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Executives

John Irwin - President and CEO

Jim Holland - SVP and CFO

Analysts

Collin Gerry - Raymond James

Jud Bailey - Jefferies & Co.

Mike Breard - Hodges Capital

Waqar Syed - Tristone Capital

Atwood Oceanics Inc. (ATW) F1Q08 (Qtr End 12/31/07) Earnings Call February 8, 2008 11:00 AM ET

Operator

Welcome to today's teleconference. (Operator Instructions).

I'd like now to turn the call over to Mr. Jim Holland. Mr. Holland, please go ahead.

Jim Holland

Good morning, and welcome to the Atwood Oceanics conference call and webcast to review the company's operating results for the quarter ended December 31, 2007.

Speakers today will be: John Irwin, our President and CEO, and myself, Jim Holland, Senior Vice President and CFO.

Before we commence our financial and operational review, let me as usual remind everyone that during the course of this conference call, we may make forward-looking statements based upon management's current plans, expectations, estimates and 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 these forward-looking statements. The words believe, estimate, impact, intend, 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 impact the results for the quarter.

Yesterday we reported diluted earnings per share for the quarter of $1.20. During December 2007 quarter, we incurred 24 unplanned zero rate days as follows: Seahawk incurred 16 unplanned zero rate days, the Eagle 5 and the Atwood Hunter 3 days.

Besides these unplanned zero rate days, we also incurred 95 planned zero rate days during the quarter. Atwood Eagle incurred 14 zero rate days for regulatory inspections with Richmond incurring 81 zero rate days while undergoing its life enhancing upgrade.

Our contract drilling costs for the three months ended December 31st compared to the first and fourth quarters of fiscal year 2007 increased 4% and 9% respectively. However, 2007 operating costs for the Richmond [sets a rig] thus far in 2008 has incurred reduced operating costs due to its ongoing upgrade and the Australian management contracts since those contracts were terminated in fiscal year 2007 are removed.

The increase in operating costs for the remainder of our fleet for the December quarter compared to the first and fourth quarters of fiscal year 2007 was 16% and 14% respectively which is a more apples-to-apples comparison.

During our November conference call I stated that we expected total drilling costs for the first quarter of fiscal year 2008 to be between $50 million and $52 million with an effective tax rate for 2008 of around 15%.

When we filed our fleet status report of January 15th, we indicated our operating costs for the December quarter could be at the upper end of the cost range guidance with an effective tax rate of 10% to 14%.

As reported yesterday, our actual operating cost was $51.1 million with an effective tax rate for quarter of 11%. Our general and administrative expenses for the December quarter up $8.3 million were approximately $1 million higher than projections due to higher than anticipated bonuses and equity stock awards granted in December.

I stated in our January 15th 8-K, we reached a settlement concerning the $1.7 million day rate drilling disagreement whereby we will be paid $850,000, a quarterly reduced revenues in the December quarter by 850,000.

Following John's comments, I will provide some current guidance on operating cost and cover some other items that will impact operating results for the remainder of fiscal year 2008.

I will now turn the conference call over to John.

John Irwin

Good, thank you, Jim, and good afternoon, everyone. Yesterday, as Jim said we filed a fleet status report with contract day rate and cost information for our eight operating units. I am not going to repeat all of that information, 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 fleet of eight operating units continues to be leveraged the deepwater in the international markets and is working with key clients in some of the world's most attractive offshore areas. During the past fiscal quarter, we achieved fleet utilization of 100%.

Our current estimated contract backlog in terms of available rig days for our eight units is approximately 98% for fiscal year '08 and 32% 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 July of this year. The Atwood Southern Cross which now has a contract backlog until August to November of this calendar year depending on the exercise of two option wells and the Atwood Richmond, which is now undergoing shipyard maintenance and life enhancement work, expected to be finished late February, later this month.

