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Atwood Oceanics, Inc. (NYSE:ATW)

F1Q2011 Earnings Conference Call

February 3, 2011 11:00 AM ET

Executives

Mark L. Mey – SVP and CFO

Robert J. Saltiel – President and CEO

Analysts

Collin Gerry – Raymond James

Dave Wilson – Howard Weil

Arun Jayaram – Credit Suisse

Judson Bailey – Jefferies

Stewart Glickman – Standard & Poors

Matt Beeby – Global Hunter Securities

Operator

Good day, and welcome to the Atwood Oceanics First Quarter Results for Fiscal Year 2011 Teleconference Call. All lines are currently in listen-only mode. Later, there will be an opportunity to ask questions. (Operator Instructions)

It is now my pleasure to hand off the conference to Rob Saltiel, President and CEO, and Mark Mey, Senior Vice President and CFO of Atwood Oceanics. Please go ahead, gentlemen.

Mark L. Mey

Good morning, and welcome to Atwood Oceanics conference call and web cast to review the company’s operating results for the quarter ended December 31, 2010. 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 based upon management’s current plans, expectations, estimates, assumptions, and beliefs concerning future events impacting us and therefore involve a number of risks 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.

Now, let me turn the call over to Rob.

Robert J. Saltiel

Thank you, Mark. Good morning and welcome to all of you joining today’s call. We had another busy and largely successful quarter to begin fiscal year 2011. I will offer comments on our financial and operational results, discuss a number of key developments since our last earnings call, and share some color on the market and current rig operations before turning it back to Mark for the financial details.

Let me start by saying that we were generally pleased with the financial & operational results for the fourth quarter. Despite an extended out of service period on the Atwood Eagle due to regulatory inspections and associated maintenance that we discussed on our last call and a short regulatory inspection outage on the Vicksburg, our revenue recognition was generally good for this quarter. We also continued our trend of continuing safe operations and we finished calendar year 2010 with a total recordable incident rate that was less than 0.7.

This week, we welcome Mac Polhamus as our new Vice President of Operations. Mac brings to Atwood his extensive leadership experience in U.S. and International offshore markets, and in deep water and shallow water drilling operations. Importantly, Mac has managed some of the most technically advanced ultra-deepwater rigs that are working today. And this experience will be extremely beneficial to Atwood as we construct, commission, and operate a fleet of ultra-deepwater drilling rigs in the coming years.

Perhaps our biggest news since the last call was our announcement on Monday to construct Atwood’s first drillship, which we have named The Atwood Advantage at the Daewoo shipyard in South Korea. This is a very significant development for us, as it marks a further expansion of our high specification floater fleet with an ultra-deepwater rig that will offer truly outstanding performance.

The drilling package, well control system, cranes, and other features of the Atwood Advantage will offer tremendous capabilities and efficiencies to operators for both exploration and development drilling. The Advantage will be built under a full turnkey contract and is slated for delivery at the end of September 2013.

We also retained two separate options to purchase identical drillships that must be exercised before November of this year. Earlier in January, we exercised our option to build a third high specification jackup at the PPL shipyard in Singapore on similar terms and conditions as the previous two rigs that we announced in October, and with this one having a scheduled delivery date of June 30, 2013. This decision was driven largely by our continued confidence in the high specification segment of the jackup market and our continuing perception that customers’ appetite for these high capability rigs will remain strong. Our own discussions with operators suggest that we have selected a very marketable and cost effective design. We still retain two additional options to construct identical jackups.

Turning now to our market outlook. Despite some continuing uncertainties, we believe we are seeing a continuation of the improvement in market conditions that we discussed during our last call. With high oil prices now becoming the norm again, we are seeing more optimism from the operator community generally. In the floater segment, ultra-deepwater day rates and utilization remain, solid despite continuing frustrations across our industry relating to the lack of drilling in the Gulf of Mexico.

In the jackup segment, we continue to see the high specification jackups enjoy high utilization rates, while the lower specification rigs and older jackups struggle with utilization rates in the 70% to 80% range.

