securities, Inc.

Kurt Hallead - RBC Capital Markets LLC

Praveen Narra - Raymond James & Associates, Inc.

Presentation

Operator

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

I would now like to turn the call over to your host for today's conference, Samir Ali, Senior Director, Investor Relations and Corporate Development. Sir, you may begin.

Samir Ali - Diamond Offshore Drilling, Inc.

Thank you, Bridget. 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 include known and unknown risks and uncertainties, many of which we're 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.

Further, we 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 to GAAP financials 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 second quarter of 2017, Diamond Offshore announced earnings per share of $0.12, which includes a $71 million impairment charge. Excluding this non-cash charge, earnings per share for the quarter were $0.45. This compares to adjusted earnings per share of $0.16 in the second quarter of 2016.

The year-over-year increase is driven primarily by new contracts that ramped up earlier this year, a substantial improvement in our operating performance and our continued focus on cost management. The improvement in operational performance was seen across the fleet. However, I would like to highlight the four Black ships operating in the Gulf of Mexico.

Recall that these rigs are under our unique-to-the-industry Pressure Control by the Hour construct initiated just over a year ago, the benefits of which are now beginning to kick in. For example, the revenue efficiency on the Black ships has increased by over 300 basis points quarter-over-quarter, with BOP performance being a significant contributor.

During the past quarter, we drilled a well in the Gulf of Mexico to 31,000 feet, 30% faster than the planned drilling schedule. Part of this efficiency increase is a result of the ongoing reliability improvement we are witnessing because of Pressure Control by the Hour.

The relationship with our partner, GE, continues to mature, and we are beginning to realize the benefits of the design for reliability ethos with critical component and system upgrades.

Recall that when we decided to take the industry down this path, oil and gas operators applauded our unique efforts to innovate and drive efficiency gains in the deepwater drilling. We are in the early innings of the partnership and although we are now seeing the value of these process enhancements through the high-grading of componentry, there's still room for improvement. We expect the uptime of our subsea stacks to further increase as the partnership matures in the coming years.

Now turning to our active fleet, we are pleased to announce that we have secured two new contracts for the Ocean Guardian, the first is with Azinor Catalyst in the North Sea beginning in August this year. After this contract, the rig will have a short break before it begins a new contract for the Cypher Energy (4:50) in February 2018. Both of these contracts, though modest in scope, demonstrate our ability to secure work for our early generation rigs, even in such a challenged contracting environment.

Moving across the globe, the Ocean Monarch recently completed her special survey ahead of schedule. In early June, the rig began her plug and abandonment program for BHP Billiton on the North West Shelf of Australia. After the rig completes its current program, it will be mobilized to the Bass Strait to begin working for Cooper Energy and then Origin Energy. The Monarch has consistently proven her ability to secure work in Australia and we expect this trend to continue as the year progresses.

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