Our new ultra premium jackup, the Atwood Aurora, now under construction in Brownsville, Texas will offer growth potential when it commences operation as our ninth owned offshore drilling unit. Further contracts for six of our eight operating units will rollover and reprice. It will be subject to extension of mutually agreeable day rates between late fiscal year '08 and late fiscal year '09.

Now, 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 a 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 a focus on minimizing downtime and achieving longer term returns. Accordingly, we are continually reviewing these plans for inspections and maintenance programs based on the latest schedules and factors involved.

In addition to planned downtimes, zero rate downtime may also be incurred for unplanned maintenance and repairs. Historically, approximately 2% of zero rate downtime days has been experienced for unplanned maintenance.

As previously advised, the Richmond is currently undergoing an estimated $17 million shipyard program involving required regulatory inspections and life enhancing upgrades. Structural inspections in the shipyard determined a higher level of steel replacement was required than originally anticipated. The scope of these additional steel repairs has delayed estimated completion of the Richmond shipyard work to late February '08, later this month.

Following completion of the shipyard work, the Richmond has contractual commitments with Helis Oil & Gas and Contango Operations. The Helis contractual commitment involves a drilling of one well at a day rate of 80,000 per day for up to the first 30 days and a day rate of 65,000 for any additional time required beyond 30 days. The Contango contractual commitment involves drilling of two firm oils plus an option to drill one additional well at a day rate of 65,000 for all three wells.

We currently expect to drill the Helis commitment immediately following the rig shipyard work. However, it is still possible this commitment could be deferred to a later date in '08. If all four wells are drilled, these drilling commitments could extend to September '08.

The Atwood Hunter completed its program in Egypt in late December '07, and moved to a shipyard in Malta to undergo equipment upgrades and maintenance. The shipyard work in Malta was completed as scheduled on January 22, '08, and the rig incurred zero rate for 20 days during the shipyard period.

The rig is currently being mobilized to Mauritania to complete its remaining contract for Woodside, which has being assigned to Petronas. The expected completion date of the remaining contract assigned to Petronas is August '08, and the contract resumption should currently occur by around the third week of this month, February.

The Atwood Southern Cross completed its remaining contract commitments in the Black Sea in January '08, and then mobilized to the Mediterranean to drill one well with Turkish Petroleum at a day rate of 320,000. There was one day of zero rate during the mobilization period.

Immediately upon the rig completing its current well with Turkish Petroleum, the Atwood Southern Cross well is already disclosed, commenced a contract with the ENI AGIP to drill two wells plus options for two additional wells in Italy. The contract provides for an operating day rate of 406,000 per day.

The drilling of the two firm wells is currently estimated to take a 150 days to complete and, if both option wells are drilled, the contract could extend another 90 days. The contract provides for ENI to provide the total vessel to move the rig to its drilling site and pay a day rate of $365,000 during the mobilization period of around 10 days, as well as paying a day rate of $395,000 while the rig is being certified by Italian authorities, also estimated to be around 10 days prior to commencing drilling operations.

The Atwood Southern Cross may still incur up to 4 to 10 zero rate days for required inspections and maintenance when the rig moves between the last Turkish Petroleum well and commencing work for Egypt.

Upon completion of the Atwood Eagle’s two-year contract commitment with Woodside and now estimated to be July 2010, Chevron Australia has committed to use the rig at a day rate of approximately $430,000 to $450,000 subject to adjustment for cost escalations until our new semisubmersible drilling unit being built in Singapore is ready to commence its drilling program in early 2011, also with Chevron Australia.

Our new ultra premium jackup, the Atwood Aurora, now being constructed under an agreement with Keppel AmFELS yard in Brownsville, with a current estimated cost of around a $164 million expected to be delivered in November 2008.

The Atwood Aurora is being marketed to clients for a potential work when construction is completed. International opportunities are being pursued and bid which match the Aurora's ultra premium capability and delivery timing.