In both floaters and jackups we are seeing more of our competitors stack older rigs, and this should accelerate a recovery in marketed utilization and hence day rates. Confirming the general up trend in market outlook at Atwood, we have seen an increase in bidding activity for both floater and jackup work in the most recent quarter compared to the prior one.

I’ll now make a few comments on recent and current rig operations. The Atwood Hunter completed its mobilization from Equatorial Guinea to Ghana in December and it’s currently drilling for Kosmos Energy in Ghana. The Atwood Falcon remains drilling for Shell in Malaysia, while the Atwood Eagle continues its work for Chevron in Australia. The Vicksburg continues its program with New Coastal in Thailand, while the Atwood Beacon has drilled its first well for Murphy Oil in Surinam as part of a four well program for a consortium led by Murphy. The Atwood Aurora is in the Mediterranean Sea off the coast of Egypt. As outlined in our recent 8-K filing, we received notice that our client RWE was declaring a force majeure effective January 29th. We are currently reviewing this claim. Fortunately, we have been able to safely evacuate immediate family members of our shore-based teams in Egypt back to their home countries.

On the construction front, our two ultra-deepwater semi-submersible being constructed at Jurong Shipyard continue to make excellent progress. The Atwood Osprey remains on schedule for completion later this quarter, while the Atwood Condor is still expected by the middle of calendar year 2012. Our previous guidance of the $625 million construction cost for the Osprey and the $750 million cost for the Condor remains unchanged. While it is early days, construction on the PPL jackups the Atwood Mako, Atwood Manta, and Atwood Orca is making good progress towards their scheduled delivery dates. And with that, I will conclude my prepared remarks and turn it back to Mark to provide more details on our financial results and outlook. Mark?

Mark L. Mey

Thanks, Rob. Let me now walk you through our financial results for the first quarter ended December 31, 2010. I will then look out to the remainder of fiscal 2011. Our diluted earnings for the first quarter ended December 31, 2010 were $0.81 on revenues of approximately $146 million, as compared to the earnings of $1.04 on revenues of $164 million for the same period in 2009.

Revenues and earnings were lower than the same period in 2009 due to 221 less operating days. The number of operating days were negatively impacted with the Seahawk and the Richmond also stacked during this quarter and the zero rate days is due to regulatory inspections on the Atwood Eagle and Vicksburg as mentioned by Rob earlier and as discussed in our prior earnings conference call.

Contract drilling costs totaled $58 million for the quarter, as compared to 61 for the same period last year as these costs are incurred in full during the regulatory inspections despite the aforementioned reduction in operating days. Operating margins decreased from 50% in the same period last year to 43.5% this quarter and net margins decreased from 40.8% to just over 36% this quarter. These margin reductions were entirely due to the reduced revenues caused primarily by the aforementioned zero rate days without a corresponding reduction in operating costs.

Interesting to note, though, that the average day rates increased from 223,000 a day in the same quarter in 2009 to 284,000 for the December 31 quarter. We ended the fiscal first-quarter with $200 million in cash and $300 million drawn under our two credit facilities resulting in a net debt of 4%.

I will now comment on certain items that could impact the results for the remainder of fiscal 2011. Firstly, as discussed in December 2010 conference call, we expect to incur zero rate days on our rig fleet due to regulatory inspections as follows: the Atwood Hunter, approximately 20 days in the fiscal fourth quarter and the Atwood Beacon, approximately five days in the fiscal third quarter.

We expect total drilling costs for the fiscal second quarter 2011 to approximate 56 million and total drilling costs for the full year to be between $245 and $255 million. Any cost increases from the prior year 2010 are attributed mainly to the number of scheduled regulatory inspections being completed in operating fleets and the startup of the Atwood Osprey in Australia, a high operating cost environment. Partially offsetting these cost increases are the reduced costs on the three idled rigs.

We begin to see modest inflation affecting rig operating costs and expect year-on-year inflation cost increases approximating 4%. We expect G&A expenses in fiscal 2011 to approximate $42 million or about $9 million for the remaining quarters in 2011. The depreciation expense is expected to be flat through the second fiscal quarter and then increase in fiscal third and fourth quarters when the Atwood Osprey begins operations.

