Ocean Rig UDW Inc.'s CEO Discusses Q3 2012 Results - Earnings Call Transcript

| About: Ocean Rig (ORIG)

Ocean Rig UDW Inc. (NASDAQ:ORIG)

Q3 2012 Earnings Call

November 15, 2012 08:00 am ET

Executives

George E. Economou – Chairman, President and Chief Executive Officer

Analysts

Darren Hicks – Evercore Partners

Michael Urban – Deutsche Bank

Lukas Daul – SEB Enskilda

Lenny Bianco - Raymond James & Associates Inc.

Andreas Stubsrud - Pareto Securities AS

Lou Nardi - Global Hunter Securities

Operator

Thank you for standing by ladies and gentlemen, and welcome to the Ocean Rig conference call on the third quarter 2012 financial results. We have with us Mr. George Economou, Chairman and Chief Executive Officer; and Mr. [Anthony Argyropoulos], Capital Market Special Adviser to the CEO. At this time, all participants are in a listen-only mode. (Operator instructions)

I must advise you that this conference is being recorded today, Thursday, November 15, 2012. Matters discussed in this release may constitute forward-looking statements. Forward-looking statements reflect current views with respect to future events and financial performance, and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

Please take a moment to read the safe harbor statement on page 2 of the slide presentation. Risks and uncertainties are further described in the report filed by Ocean Rig with the US Securities and Exchange Commission. And now I will pass the floor to one of your speakers today, [Mr. Argyropoulos]. Please go ahead, sir.

Unidentified Company Representative

Thank you, operator. Good morning and good afternoon to everyone. Thank you for participating in Ocean Rig’s third quarter earnings conference call. I’m starting with slide two. For the third quarter of 2012, Ocean Rig posted a US GAAP net loss of $12.2 million, or $0.09 per share. Included in the results are charges relating to the 10-year class special survey costs for the Eirik Raude, and mark-to-market losses incurred on our interest rate swaps.

In addition, we had a one time write-off of certain non-cash items associated with the early repayment of the $1 billion DNB facility. We repaid this facility in full with the proceeds over 6.5% Senior Secured Notes issued in September. The combined effect of these adjustments is $38.4 million, or approximately $0.30 per share. As a result, our adjusted net income for the third quarter of 2012 was $26.2 million, or $0.21 per share.

Turning to slide 3, recent developments. We are pleased to report that the Ocean Rig Poseidon and Ocean Rig Athena have been awarded three-year contracts by the European and US integrated oil company respectively. The additional backlog from these two contracts is approximately $1.5 billion. I also remind you that earlier in the quarter we signed a three-year contract with Repsol for the Ocean Rig Mylos for drilling in Brazil.

In accordance with our policy for sensible growth, we signed a contract to construct a seventh generation, ultra deepwater drillship, a sister ship to our 2013 new builds at Samsung Heavy Industries. We expect delivery of that unit in early 2015. Also during the quarter, our wholly owned subsidiary, Drill Rigs Holdings, issued $800 million in aggregate principal amount of 6.50% Senior Secured Notes due in 2017. We used $488 million of that to repay the amount outstanding under our $1 billion facility, and $292 million for general working capital purposes.

Lastly, I am happy to report as promised that we have received conditional commitments for the commercial tranche in one of the export credit agency tranches for the $1.35 billion loan to finance the remaining payments of the three new buildings that we are taking delivery of during the second half of next year. We expect to finalize this transaction during the first quarter of 2013.

Now moving on to company highlights. Turning to slide 5, I would like to take a moment to focus on our assets. As many of you know, our assets are all high specification, fifth to seventh generation ultra deepwater rigs. Our two semis are only two of 15 harsh environment semis worldwide. They are also winterized for operations in extreme climates, so pretty unique assets.

Including our latest new building, all of our eight drillships are built at Samsung, which is considered the premier yard for this asset type. They are considered among the most technologically advanced drillships in the world. The specific S10000E design of our drillships was originally introduced in 1998, and is widely accepted by customers. Including our four operating drillships, the ones delivered in 2011, a total of 59 drillships of the 127 worldwide have been ordered using this base design, so approximately 50%.

