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Atwood Oceanics, Inc. (ATW) Q4 FY07 Earnings Call November 29, 2007 3:00 PM ET

Executives

James M. Holland - Sr. VP, Secretary and CFO

John R. Irwin - President and CEO

Glen P. Kelley - Sr. VP of Marketing and Administration

Analysts

Collin Gerry - Raymond James & Associates

Waqar Syed - Tristone Capital

Brian Brunell - Prairie Research Group

Arun Jayaram - Credit Suisse

Presentation

Operator

Welcome to today's teleconference. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during our Q&A session. Please note this call may be recorded.

I would like to now turn the call over to Mr. Jim Holland. Please go ahead, sir.

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

Good afternoon and welcome to Atwood Oceanics' conference call and webcast to review the Company's operating results for the quarter and fiscal year ended September 30, 2007. Speakers today will be John Irwin, the President and CEO, and myself, Jim Holland, Senior Vice President and CFO. Also we have with us today Glen Kelley other Senior Vice President.

Before we commence our finance and operational review, let us 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 and assumptions, and the least 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. And the words believe, estimate, impact, intent, anticipate or predict convey the uncertainties 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 some comments on the Company's current operations, let me comment on some events that impacted results for the quarter. Yesterday we reported diluted earnings per share for the September quarter of a $1.69 and for the 2007 fiscal year $4.37. Our effective tax rate was 12% for the quarter and 13% for the fiscal year. For the September quarter, all of our drilling units had 100% revenue day with exception of the Seahawk which incurred 12 days of zero rate, and Vicksburg which incurred two days of zero rate and one day incurred the Atwood Hunter all due to equipment related issues.

The Atwood Southern Cross also incurred 7 days or zero rate due to a squad regulatory inspections. These 22 zero rate days negatively impacted results for the quarter by approximately $0.11.

Our contract drilling costs for the three months and the fiscal year ended September 30, 2007, compared to same periods of fiscal year 2006 increased 15% and 29% respectively. We have the 2007 operating cost for Seahawk, since it adversely had no operating cost from March 2006 through mid August 2006 during its upgrade and relocation with AFFCO is removed. The increase in operating costs for remainder of our fleet for fiscal year 2007 was 17%, which is in more an apples-to-apples comparison.

I will now turn the conference call over to John.

John R. Irwin - President and Chief Executive Officer

Thank you, Jim, and good afternoon everyone. Yesterday we filed the fleet status report with contract, day rate and cost information for our eight operating units. I'll not repeat all of that information today. But, I would like to mention certain highlights and provide some additional comments. We'll then be pleased to respond to any questions concerning our current contract activities at the end of the call.

Our existing of eight operating units is working with key clients in some of the world's most attractive offshore markets. During the past fiscal year, we achieved fleet utilization of 100%. Our current estimated contract backlog in terms of available rig days for our eight units is approximately 87% for fiscal year '08 and 33% for fiscal year '09. This backlog provides a combination of earnings visibility and future earnings upside potential, particularly with our deepwater and international leverage.

Five of our eight units are now on term contracts. The other three units include the Atwood Eagle which is expected to start a two-year term contract in June or July 2008. The Atwood Southern Cross which now has a contract backlog until the fourth quarter of fiscal '08 and the Atwood Richmond, which is now undergoing shipyard maintenance and life enhancement work.

Our new ultra-premium jack-up the Atwood Aurora now under construction Brownsville, Texas, with expected delivery in October, November '08 will offer a growth potential where commences operation as our 9th owned offshore drilling unit.

Our fleet status report reflects certain current estimates and indications of downtime periods for required regulatory inspections and planned maintenance. The commencement timing and duration of these periods depend on number of factors and variables including suitable windows between wells or contracts. Our goal is to maintain our fleet and plan our downtime maintenance periods with the focus on minimizing downtime and achieving longer term returns.

