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Diamond Offshore Drilling, Inc. (DO)

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Diamond Offshore Drilling (DO)

Q 2018 Earnings Conference Call

April 29, 2019 9:00 am ET

Company Participants

Marc Edwards - President, Chief Executive Officer

Ron Woll - Executive Vice President, Chief Commercial Officer

Scott Kornblau - Senior Vice President, Chief Financial Officer

Samir Ali - Vice President, Investor Relations and Corporate Development

Conference Call Participants

Jud Bailey - Wells Fargo

Sasha Sanwal - UBS Securities

James West - Evercore ISI

Kurt Hallead - RBC Capital Markets

Ian Macpherson - Simmons

Sean Meakim - JP Morgan

Taylor Zurcher - Tudor, Pickering and Holt

Presentation

Operator

Good day ladies and gentlemen and welcome to the First Quarter 2019 Diamond Offshore Drilling Inc. 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. If anyone should require operator assistance, please press star then zero on your touchtone telephone. As a reminder, this call is being recorded.

I would now like to introduce your host for today’s conference, Samir Ali, Vice President, Investor Relations and Corporate Development. Please go ahead.

Samir Ali

Thank you, Sarah. Good morning everyone and thanks for joining us. With me on the call today are Marc Edwards, President and Chief Executive Officer; Ron Woll, Executive 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 the 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 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 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, including 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 a reconciliation to GAAP financials on our website.

Now I’ll turn the call over to Marc.

Marc Edwards

Thank you, Samir. Good morning everyone and thank you for joining us today. In the first quarter of 2019, Diamond Offshore posted a loss per share of $0.53. This compares to an adjusted loss per share of $0.16 in the first quarter of 2018. The decline year-over-year was primarily driven by a change in our contract mix, two special surveys, and four rigs undergoing new contract preparations in the first quarter of 2019. Partially offsetting the year-over-year revenue decrease was a decline in our operating costs as we focus on controlling expenses across the organization.

Despite lower revenue year-over-year, we believe offshore drilling day rates have found a bottom and are beginning to recover. We expect that the moored semi-submersible segment will continue to lead the recovery, given that it has seen the most attrition since the downturn began over five years ago and remains an important component of our client’s future investment portfolio. Diamond Offshore has a strong position in this segment, where the market has clearly tightened in the U.K. sector of the North Sea and is beginning to tighten in Australia. I will further discuss our moored rig strategy later in my prepared remarks, but first I will build on my commentary from our last earnings call with specific reference to our ultra deepwater drill ships.

Over four years ago, realizing that the drill ship category was becoming the most distressed asset class in offshore drilling, we embarked on a strategy to differentiate our assets in a manner that made them unique and more desirable to our clients. To this end, we introduced a number of services that were and remain today differentiated and are focused on allowing Diamond Offshore to reduce the cost of drilling through reliability and efficiency gains. We remain the only offshore driller that sold the BOP stacks on our drill ships back to the original equipment manufacturer and subsequently leased them based on equipment availability and reliability. Bringing the original equipment manufacturer to the table and giving them skin in the game was without exception applauded by our clients worldwide as it brings tangible efficiency gains to our customers. Although we remain unique in our industry today as the only offshore driller operating under this construct, which we call pressure control by the hour, it is something that was very common in other industries such as aviation and power generation.

Next, with input from the regulator in the Gulf of Mexico, we developed a true virtual twin of the BOP stack that enables us to simulate up to 10,000 failure modes and, without the need for human debate, we can immediately establish whether a service shutdown and unplanned stack pull is required. This service is called SimStack, and once again it is unique to Diamond Offshore and also brings proven efficiency gains to our clients. We are also exploring the use of Blockchain and other exclusive initiatives that will lower the cost of deepwater drilling for our clients when they use Diamond rigs.

Read the rest of this transcript on seekingalpha.com