In addition, our soon to be seven sister drillships enable us to capture multiple efficiencies across the fleet, in spare parts, personnel training and other areas. Turning to slide 6, and where do we rank among our peers, in a short four years, and following an almost $9 billion investment we have grown our fleet not only to be among the top 5 or 6 global operators of ultra deepwater assets, but also to be a pure play focused exclusively in the ultra-deepwater space. And by the way, as we mentioned before we have among the most modern, high specification assets worldwide.

The key point to convey here is that the massive investment in our fleet is behind us, and the time to reap its financial benefits lies ahead of us. Turning to slide seven, following the awards under two of our LOIs, and assuming the remaining LOI of the Eirik Raude materializes into a contract, our backlog will be approximately $4.5 billion. Given that we are in the enviable position to have two more rigs available for start up in 2013, we should see our backlog increase further in the coming months.

I would like to remind you that we started 2012, a merely 11 months ago, with only a $1.6 billion backlog. So effectively, during the first three quarters of this year, we took advantage of a strengthening market to triple our backlog. This is reflective of the prevailing favorable market conditions, but also a testament of the quality of our assets, and the commercial management capabilities of our team.

Turning to slide 8, in addition, the new contracts we entered into this year on account of which our contract backlog has tripled have also resulted to transition our fleet employment profile from short-term contracts with small independents, to medium-term contracts with major oil companies.

It is also important to note our contract counterparties are highly creditworthy, Total, Petrobras and Repsol, who will soon be joined by another three major oil companies, once we announce these counterparties. We are in contract discussions with interested parties for the two remaining units in 2013, the Eirik Raude and our second 2013 new building in the Ocean Rig Skyros.

With a tight market and day rates above 600,000 we are clearly in a favorable position. The average term of our contracts is 2.9 years, or almost 4 years, including the optional periods on the Leiv Eiriksson, Ocean Rig Olympia, and Ocean Rig Mylos. Excluding the optional periods, we are pretty much under contract for all of 2013, 78% of calendar days for 2014, 54 for 2015, and even 21% for 2016. The average term of our contracts and percent contract coverage will mostly increase once the two remaining units are contracted.

Turning to the industry review on slide 10, we will discuss the conditions in the ultra-deepwater market, which are perfectly aligned to support sustainably high day rates. The left-hand bar shows that ultra deep water exploration and production capital expenditures grew at a modest 7% following the financial crisis. But starting last year, growth accelerated and is expected by analysts to stay at a 12% pace per annum. Well, statistics are nice, but let us talk real numbers.

E&P CapEx will essentially double in less than five years, from $45 billion to $50 billion in 2010 to 2011, to $90 billion in 2015. What is also important is the proven reserves shown on the right hand chart , which have grown from 75 billion to 120 billion barrels between 2005 and 2011, will require substantial ultra-deepwater drilling capacity in the years to come for development drilling.

So we have continued exploratory drilling as a result of E&P CapEx growth, and development drilling from existing proven reserves. Turning to slide 11, the substantial increase in demand discussed previously is stretching an aging and under invested fleet. In fact, half of the deep and ultra-deepwater fleet is more than 10 years old, and in many cases, of lighter specifications, and capable to meet post-Macondo industry standards. In addition, yard capacity is limited at the handful of top shipyards, and competing with other asset classes.

They are in fact no new building slots available in 2014. In the past few years, the market proved it can easily absorb yard capacity to deliver about 25 ultra-deepwater units per year. So, we are not concerned about 2015 and beyond, since limited yard capacity and a shortage of high specifications assets is expected to keep supply constraint for some time.

Moving on to our financial highlights and turning to slide 13. With this slide, we provide for the first time an analysis of our days and revenues, so as to improve the disclosure of our fleet operation, and assist those who want to analyze our company. Included in this slide, is a breakdown on the amortization of our deferred revenues that were recognized during the quarter.