I will now comment on expected total capital expenditures for fiscal 2011. For the first quarter 2011, we incurred capital spend of $140 million as follows. The Atwood Osprey, about $53 million; the Atwood Condor, just over $18 million; and down payments on the Atwood Mako and Atwood Manta of $69 million.

For the remainder of 2011, we expect to incur $90 million completing the Atwood Osprey, $155 million on the Atwood Condor, and $34 million, which was spent recently in January on the down payment for the Atwood Orca, and $160 million as a down payment on the Atwood Advantage.

Total capital expenditures, including project management, maintenance CapEx and space is estimated to be $471 million for the remainder of fiscal 2011. These capital requirements are being adequately funded by cash, cash flow from operations, and debt from our two credit facilities. Our current revenue contract backlog of $1.2 billion is expected to provide approximately $600 million in future after tax cash flows.

Finally, a comment on tax rate, which we expect to be between 16% and 18% for the remaining of three quarters in fiscal 2011.

That completes our prepared comments today. I will now turn the call over to Colin for questions. Colin?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And it appears our first comment is from Collin Gerry with Raymond James. Please go ahead. Your line is open.

Collin Gerry – Raymond James

Hey guys, I hear shipyard costs are down, are you all thinking about building any new rigs? I’m just kidding. Busy quarter though, I mean, high grading the fleet pretty fast here, I got to ask the question, when I look at my model, it seems like you all still have some financial capacity here, are we done?

Robert J. Saltiel

Well, Collin, thanks for your question and I’m glad you’re on the right conference call because we have had a busy quarter and we have continued to execute our strategy that we’ve talked about before of growing our fleet and increasing our focus on high specification assets. We’re very excited about what we’ve been able to do now in both the shallow water and in the ultra-deepwater markets in terms of lining up additional capacity to grow our revenue and earnings well into the next decade.

As you well know both with the jackups and with this recent announcement on the Atwood Advantage, we do retain options within both of those agreements with shipyards to exercise further options and to grow the fleet further. And we will continue to study those opportunities for us as and when they come due. We do have another roughly six months before the next decision process needs to be executed, but we have some built in flexibility to grow if we decide that we want to do that here in 2011.

Collin Gerry – Raymond James

Yeah, it’s interesting. You mentioned the $750 million cost on the last rig ordered a couple years ago. And I mean, it’s still – the drillship you just built is just over 600 if I recall. So there’s still – it seems like pricing or the asset costs are still relatively attractive. What further analysis in your study, in other words, what factors are you looking at now that may be different than what led you to the prior few decisions on the jackups and the drillship?

Robert J. Saltiel

Well, we’ve obviously made quite a few decisions here on expanding the fleet that we now need to get contracts on. And that’s a real focus of our team here, is to make sure that we continue our ongoing discussions with customers and look to increase our contract cover as we go forward. We feel very good about the decisions that we’ve made, but it is going to be time for us to focus on the marketing efforts and to gain some more backlog and confidence in the contracting environment. So I think that’s a key focus for us.

That said, one of the things that gives you a lot of confidence in this market is if you build at the right time in the cycle and your comment about the relative construction costs of the Atwood Advantage relative to what we saw in the last cycle is spot on. And that’s why we took the decision on both the jackups and the floaters to construct right now. But we’ll continue to study this through the first half of this year, as I say, as we get close to decision points on both the jackups and the drillship.

Collin Gerry – Raymond James

Great. I appreciate the color on that. Mark, question for you. You mentioned – my math – your – the revolver and your cash flow and everything, you can cover 2011 CapEx with all the new activity. But as these rigs come to deliver – again I’m more asking – I have your debt-to-cap, you might need to take on some more debt and debt to cap might go into the high 30s range, I guess question number one is, is my math right? And number two, what debt to cap level are you all comfortable with?

Mark L. Mey

Collin, let me first respond by saying you’re absolutely right, we can meet any kind of capital spend requirements in fiscal 2011 quite comfortably with the cushion. Obviously, we do have two credit facilities currently. One which expires in November of next year. So we will be looking at redoing our credit facilities this year, later this year, to take advantage of current markets and also prepare for spend that’s going to be coming down the pike in 2012, 2013, and 2014. I think if we look at our model, and obviously using reasonably conservative day rates, we don’t see ourselves getting much above 30% on debt to cap level. We’re quite comfortable with that level and depending on our contractual backlog and our visibility from future day rates, we may go above that somewhat. But I think that gets analyzed in the context of the opportunity together with where we are in the cycle as well.