Accordingly, we are continually reviewing forward plans for inspections and maintenance programs based on the latest schedules and the factors involved. In addition to plan downtime, zero rate downtime may also be incurred for unplanned maintenance and repairs. And historically this has been approximately 1 to 2% of zero down rate down -- zero rate downtime days that's been experienced for unplanned maintenance.

As stated the Richmond is currently undergoing $14 million to $15 million shipyard program involving required regulatory inspections in life enhancing upgrades. Late yesterday evening, we were informed that ongoing structural inspections have determined a higher level of steel replacement is required than was originally anticipated. Subject to final inspections and detail planning, it is primarily estimated the shipyard work will now be completed in the mid January 2008.

Following completion of the shipyard period, the two likely alternatives for the Richmond's next work, the one remaining Helis well at a dayrate of 80,000 or deferral the Helis well and a program with another operator in the mid 60,000s.

The Atwood Hunter is expected to finish its Burullus program in Egypt in mid December, 2007. The remaining well we are on has an estimated duration of 30 days is an operating dayrate of 325,000. Immediately upon completion of the Burullus work the rig will be moved to a shipyard in Malta to undergo a equipment grades and maintenance prior to returning to work under the suspended contract for Woodside.

The rig is expected to be at zero rate for 20 days for this equipment upgrade and maintenance period. The estimated 30 additional days in Egypt on this fourth well will be a reduction in the Woodside contract commitment and accordingly July remains the expected completion date of the reinstated Woodside contract. Woodside has two six-month options at dayrate to be mutually agreed, but the new agreement to use the rig beyond its current commitment having to be executed by December 15, 2007.

Atwood Southern Cross is currently working on the Black Sea and the contract commitments which should extend to December '07 or January '08, at dayrate levels from $145,000 to $380,000. From leaving the Black Sea the Atwood Southern Cross will then drill one more well with Turkish Petroleum at a dayrate of $320,000. The Atwood Southern Cross is being awarded a contract by ENI AGIP to drill two wells, plus options with two additional wells in Italy. The contract provides an operating dayrate of $406,000. The drilling of the two firm wells is currently estimated to take around a 150 days and if both option wells drill the contract could extend to another 90 days.

This contract will commence immediately upon the rig completing its current contract, and the contract provides ENI to provide the tow vessel to move the rig to its drilling site and pay a dayrate of $365,000 during the mobilization period of around 10 days as well as paying a dayrate of $395,000 while the rig is being certified by Italian authorities and that's estimated to be around 10 days.

The Atwood Southern Cross is also expected to incur a 4 to 10 zero rate days for required inspections and maintenance when the rig moves from the Black Sea to the Mediterranean for the last Turkish Petroleum well.

The Atwood Eagle is currently undergoing planned downtime for required regulatory inspections and planned maintenance also, which is expected to take around 15 zero rate days to complete.

Our new ultra premium jack-up, the Atwood Aurora, which is now being constructed under an agreement under an agreement with Keppel AmFELS at its yard in Brownsville, Texas is expected to be delivered in October or November of 2008. The Atwood Aurora is being marketed to clients with potential work when construction is completed. There are several international opportunities being pursued which match the Atwood Aurora's ultra premium capability and delivery timing. The Company is well positioned for the future, we continue to strengthen our balance sheet and the Company has no outstanding debt.

In October 2007, we replaced our then existing credit agreement with a five-year $300 million revolving loan facility. This new facility has more favorable terms than our previous facility, and will provide funding for future growth opportunities and for general corporate needs. Our major fleet upgrade, a new construction capital program which started in 1997 has also put the Company in a strong position to take advantage of the current market and outlook.

With our strong balance sheet and a likelihood of record cash flows and financial results, we will be in a position to consider opportunities when the times are right. Based on long-term expectations for energy demand, the outlook for the markets we serve is positive particularly for our international deepwater markets.

Accordingly, we are working to identify and pursue value enhancing growth opportunities as well as evaluating the best use of future cash flow. In considering growth opportunities we want to remain leveraged to our international deepwater markets, particularly for conventionally mode semi-submersibles in the range of 6000 to 8000 feet of water capability supported by acceptable contract opportunities, or term contract opportunities.

