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Executives

Jim Holland – SVP and CFO

John Irwin – President and CEO

Analysts

Christopher Buchek [ph]

Tom Curran – Wachovia Capital Markets

Brian Uhlmer – Pritchard Capital

Mike Breard – Hodges Capital

Atwood Oceanics, Inc. (ATW) F2Q09 (Qtr End 03/31/09) Earnings Call Transcript May 7, 2009 10:00 AM ET

Operator

Good day, everyone, and welcome to today's program. At this time all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session, and I will be standing by if you should need any assistance.

And it is now my pleasure to turn the call over to Mr. Jim Holland. Please go ahead, sir.

Jim Holland

Good morning and welcome to Atwood Oceanics conference call and webcast to review the Company's operating results for the quarter ended March 31st, 2009. Speakers today will be John Irwin, President and CEO and myself, Jim Holland, Vice President and CFO.

Before we commence our financial and operational review let me as usual remind everyone that during the course of this conference call we may make forward-looking statements based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us, and, therefore, involve a number of risk and uncertainties.

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. The words believe, estimate, impact, intend, anticipate or predict convey the uncertainty of future events or outcomes. Undue reliance should not be placed on these forward-looking statements, which are applicable only on the date hereof.

Before John provides his comments on the Company’s current operations, let me comment on some of the events that impacted the results for the quarter. Our diluted earnings per share for the quarter ended March, 31st was $0.88 with an effective tax rate of 21% for the quarter and with total drilling cost for the quarter at $53 million.

In our last conference call on February 5th, I stated at that time we believe that total drilling cost for the second quarter will be around $61 million, with an effective tax rate for the quarter of approximately 16%. This decline in actual drilling cost compared to our guidance relates primarily to two rigs, the Atwood Aurora and the Atwood Southern Cross.

At the beginning of the second quarter we expected the Atwood Aurora would commence operations during this quarter and incur operating cost of around $3 million for the quarter. As reported in our Form 8-k filed recently, due to a longer-than-expected period required for completing the commissioning of certain equipment to commence operations, the Atwood Aurora did not commence drilling operations until April 21st with no operating cost incurred by that rig during the March quarter.

We stated in our February conference call that we expected the operating cost for the Atwood Southern Cross would be relatively high at $100,000 to $110,000. During the March quarter, due to certain equipment being replaced and general maintenance being performed we only incurred around $70,000 per day in operating cost on the rig during the March quarter due to certain maintenance being deferred until the June quarter and a certain maintenance not being required.

After John’s comments I will provide some current expectation for drilling cost for the June quarter and comment on trends for the year.

I will now turn the conference call over to John.

John Irwin

Good, thank you, Jim, and good morning, everyone. Yesterday, we filed our fleet status report with contract day rate and cost information. I am not going to repeat all of that, but I would like to comment on some highlights and some additional items. Of course, will be pleased to respond to any questions you have at the end of the call.

Due to the ongoing negative market environment, oil and gas companies continue to delay certain exploration, development, and production activities. These delays have led to significantly reduced contract bid request and along with the continued delivery of newly constructed units, mainly jack-ups, have resulted in more competitive bidding for future contract activity, declining day rates, and an increased rig availability for jack-ups and those semisubmersible units, technically similar to or competing with the – our Atwood Southern Cross.

Accordingly, there remains uncertainty wit regard to future work and day rates for the Vicksburg, Atwood Beacon, and Richmond, which have contracts expiring in fiscal year 2009, and also for the Atwood Southern Cross, which is currently idle.

A key goal for us during the second half of the year is continuing to pursue the highest utilization possible for our fleet. Any idle time that is incurred will be used initially to complete critical maintenance or life enhancement, after which direct cost will be reduced with the units maintained in a ready-to-work status. Our current estimated contract backlog in terms of available rig days is approximately 70% for the second half of fiscal year ’09, 50% for fiscal year 2010, and 35% for fiscal year 2011.