Collin Gerry – Raymond James

Okay. And so, and that 30% level you mentioned, that’s going forward into 20 kind of 13, 2012. And I’m not trying to get guidance from you, I’m just kind of thinking....

Mark L. Mey

2013, 2014.

Collin Gerry – Raymond James

Okay. Great, that’s it from me, I’ll re-queue if I have more. Thanks a bunch, guys.

Mark L. Mey

You’re welcome.

Robert J. Saltiel

Thanks, Collin.

Operator

Thank you. Our next question comes from us from Dave Wilson with Howard Weil. Go ahead, please.

Dave Wilson – Howard Weil

Good morning, gentlemen. Rob, with all the new builds that have been announced recently industry-wide, where are you on the scale of being concerned that too much capacity may have been added to the market? And where do you get the comfort from a demand perspective for those new builds?

Robert J. Saltiel

Yeah, good question. Thank you. We, like everybody, we’re watching the market and a seeing that a number of people have taken advantage of this lull in the build cycle to add capacity. I think there’s a confidence and conviction by those of us in this business that there is a need to develop new capacity and bring new technology to the market and that we’re going to see, over this decade we’re going to see a significant amount of substitution of older rigs, less capable rigs, both on the jackup and the floater side on top of what we anticipate as top line growth, certainly in floater demand and a recovery in jackup demand.

And I think it’s that confidence that we’re going to see that substitution side that gives us a lot of insulation on the risk of just doing the simple math of saying, well, we’ve got this many rigs out there now. If you add this much capacity, where’s the demand going to come from? Just as an example, about 25% of the active floater fleet is going to be 35 or plus years old three years from now. And so I think you just have to ask yourself the question, at what rate is that capacity going to exit the market? And I think if you see what some of our competitors are doing, even competitors who haven’t had a tradition of stacking rigs, you’re seeing more recently a willingness to take some capacity off the market, both on jackups and floaters and I think that’s very supportive of this expectation we’ve got for substitution that will take place over the coming years.

So at this point, we’re not concerned, we believe that the demand is growing. I mean, you’ve seen the spending forecasts and the trends there, where we’re dealing with a market right now that’s got basically no activity, virtually no activity in the Gulf of Mexico. And we still have very exciting drilling to do in West Africa and you’ve got new plays like the Pre-Salt in Angola, on top of the developments in more traditional markets in East Africa. And then clearly Brazil, in our view, hasn’t spoken up yet and taken all the deepwater rigs that they can take. So all those factors together make us relatively sanguine on the market and confident that building right now makes sense for Atwood.

Dave Wilson – Howard Weil

Okay. Thanks for the insight there. And just one quick follow-up, a little unrelated but, and apologize if you covered it in your prepared remarks. The near-term outlook for the Aurora, the opportunities there within the region or moving it out somewhere else. Could you talk a little bit about that?

Robert J. Saltiel

Both. I’ll tell you we’ve, with the contract coming due at the end of April, we’ve been in discussion for some time about where to put that next and I will say that we’re looking both in the region and in the West Africa area as the primary focal points.

Dave Wilson – Howard Weil

Okay. That’s it for me. Thanks a lot, Rob.

Robert J. Saltiel

You’re welcome.

Operator

(Operator Instructions) We next go to Janice Rudd with Pritchard Capital. Go ahead, please.

Janice Rudd – Pritchard Capital

Good morning. I just wanted to check, looks like you had another big increase in your G&A for the December quarter as, which happened last year as well. Could you give us guide as, should we build that in again for 2011?

Mark L. Mey

Yes, Janice. Typically, if you follow Atwood, you’ll notice that first quarter of each year is a spike in G&A and that’s typically as it relates to the executive compensation. This spike this year was even larger because you had retirements of the previous CEO, CFO, VP of Operations, and one or two others. So you will see this scaling down as I said, to about $9 million per quarter for the remaining three quarters. We’re looking at around about $42 million for the year.