We estimate current project cost of around $550 million to $600 million, including capitalized interest to construct a new semi-submersible with the specifications to meet our clients' future deepwater needs. Time for rig construction will put new rig delivery approximately four years after commitment.

Our strategy focuses on safe quality operations, premium equipment, meeting the needs of our clients and being leveraged to attractive international markets. This strategy has served us well by enhancing shareholder value and continuing to guide our path forward.

Thank you all for your time, and for your interest today. Now we will be available to answer questions after Jim's remaining comments, and I'll turn it back to him.

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

Thank you John. Before we open the conference call to question, let me address certain items that will have an impact on 2008 operating results. As stated in our Form 8-K filed yesterday thus far in the first quarter of fiscal year 2008, we have incurred 19 unplanned zero rate days, which is negatively impacted diluted earnings per share about $0.07. Beside the negative impact of this unplanned downtime days, the results for the first quarter could also be negatively impacted by approximately 1.7 million or $0.05 from a dayrate billing disagreement.

We are having ongoing discussions on this issue, however, this... we currently cannot give any assurance that some or any of this 1.7 million will be paid. In addition to this unplanned downtime, we also have some planned downtime that would negatively impact operating results.

As John stated, the Atwood Eagle is currently undergoing planned downtime for its required regulatory inspections and planned maintenance, which is expected to take 15 zero rate days complete, a negatively... a negative impact of around $0.08. Also as John stated, the Richmond continues to be in a shipyard and going as $14 million to $15 million life-enhancing upgrade, which now with additional time required for steel replacement, some result and the rig incurring around 100 zero rate days, most of which will occur in the first quarter, with a negative impact on first quarter earnings of around $0.17.

The Atwood Hunter is expected to incur zero rate time from December 26, 2007, through January 15, 2008, while undergoing some equipment upgrades, and negative impact of around $0.04 on the first quarter earnings, and $0.11 on second quarter earnings.

I stated in our Form 10-K filed October 31, 2007, we currently expect total drilling costs for the first quarter of fiscal year 2008 to be $50 million to $52 million, or 6% to 11% increase over total operating cost of $47 million, which was incurred for the September 2007 quarter. Projected increases in total drilling cost for fiscal year 2008, compared to the fiscal year 2007 total of a $187 million is 10% to 12% or $205 million, $210 million.

On a rig rate basis, we expect first quarter per day operating cost for the Atwood Hunter, Atwood Eagle, Atwood Falcon and Seahawk to exceed their per day cost levels incurred during the previous quarter. Our expected per day operating cost levels per rig for the first quarter is as follows: Atwood Hunter, 90,000; Atwood Eagle, 110,000; Atwood Falcon 75,000; Seahawk, 90,000; Atwood Southern Cross, 70,000; Atwood Beacon 45,000; Vicksburg, 45,000; and the Richmond, 35,000.

We expect depreciation expense from fiscal year 2008 to be around $8.5 million in the first quarter and $9 million to $9.5 million in the second, third and fourth quarters, for a total of $36 million for the year. General and administrative expenses are projected to be around $7 million for the first quarter and $26 million for the year. We are currently having no outstanding debt. We expect net interest income for the first quarter of $500,000 to a $1 million. Our effective tax rate for 2008 is expected to remain low at around 15%.

Let me close with a brief comment on expected capital expenditures for fiscal year 2008. Assuming no additional growth other than the completion of the Atwood Aurora construction, we project capital expenditures of $70 million on completing the construction of the Atwood Aurora, $15 million on the Richmond life extension and $20 million on general maintenance for a total of $105 million.

We will now open the conference call to questions.

Question And Answer

Operator

[Operator Instructions]. And we will take our first question from Collin Gerry of Raymond James. Please go ahead.

Collin Gerry - Raymond James & Associates

Hey guys.

