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Pacific Drilling S.A. (NYSE:PACD)

Q3 2013 Earnings Call

November 7, 2013 11:00 a.m. ET

Executives

Amy Roddy - VP, IR

Chris Beckett - CEO

William Restrepo - CFO

Analysts

Dave Wilson - Howard Weil Incorporated

Darren Hicks - Evercore Partners

Lukas Daul - SEB Enskilda Inc.

J.B. Lowe - Cowen and Company

Andreas Stubsrud - Pareto/Nordic Partners

Operator

Good day and welcome to the Pacific Drilling Services Third Quarter 2013 Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to the Vice President of Investor Relations, Amy Roddy. You may begin.

Amy Roddy

Thank you, Aaron, and welcome everyone to Pacific Drilling third quarter 2013 earnings conference call. Joining me on this morning’s call are Chris Beckett, our CEO; and William Restrepo, CFO.

Before I turn the call over to Chris, I would like to remind everyone that any statements we make about our plans, expectations, estimates, predictions or other statements about the future, including but not limited to those concerning the future financial and operating performance, contract commencement dates and durations, revenue efficiency, operating cost, contract backlog, dayrates, rig downtime, market outlook, options and extensions, newbuild delivery cost and dates, capital expenditures, and plans and objectives of management for future operations, are all forward-looking statements.

These statements are not guarantees of future performance and are subject to risks and uncertainties. Our filings with the U.S. Securities and Exchange Commission which are posted on our website and the SEC’s website, discuss the risks and uncertainties in our business and industry, and other factors which could prevent us from realizing the outcome of any forward-looking statements. Our actual results could differ materially from any forward-looking statements made during this conference call.

Also note that we reference Non-GAAP financial measures during this call. You will find required supplemental disclosures for these measures, including the most directly comparable GAAP measure and associated reconciliation in our results press release, which is available on our website.

I’ll now turn the call over to Chris Beckett, Chief Executive Officer of Pacific Drilling.

Chris Beckett

Good morning. Thank you, Amy, and thanks everyone for joining us. I am very proud to sit here today and report on our results for the quarter. Obviously, we are very pleased with the financial results, and I am going to let William expand on that in a few minutes.

But I would like to start with an overview of our expanding operational performance and some of the drivers behind that. Also I will talk about the status of the newbuild market and our new build rigs and in particular the Pacific Khamsin. I am going to like to conclude with the discussion on the markets on our contracting activities.

So turning to operations for the fourth consecutive quarter we reported exceptional and improving operational performance. The revenue for the quarter was $193.2 million which represents a revenue efficiency of 96.9%. This is the result of our strategic focus on operational excellence in the ultra-deepwater market using the most modern assets.

We believe it’s the result of the industries leading combination of operational uptime and cost control. And we’ve achieved that with very safe operations. We have no lost time incidents on any rig during the quarter and the entire fleet now operated for more than a year without an LTI. In fact the Pacific Bora has now exceeded a 1000 days without an LTI. So we are very proud of the guys performance there.

We are particularly proud that the entire fleet are amongst the highest performing if not the highest performing rigs in each of their respective clients fleet. I think we are building the reputation that we target to be the preferred ultra-deepwater driller.

This success has been achieved through continual emphasize on operational excellence. And in particular our focus on religious adherence to preventative maintenance; a strong focus on employee training and best practice sharing across the fleet; excellent procurement and supply chain execution and an attention to detail from all levels of the organization from senior management down. All of these are easier to achieve and really represent the benefit of the uniformity and focus of our fleet on the ultra-deepwater.

So turning to our newbuilds, the industry has obviously being very challenged by supply chain limitations and especially in the subsea and drilling systems, and we are not immune, but we have taken some very specific steps to minimize the impact.

Firstly, and perhaps most importantly, I think we have a very strong relationships with our vendors, and that allows us to get better service quality and performance from them than is the norm. We have instituted a 24/7 oversight of our subsea equipment manufacturing and construction from some of the best experts in the industry.

And we have enhanced delivery criteria and quality assurance in the yard to ensure that our rigs are fully completed and tested before delivery. I think the Pacific Khamsin gives a great example of how our approach is benefiting us. The rig was delivered on August 31 on budget and is schedule to arrive in Nigeria tomorrow.

That means we expect contract start within 90 days of delivery, that’s substantially better than our earlier newbuild deliveries and I think substantially better than the industry norm.