In December of '07, last year our wholly-owned subsidiary Atwood Oceanics Pacific Limited, AOPL, was awarded a contract by Chevron Australia to provide a newly constructed mobile offshore semisubmersible drilling unit for a firm three-year period with an option to extend a firm period to six years, which must be exercised within seven days of delivery of the rig from the shipyard.

The contract provides an operating day rate of approximately $470,000, if the firm commitment is three years and approximately $450,000, the option is exercised to extend the firm commitment period to six years. Both day rates are subject to adjustment pursuant to cost escalation provisions of the contract.

To provide the drilling rig provided by this contract, AOPL has executed a construction contract with Jurong Shipyard to construct a Friede & Goldman ExD Millennium semisubmersible drilling unit. The new rig will be constructed at Jurong Shipyard in Singapore, the delivery expected to occur in early 2011.

AOPL estimates the total cost of the rig including administrative and overhead cost and capitalized interest will be in the range of $570,000 million to $590,000 million and financing to the rig construction will be provided from a combination of ongoing cash flow of AOPL and that has necessary from the $300 million credit agreement of AOPL recently arranged.

The new rig will be able to conventionally moor in up to 6,000 feet of water, and will become the company's tenth company-owned mobile offshore drilling unit.

Our major fleet upgrade and new construction capital program, which started in 1997, has put the company in a strong position to take advantage of the current market and outlook. With our strong balance sheet and the likelihood of record cash flows and financial results, we will be in a position to consider further opportunities when the times are right.

Based on long-term expectations for energy demand, the outlook for the markets we serve is positive, particularly our international deepwater markets. Accordingly, we will continue to work on evaluating value enhancing growth opportunities, as well as evaluating the best use of future cash flow.

Our strategy of focusing on safe quality operations, premium equipment, meeting the needs of our clients and being leveraged to attractive international markets has served us well by enhancing shareholder value and continues to guide our path forward. The company has a distinct strategy and position in the industry, particularly given our size. The continuing development of our organization and the company for the future remains high on our agenda.

I'd like to thank you all for your time today and for your interest. We'll be available to answer any questions after Jim's final comments. Now back to Jim.

Jim Holland

Thank you, John. Before we open the conference call to questions, let me address certain items that will have an impact on the operating results for the remainder of 2008. As John has stated, the Richmond continue to be on a shipyard undergoing approximately $17 million life enhancing upgrade, does not expect to complete this process until late February. Thus we expect we only will see approximately one month of revenues from the Richmond during the same quarter.

As John also stated, the Atwood Hunter incurred 20 planned zero rate days in January while undergoing some equipment upgrades, with the Atwood Southern Cross incurring 1 planned zero rate day following its mobilization to Black Sea and could incur 4 to 10 additional zero rate days prior to commencing the ENI drilling program.

Atwood Beacon is expected to incur 3 zero rate days during the third quarter of fiscal year 2008 for some required inspections, with the Seahawk also incurring 3 to 5 zero rate days during the third quarter for some equipment upgrades. In addition to these planned zero rate days, in January the Atwood Eagle incurred 5 zero rate days, unplanned, with the Atwood Falcon incurring 1 unplanned zero rate days.

Other than completing the Richmond's upgrade by late February, we currently have no additional planned shipyard periods for any of our rigs for the remainder of fiscal year 2008. However, we can give no assurance that we will not incur some additional unplanned zero rate days on any of our rigs during the remainder of the fiscal year.

In our November conference call, we stated that we expected drilling costs for fiscal year 2008 compared to fiscal 2007 total a $187 million to reflect a 10% to 12% increase, which will result in total costs of $205 million to $210 million. We currently believe that this estimate is still a good target. However, there continues to be increasing cost pressures right in the personnel as well as the maintenance of equipment.