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

Hello.

John R. Irwin - President and Chief Executive Officer

Hi Collin.

Collin Gerry - Raymond James & Associates

Another great quarter. I kind of want to hone in on the balance sheet and I know that you mentioned, can you kind of walk us through the cost assumptions there. What would be your hurdle rate of return for that to be for you to green light a new build of that nature?

John R. Irwin - President and Chief Executive Officer

Gerry, in focusing on... looking and using our model in terms of internal rate of return after-tax and our model usually uses the firm contract period and declining dayrates, after that usually would be shooting our targeting something in the mid-teens in terms of internal rate of return, perhaps 14%, 15% and a contract probably of minimum three years duration with certain hurdle rate on cash payback after-tax probably at 60% or more something like that.

Collin Gerry - Raymond James & Associates

Okay. And is there any kind of neighborhood of I don't have it in front of me do to the math what's the neighborhood or what's the assumed dayrate for that on a three-year term would be, to get that mid-teens level?

John R. Irwin - President and Chief Executive Officer

Well I think it would still be in the 400,000 based on the cost range I gave you and depending on the final cost and the duration and the other factors.

Collin Gerry - Raymond James & Associates

Okay. And in that event [ph], you've got some floaters coming up for pretty... for renewal kind of the '08, '09 timeframe, what's the priority? Is it getting a rate in that neighborhood on the Hunter or another one on the Cross or are you trying to market maybe a rate on a new build ahead of that. Obviously the timing will be much different. But I guess, I'm just trying to get a sense of where the priorities lies as far as marketing goes?

John R. Irwin - President and Chief Executive Officer

Well, it's... I can't say this is a priority in the sense of doing one before the other in terms of a new rig, obviously we'd be marketing to see what appears an acceptable contract and sometimes that could be... sometimes connected with the other rigs. But with the marketing if the other rigs in general certainly we are seeking much higher dayrates than where we are now at least in the case of the deeper rigs for the future and continuing to look at longer term programs. So, it depends on the length of those programs and where they are, and the duration, and but certainly in our bidding we obviously taking into account, where the current, the market has been moving Gerry.

Collin Gerry - Raymond James & Associates

Okay. And I hate to be disturbed [ph]. I guess what I am trying to get is, it seems like the strength for some of those assets is currently there kind of based on what you got on the Southern Cross. So I guess I am trying to understand what is keeping us from really going into that new build, are there some issues kind of behind the scenes as far as shipyard availability. You are not finding the right shipyard or just maybe any further color?

John R. Irwin - President and Chief Executive Officer

Yes, I am sorry, you mean in terms of going to a new build.

Collin Gerry - Raymond James & Associates

Right.

John R. Irwin - President and Chief Executive Officer

I think the new builds you can look at is standalone in terms of... we have the capability to do it, we need to the contract and also to be able to connect that with shipyard availability in the right shipyard and the right design and the budget and certainly all that's being worked on by our people and actively being progressed. So, if all that come together then that would give us the opportunity to move forward.

Collin Gerry - Raymond James & Associates

Okay. okay thanks. It was helpful. Final question Jim you mentioned the stay rate disagreement in the first quarter. Could you give us a little bit more color on what the situation is there?

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

I really can't add in anymore than what we have there. I mean it is a... there is possibility we wouldn't get that paid. So really can't comment. I mean we are... there are ongoing discussions and really can't add much more than what's we have already stated there?

Collin Gerry - Raymond James & Associates

All right fair enough. Again congrats in the quarter. Thanks.

John R. Irwin - President and Chief Executive Officer

It is not related to quarter breakdown or anything like that. It's just speed on a certain day rate situation there. So that's all we can add.

Collin Gerry - Raymond James & Associates

And just the payment terms on collecting the money?

John R. Irwin - President and Chief Executive Officer

Yes, yes it's not a... not a equipment down an issue. It's some other issue that we have to deal with.