The biggest challenge in the shipyard in on commissioning these ever more complex drilling systems. In the case of the Pacific Sharav this process will take over 200 days versus 100 days on some of our earlier rigs.

That’s because our latest newbuilds have some of the most advanced control systems ever delivered. Now both the shipyards and the equipment manufacturers have got learning curves to support these commissioning challenges which they are struggling with. But I believe they are getting a good grasp on it and we expect the commissioning period to revert to about 100 days on a go forward basis.

In the case of Sharav, we expect delivery in late Q1 next year, which represents about a quarter delay over our original plan but it’s already been addressed with the client and doesn’t create a risk for the contract.

In the case of Pacific Meltem, the construction progresses on target, we are expecting delivery late in the second quarter of 2014. And we are applying all the lessons learned from the earlier deliveries to ensure that we achieve first revenue as soon as possible after delivery.

Pacific Zonda has only just cut steel last month that’s a bit premature to forecast any sort of delivery dates other than the contracted date.

Turning to the market, as we predicted for some time, our customers continue to demonstrate their presence for the newest and most capable assets. We were very pleased to see the market develop in a way that’s consistent with our Strategy and Vision when we started Pacific Drilling.

The rig bifurcations become pronounced through the year, with directs and modern high-spec assets stable in the high $500,000 to low $600,000 day range and rigs as new as 10 years old have been replaced by these new assets. We believe this trend will continue to persist through 2014 and beyond. And we continue to see demand for modern ultra-deepwater drillships exceed forecast supply over the next several years.

We are seeing continued strong tendering in the third quarter, we had 32 ultra-deepwater rigs years of contract awards. And we expect multiple contract awards in the fourth quarter.

With that backdrop we are finalizing the contract extension on the Pacific Bora and expect to be able to announce details fairly shortly, and we expect that to be a two year extension.

We are continuing discussions regarding the extension of the Pacific Mistral with Petrobras and that extension is likely to include upgrades, to modify the rig to be able to perform managed pressure drilling. We consider this very much consistent with our strategy to implement leading edge technologies where it adds capabilities to our rigs that are valued by our clients.

And we are further advancing our negotiations on the Pacific Meltem which is one of the few remaining newbuilds with 2014 availability. We are comfortable with the opportunities available to us. This is one of the highest spec rigs ever built and I’m sure we will achieve a significantly attractive dayrate. So the ramp up I would say, I am very proud of what the Pacific Drilling team has achieved this last quarter and our continued improvement in operating performance. This isn’t a easy business, but we are showing what’s possible.

The performance levels are already industry leading but we think we can do better. And I think that opportunity to enhance our performance and our financial results further will be come evident as we deliver the next three rigs over the next year-and-a-half. We will continue to focus on the challenges ahead and leading the industry in execution.

Now I’m going to turn it over to William to discuss the financial details.

William Restrepo

Thank you, Chris. Good morning everyone.

As Chris mentioned, our fleet delivered a fourth consecutive quarter of strong operating performance to their highest ever revenue efficiency and the lowest ever rig operating expenses per-day.

As a result, our third quarter net income reached $30.3 million or $0.14 per diluted share. This represented a 44% increase over the second quarter’s net income before charges related to our June 3rd debt refinancing.

Contact drilling revenue for the third quarter was $193.2 million as compared to $176.8 million during the second quarter. Revenue efficiency for the quarter was 96.9% significant improvement over the prior quarter efficiency of 90.2%. The sharp increase in revenue efficiency was primarily the result of strong operational uptime driven by subsea equipment reliability and by generating low incidents of equipment breakdown.

These trends indicate that we begin to experience the benefits of our preventive maintenance and employee training programs. During the quarter, we also experienced limited periods of reduced dayrate attributable to stand-by or mobile times.

Contract drilling expenses for the third quarter were $82.7 million as compared to $79.5 million for the second quarter. The sequential increase was primarily the result of higher reimbursable expenses which are we charge to our customers and thus have limited impact on our margins.

Additionally, our shore-based and support costs increased by $700,000 as compared to the prior quarter. The majority of these costs related to onshore resources added to a Nigerian operation. We intended to support the arrival of the Khamsin.

And to increased overall technical support in anticipation of the addition of the three more rigs to our operating fleet over the next 12 months. Rig related OpEx excluding reimbursable costs averaged $163.4000 per day in the third quarter, a slight reduction as compared to the $164,000 for the prior quarter.

