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Atwood Oceanics (NYSE:ATW)

Q4 2012 Earnings Call

November 16, 2012 10:00 am ET

Executives

Mark L. Mey - Chief Financial Officer, Chief Accounting Officer and Senior Vice President

Robert J. Saltiel - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

David Wilson - Howard Weil Incorporated, Research Division

Collin Gerry - Raymond James & Associates, Inc., Research Division

Rhett Carter - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

Eduardo Royes - Jefferies & Company, Inc., Research Division

Nigel Browne - Macquarie Research

Matthew H. Beeby - Williams Financial Group, Inc., Research Division

John R. Keller - Stephens Inc., Research Division

Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

Operator

And welcome to today's fiscal 2012 fourth quarter and year end results program. Your speakers for today will be Rob Saltiel, President and Chief Executive Officer; and Mark Mey, Vice President and Chief Financial Officer. [Operator Instructions] Please note, today's call is being recorded. It's now my pleasure to turn the program over to Mark Mey. Please begin, sir.

Mark L. Mey

Thanks, Kevin, and good morning, and welcome to Atwood Oceanics conference call and webcast to review the company's operating results for the year ended September 30, 2012. As Kevin mentioned, the speakers today will be Rob Saltiel, President and CEO; and myself, Mark Mey, Senior Vice President and CFO.

Before we begin, let me remind everyone that during the course of this conference call, we may make forward-looking statements, which are not historical facts and are based upon management's current plans, expectations, estimates, and assumptions and beliefs concerning future events impacting us. These statements involve a number of risks and uncertainties, including the risks which are described in the company's most recent Form 10-K, and the filings with the U.S. Securities and Exchange Commission. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements if one of these risks and uncertainties were to occur, or our assumptions prove incorrect. Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof.

Now let me turn the call over to Rob, for opening remarks.

Robert J. Saltiel

Thanks, Mark, and good morning to all of you as we discuss Atwood's Fourth Quarter and Full Fiscal Year 2012 Results. The fourth quarter was clearly one of the busiest and most successful quarters in Atwood's 44-year history.

Before discussing the results, I want to commend our operations and technical teams around the world, and at our Houston headquarters, for their continued excellent performance. Their efforts are distinguishing our company as the leading provider of safe and reliable offshore drilling services and as the preferred drilling contractor for our clients.

Turning now to our financial results. We achieved company records for revenues and net income, both in the fourth quarter and for the full fiscal year. For the quarter, revenues of $252.5 million were more than 35% higher than any other quarter in our history, and more than a 45% improvement on our third quarter revenue. Similarly, our fourth quarter net income of $95.5 million was easily a quarterly record and was nearly 85% higher than our third quarter net income. Mark will provide more color on our numbers in his section.

Our fourth quarter financial results would not have been possible without stellar operations performance. In fact, we achieved close to 99% revenue efficiency over our entire rig fleet. This means that all Atwood rigs and all operations teams were performing at the top of their game for the entire quarter. As I've said on previous calls, consistent reliability performance is a real difference maker for Atwood and more importantly, for our clients.

The fourth quarter results were aided significantly by the on-time delivery of the Atwood Condor and its mobilization revenue while transiting to the Gulf of Mexico, as well as the early delivery and commencement of drilling of the Atwood Mako, the first of our 3 Pacific Class 400 jack-ups. I should add that both of these rigs were off to excellent starts in terms of their safety and operational performance. The Condor has been averaging approximately 94% revenue efficiency since its start in early October, while the Mako has experienced no loss of revenues since its startup in September. Our new rigs and their operating teams are clearly coming out of the gate with an Atwood standard of performance.

Our newbuild project teams also deserve major kudos as they continue to deliver our newbuild rigs on time and client-ready. The early delivery of the Mako allowed us to start our 1-year drilling program with Salamander Energy, offshore Thailand, ahead of schedule. Just yesterday, the Atwood Manta was delivered by the PPL Shipyard to Atwood. We are now undergoing final commissioning of the rig before it mobilizes to its first location in Thailand, expected to occur in early December.

Our third newbuild jack up, the Atwood Orca, remains well ahead of its June 2013 scheduled delivery date. The Atwood Advantage, the first of our 3 ultra-deepwater drillships, is making great progress in the DSME shipyard in South Korea. I visited the shipyard last month and toured the Advantage, which is now floating key side and undergoing final outfitting of its major equipment.