We expect total drilling cost for the second quarter to be around $52 million. On a rig by rig basis, we expect per day operating cost levels for the second quarter to be as follows. The Atwood Hunter, $80,000; the Atwood Eagle, $115,000; Atwood Falcon, $75,000; Atwood Beacon, $55,000, an increase of $7000 from first quarter actual; Seahawk, $90,000; the Atwood Southern Cross, $75,000;Vicksburg, $45,000; and Richmond, $25,000, an increase of $7000 from the first quarter as it comes active back here in March and other cost of $15,000.

We currently expect general and administrative expenses to be $6.5 million to $7 million for the second quarter and $28 million to $29 million for the year. Depreciation expense expected to be around $9 million per quarter for the remainder of fiscal year 2008 for a total of $35 million to $36 million for the year. We currently expect our effective tax rate for the remainder of fiscal year 2008 to be between 10% and 12%.

With two rigs now under construction, I will now comment on expected capital expenditures for the remainder of fiscal year 2008. We currently have $50 million outstanding under our $300 million five-year revolving credit facility that we executed in October 2007.

In the December quarter, we incurred approximately $26 million of capital expenditures and currently expected our total capital expenditures for the last three quarters of fiscal year 2008 will be approximately $225 million, with approximately $55 million and a $140 million relating to the construction of the Atwood Aurora and the new semisubmersible drilling unit respectively.

Based upon our current expected capital commitments for fiscal year 2008, we expect in fiscal year 2008 with outstanding long-term debt of $15 million to $35 million, a debt-to-total cap ratio of less than 10%. Thus, we expect that most of the current capital commitments for fiscal year 2008 will be satisfied from internally generated funds.

We do not provide earnings per share guidances; however, I want to close my comments by briefly addressing the current First Call estimate of our second quarter earnings per share. Based upon our planned as well as unplanned zero days incurred thus far in the second quarter, we believe that the current first quarter estimate of earnings per share for our second quarter of $1.30 is too high.

Since January the Atwood Hunter and Atwood Southern Cross were moving between contracts with some planned zero rate days incurred. There maybe some uncertainty on the revenues for the quarter for these two rigs which may have impacted the current estimate.

Provide some guidance on this subject, the January revenues for Atwood Hunter was approximately $3.2 million, an average of $103,000 per day well below its current day rate commitment of over $200,000, and for the Atwood Southern Cross approximately $5.5 million, an average $177,000 per day well below its current day rate commitment of over $300,000. Hope this information will be useful for earnings per share estimate purposes.

We will now open the conference call to questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from Collin Gerry. Please go ahead.

Collin Gerry - Raymond James

Hi. Good morning, guys. Thanks for all the cost guidance. That was helpful. I wanted to drill a little bit more into the revenue lines, specifically on the Hunter and the Cross. It looks like pretty attractive availability on both of those assets. And I was just kind of curious, what is shorter term and longer term work looking like? What are you bidding for those two assets? What do the bids ranges looks like?

John Irwin

Collin, obviously, we are working on both of these units. And as it turns out, both of them are in that, let's say, Mediterranean, West Africa market. The Hunter, of course, it's moving to the Northwest Africa area to Mauritania. So certainly an area of possibility is West Africa and, of course, the Mediterranean remains close by and a possibility as well. In this market, there is interest in the rig.

And the current rates in the 200s, as we have said previously in previous calls that we've been seeking, the market rates had been up in the 400,000s. And from our point of view and our expectation, certainly, nothing has gone down in that respect with regard to the Hunter. And for any shorter term availability and possibilities, we will be certainly expecting market rates and be bidding accordingly or discussing accordingly.

With the Southern Cross, some of the programs we're looking at are shorter, but that includes the Mediterranean and even back in the Black Sea. And day rates, generally in the vicinity of where the highest rates are now, there is possibility it could be a little higher or little lower, but generally in that vicinity. And as you know, the highest rate for the Southern Cross was a leading-edge rate for that rig for the program it will be on. Does that answer your question?