Janice Rudd – Pritchard Capital

So we should go ahead and probably build not as big an increase for the next December quarter, is that? Because you assume you won’t have the retirements?

Mark L. Mey

That’s correct, yes.

Janice Rudd – Pritchard Capital

Okay, okay. Thank you very much.

Operator

Thank you. And our next question comes from Arun Jayaram with Credit Suisse. Go ahead, please.

Arun Jayaram – Credit Suisse

Good morning, gentlemen.

Robert J. Saltiel

Good morning, Arun.

Arun Jayaram – Credit Suisse

Hey, Rob, can you give us a sense of what you’re seeing in the ultra-high spec jackup market? That market was white red hot for a while but we have seen a few rigs come off contract or with a little bit of idle time. I just wanted to see if, what you’re seeing in that market?

Robert J. Saltiel

Yeah. I think you may be referring to some of our competitors who’ve come off and taken a little gap before they’ve gotten contracts.

Arun Jayaram – Credit Suisse

Exactly.

Robert J. Saltiel

I think that the market is flattish versus where we were last quarter. I think we said the market was kind in the 120 to 140 range for the general high spec jackups. And I would say that that’s been the case. As I say, we’ve been marketing the Aurora for the last few months. And we see some good opportunities for the rig, which is obviously our primary focus. So we’re really not too concerned about finding additional work for it. But I think you’re right that there have been a couple of gaps quoted, but all things considered I think those rigs have found reasonable follow-on work after the short gaps.

Arun Jayaram – Credit Suisse

Okay. And just turning to the Falcon, Hunter, Eagle. Rob, how do you think about, I mean, you guys I’m sure are working on follow-on work for those rigs as you think of a couple of those rolling off in ‘12. Can you give us a sense of today of your confidence in the ability to maintain high levels of utilization and just some thoughts on pricing, perhaps?

Robert J. Saltiel

Sure. Really the Falcon and the Eagle, actually the Eagle first and then the Falcon are the ones that come available this year. The Eagle contract is linked to the arrival of the Osprey with Chevron. And so if you add six months to a roughly April delivery that should come off around October timeframe or the contract should run out. And then the Falcon really runs toward late calendar year this year and perhaps into early next year. So those are definitely focus areas for us over the next few months. I think with the Eagle having such a strong reputation in Australia, we feel very good about follow-on work there. And we’ve seen a number of jobs in Australia or in that region that we think are great candidate jobs for the Eagle. So we feel very good about our opportunities to keep that rig busy.

On the Falcon, it’s no secret that rig’s been working with Shell for 10 to 15 years consistently in Malaysia and in surrounding areas. So we certainly would hope to be able to keep that string of work running with Shell or with others in that area. Again, we feel very good about the ability to keep that rig busy. The Hunter doesn’t roll off until October of 2012 from its current agreement, that’s split, as you know, between Noble Energy and Kosmos. So that’s probably a little bit further out to discuss right now. But the Eagle and Falcon being closer in, we’ve got some good visibility on follow-on work.

Arun Jayaram – Credit Suisse

And then Shell just did announce a rig swap with one of your peers, where they’re no longer going to be using the Phoenix. So would you think that that increases the likelihood of keeping that rig at, with Shell?

Robert J. Saltiel

Well, the Phoenix is a similar water depth rig to the Falcon and it’s leaving the region. So directionally that’s probably a good sign for us.

Arun Jayaram – Credit Suisse

All right. Thanks a lot, guys.

Operator

Thank you. Our next question comes to us from Judson Bailey with Jefferies and Company Investment Banking. Go ahead, please.

Judson Bailey – Jefferies

Thank you. Good morning. Actually a follow-up to Arun’s question on the Falcon, well, two things actually. Is there any reason the Falcon cannot go to Australia? Could you remind me, I don’t know, I can’t remember if that rig has worked there in the past.

Robert J. Saltiel

It has worked there in Australia before. And there’s really no reason why it can’t go back there.

Judson Bailey – Jefferies

Okay. And in terms of pricing with activity picking up here the last fixture on that rig was around 300. Is that a decent number to use with outside Australia and what are you seeing in terms of opportunities, I guess, in Australia since that’s usually a bit higher?