Our operating expenses continued to come in below our expectations. As equipment repair costs have fallen versus prior quarters. As with our revenues our operating expenses have benefited from our sustained focus on maintenance and employee training programs.

General and administrative expenses for the third quarter were $13.1 million, as compared to $11.6 million in the second quarter. As we noted in last quarter’s call this planned gradual strengthening of our corporate structure takes us closer to the target level. We believe it’s required to manage our expanding crew.

EBITDA for the third quarter was $96.6 million as compared to $85.5 million in the second quarter, after adjusting for cost related to our June 3rd refinancing transaction. Our EBITDA margin during the third quarter reached 50%, as we have mentioned before we consider this an important metric of operational performance, as it measures the combined effect of dayrates, operational uptime and operating cost management.

Our objective is to continue improving this metrics from 2014 onwards, as we bring new rigs online with dayrates that have benefited from the stronger environment. As we reprised our currently operating drillships to the market and as we benefit from more efficient use of our fixed cost structure by doubling the size of our operating fleet.

I will now turn to our financing and capital investment programs. Interest expense for the third quarter was $23.1 million as compared to $21.7 million for the second quarter. The increase reflected higher average debt for the third quarter as a result of incremental liquidity from our June 3rd debt refinancing.

Cash flow from operations for the quarter reached $87.3 million and the strong financial results and improved customer collections. We continue to work closely with our high credit quality customers to improve approval and payment processes ensuring we minimize the working capital required to support our operations. As such to-date we are able to finance predelivery construction payments from Sharav and Meltem using cash flow from operations rather than drawing down on our $1 billion senior secured credit facility as we had initially forecasted.

At this point, we expect the main draw downs in our facility to get closer to the 2014 delivery dates for Pacific Sharav and Pacific Meltem.

During the third quarter we invested $555 million in our fleet of which $506 million related to the construction of our newbuild drillships, including payment for delivery of Pacific Khamsin.

Capitalized interest was $18 million and the remaining expenditures primarily related to fleet spares including payments on additional subsea equipment capacity which we announced previously as well as contractually required upgrades on our operating rigs that are substantially reimbursed by our customers.

The remaining capital expenditures required to complete construction of our three newbuild drillships and develop spares of subsea equipment and riser capacity is estimated at approximately $1.5 billion excluding capitalized interest and client reimbursed asset upgrades.

Finally, we reiterate our guidance range for full year 2013 revenue efficiency at 91% to 94% and have our updated guidance in certain expenses as a result of our lower than expected cost year-to-date.

We updated guidance what’s included on our November 6th earnings press release and it’s posted on our website. Our revenue efficiency guidance includes an assumption of Pacific Khamsin contract commencement on December 1, 2013.

Our guidance is also reflective of the initial stages of Pacific Khamsin shakedown process, during which we expect its revenue efficiency to lag that of our currently operating rigs. And its operating expenses to exceed those of our other rigs in that area by approximately $20,000 per day.

As we have previously stated, we expect an average revenue efficiency of 90% during the rigs first six months of operation. Additionally, our guidance includes planned down time of 5 days on Pacific Mistral for unpaid BOP maintenance between wells.

We have also updated our investor toolkit to reflect our current expectations of newbuild delivery and startup. Important to note that for the fourth quarter we show an increase compared to the third quarter for amortization of deferred revenue and deferred cost, as well as higher depreciation and interest expense as a result of Pacific Khamsin’s contract commencement. The investor toolkit is posted on our website under Investor Relations.

And with that, I will turn the call back to Amy.

Amy Roddy

Thank you, William. Aaron, we are now ready to begin the question-and-answer portion of the call.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions)

And we will first go to the side of Dave Wilson [Howard Weil Incorporated]. Your line is now open.

Dave Wilson - Howard Weil Incorporated

Great, good morning everyone. Thanks for taking my questions. William, given where we are in the budgeting season for next year, I know it might be a little bit early to ask, but on the cost front, is there anything we should be considering as far as some down time for equipment upgrades or something like that, anything identifiable that we should be considering when looking at 2014?

William Restrepo

Not at this point Dave. I think the biggest factor that will see there will affect efficiency and costs, this will be introduced in two more rigs next year. We have been getting better at doing that. So we tend to fully apply the lessons learned not only to the Khamsin but to the Sharav and the Meltem which will be introduced into our fleet next year.