Collin Gerry - Raymond James

Yeah, it does. I guess as a follow-up on that, on those rigs, it sounds like with the Cross, you are seeing some shorter term opportunities. On the Hunter, any preference as to say, you know, a three-contract or a six-month or one-year contract, obviously price is going to be the ultimate determining factor, but maybe a little color on term, what you're expecting?

John Irwin

On the Hunter, I would say, in the current frame, and I wouldn't want to suggest that we're at a point where it would go one way or the other, but the opportunities might be more in the less than a year to more than a year and up to two years at this point in the market. And we would feel comfortable with that because we still see the longer term outlook as quite strong for that rig, Collin.

Collin Gerry - Raymond James

Okay. Thanks. That's helpful. Switching gears to the Seahawk, it looks like in the quarter costs might have even actually come in a little bit, higher than revenues on that. And I noticed in the fleet stats you mentioned that there are cost escalator provisions in that contract. Is there anything we can do as far as seeing some better economics out of the Seahawk? I know it's contracted out for quite some time, but a little color there.

Jim Holland

Let me just address the cost, one of the reasons why, yeah, it was a loss for the quarter. But what hurt the Seahawk we had 16 days of zero rate time, and that dramatically impacted revenue, which obviously is where it is in the loss situation now. Again, I'm not saying that contract is not a good contract from the standpoint of earnings, so I'll let John comment on the future of that rig.

John Irwin

Yeah. Of course, some of the downtime was associated with overhaul, in this case, some of our prior equipment. And that cost is expensed, and we believe we have put all that equipment in good order now, so the cost was increased during that period. And we have done a number of maintenance projects on the rigs. So certainly probably on the -- let's say, we had the increases in cost for personnel on that rig have been covered by escalation.

The type of cost being incurred on the rig for these maintenance projects really can't be covered by escalation, as such, in a part of the process of maintaining the rig. In other words, it doesn't have so much to do with price escalation of the spare parts of what you're doing, but when you're doing that maintenance work or operating your units. So we certainly remain very focused on cost, very focused on budgeting and making changes necessary and monitoring our operations to run them in a most efficient manner possible. So it's very high on our agenda Collin.

Collin Gerry - Raymond James

Okay. That's helpful. I will turn it back over. Thanks.

Operator

Our next question comes from Jud Bailey. Please go ahead.

Jud Bailey - Jefferies & Co.

Thank you. Good morning.

Jim Holland

Good morning, Jud.

John Irwin

Good morning, Jud.

Jud Bailey - Jefferies & Co.

Could you talk a little bit about what your discussions are like, or inquiry levels are with both the Aurora and the Beacon? And maybe discuss potential day rate levels for those rigs, I know they don't come on until basically fiscal '09. But I am just curious, it looks like the trend has been a little bit down here for jackup rates so much. So, I would like to get your thoughts there?

John Irwin

Jud, this is John. I guess starting with the Beacon of course, it rolls over early next calendar year, I think January of '09, about a year from now. The current client has an option for an extension at a mutually agreeable rate which I think has a deadline of around the middle of the year whether there is any discussion on that or not, I couldn't comment at this point, I don't know.

But certainly in the meantime we continue to pursue other opportunities and we do see increased in certain areas even outside the current market frankly in Southeast Asia. And with the current highest rate being at a $133,500, notwithstanding perhaps you see from certain perspective or some people's perspective rates being on jackups off their highs. We still see the opportunity for perhaps the Beacon to improve its rate next year. And certainly at this point in time anyway that would be our expectation in terms of what we're asking and of course it would achieve quite excellent returns of that.

In terms of the Aurora, we have had a number of opportunities and I suppose a couple of key bids that are outstanding that will be evaluated over the next several weeks. And of course, I think we've always said with the Beacon -- I am sorry with the Aurora with the cost down and investment cost down and was said in the low $160 million. And of course, a rig like that today is up really on how the way we would do our cost over $200 million.