In September, we committed to build our third ultra-deepwater drillship, the Atwood Admiral, at the same shipyard with a scheduled delivery in early 2015. This latest commitment reflects our confidence in DSME's work and the excellent marketability of these highly capable drilling machines. We also obtained an option for a fourth drillship that has an exercise date of June 30, 2013.

On the contracting front, our most exciting fixture since our last earnings call was our 3-year agreement on the Atwood Advantage with Noble Energy for their program in the eastern Mediterranean Sea. We are very pleased to be working with a long-standing client like Noble with the first of our 3 drillships. As many of you know, the Atwood Hunter has worked for Noble since late 2008, and our companies have developed a close alignment in our focus on safety and operations integrity. We look forward to a very successful inaugural campaign once the Advantage is delivered next autumn.

Also since our last call, we secured our first contract for the Atwood Manta, which I referred to earlier, a 1-year program with Coastal Energy in Thailand. The Vicksburg has been drilling for Coastal in Thailand since 2009, and our companies have enjoyed a similar excellent working relationship. With the signing of these contracts as of November 1, our revenue backlog stood at $2.6 billion.

Now updating on our current operations, the Atwood Eagle is expected to conclude its drilling program with Chevron in Australia later this month. The rig will then undergo planned upgrade work for compliance with Australian regulations that will require approximately 25 zero rate days to complete. Afterwards, the Eagle will commence an 18-month program that will now be shared between Apache and Woodside.

Since our last call, the Atwood Beacon is mobilized from Trinidad to the Mediterranean Sea to prepare for a short-term drilling program in Israel. The Beacon is currently in Cyprus on a standby rate awaiting our client's receipt of their drilling permits. We understand the final approvals are likely to be received within the next 2 weeks, upon which, the Beacon will mobilize to Israel to commence drilling.

And coming back to the Atwood Hunter, we concluded our 4-year program with Kosmos Energy and Noble Energy in October, and are now drilling solely for Noble under a separate multi-well program in Equatorial Guinea. This job is expected to last until, at least, next September.

The Atwood Osprey, Atwood Falcon, Atwood Aurora and Vicksburg have had no notable changes in their operations since the last earnings call.

Turning now to our market outlook. We remain positive on future rig demand and the day rate environment. Red [ph] oil prices continue to stay strong despite worldwide economic uncertainty.

Specific to Atwood, the contracts we've secured for the Atwood Advantage and Atwood Manta confirm that our newbuild designs are highly marketable and bode well for the marketing of sister rigs, Atwood Achiever and the Atwood Orca over the coming months.

In the ultra-deepwater segment, we continue to see strong day rate fixtures and general operator optimism. At the same time, we have seen some moderation of day rate increases relative to the large quarter-to-quarter increases of the last 12 months.

The deepwater and jack-up segments also have significant demand visibility across regions that may increase day rates from current levels. We remain positive on the rig supply demand balance and the market segments and regions where Atwood has active rigs or rigs under construction.

Specific to Atwood's marketing efforts, with the Advantage fixture now complete, our near-term marketing focus has shifted to the Atwood Orca and to our other active rigs that have availability in fiscal year 2013. The Orca is being marketed for its initial contract in traditional shallow water markets in Southeast Asia and elsewhere. We see a number of suitable jobs that line up well with the rig's technical capabilities and delivery schedule.

For the Atwood Beacon and the Atwood Aurora, we are pursuing opportunities, primarily in the Mediterranean Sea and West Africa, that will best utilize their high spec capabilities.

And finally, as we are now in the first quarter of our fiscal 2013, we look forward to another exciting year of significant milestones for Atwood Oceanics. With our expanded rig fleet, we are well-positioned to grow our revenue and earnings from our record 2012 levels. This year, we anticipate the deliveries and startups of the Atwood Manta and Atwood Orca and the final preparations for delivery and operation of the Atwood Advantage. And even as we focus significant resources and efforts on our growth initiatives, we will maintain our focus on delivering outstanding safety and operational performance for our clients.

This concludes my prepared comments, so I'll now turn it back over to Mark to discuss the financials. Mark?

Mark L. Mey

Thanks, Rob. Let me now walk you through our financial results for the fiscal fourth quarter and year ended September 30, 2012. I will then compare this quarter to the quarter ended September 30, 2011, also, to our previous fiscal quarter. I will close by discussing our expectations for fiscal year 2013.