Robert J. Saltiel

Yeah. I mean, Australia typically will trade about $50,000 or so premium to areas, Southeast Asia outside of Australia. I will say that the rate on the Falcon was a short-term renewal that we did to finish up some existing work with Shell on their development there in Malaysia. That deal was negotiated really at a difficult time in the market with Macondo. And so we’d like to think that rates could be a bit higher than that going forward. Obviously, it’s all subject to negotiation and we’ll have to see where we come out.

Judson Bailey – Jefferies

Okay. That’s good color. One other question, and following on to your commentary which I appreciate on your outlook for the floater market and the need to potentially bring new technology into the market. How do you, that being said, I mean, you obviously have some older moored floaters in your fleet. How do you see your better deep-water rigs faring over the next three to five years? You’ve had a lot of work put into them, they’re very good units. Are you concerned at all about seeing some pricing pressure from the new supply coming in on those rigs or do you still feel pretty good about the prospects beyond the next two to three years?

Robert J. Saltiel

Yeah, the answer’s both. Obviously new rigs coming in always creates supply pressure. But these three rigs are three of the best maintained rigs in their class, largely due to the fact that Atwood maintaining a small fleet for many years had no choice other than to continue to invest in these rigs and maintain them at a very high level so that they could have a long useful life. The fact that we continue to work for the clients that we do, very name brand clients, I think is very supportive of the business that we’re running and the condition those rigs are in.

That said, in light of the events of 2010, we are taking extra efforts to make sure that our well control systems are absolutely in a very tip-top condition, and that they’ll operate reliably and safely if and when needed. And we are looking at smaller enhancements to these rigs as well, so that we can increase their marketability and useful life over the next few years. But with those few exceptions, we feel very good about what we’ve got right now, and feel confident that we can keep them working for the foreseeable future.

Judson Bailey – Jefferies

Okay. Great. Thank you very much.

Robert J. Saltiel

You’re welcome.

Operator

Thank you. (Operator Instructions) We’ll next go to Stewart Glickman with Standard & Poors. Go ahead, please.

Stewart Glickman – Standard & Poors

Hi. Good morning, guys. Just a couple, I guess, one more follow-up question on the Falcon and the Hunter or excuse me, the Eagle and the Hunter. Given that you guys have a pretty full plate of new builds coming on stream fiscal ‘12, fiscal ‘13 mostly. Is there any inclination on your part to try to focus more on term, perhaps at the expense of day rate or do you think the market’s strong enough that you could get reasonably sufficient term as well as reasonably strong day rates to help continue to fund the new build projects?

Robert J. Saltiel

Yeah. Thank you. I don’t think we’re in a position right now to dictate, let’s say, the term of the jobs that are available to us. And as a practical matter, I think we’re seeing terms kind of in the – let’s say in the deep-water realm – of the six month to, call it, two year timeframe. So I don’t know what kind of a particular trade off you’d be thinking about in terms of term for day rate. We do think though that the market is potentially strengthening on the back of the rise in oil prices and some renewed optimism in the market. But I’m not sure that we’ll be facing a conscious trade off of term for rate. We’re going to try to keep these rigs active in their current spheres of work, because we don’t want to, if we can avoid moving the rigs around too much, we would certainly like to do that. We believe in continuity of operations, but I think that the terms you ought to be thinking about for renewals are in the kind of the six month to two year timeframe.

Stewart Glickman – Standard & Poors

Okay. Thanks. That’s helpful. And then I guess secondly on, just on new builds generally, given how many there are, are you guys planning on doing anything differently or have you done anything differently in terms of kind of internal project management to make sure that everything stays on schedule?

Robert J. Saltiel

We’re doing quite a few things differently, to be honest. We’ve enhanced our project management team significantly. We’ve brought some talent in from some of our competitors, folks who have been involved in managing large projects, ultra-deepwater drillships, for example. And that’s certainly given us a lot more confidence of our ability to manage these projects. But in terms of how we contract for these rigs, we’re very much moving toward 100% turnkey contracts, and that’s what we’ve done on both the three jackups that we’ve got with PPL Shipyard in Singapore and with this first drillship that we have with DSME in Korea.