Collin Gerry - Raymond James & Associates

All right. Thanks.

Operator

[Operator Instructions]. Our next question will come from Waqar Syed of Tristone Capital. Please go ahead.

Waqar Syed - Tristone Capital

My question again relates to the cash in books, you get about $100 million of cash, in the books you have about $300 million of credit line. You are going to have significant free cash flow available as well. Even with the... even if you announce a program to build rigs, you could still have additional, extra cash available. Is... any kind of share buyback program that could be implemented as well this year or next year?

John R. Irwin - President and Chief Executive Officer

As you know Waqar, we have said for a while we continue to look at the alternative uses of cash and that's been ongoing and today, on top of our agenda are priorities really looking for... if this is the right value enhancing growth opportunity out there backed by our contract and that's what we are looking at and in the short-term that's our focus and we do not have a share buyback program approved and nothing that we would be doing in the short-term any way. Longer term I really couldn't comment on that. I think the focus right was the shorter term and the opportunities there and trying to progress those Waqar.

Waqar Syed - Tristone Capital

What kind of... which shipyards are you talking to in terms blocking up the shipyard's slot?

John R. Irwin - President and Chief Executive Officer

Two Southeast Asian shipyards that we believe they are of... have been under consideration, each with design with specs that we incorporated from our technical people in conjunct... working in conjunction with our clients. So, we have looked at... have looked at two shipyards, and we would be trying to work with one of those shipyards as we progress. We believe shipyards would experience and known designs and a track record and obviously at the same time, equipments an important element that our people have been working on as well.

Waqar Syed - Tristone Capital

Sure. Now, so delivery... if you get something lined up quickly, your delivery could be early 2011 or if you put these four years --

John R. Irwin - President and Chief Executive Officer

It could be --

Waqar Syed - Tristone Capital

... it could be late '11?

John R. Irwin - President and Chief Executive Officer

It could be during 2011. It's some time in the range I mentioned depending on when we would finally be able to, or if we are able to move forward here at some stage Waqar.

Waqar Syed - Tristone Capital

And where are you in terms of discussions? Are you seeing good interest because lot of... the number of your competitors are also looking at the same opportunities?

John R. Irwin - President and Chief Executive Officer

Yes, certainly we have been active for quite a while, and our people are still very active and working on these opportunities, and trying to focus on those clients with whom we have relationships and know or have the need for the type of skills and expertise that we believe we can bring to the party. So, characterize, our efforts at this point is being active and certainly trying to progress things and trying to move them along here in the shorter rather than the longer term.

Waqar Syed - Tristone Capital

Yes. Now you have $100 million of cash in the books, another $120 by my estimation free cash flow in '08. If you don't find any additional opportunities rather through acquisitions or new build, at what point you say and you say, okay, now we are going to go to a next priority?

John R. Irwin - President and Chief Executive Officer

Well, I don't think we set a deadline or a milestone on when that would be Waqar, that would... that will depend on how we progress and certainly we are putting a lot of effort into this right now, and depending on how timing plays out and opportunities that will determine how we move forward. But, we do not have a specific milestone or deadline as to when we would choose another direction. Certainly, we believe that the heading we are on, the direction we are on as a positive one right now.

Waqar Syed - Tristone Capital

Okay. Thank you very much.

John R. Irwin - President and Chief Executive Officer

Thank you, Waqar.

Operator

Our next question comes from Warrick Mulberry [ph] with the Private Investor. Please go ahead.

Unidentified Analyst

Hi. Thank you gentlemen. Just a quick question on the profit and loss there, your drilling expenses of as a percentage of revenue have dropped pretty dramatically this quarter, compared to historically even last quarter. Is there any timing differences in relation to the revenue there, or now that you have indicated your cost increasing. But, is there a timing factor there or is it 37% sustainable going forward?