Our diluted earnings per share for the quarter ended September 30, 2012, were $1.45 on revenues of approximately $253 million as compared to earnings of $1.12 on revenues of $178 million for the same period in 2011. This 29% year-on-year improvement in diluted earnings per share was primarily due to 129 additional operating days during the quarter, as the Atwood Condor mobilized the U.S. Gulf of Mexico at 70% of its operating rate and Atwood Mako started its contract in Thailand on September 2, 2012. Note also that the Atwood Hunter operated for only 74 days during the 2011 quarter.

Financial highlights achieved during the quarter and year ended September 30, 2012 includes, as Rob mentioned, record revenue and net income for the quarter and for the year ended September 30, 2012, record diluted earnings per share for the fourth quarter, average day rates of $334,000 as compared to $284,000 during the same period in 2011, and also, up $34,000 per day from the previous quarter.

Average day rates for the fiscal year were $306,000. Revenue efficiency of 98.7% for the quarter, an increase of almost 4% from the previous quarter. Revenue efficiency of 95.1% was achieved for fiscal year 2012.

Contract drilling price totaled $102 million for the quarter as compared to $62 million for the same period in 2011, on 129 additional operating days. For the year, contract drilling expenses totaled $347 million for fiscal 2012 as compared to $224 million for the prior year on 359 additional fleet operating days.

Note that the Atwood Condor was delivered on July 2 and mobilized the U.S. Gulf of Mexico for the remainder of the quarter. Including contract drilling cost for the Condor during the quarter were mobilization cost of $2.2 million and reimbursable cost of $2.5 million. These costs will offset the $36 million of associated mobilization revenue.

Atwood Mako earned $2.4 million of its revenue for the quarter from mobilization or standby rates, which were contractually set at 95% of operating day rate. Note also that Atwood Beacon is expected to commence drilling operations with Shemen Oil and Gas in Israel later in November. This is almost 80 days better than anticipated, due to delays in our customer obtaining the necessary drilling permits. We took the opportunity during this idle time to perform certain rig preservation activities, including painting the hull and other parts of the rig. These preventive maintenance activities, together with the [indiscernible] hull performed in early August increased the rig's contract drilling cost by approximately $2.1 million during the quarter. Additionally, we experienced mobilization cost of $1.5 million during the quarter.

Operating and net margins decreased 3% each from the same quarter in 2011 to 45% and 38%, respectively. This is driven mainly by the Atwood Condor, the Atwood Mako and Atwood Beacon operating at mobilization rates for an aggregate over 156 days during the fourth quarter of 2012.

Now let's compare this quarter to the fiscal third quarter ended June 30, 2012. Revenues increased $74 million and net income increased $44 million due to the increased operating days discussed above, and recognizing Atwood Beacon's mobilization payments upon the conclusion of its prior contract in South America, and this expense totaled $4.8 million reflecting the tax in our construction in progress balance due to the early delivery of the Condor and Mako during the quarter.

Our tax rate was down from 16.6% to 13% due to several discrete events occurring during the quarter.

Turning to the balance sheet. Capital expenditures totaled $190 million during the quarter and consisted primarily of final payments on the Atwood Mako and project management and other payments on the remaining rigs under construction. During the quarter, long-term debt increased from $655 million to $830 million, while cash decreased to $78 million, funding our capital expenditures. Note that we target constant cash balance of $75 million to $100 million.

Our resulting year end net debt to cap was 27%, which is up from 23% in the prior quarter.

I will now provide guidance for fiscal 2013. Firstly, the Atwood Mako was delivered to the PPL Shipyard yesterday, and we expect the rig to mobilize its first location in Thailand in early December, note that this is 1 month ahead of its scheduled delivery. Similarly, the Atwood Orca is expected to be delivered 30 to 60 days ahead of schedule next year.

Secondly, and as noted in our November fleet status report, we expect to incur 25 zero rate days in Atwood Eagle in December 2012, related to its regulatory work. We do not anticipate any additional out of service time for the remainder of the rig fleet for fiscal 2013.

Thirdly, we expect contract drilling cost for fiscal year 2013 to be between $440 million and $460 million, and $115 million for the first quarter 2013. This year-on-year increase is due primarily to the following: the Atwood Condor, Atwood Mako operating for a full year; Atwood Manta and Atwood Orca beginning operations during fiscal 2013; the Atwood Falcon operating in Australia, a higher cost environment for the entire fiscal year and expensing approximately 70% of the Atwood Eagle's regulatory work later this month.