Dave Wilson - Howard Weil Incorporated

Okay. And then Chris a follow-up for you, you have a slide in your deck, the bar chart showing the ultra-deepwater demand expecting to exceed supply in 2014, 2015, and you mentioned in the press release, so I sense some confidence there, but has anything changed in your views on these supply demand dynamics over the past month or so. I’m guessing I’m really asking on the demand side, and has there been any developments one way or the other that has changed your view even at the margin about the level of demand?

Chris Beckett

Not really. I think the fundamentals continue to be extremely strong. There was an interesting report that the rest had put together with a set of reasoning as to why they think the market is going to be extremely strong. I think that analysis whether you agree with all of the timing in it is broadly correct. In other words, the market is more than capable of absorbing every newbuilds that’s under construction and fairly short order after delivery. So we are extremely confident still on the state of the market. I think that many or most of the newbuilds to be delivered next year, already spoken for one way or another. And I think we continue to see a fairly strong market at least for the new deliveries well into the future.

Obviously, the question of bifurcation how far it goes is, is one that’s going to be on everyone’s mind, but obviously from our standpoint it’s less influential we see no reason for dayrates to deviate from the current stability for the newbuild assets.

Dave Wilson - Howard Weil Incorporated

Sure. Great. Thanks for that update, Chris and I will turn the call back over. Thanks a lot.

Chris Beckett

Thanks.

William Restrepo

Thanks Dave.

Operator

And our next question from the side of Darren Hicks [Evercore Partners]. Your line is open.

Darren Hicks - Evercore Partners

Hi, good morning.

William Restrepo

Good morning.

Darren Hicks - Evercore Partners

You mentioned in your prepared remarks that operationally you are doing great but you can do better. Where would you say you have the most opportunity? Is it kind of on the revenue side with even better efficiency or would you say it's on the cost side with controlling the cost structure even more? And also with respect to costs, on the last couple of quarters operating costs have been down year-over-year. Would you attribute that downside to company specific initiatives or would you say the overall market trend has come slightly down?

William Restrepo

So let’s talk about the revenue cycle. So I think simple answer is we think, we can do better on the margin on both revenue capture and cost control. I think we are doing extremely well and I think the guys in the field are really been working on this. But we would like to get to the point where we consistently deliver average revenue efficiency on operating rigs in excess of 95%. And obviously, we have managed to exceed that in third quarter. But I think there is room for us to, when I say better expected than year-to-date if you like. So there is a little bit of room for continued improvement. And that’s about making sure that we don’t have any unplanned events.

On the cost side, I think that we have got a very good graph on things today. I think as we add more rigs to the fleet you will see some incremental benefits from sharing the overhead structures and the fixed cost structure that we have across the fleet, so that the effective of those fixed costs is lower per rig. And so that’s one area where I think we can see some improvements.

And frankly, the more you use these rigs and you get the experience in the team’s operating them. And as we introduce new rigs and they go through the start-up and shakedown period, their performance will improve as well. So I think there is a little bit on both sides. I think these are marginal improvement at this point. We’re not talking all sort of changes because frankly we are pretty close to the top already. But maintaining that for an extended period, one quarter we are very proud about, we want be able to deliver that same level of performance quarter-on-quarter.

Darren Hicks - Evercore Partners

Okay, thanks.

William Restrepo

I will make a quick comments on that as well. We have placed two more rigs at market dayrates, of course the initial four rigs were all contracted during the bottom of the cycle and those are going to be repricing in the future. So we’ll see the other component of performance and EBITDA -- EBITDA margin is average dayrate and that will certainly go up over the quarters to come. Also Chris and the marketing team and our operations team have been working very hard at modifying certain conditions in some of our contracts, which again will improve our chances of capturing most of our dayrate, better maintenance process and so forth.

So we won’t stop, there is still lots of ways for improvement, we’ll start looking at all the superfluous costs that we have out there as well to try to eliminate those.

Darren Hicks - Evercore Partners

Okay, understood. And if I could just ask one more follow-up question. Your interest expense guidance moved somewhat meaningfully since the last quarter and I think William touched on it a little bit, but could you talk about what specifically drove the changes and if there is a chance that the guidance can move the other way in future quarters?

William Restrepo

There is always a chance Darren. Of course, I mean that guidance can go either way but what we expect today is that given the strength of our results which really resulting in higher cash flow from operations. And the fact that we can better at reducing our receivables on the balance sheet and day sales outstanding. We generated more cash than we anticipated and therefore we have been able to avoid increasing our debt as we had forecast initially.