Despite the near term deterioration in worldwide offshore drilling markets, we believe the longer term outlook and fundamentals remain positive, particularly for worldwide deepwater drilling. Out of our nine existing drilling units, and two – I am sorry, nine existing and two drilling units currently under construction, five have current contract commitments that extend into fiscal year 2011 or later.

One, the Seahawk is an option, which is expected to be exercised and if exercised, will extend the contract commitment through fiscal year 2010. Three, the Atwood Beacon, Vicksburg, and Richmond, as I previously have stated, have current contract commitments that expire during the second half of this fiscal year. One, the Atwood Southern Cross remains idle. And one unit, our ultra deepwater semisubmersible under construction without a contract is not scheduled for delivery until the middle of calendar 2012.

We currently have an estimated contract revenue backlog of approximately $2 billion compared to approximately $1 billion of estimated capital commitments relating primarily to the two new semisubmersibles under construction. Last week, we provided an update to the market on our new ultra premium jack-up, the Atwood Aurora, which has now commenced operations in Egypt.

Unfortunately, following delivery of the Atwood Aurora, we encountered certain equipment issues, which delayed the expected commissioning of the rig in Egypt. As a result, we agreed to adjust our day rate to $133,000, and to pay some additional mobilization expenses. The rig started on day rate on April 21st, and has been performing well since commencement of operations.

Progress continues as planned on the construction of our tenth and eleventh units, two deepwater ExD Millennium semisubmersibles being built at Jurong Shipyard in Singapore. Now, these units, the Atwood Osprey, conventionally moored 6000 foot water depth units scheduled for delivery in early calendar 2011 with an estimated total cost of approximately $600 million and the other dynamically positioned 10,000 foot water depth unit scheduled for delivery in mid-calendar 2012 with an estimated cost of approximately $750 million.

Through March 31, 2009, we have invested approximately $400 million towards the construction of these two drilling units. Funding of approximately $950 million remaining on the construction of these two units will come from internally generated funds and borrowing under our two credit facilities with a combined borrowing capacity of $580 million. We currently have $300 million borrowed under our credit facilities and will endeavor to keep our maximum borrowing below $500 million.

Now, some comments on the latest status of certain units. The Atwood Southern Cross has been idle since the middle of December 2008. During this idle period, the rig has been undergoing certain equipment repairs and maintenance, which has kept its operating cost relatively high at $70,000 per day during the second quarter of fiscal – current fiscal year. This extraordinary level of maintenance is not expected to be completed until the end of third quarter fiscal ’09, which will continue to keep the Southern Cross’s operating cost around $70,000 per day.

If the rig then remains idle per day operating or direct cost is targeted to be reduced below $50,000 per day during the fourth quarter of fiscal year 2009 with the rig being marketed for any suitable future international contract opportunities and ready to return to work and we are continuing to pursue any suitable future contract opportunities.

The Atwood Beacon is drilling the final well under its current contract offshore India. It’s currently estimated this well could extend into July, 2009. The Atwood Beacon becomes idle in July and does not have immediate ongoing work. We currently expect that the rig will be moved to a stacking location, probably in India, and will undergo certain maintenance that will keep its operating cost for the fourth quarter of this fiscal year relatively high at around $75,000 per day. Direct cost are then targeted to be reduced with the rig being marketed for any future contract opportunities and ready to return to work and we do continue to pursue suitable future opportunities.

The Vicksburg continues to work under its contract commitment offshore Thailand. It is now expected to extend into June or July this year. At the conclusion of the rig’s current contract, we anticipate that the rig will be moved to a shipyard in Thailand to undergo a $7 million to $8 million life-enhancing upgrade that could take approximately eight weeks to complete. All of these upgrade costs or almost all of these upgrade costs are expected to be capitalized.

The rig does not have work upon completion of this life-enhancing upgrade. Direct cost will be reduced and once again with the rig being marketed for future opportunities and ready to return to work and we do continue to pursue suitable future contract opportunities.