Finally, regarding inflationary cost pressures. We recognize the industrywide challenge to find qualified personnel to crew the ultra-deepwater rigs being delivered over the next several years. However, given our geographical presence and staggered newbuild delivery schedule, we expect the annual inflationary impact on contract drilling cost to approximately 5% for fiscal 2013. We currently expect that our G&A expenses for fiscal '13 and the first quarter of 2013 to approximate $53 million and $60 million, respectively.

As you are aware, the first quarter is typically higher than subsequent quarters due to the fiscal 2012 short-term and long-term compensation disbursements. In short, looking at gross margins, we expect them to be flat year-on-year at 55%. Depreciation expense should range between $27 million and $29 million per quarter, increasing upon the delivery of the 2 PPL jack-ups we delivered during the year. We expect to recognize interest expense of between $7 million and $9 million per quarter. Our tax rate should remain in the 13% to 15% range, very similar to what -- our actual tax rate for fiscal 2012.

Turning to capital expenditures for fiscal 2013. We expect to incur approximately $620 million for the year, including capitalized interest. This includes downpayment in Atwood Admiral, which is paid in October 2012; the final payment in Atwood Manta, which was paid yesterday; and the Atwood Orca's final payment due in the fiscal third quarter. In addition, including [indiscernible], our additions to our capital expense inventory are $52 million and fleet maintenance expenditures of $14 million. Capitalized interest is expected to total $26 million as part of the $620 million for the year.

Finally, our covenant contract backlog of $2.6 million is expected to provide approximately $1.6 billion in future after tax cash flows, with 29% earned in '13, 28% in 2014 and the remainder thereafter.

These cash flows, together with our forecast of uncontracted cash flows and our revolving credit facility, should provide sufficient capacity to fund our newbuild construction program. To get a little more granular, gross debt peaked to about $1.7 billion on the delivery of Atwood Admiral in early 2015. Therefore, with exercise of the credit accordion -- credit facility accordion of $550 million, we are fully financed for the remaining rigs under construction.

That concludes my prepared remarks today. I will now turn the call back to Kevin for the questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to the side of Dave Wilson with Howard Weil.

David Wilson - Howard Weil Incorporated, Research Division

Rob, regarding the jack-up market. How concerned are you, or really to the next couple of years, with all the new capacity coming into the market? And how do you think about your rigs competing in that market?

Robert J. Saltiel

As I said in my prepared comments, we're really not concerned about the supply and demand balances. We look forward -- we recognize that there are a number of rigs that are coming into the market over the next couple of years, but as we've said before, we think that the absorption of these rigs into the market is likely to be orderly. Our clients continue to demand higher spec rigs for a number of factors, whether it's reliability, capability, safety and general maintenance concerns. And as well, if you look across the jack-up fleet around the world, a large number of rigs that are in the current supply stack will be over 30 years old, either there already or getting there over the next couple of years. So we think that a lot of what's happening in the jack-up space is going to be a natural replacement of the supply stack that's there today. So the combination of the needs and desires of current clients for this technology, coupled with the replacement of an aging jack-up fleet, gives us comfort that we're not going to see any major dislocations in the market from where it is today.

David Wilson - Howard Weil Incorporated, Research Division

Okay. Great. And then, kind of switching gears, the Condor, the operation is 94% revenue efficiency for the first month, that's pretty impressive, but is that a level that we can expect going forward, is all the shakedown done? Is that what we should, like I said, expect going forward for that -- from that rig?

Robert J. Saltiel

Well, we would certainly like to see it going forward. As you know, when you operate high specification float or coming out of the shipyard, it does take a little while to get through all of the testing and activation of the equipment to the point where you can declare victory on the shakeout of the rig. I will say that we're off to an outstanding start with that rig, we feel very confident in the quality of the rig that we got from the Jurong Shipyard, and the team that we've got onboard the rig today. But I think it's too early to declare that this is going to be something that we'll get for the entire year. We certainly believe we can do that, but we'll have to wait and see.

David Wilson - Howard Weil Incorporated, Research Division

Do you think that you'll know by, say, the end of the year, that -- with all the shakedown stuff, or is that going to last more than a couple of months?