In the past we’ve taken additional risk and work on ourselves in terms of providing some owner furnished equipment. And going forward we’re moving much more toward 100% build or furnished equipment or BFE turnkey arrangement. And that certainly mitigates our risk and it also minimizes the cost of project management and the number of resources we need to take these projects through the yard.

Stewart Glickman – Standard & Poors

Okay. Great. And then last question, if you could just remind me the remaining options you have, the two for the floaters and the two on the jackups. Are these fixed price options?

Robert J. Saltiel

They have fixed price elements to them with some indexation in all cases.

Stewart Glickman – Standard & Poors

Okay. Thanks a lot, guys.

Robert J. Saltiel

You’re welcome.

Operator

Thank you. We will now go to the site of Matt Beeby with Global Hunter Securities. Go ahead, please.

Matt Beeby – Global Hunter Securities

Good morning.

Robert J. Saltiel

Good morning.

Matt Beeby – Global Hunter Securities

With respect to the three new build jackups and kind looking at modeling two years out the start-up time there. Do you see Southeast Asia as a probable market for those rig or are there other markets out there that might be suitable, more suitable?

Robert J. Saltiel

Yeah, we certainly see Southeast Asia as a potential market, but certainly not the only market for those rigs. And more traditional markets where we’ve worked before like West Africa, for example, certainly need to be considered as well. And we’re looking at some markets where we haven’t worked before as potential markets in addition to those two. So we’re really casting a fairly wide net, given the capability of these rigs to drill in virtually any environment other than what I would call kind of harsh environment, North Sea, other than that we really feel like we could drill anywhere and we want to make sure we get the right commercial opportunity for these rigs.

Matt Beeby – Global Hunter Securities

And follow-up to that, with newer rig quality becoming so important in the market today, looking at the, like the Vicksburg, a 300 foot rig, and potentially Southeast Asia being a big market, how do you perceive that being competitive as that rolls off contract? Maybe talk about rate expectations and any downtime with that rig prior to finding work?

Robert J. Saltiel

Yeah. The Vicksburg’s been working for some time in Thailand and really similar to the deepwater rigs we referenced before, it’s a rig that has gone through upgrades and does have some capabilities that if you look a little beneath the water decks you’ll see that it has additional capabilities that a number 300 foot rigs don’t have with regard to mud pumping capability and cantilever and quarters, for example. So as we continue to drill with our current client there, we think that maybe opportunities to extend within Thailand, but we certainly are looking at opportunities outside of Thailand as well and we feel good about our renewal opportunities.

Matt Beeby – Global Hunter Securities

Okay. Thank you.

Robert J. Saltiel

You’re welcome.

Operator

And we’ll make one last check for questions, ladies and gentlemen. (Operator Instructions) And we’ll now go to site of (inaudible) with Stifel Nicolaus. Go ahead, please.

Unidentified Participant

Good morning. We’ve pretty much covered everything, I was wondering if you offer some comments on the rigs that are currently stack, possibilities for contracts in the distant future or do you intend to ultimately just dispose of them?

Robert J. Saltiel

Yeah. Thanks for the question, Thad. At this point, I would say it’s fair to say that we don’t have plans to reactivate those during fiscal year 2011. We have had requests on really all of the rigs to look at projects, but we’re going to be very selective about considering reactivation.

You’ve got to make sure in this business that you don’t reactivate rigs unless you really see a sustainable market strengthening and/or a significant term that you can leg into to bring the rig out of the stack and devote the resources to doing that safely and reliably.

In terms of selling the rigs, we certainly are not hanging the for sale sign on any of our rigs, including those, but to the extent that there was interest in those by others we would look at it, but right now, we just don’t see them being active in 2011.

Unidentified Participant

Thank you.

Robert J. Saltiel

Welcome.

Operator

And I’m showing no further questions at this time, so I’ll hand it back off to Robert Saltiel and Mark Mey for closing comments. Go ahead, please.

Robert J. Saltiel

Great. Thank you, Colin. Just in closing, thanking everybody for your interest in Atwood Oceanics and look forward to talking to all of you on our Second Quarter Fiscal Year 2011 Conference Call in early May.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect at this time.

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