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

Well, cost is going to vary quarter-to-quarter, obviously, depending upon the activities at the rigs. We were unfortunate in this fourth quarter that we didn't had any of the rigs and shipyard there were all operational. And it depends the days accounting rule, most of the other thing you do to a rig issue are extending the life of a rig or putting some piece of equipment its never had before, mostly everything is going to expense as you incur the cost. And that will vary from quarter-to-quarter, and you will have some quarters that are going to be harder than others unfortunately, and that's the way its going have to be that in the today's world.

So, I think it's just more of timing. I mean, we... then it is.... it's really not seasonal thing. It just is the each quarter constant their own. We do anticipate as I stated that the current quarter we are in the December quarter will have higher cost, especially on the four rigs I mentioned. The Hunter is going to be in the shipyard for a brief stay. I will tell you for a rig in a shipyard cost do increase, and we also anticipate some with the Eagle's, you are going on. There will be more work on that, that was... it's kind of a down as well, so and we got some other equipments that being changed on the Falcon, it increased that cost. And we've had some issues and to equipment changed as well on the Seahawk. All four of those are going to be a part of this quarter.

So it's used, as I say is each... we still believe overall that our cost for '08 is going to be more like 10 to every set and then in the [indiscernible] we think we will be a little bit lower than what we did last year. One thing you heard last year, a little bit was that Falcon was in a shipyard in Denver [ph] for well over three months and we expensed $5 million in the first quarter of last year as a result of that Falcon upgrade. So, we don't see any planned upgrades of that nature today in '08. In '08, shipyard time we have is the current one we have on the Richmond, which is extending a little bit longer than we had initially anticipated. But, that unit is not serving to a lot of cost being incurred because it's being completely upgrade and enhanced. For most versus all those costs be capitalized in a little bit time on the Hunter, but also that there is no real shipyard time which would we believe keep our repairs and maintenance cost a little bit lower this year and what we did here in '07.

Unidentified Analyst

Okay. But in other words the percentage for this quarter, we are just discussing that, that's an outlay, and it should be closer back to 40, the high 40 percentage. But you'd think every year?

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

It could be. I mean again it's hard to recall what this cost is going to do. They are all going to go up some. But we don't think it is same level we did in '07. But it will be, but this quarter the January... the December will be higher than a quarter we just completed in September, that's for sure.

Unidentified Analyst

All right. Thank you.

John R. Irwin - President and Chief Executive Officer

Thank you Warry. [ph]

Operator

Our next question comes from the Brian Brunell with Prairie Research Group. Please go ahead.

Brian Brunell - Prairie Research Group

Hello, thank you. It was an interesting revenue surprise this year particularly against my model and some of the other analysts. Let me start in general and say do you want to guide the first quarter revenue, now that you have already guided the first part of expenses?

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

We would not provide any guidance on revenues. We provide the contract information out there which you are yet to look at. But we will not provide any guidance on revenues.

Brian Brunell - Prairie Research Group

Okay, and appreciate that. I figure that was the answer. Couple of your rigs have higher revenues then sort of been expected just using the dayrate. Any specific explanation on that? Is there a currency translation going on or reimbursement expenses or something?

John R. Irwin - President and Chief Executive Officer

We are not aware of anything up to top of our head. Let's look at each other, think if we can think of anything. You can think of anything Glen?

Glen P. Kelley - Senior Vice President of Marketing and Administration

Just on the Hunter being in Egypt versus what we thought it was going to be back in Montana.

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

That's a big increase there.

John R. Irwin - President and Chief Executive Officer

Well --

Glen P. Kelley - Senior Vice President of Marketing and Administration

That was in early on. Obviously that's been announced long time.

John R. Irwin - President and Chief Executive Officer

Yes, that's the one that's been announced Brian. The Hunter... Glen is saying the Hunter, obviously that dayrate as we disclosed for the lost well was 25,000 and that was a higher than what it would've been if it had gone back to the lower rate well or stayed at a lower level and that of course had been offsets the balance of the Woodside contract. So, certainly there was at that one, compared to what it would have, might have been if we finished earlier.