But when we made the commitment and the investment level that we could achieve the investment returns that would meet our requirements perhaps in the mid 100s or above there. And certainly I would say at this point in time, I wouldn't disclose more. Obviously when you're bidding, you can't disclose your rates. But certainly we believe we are bidding at this point in time at levels which would achieve our financial returns.

So, certainly rates in the market, you've seen they based on length of being mid-100s up to the high-100s, depending on area of the world and contract duration.

Jud Bailey - Jefferies & Co.

Okay. One of your competitors is building a jackup in Texas as well, said that they may work that in the Gulf of Mexico for some well to well jobs depending on how things shake out as far as getting an international contract. Is that something that you guys are considering whenever the Aurora is delivered if you don't have a longer term contract internationally?

John Irwin

Jud, it's not an alternative we're considering at this point in time. I mean we built the rig for the long-term, and we've been aggressively pursuing long-term opportunities based on the quality of the rig and our own position and relationship with clients internationally. And certainly, that's our preference in what we are pursuing at this point in time. I'll never say never, but it's not something we're looking at at this point in time anyway.

Jud Bailey - Jefferies & Co.

Okay. And if I may ask one more, John, could you please remind me, I don't remember where you guys stand as far as putting rigs into Mexico. Would something with PEMEX be a possibility for the Aurora?

John Irwin

Once again, I would never say never, but it's not something that we're pursuing at this point in time. And we're pursuing those jobs where we see, perhaps where the rig fits in terms of its capability, and hopefully and additionally with longer term potential. So, that's not one of the markets that we're looking at at this stage anyway, Jud.

Jud Bailey - Jefferies & Co.

Okay. Thank you. I will turn it back.

Operator

The next call comes from Mike Breard. Go ahead.

Mike Breard - Hodges Capital

Just one quick question on the Aurora. Have you actually had people that want the rig and you've turned them down because the price is too low or are you just still in the negotiating stages with various people.

John Irwin

Mike, I wouldn't say we've had a situation that I'd characterize as somebody wanting the rig and the price being at a point that we turned down.

Mike Breard - Hodges Capital

Okay.

John Irwin

Yeah. Put it this way, we have been bidding the rig, those bids are still outstanding, and we are also continuing to pursue other opportunities and talk to other clients where there may be future opportunities as well. So the bids that we have out there is still outstanding.

Mike Breard - Hodges Capital

Okay. There is no real rush on your part. I mean you still have six months or more.

John Irwin

Yeah. I mean we are looking at current delivery, working very hard to achieve that delivery, personnel and the shipyard. And our teams here are working very hard to meet that delivery. And of course, if it's delivered here later in the year, and then it's moved overseas, then as we have disclosed previously, we are looking at middle of second quarter fiscal year '09 before the rig would commence operations in day rates. So that's the sort of timing we're looking at.

We have started moving some of our operating personnel into the shipyard and have a plan for bringing those personnel into the shipyard during the course of the year and commissioning the rig and a plan that would be with a view to having the rig accrued and ready to work overseas, Mike?

Mike Breard - Hodges Capital

Okay. All right. Well, obviously the Hunter and the Southern Cross deal first priorities I guess now.

John Irwin

As far as contracts you mean focus?

Mike Breard - Hodges Capital

Yeah.

John Irwin

Yeah. Certainly, we're continuing to work on those and the course is, you have heard from other sources as well and as we've said for a while on our own situation, there is a lot more visibility on the floating side and that visibility is longer, the deeper you go and certainly that has been the case with us as well.

And with rigs like the Hunter and potential availability in the shorter terms this decade is quite popular and certainly we're seeing that interest in and on our floaters as well who are even further out as you're seeing with the commitment that we made on the Eagle. But the Southern Cross has also opportunities and tend to be shorter-term but the visibility on floating side still longer than on the jackup side and that's jackup side perhaps more like a year out or something like that where people are working towards around them.

Mike Breard - Hodges Capital

Okay. Thank you.

John Irwin

Thank you, Mike.

