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Diamond Offshore Drilling, Inc. (DO)

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Diamond Offshore Drilling, Inc. (DO)

Q3 2017 Earnings Call

October 30, 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

James West - Evercore ISI

Ian Macpherson - Simmons & Company International

Judson E. Bailey - Wells Fargo Securities LLC

Sean C. Meakim - JPMorgan Securities LLC

Gregory Lewis - Credit Suisse Securities (USA) LLC

Haithum Nokta - Clarksons Platou Securities, Inc.

Eduardo B. Royes - Jefferies LLC

Robert J. MacKenzie - IBERIA Capital Partners LLC

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Q3 2017 Diamond Offshore Drilling 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 introduce your host for today's conference, Mr. Samir Ali, Senior Director of Investor Relations. Sir, you may begin.

Samir Ali - Diamond Offshore Drilling, Inc.

Thank you, Danielle. 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 today are covered by that disclosure. We will be referencing non-GAAP figures on our call today. Please find the reconciliation to GAAP financials in our press release.

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 participating on our call today. For the third quarter of 2017, Diamond Offshore announced earnings of $0.08 per diluted share, which includes an after-tax loss of $0.17 related to our recent successful debt refinancing.

Excluding this transaction, our adjusted third quarter 2017 results of $0.25 compare favorably to our third quarter 2016 results of $0.10 per share. The Ocean BlackRhino and Ocean GreatWhite, having commenced their contracts earlier this year, were large drivers of this increase in year-over-year earnings. But I also want to highlight that our ability to high-grade operations and deliver industry-leading uptime greatly influenced these improved results.

Diamond Offshore continues to focus on superior operations for our clients as we progress through this downturn. This effort has allowed us to achieve an operating efficiency, excluding planned downtime, of 98.5% in the third quarter, making it the highest operating efficiency quarter since I joined Diamond Offshore in 2014.

This operational improvement has translated into real savings for our clients. Case in point, one of our premier sixth-generation drillships recently drilled and completed a well 47 days ahead of schedule. Additionally, one of our drillships delivered operational efficiency this quarter very close to 100%, with only seven hours of downtime in the entire quarter. Our ability to bring wells in ahead of schedule and reduce total well cost is a win for both our clients and Diamond Offshore as we work towards making offshore drilling more efficient.

Before I provide a fleet update, I would like to briefly discuss our recent bond offering. Given the continued uncertainty in the offshore drilling market, it was prudent to extend our already best-in-class liquidity runway and bolster our balance sheet.

We have no remaining significant plan capital expenditures, including newbuild capital and now have an attractive debt profile as our next bond maturity is not until 2023, with more than half of all maturities in 2039 and beyond. In other words, over 20 years from now. We also have significant untapped borrowing capacity available from our $1.5 billion revolver.

Now, turning to our moored rig fleet. We are pleased to announce that we have secured additional term for two rigs; the first for the Ocean Apex in Australia and the second for the Ocean Patriot in the North Sea. The Ocean Apex was extended by Woodside with an additional well added to the current program, taking the estimated contract expiry to early second quarter 2019. Recall that the rig has been on contract with Woodside since May 2016 and the additional well was allocated to the Apex based on its track record of delivering wells ahead of schedule.

The Ocean Patriot also secured a new contract with Shell in the North Sea. The rig is now completing its current term work with Shell and will then be mobilized to undergo a special survey and top drive upgrade. Post upgrade, it will begin a drilling campaign from March 2018 to May 2018, after which, the rig will be mobilized for her contract with Apache.

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