Our only rig in the U.S. Gulf of Mexico, the Richmond, has a contract, which is now expected to be finished in late May or June ’09. The rig’s current day rate is $52,500 compared to $85,000 on its previous well. We are currently pursuing ongoing opportunities for the Richmond in the Gulf of Mexico and of course the unit, the Richmond has been highly utilized in the Gulf for many years now.

Now, our new construction units, the Atwood Osprey, upon delivery from the shipyard will be mobilized to Australia to commence a firm three-year contract with an option to extend the firm period to six years and this contract is for Chevron Australia. The contract provides for an operating day rate of approximately $470,000 if the firm commitment is three years and approximately $450, 000 if the option is exercised to extend the commitment period to six years. And these day rates are subject to adjustment pursuant to cost escalation provisions of the contract.

Our second new semisubmersible being constructed will become our 11th Company owned mobile offshore drilling unit and we continue discussion with potential international clients regarding future possible opportunities.

While we have no immediate plans for further growth in addition to our present two-unit construction program, it is our goal to continue to develop and position the Company for the future and for longer term opportunities when the time is right. Based on longer term expectations for energy demand and our ongoing fleet major upgrade and new construction program, which we started in ’97, we continue to believe our fleet and the services we provide position the Company well to meet the drilling and completion needs of our clients to take advantage of attractive international markets, particularly deeper water. Further, we remain active in continuing to develop our organization, our people, and our capability for the future.

The Company’s longer term strategy is based simply on consistently meeting the needs of our clients with safe quality operations, premium equipment, and being leveraged to attractive deepwater and international markets. Now this has – strategy has served us well and continues to guide our path forward in creating value over the longer term even in the current market environment.

Execution on current activities is a high priority for us with a focus on high utilization of our fleet, financial results, operational performance, and delivering as planned with progress on our current new construction program.

So, thank you all for your time and for your interest. I will be available with Jim to answer questions after his remaining comments.

Jim Holland

Thank you, John. Before we open the conference call to questions let me address certain items that will have an impact on the operating results for the third quarter and for the remainder of fiscal year 2009. As John stated, there remains uncertainty with regard to future work and day rates for the Richmond commencing in June and for the Atwood Beacon and Vicksburg commencing in June or July as well as our current idle rig, the Atwood Southern Cross.

Currently, there is a high possibility that the Atwood Southern Cross could remain idle at least through the remainder of fiscal year 2009 and that the Vicksburg and Atwood Beacon could incur idle time following completion of their current contracts in June or July.

There is also no guarantee that the rigs will not incur some idle time. Besides zero rate downtime currently being incurred by the Atwood Southern Cross thus far in the third quarter we have incurred no unplanned zero rate days. We expect the following drilling units will incur some planned zero rate days during second half of fiscal year 2009.

Atwood Hunter, 10 zero rate days during the end of the third quarter or the beginning of the fourth quarter for required regulatory inspections. The Seahawk, three to five zero rate days during the third quarter for maintenance. And the Vicksburg, as John stated is expected to be moved to a shipyard in Thailand to undergo a $7 million to $8 million life enhancing upgrade that could take up to 60 days to complete. And with no contract commitment following the completion of its current contract, the rig could incur additional idle time beyond its expected shipyard time.

We currently expect total drilling cost for the third quarter to be around $60 million with approximately $5 million of this amount relating to the Atwood Aurora. On a rig-by-rig basis, we currently expect per day operating cost levels for the third quarter of fiscal year 2009 to be as follows

Atwood Hunter, $100,000 per day; the Atwood Eagle, $140,000 per day; Atwood Falcon, $35,000 per day; Atwood Southern Cross, $70,000 per day; Atwood Aurora, $55,000 per day; Atwood Beacon, also $55,000 per day; the Vicksburg, $45,000 per day; the Seahawk, $70,000 per day; the Richmond, $35,000 per day; and other costs around $25,000 per day.