Robert J. Saltiel

Well, you're getting really specific now, Dave. We're going to continue to remain diligent, vigilant and diligent that we can operate this rig at a high revenue efficiency. And we would certainly hope that, over the first 6 months, we're going to shake out any issues that may materialize for the rig.

David Wilson - Howard Weil Incorporated, Research Division

Okay. Great. And then, one more specific one, Mark, on the Beacon. I don't know if you mentioned it, but the standby rate, can you tell us what that is, what it's at right now?

Mark L. Mey

Yes. It's 90% of operating day rate.

Operator

We'll take our next question from the side of Collin Gerry with Raymond James.

Collin Gerry - Raymond James & Associates, Inc., Research Division

I only really have one question, and it relates to that, we're looking ahead to -- in the next 12 or 18 months with a very heavy delivery schedule and, really, a transformation of the company in terms of delivering new rigs. How confident are you that you can maintain this level of operating performance? Should we assume or maybe risk the numbers a little bit for cost overruns or hiring personnel or just beefing up the company as you expand to have this larger fleet? Or do you think that similar operating margins can be expected?

Robert J. Saltiel

Well, we're going to continue to focus on operational excellence here, and obviously, a big part of that will we making sure that the new rigs that we deliver continue to have the kind of performance we've seen with the Osprey and now the Condor and then, also on the jack-ups with the Mako and then, followed by the Manta and the Orca. So that's certainly something that we are very focused on. There's no question that as we see delivery of further rigs into the offshore drilling industry, some of the challenges for labor and training and competency grow across the industry, but I think we feel very good about our position. I think Atwood has really distinguished itself in terms of the systems that we've got in place, safety management systems, operating systems, our standards, how we work with our employees to get them trained to achieve their career potential. There's a number of things that we're doing, as a company, that we think distinguish us from our competitors. So we believe that we're going to continue to have access to strong personnel, which is really what is the foundation of a great company. So we feel very good about where we are today and we recognize that it will continue to be challenging going forward, but just as we've done here in the recent quarters, our aim is to maintain a very high level of reliability and performance on our existing fleet, even as we bring the new rigs into operation to join the fleet we have.

Collin Gerry - Raymond James & Associates, Inc., Research Division

It's certainly showing up on the numbers.

Operator

We'll take our next question from the side of Rhett Carter with Tudor, Pickering Holt & Co.

Rhett Carter - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

You guys have placed a big emphasis on working in favorable operating environments, just from a cost and regulatory perspective. Is the broader ultra-deepwater market getting tight enough or you're seeing operators or NOCs being more accommodating with their concessions, at least enough to entice you guys to maybe go into some markets you're not currently in?

Robert J. Saltiel

Well, we haven't eliminated any markets from consideration for where we can place our rigs. One of the luxuries, I think, we've had as a company with a relatively small rig fleet is we've been able to be a bit more selective about where we work and we've tended to work in jurisdictions that are less challenging, overall. I think that's a fair statement. But those of us who are here at the company, myself included, who've worked elsewhere, we have experience in some of these more challenging markets that we bring to bear. And if the opportunities present themselves and they compare well to opportunities we have in, let's say, easier jurisdictions, we're not afraid of working in any market that's out there. So I think it's just been a case of the size of our rig fleet and some of the opportunities that have presented themselves. We certainly have got experience as a company here at Atwood with working with NOCs, albeit not an extensive experience and clearly, when you go to some of these markets, the NOCs oftentimes have a greater say in how that business is conducted. But we look across the globe for opportunities for our rigs and especially as we're expanding our fleet, both the ultra-deepwater and shallow water, we are looking at areas of the world where we're not currently working.

Rhett Carter - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Greta. Okay. And then, just with the outstanding drillship option, I was curious, does it hold its delivery date? So given that currently, it has a December 2015 delivery, if -- with the June 2013 expiration, if you guys were to extend that option out, does the delivery date hold or is there a point in time where the delivery date gets pushed out with the expiration date?

Robert J. Saltiel

Well, clearly, there is a point in time where you could jeopardize the delivery, but at this point in time, we're really focused on marketing the current rigs that we've got. And to the extent that we continue to see strength in the market, just as we were talking about on our third drillship option, which we exercised with the Admiral, we hope to be able to exercise this option and build a fourth drillship. But I think it's a little premature for us to speculate how much we can extend that option next year.