During the quarter, we had 552 calendar days over a six unit fleet. We spent 37 days mobilizing the Eirik Raude, and Ocean Rig Olympia. This left 515 available drilling days. Our fleet status report posted on our website on November 6 provides our expected mobilization available drilling days on a quarterly basis through 2013. During the third quarter, we also incurred 23 off-hire days as a result of which we were earning revenue for 492 days during the quarter.

So our operating efficiency rate that is our revenue earnings days, over our available drilling days was 95.5%. Furthermore, when applying the full day rate of each respective contract with the available drilling days of the corresponding unit, we arrive at the $278.1 million in gross revenues that our fleet would have earned had we earned the full day rate over all of our available drilling days.

However, after our contracts, our customers apply a discount on the full day rate under certain circumstances, primarily while a unit is standing by, moving from location to location, for weather delays, reduced performance, and even under certain force majeure circumstances. Our actual gross revenue from drilling operations during the third quarter, which takes these circumstances into account, was $257 million. So instead of earning $278.1 million, we earned approximately 92.4% of that, which is the $257 million of gross drilling revenue.

This result is consistent with our expectation and guidance of applying a 92.5% rate on our available drilling days, in order to estimate our future gross revenues, and a further approximately 3% for fees and agent commissions to arrive to net revenues.

Turning to slide 14, moving onto operating expenses. On this slide, we highlight our daily recurring cash, operating expense run rate during the quarter, and provide a break down on the amortization of our deferred operating expenses that were expensed during the quarter. As far as what we call our recurring daily cash operating expenses that is our GAAP operating expenses, excluding amortization and extraordinary items, the average, the $197,000 compared with $186,000 during the previous quarter.

We are in line with our expectation that there will be around 190,000 to 200,000 per day on average fleet wide, subject of course to cost adjustments going forward. The main culprits behind this quarter’s increase were costs associated with a special survey of the Eirik Raude, inventory build upon the Ocean Rig Olympia, ahead of operating in Angola, which is an expensive location, and intra-contract moves between the east and west coast of Africa on the Ocean Rig Poseidon.

In addition to our recurring operating expenses, we also incur certain expenses that are particular to the locations we operate, addressed particular requirements under the contracts, and certain other overhead expenses. We expect these to be around $8 million to $9 million per quarter over the next few quarters fleet wide, and then possibly going down as we move forward.

Turning to slide 15, briefly at the end of September we had free cash of approximately $486 million. In addition, we had approximately $182 million in restricted cash, which includes minimum liquidity requirements under our two credit facilities. Our capital structure at the end of September is robust, as evidenced by a modest 38% net debt to capitalization ratio.

During the quarter, there was no change in DryShips' ownership, which continues to own 65.1% of our common shares. Our equity market capitalization is $2 billion and our free float is worth approximately $700 million. Turning to slide 16, on the top left we show our debt development over the next three years, including the incurrence under our new $1.35 billion facility to fund our 2013 new buildings, and also the expected incurrence of an additional $450 million in bank debt for our 2015 unit. By the end of 2015, our total debt will be very manageable at about $388 million per unit.

Of course, our net debt will be significantly lower given the strong excess cash flow generation over the period. Below, we provide a breakdown of our indebtedness, which also shows that we have no debt maturities prior to 2016. We are very comfortable that our low debt per rig and even lower net debt per rig will facilitate the refinancing of the debt maturities at that time.

Moving on to the right-hand side of the slide, our scheduled debt repayments are provided by facility for your ease of reference. As you can see, we’re repaying $187 million of debt next year, $301 million in 2014, and estimated about $341 million in 2015, assuming again we file the entire installment on delivery of our 2015 new building with amortizing bank debt. So in general, we are paying down debt at a healthy pace and deleveraging our balance sheet going forward.

Turning to slide 17, we continue to have no unfunded capital expenditures in the immediate future as we have already paid $727 million for our 2013 new buildings. As we said earlier in the presentation, we’re making progress with the syndication for the $1.35 billion senior secured credit facility to fund the balance due to Samsung during the second half of next year for our three new buildings.