We currently expect general and administrative expenses to be around $8 million for the third quarter and around $35 million for the year. Depreciation expense is expected to be around $10 million for the third quarter, and around $36 million for the year with the addition of the Atwood Aurora to our fleet.

Based upon the current market environment and excluding any discrete items that may be incurred, we now expect our effective tax rate for the third quarter and the remainder of fiscal year, 2009, to be 17% to 19%.

With two rigs now under construction, we – I will now comment on expected capital expenditures for fiscal year 2009. We currently have $3 million outstanding under our $580 million five-year revolving credit facilities. To-date, we have expended approximately $400 million upon the construction of the Atwood Osprey and on the DP semisubmersibles.

We expect to spend another – between $250 million and $300 million over the remaining second half of fiscal year 2009 towards the construction of these two semisubmersibles, which will (inaudible) about $500 million for the year in total expected capital expenditures. And we also result – we expect resulting outstanding debt at the end of the year around $400 million and a debt to total cap ratio of between 25% and 30%.

At March 31 of 2009 we had over $200 million of cash. We expect our cash balance would decline to be around $100 million at the end of the June 2009 quarter due to having to funds some scheduled milestone payments during this June quarter on the construction of our two semis.

We will now open the conference call to questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And it does appear we will take our first question from the line of Christopher Buchek [ph].

Christopher Buchek

Hi guys, really good quarter. I had a couple of quick questions. Looking to the four rigs you have purchased – you two jack-ups, the Cross and the Richmond, in a real Draconian situation in which all four rigs ended up getting stacked. Between the $280 million I think if my math is right, probably not, from the additional debt you guys have and the cash you have on hand, you could – you should be able to fund your new books over, isn’t that correct or is (inaudible)?

Jim Holland

Yes, I mean – the maximize debt we expect to have to incur under – going forward even with extended down time on those four rigs that you stated, would be say about $400 million around this fiscal year and we hope to keep it, as John said, below $500 million by fiscal year – end of fiscal year ’10, so we expect to be more like the $450 million range and once the Osprey gets out in fiscal ’11 then we expect that debt will start declining somewhat. So – yes, we believe in – even with some extended down time on those four units that we do not need – will not need anymore funding requirements there. So, we believe our $580 million facility puts our expected cash flow based on our almost $2 billion of revenue backlog we have on our dewater units plus the Atwood Aurora to your commitment contract I mean will be more than adequate to allow us to fund the construction of these two semis.

Christopher Buchek

Okay, okay, good stuff. Unrelated followup, I am looking to the jack-up market and I understand it’s really competitive out there and other guys may say anything 10 to 12 jack-ups (inaudible) but we personally have been a bit surprised by how strong day rates have been and we are still seeing 100, 110, 120 care [ph] day contracts even with all this idle capacity and I was wondering, one, if you guys were surprised at all by how strong it were. And, two, if you feel this discipline can continue given all the new bones that resonate the water?

John Irwin

Christopher, certainly we have – there has been limited bidding and a lot of program deferral, so some of the markets out there and the market are less fewer than what might normally be the case. Having said that, I mean so far some of the numbers we have seen have probably surprised on the more favorable side. But there continues to be deferral of programs and pressure on day rates and from our own situation of course with our rigs rolling over, we will take advantage to use down time to the greatest advantage possible to put our rigs in great condition for continuing to work and we’ll continue to market them and man them with all the key people. Ideally, what we would do is have our rigs ready to go and our key people and be bidding them ensure that at the same time we get our cost down at the appropriate time to the lowest level given that approach. And then we will be bidding what we consider to be the right rates to seek out utilization of the units.

But to answer your question directly, so far rates have looked a little bit better, but there is some continuing pressure.

Christopher Buchek

Alright. Thanks a lot. Appreciate the clarity. I will turn it back.

John Irwin

Thank you.

Jim Holland

Thank you.

Operator

And our next question will come from the line of Tom Curran with Wachovia Capital Markets. Please go ahead.