So we will continue to work hard to maintain those that level of success, so we don’t so we minimize the amount of debt. I can’t give you at this point prediction of whether will be or worse that will certainly work to make interest expense lower than what we have forecast and our debt lower than we have forecast.

Darren Hicks - Evercore Partners

Very helpful. Thanks a lot guys.

Operator

And our next question comes from the side Lukas Daul [SEB Enskilda Inc.]. Your line is open.

Lukas Daul - SEB Enskilda Inc.

Thank you. Good evening guys and congrats on a good quarter.

Chris Beckett

Thank you, Lukas.

Lukas Daul - SEB Enskilda Inc.

Wanted to touch up on the Bora extension that you sort of talked about in your prepared comments. Is that a contract which is, is there sort of an extension of the contract or are you negotiating a brand-new contract? I'm thinking more of the contractual provisions which was a big theme even for you a couple of quarters back.

Chris Beckett

Lukas, it’s obviously the exercise of an option against the original contract. We do have the opportunity to both reprice and adjust some of the terms and what we are looking to do is move that contract, which was obviously one of the first contracts we have signed under the existing master agreement that we have in place. And we will be able to give you some more details hopefully in a couple of weeks. But we want to save that until we sure of the client is comfortable and has all of their ducts lined up. But I think, let me put it this way. We are extremely comfortable with why we think that process is going to end.

Lukas Daul - SEB Enskilda Inc.

And are you getting, are you sort of getting your way also on the extensions being negotiated with Petrobras? Or is there more of a hard not?

Chris Beckett

I’m not sure you have to get your way with Petrobras. We are obviously that’s been an ongoing discussion for an extended period. And the reason it’s taking a long time is because both sides have fairly strong views on what they to achieve out of that contact and we continue to progress and trying to close the gaps. But I certainly wouldn’t describe it as getting our way frankly. I don’t think we get our way with any of our clients but we do expect to get some improvements.

Lukas Daul - SEB Enskilda Inc.

Okay. And then you have a very confident view, which is sort of justified by the quality of your fleet on the utilization going forward, but I’m wondering if, do you see sort of an inflection point in dayrates where pricing could become more of a sort of a theme for oil companies when deciding what assets to go for? Or is it just so technically different 5G and 6G that it's not really the same competition?

Chris Beckett

Yes. Unless I think what you see through every cycle and frankly we sort of -- the market’s been behaving as if its not cyclic for the last 18 months. We have been fairly stable at these very attractive high fives, low six rates.

But if you consider this to be a high point in the cycle what you tend to find is at the peak of the cycle everything rises to the top, once the newbuilds of the latest most capable rigs allowed then the less capable rigs are able to demand high rates. And as the market moves forward and more newbuilds are introduced, you will see some of the weaker rigs having to moderate the direct in order to secure work.

But I think in the eyes of most of the clients there are sufficient technical differentiations between the sixth and seventh gens in any previous generation rigs, that they clearly have a willingness to pay more in form of dayrate because they get more in form of efficiency and drilling the well and frankly quality of the well bore delivered.

So there is a fundamental technical benefit to the latest generation of rigs with offline handling and other efficiency improvements that the clients clearly recognize now and are willing to pay for. And I think you will continue to see a gap that’s driven by that on a go forward basis.

Lukas Daul - SEB Enskilda Inc.

Okay. Very helpful. Thank you, guys.

William Restrepo

Thank you.

Operator

And our next question comes from the side of J.B. Lowe [Cowen and Company]. Your line is now open.

J.B. Lowe - Cowen and Company

Hi, good morning everyone.

William Restrepo

Good morning.

J.B. Lowe - Cowen and Company

Sorry if you guys touched on this earlier, but given your outlook into the supply demand scenario in the ultra-deep sector going forward, have you guys been trying to press dayrates a little bit higher? And if so, how are your clients kind of coming back to you? Do they see this – I mean if they see the same sort of supply demand situation that you do, are they getting more, are they speeding up their process to try to sign up your rigs or I guess my question is, we’ve seen some flat dayrates over the past year or so, do you see the risk more to the upside given your supply demand outlook?

Chris Beckett

I think the fundamentals would suggest that there maybe room for some pricing increase. But I think the reality of where the market discussions are today as we the current rate structure remaining consistent certainly for the next 12 months or so. I think we are seeing some plants accelerate the market enquiry process to sort of make commitment for at least explore market opportunities. In advance of the confirmed sanctioning of those requirements which is typically driven by the affair of not been able to get a rig, if they wait until after they got everything signed off.