Operator

We'll take our next question from the side of Matt Conlan with Wells Fargo.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

On the Condor, just to help with this model going forward, is there going to be any deferred revenue on top of the $514 million or was all that mobilization revenue, eliminate any deferrals?

Mark L. Mey

Matt, on a go-forward basis, because you recognized the revenue during the -- at the mobile rates, the go forward rate will be $514 million, plus any kind of escalations which occur later during the contract.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

Great. And on the -- do you have any update on, perhaps, the potential of reactivating or selling the Southern Cross?

Robert J. Saltiel

We continue to look at opportunities for both the Atwood Southern Cross, as well as the Seahawk, and those include either reactivation or divestiture. At this point, we really don't have anything to report, and obviously, for modeling purposes, I wouldn't assume anything in terms of a reactivation in your models for the next couple of quarters.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

How do you see the, I guess, in general, the mid-water market coming along. Do you think there's any appetite out there for the Southern Cross to work?

Robert J. Saltiel

There is. We've seen the mid-water market being strong in the North Sea. Obviously, this is not a North Sea-capable rig, but in other parts of the world as well, we've seen some mid-water activity and rates peak up. We saw some fixture in the Americas here for mid-water rig that was pretty attractive recently, so we are hopeful that opportunities will present themselves. As I said before, we're not going to reactivate the rig for a short-term job because the reactivation has to fully pay for itself, and then some, because it will be a diversion of resources and talent. So it's something for us to continue to watch. I mean, directionally, we think the market is strengthening, but we don't have anything that we can say is compelling for reactivation.

Operator

[Operator Instructions] With that, we'll take our next question from the side of Eduardo Royes from Jefferies.

Eduardo Royes - Jefferies & Company, Inc., Research Division

Quick question on the Atwood Hunter. I think you've got a little less than a year left on that. Just wondering if you guys are thinking about any sort of upgrade work that, that rig may need when it rolls off with Noble?

Robert J. Saltiel

We continue to focus on marketing the Atwood Hunter, primarily, into the West Africa area because the rig has had a very successful campaign up and down the coast in West Africa. And I think the decision about what sort of upgrades we may or may not consider could be a function of the follow-on work that we get. There's a number of things that we can think about there. Obviously, there's general maintenance of the rigs that we have to do on a periodic basis that will be part of the equation. And then, the opportunity to potentially upgrade the BOP stack is, again, something we would consider, but it would depend, really, on the opportunities as they present themselves. But right now I think our focus is really on marketing the rig, making sure we identify the proper opportunity and then, lining up that opportunity with what upgrade work, if any, we decide to do to fulfill that opportunity.

Eduardo Royes - Jefferies & Company, Inc., Research Division

Great. And just one follow-up, on the Beacon, the Mediterranean is kind of a weird area where there's work, and then all of a sudden, there isn't. It sort of comes and goes. Do you guys get a demob fee on that rig if it turns out that you are moving it to West Africa, which does seem like a pretty tight market?

Mark L. Mey

Yes. We do have a demob on that, Eduardo, but given the nature of the contract, our demob is structured. That's been amortized during the contract term, so we -- we will be recognizing and receiving the demob revenue early.

Eduardo Royes - Jefferies & Company, Inc., Research Division

Okay. Do you think the prospects are there for this rig to stay in the Med?

Mark L. Mey

We have several prospects for the Beacon in the Med, both in the area where it's drilling, or soon will be drilling, but also, in other parts of the Med.

Robert J. Saltiel

Yes. Our focus will be to place the Beacon in the Mediterranean. Our marketing team, as Mark said, has seen a number of opportunities. That said, there's also some opportunities outside the region we're looking at, but the preference, it would be to stay in the Med.

Operator

And we'll go next to the side of Nigel Browne with Macquarie.

Nigel Browne - Macquarie Research

I just had one question. Looking at your marketing efforts, could you comment on whether you guys or starting to see a deemphasis on, in terms of your competitors and yourselves, on day rate versus actually tweaking that dial and, maybe, getting a bit more term on contracts?

Robert J. Saltiel

I think we've seen both ends of the spectrum. We've seen some recent deals that had very long terms to them and lower day rates, and then, most recently, just in the last couple of weeks, we've seen some pretty healthy day rates for, let's say, 2-year terms on ultra-deepwater rigs. So I think it's really, in some cases, it's operator-specific and it's contractor-specific in terms of how much term is traded off for rate, and how that -- the balance plays out. Directionally, we still see day rate increases in the ultra-deepwater segment and as we look at opportunities for the Atwood Achiever or the Atwood Condor renewal, we'll consider the term and the rate together and hopefully, get the best deal for the company.