Tom Curran – Wachovia Capital Markets

Good morning guys. Congratulations on another solid quarter.

John Irwin

Thank you, Tom.

Tom Curran – Wachovia Capital Markets

Jim, returning to the earlier line of questioning pertaining to the potential protracted stacking of let’s say the Cross, the Beacon, and the Vicksburg, how low could you get daily OpEx on each of those without having to cold stack?

Jim Holland

Tom, we address the Southern Cross first. Number one, we have no plans to cut any of our key people. So that’s one thing. We are not even considering that. So – but at the same time we are going to be looking at ways to cut cost now. We believe that the Southern Cross will have a really have high, even $70,000, as I said, through this June quarter, but in the September quarter our objective is to get that – those cost below $50,000 and really maybe more down around $40,000. So we will see where we are there, but clearly we will complete all the maintenance we need to do here during this current quarter and then shut – the maintenance down, but at the same time we will keep our key people and continue to market all around the world and can operate in. So, the low $50,000 for sure and hope more towards $40,000 on the Cross.

On the Vicksburg, once we get the maintenance – the upgrade – life-enhancing upgrade completed during the September quarter, if it is – remains idle at that point, then our objective is to try to get those cost below $30,000. Again, and keep our key people in that process.

On the Beacon, also the same situation. It will be pretty – we are going to do some maintenance on that unit as well and that if it goes idle in the fourth quarter so those costs are going to be more like $75,000 maybe for that particular quarter. But at the end our objective would be to get those costs down to around $40,000, somewhere in that level. But it will be a little bit higher than the Vicksburg because of some taxes we may be incurring in India in a stack movable [ph] sea, but a little bit higher than Vicksburg.

So really maybe the Cross and the Beacon around the same level, around $40,000 and then the – hopefully the Vicksburg may be $10,000 so below that level.

Tom Curran – Wachovia Capital Markets

That’s a helpful color. Thank you, Jim. With – I – my understanding is that one of the expected upcoming tenders that you are planning to bid on for the Cross will be coming from Pemex. Could you provide some detail on the expected timing of that tender and then how many potential rigs you might see bid on it?

John Irwin

Yes I probably – in trying to provide a little color there on bidding up opportunities, Tom, I probably won't refer too much to that specific opportunity, but in the sense – may be I can say in a general sense that for the foreseeable future we are not seeing much bidding activity, particularly for the period that’s coming up to start within the – within our fourth fiscal quarter. There continues to be discussion with various parties around the world and possible jobs at various durations for next year and may be even later this year and of course it remains to be seen whether those programs start to move forward in this environment with oil prices having improved and then some stability in the world economic environment playing a factor, but of course is a momentum factor here as well in terms of operators deferring programs and then having to deal with budgets and what they do during the year and their current plans and then getting back into action when that happens. So, from our own point of view, we are monitoring all the opportunities. In the shorter term, we are not seeing a lot, but in terms of talking later this year and next year, but it still remains to be seen when people really start doing something, Tom. That answers your question?

Tom Curran – Wachovia Capital Markets

That’s helpful. Thanks, John. And then lastly on the jack-up front, with regards to the pricing discipline we’ve seen thus far, for those opportunities where the operator, the oil company already has a jack-up, but they could extend, but they put out a tender anyway to see what kind of offers they get, are you finding that a higher percentage of those offers are going to the incumbent just because the other rigs that are getting bids simply aren’t offering an attractive enough discount yet to what the incumbent rig is asking for?

John Irwin

You know, of course the amount of bidding activity, including those situations has been limited and I am trying to think where they have been situation where we were involved with opportunities with incumbent rigs and then frankly I can't think of any right off hand. But certainly any rig that’s in an incumbent position has been performing well perhaps it has been adapted for – to meet the needs of the client and has already there has an advantage over rigs that are coming in unless there are other factors and changes in technical requirements or perhaps clients want to move up to a higher quality or more – a rig of greater capability and certainly in those cases we’d be looking at those opportunities accordingly, but I am not sure I could provide enough data that would kind of characterize what you are talking about certainly from the bidding or looking at opportunities that we have that deals with incumbent situations, Tom.