So we are seeing a little bit of that. We are seeing clients enquiring about rigs they are not yet ready to commit to because they haven’t sanctioned the projects there were used on. But where they want to get all the paper work done ahead of time or the process done ahead of time so they can act quickly when it happens.

So I think fundamental dynamics are still very positive. I don’t think we can see any big steps forward in terms of increased dayrate over the next 12 months or so. But I think the delivery profile for new rigs added to the fleet its fairly well set for the next couple of years. So the supply side is pretty well fixed.

The demand side is very much in the hands of the clients and how far if they want to develop some of these projects. But I think there has been a lot of exploration success it’s going to lead to develop work going forward and that’s what gives us a great deal of comfort that the mid to longer term viability of the market is strong. We will have to see whether that leads to an ability to increase our dayrates going forward. But I have got to be honest that $600,000 day rate, we are making extremely attractive returns and we don’t need to push rates very hard.

J.B. Lowe - Cowen and Company

Okay, fair enough. And just one other one. Outlook for initiating a dividend, and I’m sorry again if you guys already mentioned this, but are you guys looking for, first of all, is that in the plans? And second, when would you look to initiate one if you were to do that?

William Restrepo

Yes, JB. We have in fact come out and said that we intent to initiate dividends during 2015. Of course those discussions are ongoing with the Board and the Board is certainly behind initiating dividend and have us the green light to communicate that to investors. The process as I would expect it would be that, we will finalize the size of the dividends and the specific timing and the formula for how we would go forward in terms of growth of that dividend. With the Board in the next few months and then around our shareholder meeting we would ask for approval of shareholders for that policy to be implemented. So that’s what I would expect the timing to be going forward.

J.B. Lowe - Cowen and Company

Okay, great. And any sort of target metric you guys think you’re going to use as to the level of the dividend?

William Restrepo

We have some in mind, but obviously that requires Board approval and we are not ready to share with our investors yet.

J.B. Lowe - Cowen and Company

Okay, fair enough. Thanks so much.

William Restrepo

Thanks.

Operator

And we will next go to the side of Andreas Stubsrud [Pareto/Nordic Partners]. Your line is open.

Andreas Stubsrud - Pareto/Nordic Partners

Hello, and good afternoon from Norway, here. First of all, you said something, Chris, about Mistral and maybe some upgrades to managed pressure drilling. Does this mean the shipyard stay and some investments or did I misunderstand you?

Chris Beckett

No. You understood me that we are talking about -- are looking at increasing the capability of the rig by adding managed pressure drilling. But we are not talking about the shipyard stay. These are modifications we can make while we are out. Any cost associated with that would obviously be borne by the clients in this case. So the way we view it, it’s a way to increase the incremental capabilities of our rigs. It’s a technology that I think is becoming increasingly interesting to many clients because of its enhanced safety and operational performance benefits. So we are certainly interested in looking to employ that on the Mistral but it wouldn’t lead to any other service time or negative cost implications from our standpoint.

Andreas Stubsrud - Pareto/Nordic Partners

Okay. So most likely when we see a potentially a new contract from Petrobras for Mistral, we will see that maybe the dayrate includes compensation for that. Is that what you’re telling me?

Chris Beckett

You should see a structure that includes at least in terms of why we recognize revenue compensation for any -- the cost of any upgrades we make or improvements for the rig.

Andreas Stubsrud - Pareto/Nordic Partners

Okay, great. And just on the topic, the dual grade and drilling on Santa Ana, any update on that? Is everything going well or?

Chris Beckett

Things are going on as planned. We have – we’ve run the pump for the first time its back on surface right now. The current plan obviously it’s in the hands of Chevron to decide how they want to run the well plan. I know they have discussed the idea of drilling the next well in dual-gradient mode but that decision isn’t firm yet. So it’s an ongoing process, it’s a complex piece of equipment but everyone wants to make sure we are comfortable. We will perform exactly as planned before we use it in hanger as it were. But everything is progressing well.

Andreas Stubsrud - Pareto/Nordic Partners

Okay, great thank you. And that’s all for me.

Chris Beckett

Thanks.

Operator

(Operator Instructions) At this time there are no additional questions. I would like to turn the program back to our presenters.

Amy Roddy

Thank you everyone for participating in Pacific Drilling third quarter 2013 results conference call. William and I will be available for additional questions throughout the day. Thank you.

Operator

This does conclude today’s program. You may now disconnect at any time.

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