This facility is being led by [DnB NOR Bank] in Nordea, and already we have received conditional commitments for the commercial tranche in one of the export credit agency tranches of this facility. As a result, we expect to finalize the transaction during the first quarter of next year.

On September 20, we placed an order with Samsung for our eighth sister ship with a delivery date in early 2015. the cost of the unit, including additional equipment, commissioning and supervision is estimated at $683 million. The yard has credited our last remaining deposit of $24.8 million against our contract payments for this unit. We anticipate making the remaining $200 million from cash on hand through 2013, and the balance of $447 million with debt in 2015 as described before.

In general, at the bottom left-hand bar chart, our growth has been exceptional, starting with two units as late as 2010, two years ago, six units by the end of 2011, moving to 9 units next year, and then 10 units in 2015. Clearly, our growth rate over the next few years is expected to slow down from the exceptional exponential pace of the past few years and through 2013.

Now I will turn over the presentation to Mr. George Economou for some closing remarks.

George E. Economou

Thank you, [Anthony]. We now turn to the last slide. I would like to summarize where the company is today. Ocean Rig is a large global, pure play ultra-deepwater drilling company with premium assets run by an experienced management team. Its massive $9 billion investment of (inaudible) is almost completed.

Having survived through the worst possible financial crisis, we sit comfortably with no unfunded CapEx in the immediate future. Having also gone through a low in contracting activity, we now boast approximately a $4.5 billion contract backlog with major oil companies, which operate in the highest growth segment of the drilling space.

As [Anthony] mentioned, the benefit of our multibillion-dollar investment will drive our financial performance and are poised to change the shape of the company. And yet, neither the [valuation] nor the yield levels in our notes seem to reflect this fact. We have now reached the end of our third quarter presentation, and we are ready to open the floor for questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And your first question today comes from the line of Darren Hicks from Evercore Partners. Please go ahead.

Darren Hicks – Evercore Partners

Hi, good afternoon.

George E. Economou

Good afternoon Darren.

Darren Hicks – Evercore Partners

Just wondering if you could provide us with a few more details on the recent contracts, new contracts on the Poseidon and the Athena, I assume there is some mobilization cost in the revenue backlog number there, is that correct?

Unidentified Company Representative

Yes Darren. That is correct. We have one contract on the Poseidon. There is a mobilization of 98% of the day rate plus fuel, and on the Athena there is a $35 million mobilization fee plus fuel, and those are included in our backlog. The day rate is on average around $660,000.

Darren Hicks – Evercore Partners

Per day on average between the two of them or?

Unidentified Company Representative

Between the two of them, yes.

Darren Hicks – Evercore Partners

Okay. All right. And you mentioned that Angola is a quite expensive region to operate in. Did you happen to negotiate any cost escalation provisions in either of those contracts?

George E. Economou

To the degree that we have is not significant.

Darren Hicks – Evercore Partners

Okay. And just a follow up on the Leiv Eiriksson, you guys have disclosed some mobilization and some maintenance for upgrades for that rig, and I understand there are some preconditions to operate in the Norwegian shelf. Just wanted to make sure that the maintenance involved in getting into compliance with operating in the Norwegian shelf is fully baked into your guidance that was released in the fleet status report.

Unidentified Company Representative

Yes, and we have provided in our earnings release some additional color on both the Leiv Eiriksson and Eirik Raude.

Darren Hicks – Evercore Partners

Okay. So, with the off-hire that is disclosed in the fleet status report that is as of today?

Unidentified Company Representative

Yes, the off-hires on the Eirik Raude, not the Leiv Eiriksson.

Darren Hicks – Evercore Partners

However, in the presentation there is mobilization and time for upgrades as well?

Unidentified Company Representative

Correct.