Brian Brunell - Prairie Research Group

Okay. Just to clear the decks, the Australian management contract had some revenue in expense, is that done now?

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

Yes that is done, basically we had some just kind of clean up stuff there for this quarter or a part of the sequel quarter. But that is, that's behind us and gone and there is not no cost or revenues associated with that situation going forward.

Brian Brunell - Prairie Research Group

And because nobody else has asked yet Hunter options, any particular reason there for Woodside renewed it that dayrate would be lower than the Southern Cross as just announced?

John R. Irwin - President and Chief Executive Officer

Certainly the current markets been up in the 400,000s, and that's where we believe the Hunter deserves to be going forward on renewal. So, given the Southern Cross at that level and being in the 400s I think we believe that certainly the Hunter deserves to be well up into the 400's and that's what we would be certainly seeking.

Brian Brunell - Prairie Research Group

And we could assume if for some reasons it didn't take the options that there is a plenty of discussions going on for future work with that?

John R. Irwin - President and Chief Executive Officer

We have had... and you know as a matter of course in business even when there are options out there, naturally our group here bids other jobs and stays in touch with other clients and there are other parties interested in the rig, yes.

Brian Brunell - Prairie Research Group

And that was all for me. Thanks.

Operator

Our next question from the side of Arun Jayaram from Credit Suisse. Please go ahead.

Arun Jayaram - Credit Suisse

Hey, good afternoon guys. Nice quarter.

John R. Irwin - President and Chief Executive Officer

Thank you Arun.

Arun Jayaram - Credit Suisse

Yes, John I was just wondering if you could comment a little bit on what type of deal flow you're seeing in terms of potential rig acquisitions? And is that changed your last you know 90 days or 180 days?

John R. Irwin - President and Chief Executive Officer

You mean in terms of existing rigs and perhaps our position on that?

Arun Jayaram - Credit Suisse

Exactly. And I just want to comment because I think Global Santa Fe may have a couple of mode semis that they have to sell as a result of the merger with Transocean and that could meet your strategy in terms of focusing on mode flooders?

John R. Irwin - President and Chief Executive Officer

Yes, I won't comment on those specifically and of course that's fairly recent. And, not... of course we have had a strategy of acquiring assets and upgrading them or, value enhancing buy acquired assets. But I have to say that, Arun, in the short-term, here our focus is really on a new rig that meets our technical specifications and would be a great rig for the future and we believe that new build and renewing the fleets sum as well will be beneficial. So today the priority, first priority for us would be a new construction meeting our specifications and matching up with our clients need that's where our focus is today Arun.

Arun Jayaram - Credit Suisse

Okay. And last question John, if you look at the... some of the recent new build orders that have been, I guess a shift towards in a more DP drill ships. Is there is a real shift going on in terms of operators, preference for deepwater development tools or is this more of a function that the Singapore yard which is primarily construct the semis are just full. Are you seeing any shift I guess in terms of development towards drill ships?

John R. Irwin - President and Chief Executive Officer

Yes, I wouldn't speculate on that, first from our point of view we believe of course that the semi-submersible market is a very attractive one and there is a lot of demand there and a lot of longer term outfit for those rigs particularly in deepwater development programs and the ability of rigs to do those developments and that's been our focus and certainly on the type of rig we are looking at in the water depth and being conventionally more certainly that's our focus on that type of rigs. So we see ourselves in that niche and I wouldn't... we still believe the semi-markets very strong one with a sort of not a development that's out there for a long time Arun.

Arun Jayaram - Credit Suisse

Okay, thanks a lot, guys. I appreciate it.

John R. Irwin - President and Chief Executive Officer

Thank you.

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

Thank you.

Operator

[Operator Instructions]. Gentlemen it appears we have no further questions at this time.

James M. Holland - Senior Vice President, Secretary and Chief Financial Officer

Okay, thank you everybody. Bye.

Operator

This concludes today's teleconference. You may disconnect at any time. Thank you and have a great day.

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