Tom Curran – Wachovia Capital Markets

Right. Now, I understand it’s a difficult measure to get a feel for just because of how far is the contracting we’ve seen thus far been. I am just wondering if – what might finally force the pricing discipline to start to give will be as the gap between demand and available supply continues to widen and certain contractors become reluctant to continue stacking based on trying to unseat those incumbent rigs and realize that the most effective way to try to do so will be through offering a large enough discount. But I guess we’ll see. Thanks guys, I will turn it back.

Jim Holland

Thank you.

John Irwin

Thanks, Tom.

Operator

And we’ll take our next question from the line of Brian Uhlmer with Pritchard Capital. Please go ahead.

Brian Uhlmer – Pritchard Capital

Hi, good morning guys.

John Irwin

Good morning, Brian.

Brian Uhlmer – Pritchard Capital

I just had a quick couple of followups, first on the Vicksburg. What kind of upgrade work you are going to be doing and what portion of this $7 million to $8 million is going to be capitalized? Are you going to – what’s some of key person [ph], are we going to incur operating costs or are we going to see that pretty much zeroed out to the 60 days?

John Irwin

Well, first, just I will comment on the work and we are doing a lot of work that would really fit in the category of life-enhancing and working on some of the major equipment on a basis that would extend the life of the rig and this is a good opportunity for us to do that. There’s been a lot of planning put into doing it and without going through all the major systems and major work being done – and I believe – we believe we can do this very cost-effectively in this window of opportunity. But I think most of it will be – almost all of it will be capitalized. As to the amount of ongoing cost during that period, clearly then it will be – potentially reduce some from what it would be normally under directing operating cost, but we will be keeping all of the personnel from the rig, all of the key people with the rig to have it on a ready-to-go basis. But certainly that means – and Jim may want to comment further – that with capitalizing cost that cost will certainly be not above our normal direct operating cost and probably at a lower level.

Jim Holland

Yes, as John said, we would have it capitalized almost right 98% of those costs, higher percentage of those cost be capitalized. But operating cost on average for that fourth quarter, normally it runs about 45,000 days, probably more down and may be more down around 30,000 a day. I mean it’s definitely in a 60 day period we will get a reduction in cost as most of that’s going to be capitalized. So, more in line with what we hope to be the cost going forward if you get into the first quarter fiscal year ’10 and when we get the rig and if it goes idle in a pure idle environment. So, but definitely we will have some cost reduction that stay [ph] period.

Brian Uhlmer – Pritchard Capital

Okay. And I was just looking for general commentary on kind of yard cost and the $7 million to $8 million number where – kind of how you view it – if that would have been more like a $10 million to $12 million if you have done this work last year or is it – have the yard cost come down substantially that are going to benefit you by doing this now?

John Irwin

You know I think we would say that costs would be lower now than they might have been if we’ve done this last year. As to how what that would be in percentage terms, it would be kind of hard to say, because we don’t have the number from last year, but certainly it will be a good window of opportunity to do this rig and hopefully in a yard that has the capacity and certainly the experience to do it, and we believe it’s going to be a good window of opportunity and as you basically stated or imply, yes, it’s going to be cheaper than what it would have been if we’ve done it last year.

Brian Uhlmer – Pritchard Capital

Okay. And finally, in India, I guess we are seeing one contractor kind of – that you have worked for cancel [ph] some bids and move back bids. Is this a cash flow issue on their part to you or a negotiation tactic or just a complete change in their outlook. Do you have any commentary on what’s going on with those guys and your potential to work for them in the future?