George E. Economou

Correct. The Leiv Eiriksson is doing upgrades related to the contract, and as a result these are not accounted for in the way of off-hire. As you know, they are deferred and amortized over the life of the contract. Also it is the same treatment as mobilization. As far as the Eirik Raude is concerned, yes it is on dry dock. This is not generating any revenue. So, it is a zero rate situation, and you know, we are expensing – we are incurring the expenses as incurred essentially.

Darren Hicks – Evercore Partners

Okay, great. That is all I have to ask. Thanks a lot.

Unidentified Company Representative

You are welcome.

Operator

Thank you. Your next question comes from the line of Mike Urban from Deutsche Bank. Please go ahead.

Michael Urban – Deutsche Bank

Thanks, good afternoon. The – obviously you have done a nice job here, growing the fleet as you have noted and getting contracts now, and I think with the current size of the fleet you could argue that you have got critical mass at this point, but what do you see as the optimal fleet size at the end of the day, or even a maximum size, you know, is there a limit on for you to think you get too big relative to the current structure, just trying to get a sense for where you think you ultimately end up, or maybe just in the medium term?

George E. Economou

Yes, I would put it another way. We will only grow provided our growth is manageable financially, approved by investors. We know what the investor’s expectations are, and we would not focus on growth for the sake of growing. And it seems as [Anthony] mentioned in one of the slides that we will be growing at a much slower pace than we have in the past. So there is no optimum size to gain any efficiencies from operation. I think we have the critical mass we want. There is certainly going to be growth, provided we see the market conditions continuing to remain strong, and provided we can grow without leveraging the company more than we have to date, and increasing the return to the shareholders.

Michael Urban – Deutsche Bank

Right, and I would tend to agree on the operating efficiency side, but it seems like you build up a good bit of efficiency with respect to building assets. You know, all the rigs have been built at the same yard, is there some benefit to keeping those people together, those efficiencies together, you know, the expertise of that yard, in other words, would you see yourself always having maybe at least one rig under construction at any given time to maintain that expertise and those efficiencies in the yard?

George E. Economou

It is not necessary, but as a result of the new building that is coming in Q1 ’15, we will have that. It is too early to see how we would retain that equation going forward. I mean, we will have that in any case until ’15.

Michael Urban – Deutsche Bank

Right, right. And then I guess last question from me is you talked about your thoughts on the dividend in the past. I was wondering if you have any change either in timeline or magnitude on instituting a dividend.

George E. Economou

Well, we have said in our road show that we raised $800 million to replace the existing debt of the Leiv Eiriksson and the Eirik Raude. We said we would institute a dividend policy post Q2 ’13, and obviously we remain to do that provided we keep on our results, and the actual results are as forgotten, because we think there is going to be sufficient cash flow to do that.

Michael Urban – Deutsche Bank

Okay. So no change in the thinking there?

George E. Economou

No change in the thinking.

Michael Urban – Deutsche Bank

Okay, great. Thank you.

Operator

Thank you. (Operator instructions) Your next question comes from the line of Lukas Daul from SEB. Please go ahead.

Lukas Daul – SEB Enskilda

Hi, thank you. Hi guys.

George E. Economou

Hi.

Lukas Daul – SEB Enskilda

It is a quick question on the OpEx, and thanks for a very useful breakdown on a rig by rig basis. What should we think about OpEx going forward, is the Q3 sort of level to put in our model, or is it going to deviate significantly?

George E. Economou

I think you have to when you do the model, you are better off trading each rig individually, and the moment that the rig goes into position and stays there for some time, then there is going to be a tendency for the OpEx to either stay there, where it is today, or even be lower, because (inaudible) that we have had in the past haven’t helped, mobilization doesn’t help, the fact that they are all new and they are going into location doesn’t help, but once you know you have the rig in position, then it will be different. You know, these are reasonable numbers to go forward, and you may even if you are lucky see a reduction in them.

Lukas Daul – SEB Enskilda

Okay, good.

