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Diamond Offshore Drilling, Inc. (DO)

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Diamond Offshore Drilling Inc. (DO)

Q4 2018 Earnings Conference Call

February 11, 2019 09:00 ET

Company Participants

Samir Ali - Vice President, Investor Relations and Corporate Development

Marc Edwards - President and Chief Executive Officer

Ron Woll - Senior Vice President and Chief Commercial Officer

Scott Kornblau - Senior Vice President and Chief Financial Officer

Conference Call Participants

Kurt Hallead - RBC Capital Markets

Sasha Sanwal - UBS

James West - Evercore ISI

Ian Macpherson - Simmons

Sean Meakim - JPMorgan

Taylor Zurcher - Tudor, Pickering, Holt

David Smith - Heikkinen Energy Advisors

Presentation

Operator

Good day ladies and gentlemen and welcome to the Q4 2018 Diamond Offshore Drilling Incorporated 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 be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Samir Ali, Vice President, Investor Relations and Corporate Development. Sir, you may begin.

Samir Ali

Thank you, Mark. 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 Scott Kornblau, Senior Vice President and Chief Financial Officer.

Before we begin our remarks, I remind you that information reported on this call speaks only as of today and therefore you are advised that time-sensitive information may no longer be accurate at any time of replay of this call. In addition, certain statements made during this call maybe forward-looking in nature. Those statements are based on our current expectations and include 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 filings 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 a reconciliation to GAAP financials on our website.

And now I will turn the call over to Marc.

Marc Edwards

Thank you, Samir. Good morning everyone and thank you for joining us today. In the fourth quarter of 2018, including one-time charges related to tax reform, Diamond Offshore posted a loss per share of $0.58. Excluding these one-time items, adjusted loss per share was $0.42 compared to fourth quarter 2017 adjusted loss per share of $0.05. The decline year-over-year was primarily driven by various rigs being contracted at lower rates in the fourth quarter of 2018 compared to the fourth quarter of 2017. Partially offsetting the year-over-year revenue decrease, our operating costs were reduced by 24% over the same period.

Despite the continued decline in revenue, we believe day rates have now found a floor. In the moored market, we are increasing our day rates as contracts renew albeit off a very low market trough. And on the dynamically positioned side, rates appear to be moving higher. However, we still expect the continued oversupply of sixth and seventh generation drill ships to push a real recovery of day rates for this asset class beyond 2019. But allow me to address Diamond’s seventh generation assets for a minute. Our focus for a long time has been on driving efficiency gains into deepwater drilling through a differentiated offering in what has traditionally been a commoditized space. And to this end, I have spoken about our unique service offerings such as Pressure Control by the Hour, Sim-Stack and more recently, Blockchain Drilling. I have previously mentioned how such innovation during 2018 reduced BOP downtime on this complex piece of equipment to less than 1% how we have delivered 31,000ft wells here in the Gulf of Mexico up to 54 days ahead of schedule and how we have reached drilling depths of 28,000 feet in only 38 days. This is best-in-class performance, but how does this translate as a benefit to our clients. As you know, two of our drill ships have been working as the sole drilling contractor on a significant development in the Gulf of Mexico.

Diamond Offshore has exceeded expectations on this development by delivering first oil 6 months ahead of schedule and $1.2 billion or some 20% under budget. During this program and according to independent third-party data supplied by the client our drill ships delivered three of the four most efficient drilling curves in the deepwater Gulf of Mexico to-date. In other words normalized for well depth we have recently manufactured for the client three of the four most cost effective deepwater well bores which were at the same time some of the deepest and most difficult drilled in the region. And this record drilling performance has not come at the cost of safety as 2018 represented the safest year in company history.

In an oversupplied market differentiated performance makes our assets the most desirable in the marketplace. And the success of this strategy is proven out by our ability last year to add over 4 years of backlog to our drill ships at rates that were above that of the market. As a company we have reached such milestones in 2018 whereby in the month of August we had only 12 hours of downtime across the entire fleet. Three of our four drill ships achieved 100% operational efficiency for an entire quarter. And at one point in the year our sub-sea reliability exceeded that of our already excellent surface reliability. On this last point it is worth highlighting that this is achievement and a first in the history of the company.

Read the rest of this transcript on seekingalpha.com