John Irwin

As far as future work, certainly we are interested in future work and continue to look at future work and when that might occur or such time that decision is made. As to speaking from the point of view of what their internal decision-making is, I can't – naturally I can't comment and I don’t know all of the implications there. I don’t believe that from our point of view and certainly where we stand today that it’s to do with – in our own situation with regard to pricing that they are – that the timing of activities certainly has to do with approvals and some of the other factors that are taken into account when any operator decides that the timing is right in terms of economics and budgets and local approvals and all the other factors. But from our own point of view, we’ll be certainly looking at any opportunities when they exist and at this point it’s not pricing thing, I don’t believe from our point of view.

Brian Uhlmer – Pritchard Capital

Okay. That’s how it appear. Thanks, thanks, appreciate the color.

John Irwin

Thank you.

Operator

(Operator instructions) We will take our next question from the line of Mike Breard with Hodges Capital. Please go ahead.

Mike Breard – Hodges Capital

Good morning.

Jim Holland

Hi, Mike.

Mike Breard – Hodges Capital

Just – on a general basis, you haven’t lost any bids, have you? It’s just been a question I mean it’s just been a case where the operator is pulled or bid away

John Irwin

Mike, I am – yes, I am sorry. I – this is John. I am not aware of any cases where we have lost a bid based on pricing. I will look around the table and I am not – I can't think of any that come to mind. But largely, it’s to do with deferral of programs and some of those programs that we’ve talked about in prior calls at least the key jobs that could have provided an opportunity like the Southern Cross to go on working. And in one prime case certainly that comes to mind, it was to do with the program being deferred and not having gone ahead and still hasn’t gone ahead and perhaps other opportunities we look at also deferred. So, without doing a little analysis I don’t – I can't remember every single bit, but certainly most of the big ones – I can't remember any off the top of my head where it was a matter of losing for pricing or some other technical reason.

Mike Breard – Hodges Capital

Okay. And then one other question. These people that you have put bids out to recently, are they the type of organizations that could change their maths [ph] pretty quickly if the oil price continues to go up?

John Irwin

Well, of course in the short term for the rigs that are rolling over, the amount of bidding going on is being limited in a sense and there have been more deferrals. There is always some talk about people looking at programs and when they might do it and it’s – some of those aren’t always just – the factors vary according to budgets and their own internal planning and needs and dead lines and the environment with the oil price improves and there is some more stability and there are the occasional cases, there are some people who might do programs, but I – in the short term I can't say I see a lot of momentum change in the next – in the very short term. As time goes one, the year wears on and certainly there may be parties who have the capability to change their plans, more to do with their internal approvals and their review of the economic and their overall view perhaps what the longer term is, and the opportunity to go ahead with their programs.

Mike Breard – Hodges Capital

Okay. Well, it’s a – and I am just wondering if people have decided just to shut down for 2009 and wait for the 2009 budget to spend money in 2010, just wondering there might be any chance get worse sooner than that if oil should continue to increase short term?

John Irwin

Yes, I mean it’s –

Mike Breard – Hodges Capital

That just depends on customer I guess.

John Irwin

It does and not to say there might not be those parties out there who may have programs that could change the momentum. But certainly in the short term you know as companies make plans and you get a certain direction of momentum that momentum has to reverse itself as conditions change. And hopefully there could that. But you can see from our planning, we are not depending on it. We look at different scenarios. We want our rigs to be ready to go to work, and have maintenance done and have crews and be marketing actively and seeing every good opportunity internationally that meets – that our rigs are suitable for and we are going to be ready to respond on bidding our rigs for those units and selling our rigs. The other scenario is we have a bit more down time and before the market starts to improve and that we have plans on what we will be doing with the idle time and how we will reduce our cost and keep our people and position ourselves strongly for what we believe still is the longer term fundamentals is still positive.

Mike Breard – Hodges Capital

Okay. Thank you.

Operator

(Operator instructions) And it does appear that we have no further questions at this time, so I will now turn the program over to our presenter for any closing remarks.

Jim Holland

Right. Just thank everyone for your interest in Atwood.

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