Unidentified Company Representative

On a fleet wide basis, as we mentioned, you know, around 190,000 to 200,000 per day on average over time is where we expect to be. And there was another question I believe from Darren previously, you know, the new contracts we have do have escalation clauses, of course, so they do capture some of the increase. Obviously, they may not capture all of the increases as we go forward depending on how costs move forward.

Lukas Daul – SEB Enskilda

All right. And then on Eirik Raude, are you going to sort of have additional one-off expense in connection with the (inaudible) in Q4, or have you taken everything in Q3?

George E. Economou

No, there is an additional expense in Q4. Actually, the majority of the expense will be incurred in Q4. There were approximately $22 million that were expensed in the first nine months associated with a dry dock, and we expect – in our earnings release we have given a guidance that the cost may be up to 65 million. Obviously, this is not a hard number, you know, it may be end up being around there or even lower. The majority of that will be incurred in the fourth quarter.

Lukas Daul – SEB Enskilda

All right. Okay, good, and then on the new builds, have you made any decision whether to equip them with the second BOP?

George E. Economou

Where we have provision, we ordered a second BOP, and because we do have the ability to put them on any one of the new buildings, on request, and provided that the customer want it, and hopefully pays for it, which we are asking, we can do that. And you know, all the necessary upgrades to take on the second BOP would have been in place on the new buildings.

Lukas Daul – SEB Enskilda

Okay. So for the moment you have ordered one for the four under construction.

George E. Economou

We have ordered more than one, but there will be sufficient ones to satisfy the customers if they want them and pay for them.

Lukas Daul – SEB Enskilda

Okay. All right, thank you.

Unidentified Company Representative

Thank you.

George E. Economou

Sure.

Operator

Thank you. Your next question comes from the line of Lenny Bianco from Raymond James. Please go ahead.

Lenny Bianco - Raymond James & Associates Inc.

Good morning gentlemen, and congrats on a contract award. You know, looking at the two remaining units you have with 13 available, you have got a number of rigs in West Africa and Brazil, you know, great critical mass there, is there any thought to building position in the Gulf, which obviously is a lower cost region with quite a bit of long-term promise?

George E. Economou

Well, you know, the Gulf is an area obviously that we like to be there because that is the area where you can get longer contracts, where it is more difficult to get in the West Africa because of the nature of the contracts that are being awarded there. And yes, there is a thought, and we don’t have anything to announce yet, but yes, there is.

Lenny Bianco - Raymond James & Associates Inc.

Great. Maybe following up specifically on the Eirik Raude, are you still looking to secure a longer term contract on this rig or would you consider another shorter term fixture possibly before securing a long-term contract, and maybe some color on where you think that might be headed?

George E. Economou

Yes. We don’t know where it will be headed because obviously these are harsh environment rigs. So it is ideal for Norway. Until that time that we find a customer and the rate is acceptable to ask, then we will obviously want to do the long-term contract. So this is a priority because we can get a good rate by utilizing the unique characterization of the rig, because there aren’t that many harsh environment rigs available in the next year or so. And until we secure either there or another contract in another location, we will obviously use a short-term contract, which nominal value are higher than the longer term.

We don’t particularly enjoy doing them because of all the movements that tend to bring the efficiency down.

Lenny Bianco - Raymond James & Associates Inc.

Great, and maybe shifting gears following up on a previous line of questioning, in the last few years you have had a quite robust capital build program on the benign environment side with the drillships, was there any thought to maybe taking a look at the harsh environment, you know, adding capacity on that side to complement the two semis?

George E. Economou

I think we are happy with what we have.

Lenny Bianco - Raymond James & Associates Inc.

Great, thanks. I appreciate the color and I will turn it back.

George E. Economou

Sure.

Unidentified Company Representative

Thank you Lenny.

Operator

Thank you. Your next question comes from the line of (inaudible). Please go ahead.

Unidentified Analyst

Hi, good morning, or good afternoon guys. I have a question on G&A, it looks like it ticked up pretty significantly from last quarter, and a little bit higher than the 15 million run rate that you kind of quoted? Where there some other one-time items this quarter related to G&A, and how should we think about it going forward?