Operator

(Operator Instructions). Looks like our next question is from Waqar Syed. Please go ahead.

Waqar Syed - Tristone Capital

Jim, first of all, could take a stab at the tax rate for '09, where do you expect that rate to be?

Jim Holland

Just off the hand, I mean I would say 15% something like that Waqar. I mean again our tax rate is driven solely by our international operations and it will always depend on what countries, for example the Hunter which will be rolling over the Cross in what country they're working next in '09 and others that will help me to determine that effective tax rate.

But, there is just rough estimate today, maybe 15% would be a good point to start with. We do continue to expect to be a very effective tax rate, very low tax rate to next year or so and expect '09 to continue reflect that. But again, it will depend solely upon how many before those rigs roll over into what countries they are working.

Waqar Syed - Tristone Capital

But, unless those rigs go to Australia or Malaysia, you would not expect tax rate to go above the 10% to 11%, what you are guiding to '08? Isn't that correct?

Jim Holland

Well, that's possibility, I mean the key is really, one key is the Cross. I mean right now it's very effective low rate, almost no tax in Italy right now. So, if it stayed there, obviously it's going to be low. I mean, depending on wherever else it might go, if it stays, it goes back in a back seat. I have more tax than it currently would have in Italy.

But, I mean it could be similar, I mean again this depends on where they actually work and we do expect our Australian tax rate continue to go up some there as we about to exhaust all, wherever else there we've had in the past. So it's going to be full tax rate there, as depreciation also continues to decline there. So that will may go up a little bit. But, I mean, again, I'm not assuming, it could be below 15%, it could, so I did 15%. But yeah, you are right, I mean, if we stay at the same areas we are today, it would be more towards the lower end of that bracket.

Waqar Syed - Tristone Capital

Okay. Great. And then, John, you've traditionally used the Keppel AmFELS yard, and if I understand correctly, you're building your new build semi at the Jurong yard. What's the reason of changing the shipyard? Is that because of slot or rig design or could you elaborate on that?

John Irwin

Obviously, we've had relationships with both yards and have built jackups with Keppel AmFELS and that group and have been pleased with that. And of course, lot of our upgrade work on floating equipment we have done that with Jurong and have had experience there, including the most recent upgrade of the Falcon. And certainly both yards and the designs would have been certainly acceptable to us in the relationships.

And of course, the fact is at the end of the day that some times you find ones on delivery and slot, and some of the other choices on what you do in finalizing things, and certainly that's where it landed with Jurong and this design. And we still feel that that's a good way to go and a lot of work put in by our people here in terms of bringing that design or adding value to that design in a way that meets the needs of our clients. So, a lot of focus there, Waqar.

Waqar Syed - Tristone Capital

Okay. Great. Thank you very much.

John Irwin

Thank you, Waqar.

Operator

Our next question comes from Mike Breard.

Mike Breard - Hodges Capital

Just one other quick thing. Do you have a shipyard option after the semi you've already contracted? What might be the odds of exercising that? Was it more like 10% or 17% or what would you say?

Jim Holland

Well, Mike, I am not much one for, probably not a good one on estimating the odds, but perhaps I can try to answer by saying, I mean at this point, no determination by us at this stage where that would be exercised or not. If we were to do that, it would require a contract of acceptable length in returns and as of today, we are not at a point where that's being, let's say, worked on, though we are pursuing opportunities and we will have to see.

But certainly it's good to have that option, but I wouldn't want to characterize any level of probability that we might exercise that and get the contract to support at this point. Although we do remain interested and believe that we are in a position to consider doing more with the right contract but not something close as of today.

Mike Breard - Hodges Capital

Okay. Than k you.

Operator

And gentlemen, it appears we have no further questions.

Jim Holland

Okay. We appreciate your interest in Atwood. Thank you.

Operator

This does conclude today's teleconference. We will be disconnecting at any time. Thank you. And have a great day.

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