Nigel Browne - Macquarie Research

And a comment was made about the geographic footprint and how that is helpful in terms of mitigating costs. Do you see the geographic footprint as an advantage, as well, in terms of keeping your stellar revenue efficiency?

Robert J. Saltiel

Well, I think that there's, clearly, some advantages working in certain jurisdictions and under certain contract terms and conditions. And I think it's a pretty fair statement that with Independence, or major oil companies, there's a bit more flexibility than, let's say, with national oil company contracts, that may contribute somewhat to improved revenue efficiency. But I think at the end of the day, it really gets down to the operating teams on the rigs, making sure that they're executing their work safely and reliably day after day, and that we -- if they need support, that we can provide that support here from Houston to assist those operations. But I just think our teams have done a great job and that's really largely independent of contract terms and conditions.

Operator

And we'll go next to the side of Matt Beeby with Williams Financial.

Matthew H. Beeby - Williams Financial Group, Inc., Research Division

Talking about some of the jack-up fleets and the -- seems like the talk of the Manta contract would be something in excess of the $145 million, just curious if there's some cost savings associated with putting that with the same customer in the same region that made the concession down to $145 million versus, maybe, $150 million to $160 million and if there's any savings there? And then, maybe kind of outlook for the Orca, at least directionally, from this point?

Robert J. Saltiel

Yes. I'll say a couple of things about it. There's no question that having, now, what will be 3 rigs in Thailand, does offer some synergy. I won't say that they're very large synergies, but clearly, in terms of sharing the office, inventory management, logistics, technical support from Houston, all those things are advantaged by having 3 rigs in a particular jurisdiction. One thing I will share is that on the Atwood Manta, we did have an LOI earlier in the year that fell through, and that put us in a little bit of a bind in terms of getting a contract for that rig with accelerated delivery on top of that. So we lost a potential contract, at the same time, the delivery date was moved up. So we think that, under those circumstances, we got a fair deal. But I would share your sentiment that I think there was some thoughts we might do better than that as we came out of the gate. As we look forward to marketing the Atwood Orca, we would certainly anticipate some increase in day rates going forward, but I would say it's going to be moderate and it's going to depend on the jurisdiction. Again, one of the big advantages of working in a place like Thailand is it's a low-cost environment and it's a benign environment in terms of the labor challenges there, so we take all those factors into play as well as day rate. But as I said in my prepared comments, we do think that with the supply and demand balance being what it is, that we may see some date day rate increases on future fixtures.

Mark L. Mey

Matt, this is Mark. Let me just add to that. As you know, and let me remind you that, that day rate is probably $10,000 higher in the Middle East and $15,000 higher in West Africa if you take into account operating cost and taxes. So given where it is, and as Rob mentioned, the low-cost region, that is pretty much a market rate currently.

Operator

I'm showing no further questions -- we do have one more question in queue, we can go to the side of John Keller with Stephens Inc.

John R. Keller - Stephens Inc., Research Division

But just kind of, Mark, if you could maybe -- is there anything going on with the Osprey during the fourth quarter from an operating cost standpoint? It looks like it bumped up a little bit and just, as we try to calibrate our models a little bit here.

Mark L. Mey

John, as you know, one thing that's very hard to predict when it comes to operating cost is the timing of certain projects. So you're going to see a little bit of oscillation between quarters on these rigs as projects get scheduled and get done. As you know, drilling operations, there are times when you can actually do certain projects in advance and you have to defer that just depending on where you are with the well. So that's purely a matter of timing on those projects, you should see that rig moderate back to the low 170s over time.

Operator

And we do have another question in queue. We can go to the side of Ryan Fitzgibbon with Global Hunter.

Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

One last modeling question for you. Mark, I believe you mentioned that about 70% of the Eagle's shipyard expense is going to be expensed. Can you disclose what that actual cost is?

Mark L. Mey

Yes. The expense portion is going to be $5.5 million.

Operator

And I'm showing no further questions in queue at this time.

Robert J. Saltiel

Okay. I want to thank everybody for their interest in Atwood, and joining us for the call, and we'll look forward to picking it up next quarter.

Operator

And this concludes today's program. Have a great day. You may disconnect at this time.

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