George E. Economou

Yes. There were some expenses that changed the way that they are geographically populated on the income statement. It didn’t have any impact on the actual results, but they moved from financial charges to G&A, and those pertain essentially again to the financing that we did that is the raising of the $800 million notes that we raised. So, there were certain expenses that were incurred in connection with that, and they are non-cash. So the cash portion of our G&A continues to be around the $15 million to $16 million mark.

Unidentified Analyst

Okay, okay. And could you just go over once again the mobilization revenue for the Poseidon?

George E. Economou

The mobilization revenue for the Poseidon?

Unidentified Analyst

Yes, or I think you said $35 million for the Athena.

George E. Economou

Yes, the new contract, yes. On the new contract it is 98% of the day rate. So, as we disclosed on average the two rates are approximately 650,000. So you can use, make an assumption for the number of days that you will be mobilizing, or as a matter of fact you can use the number of days in the fleet status report, times 650,000, times 98%.

Unidentified Analyst

Great. Okay, thank you.

George E. Economou

You are welcome.

Operator

Thank you. Your next question comes from the line of Andreas Stubsrud from Pareto. Please go ahead.

Andreas Stubsrud - Pareto Securities AS

Thank you, and good morning. I have two questions, number one is related to the Brazil new builds, you have earlier communicated and commented, do you have an update on those rigs, and if you are continuing that new build program?

George E. Economou

Yes, we haven’t started to be able to continue, and what we have said is that we will only proceed on the condition that we will risk very little equity, or no equity at all. We are not willing to jump in and start spending money for rigs that are going to take longer than people estimate to be built, and exceeding by lot the budget that we were estimating.

Andreas Stubsrud - Pareto Securities AS

So, at this point in time you have no commitment down in Brazil for those new builds, is that correct?

George E. Economou

That is correct.

Andreas Stubsrud - Pareto Securities AS

And the second question is related to the operation, can you just update us on the current situation on operation of Ocean Rig, is it going to be in Norway, or from Greece, or from some other places in the world?

George E. Economou

Well, we are putting emphasis on the locations where the rigs are drilling. So, we are giving more significance and beefing up the local offices. Eventually Norway will have

less rig operating, and one for the time being, maybe two. So, we are decentralizing in effect the management of the company.

Andreas Stubsrud - Pareto Securities AS

Okay. So it includes, for example, the (inaudible) it is not going to be located any more in Norway, is that correct?

George E. Economou

Well, the currency always – yes, the answer would be yes, yes.

Andreas Stubsrud - Pareto Securities AS

Okay, very good. Thank you.

Operator

(Operator instructions) And your next question comes from Lou Nardi from Global Hunter Securities. Please go ahead.

Lou Nardi - Global Hunter Securities

Good morning. I just want to follow up on the first question, I saw a press release yesterday that said the Norwegian Petroleum Authority had some issues with the Eiriksson, and that the amount of money that you spent, I think it is 90 million in the April timeframe for re-entering the market, addresses those concerns as well?

George E. Economou

So, what is the question?

Lou Nardi - Global Hunter Securities

Are those – is the time frame April, can you do whatever the Norwegian government is asking of you, and at the cost you have already announced at those levels, or is it possibly going to cost more money and take more time?

George E. Economou

No, we believe that will be sufficient within time and budget to take care of that, yes.

Lou Nardi - Global Hunter Securities

Okay. That is all I have. Thanks.

Unidentified Company Representative

I also wanted to point out that the difference, essentially that is what matters is the difference between the compensation we received for the upgrades from the customer and the cost, and that has been consistent with what we have been disclosing in the past, which is that revenues will be by about $10 million or so below the expenses.

Lou Nardi - Global Hunter Securities

Okay, thank you.

George E. Economou

Sure.

Operator

Thank you. We have no further questions. So I would now like to hand the conference back.

George E. Economou

Okay. Thank you very much for participating in our call, and we look forward to speaking to you in the future.

Operator

Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!