Diamond Offshore Drilling (DO) CEO, Marc Edwards on Q3 2018 Results - Earnings Call Transcript

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About: Diamond Offshore Drilling Inc. (DO)
by: SA Transcripts

Diamond Offshore Drilling (NYSE:DO) Q3 2018 Earnings Conference Call November 5, 2018 9:00 AM ET

Executives

Marc Edwards - President, Chief Executive Officer

Scott Kornblau - Senior Vice President, Chief Financial Officer

Ron Woll - Senior Vice President, Chief Commercial Officer

Samir Ali - Vice President, Investor Relations and Corporate Development

Analysts

Ian Macpherson - Simmons

Kurt Hallead - RBC

James Wicklund - Credit Suisse

Sasha Sanwal - UBS

Eric Ramesmal - Clarkson

Operator

Good day ladies and gentlemen and welcome to the Q3 2018 Diamond Offshore Drilling Incorporated earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require operator assistance during the conference, you may press star then zero on your touchtone telephone. As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Samir Ali, Vice President of Investor Relations and Corporate Development. Sir, you may begin.

Samir Ali

Thank you, Marni. Good morning everyone and thank you for joining us. With me on the call today are Marc Edwards, President and Chief Executive Officer; Ron Woll, Senior Vice President and Chief Commercial Officer; and Scott Kornblau, Senior Vice President and Chief Financial Officer.

Before we begin our remarks, I remind you that information reported on this call speaks only as of today and therefore you are advised that time sensitive information may no longer be accurate at the time of any replay of this call. In addition, certain statements made during this call may be forward-looking in nature. Those statements are based on our current expectations and include known and unknown risks and uncertainties, many of which we are unable to predict or control that may cause our actual results or performance to differ materially from any future results or performance expressed or implied by these statements. These risk and uncertainties include the risk factors disclosed in our filings with the SEC included in our 10-K and 10-Q filings.

Further, we expressly disclaim any obligation to update or revise any forward-looking statements. Please refer to the disclosure regarding forward-looking statements incorporated in our press release issued earlier today, and please note that the contents of our call are covered by that disclosure.

We will be referencing non-GAAP figures on our call today. Please find a reconciliation to GAAP financials on our website.

Now I’ll turn the call over to Marc.

Marc Edwards

Thank you, Samir. Good morning everyone and thank you for joining us on our call today. In the third quarter of 2018, including one-time legal and restructuring costs, Diamond Offshore posted an earnings per share loss of $0.37. Excluding these one-time items, adjusted earnings per share was a loss of $0.26. The decline year over year was primarily driven by rigs either not working in the third quarter of 2018 or being contracted at significantly reduced rates compared to the third quarter of 2017.

Despite the continued decline, we believe day rates in the floater market have bottomed, and although we are unsure as to the velocity of any recovery, we believe day rates will generally improve from here on in. Given the uncertainty around the timing of the recovery, we proactively improved our liquidity position by establishing a $950 million credit facility which matures in 2023. This new facility, combined with our existing credit facility provides Diamond over $1.25 billion of liquidity until 2020. Scott will have further details on this in his follow-on commentary.

Now allow me to start by highlighting our progress on several of our unique innovation strategies to help reduce the total cost of ownership in offshore drilling. Last quarter, we introduced our Blockchain drilling service, which is the first of its kind application of industrial Blockchain technology in the upstream market. Currently, we are collecting data onto a Blockchain platform from each of our ultra-deepwater drill ships and are planning to have this capability rolled out to most of our assets by mid-2019.

As we discuss this new platform with clients, we have received significant interest from IOCs and independents alike to include those with whom we are not currently contracted. Across the board, clients see multiple applications that enable further efficiency gains with the use of Blockchain technology. We continue to explore applications that drive efficiencies around the manufacture of a well relating to the exchange of goods and services that are quicker, more efficient, more reliable, and more automated. Applications can cover the entire value chain from logistics and support through to rig maintenance and HSC.

Our pressure control by the hour service continues to pay dividends well into the second year of its implementation, something I have already spoken to at length in prior earnings calls, but I am now also able to talk to some of the successes we have witnessed with our recently launched Sim-Stack service. Over the past two quarters, this technology has enabled us to avoid four unplanned stack pulls, averting the consequent loss of revenue as the rigs in question would have come off day rate for the stack pull. The development cost of this technology was essentially recovered in a single quarter with subsequent and future savings dropping straight to the bottom line.

During this past quarter, we witnessed our fleet-wide sub-sea non-productive time come in at a lower rate than that of our already excellent surface equipment non-productive time, a truly remarkable achievement. This is a first in the history of the company and is clearly a demonstration of the success of both the pressure control by the hour and the Sim-Stack innovations. While clearly the benefits of these efficiency gains are material for Diamond Offshore, the benefits for the client are of an order of magnitude higher and help differentiate Diamond Offshore from our peers. We are currently working to deploy our Sim-Stack service to other sixth generation rigs in our fleet and will continue to look for innovative ways to reduce downtime while enhancing operational efficiencies for our customers.

Now I’ll touch on several operational and safety achievements for the quarter. Our safety performance continues to improve and our year-to-date safety stats are the best we have delivered in the history of the company. Innovation doesn’t stop with operations alone, and we continually strive to look at new ways of reducing the total cost of our customers while reducing risks across the fleet. For example, Blockchain efficiency gains are being studied within our company’s supply chain to eliminate invoicing waste and reduce reliance upon manual invoice reconciliation. Further, we are reviewing how our Blockchain drilling service can improve logistics and safety by optimizing marine traffic and reducing the number of crane lifts onboard the rig.

We set a new monthly benchmark as it relates to operational up time. In the month of August, we experienced only a half of one day unplanned downtime or non-productive time across the entire fleet; in other words, for both subsea and surface downtime, we experienced only 12 hours of non-productive time across our working assets during the entire month.

We also continued to set new drilling efficiency benchmarks on our ultra-deepwater drill ships, one of which completed its latest well in 48 days compared to a planned 70 days. It is important to note that these are some of the deepest and most complex completions currently taking place in the Gulf of Mexico. Finally, the Ocean Courage is scheduled to drill the first true horizontal well in pre-salt Brazil. This is a testament to the technical reputation of the rig and is a strong vote of confidence from the client in Diamond Offshore.

All of these examples are made possible by our class-leading talent and technology. I want to thank our employees both in the field and in the shore bases around the world for their outstanding performance and dedication to exemplary customer service.

Now moving to our contracting activity, recall that in the second quarter Diamond was able to secure an additional five years of backlog with three major operators: Shell, BP, and Anadarko, at rates significantly above the prevailing market. In this past quarter, we are announcing three additional contracts, one in the North Sea and two in the Australasia region. We’d previously announced that we are mobilizing the Ocean Great White from the Asia-Pacific region to the North Sea. It was important that we find an opportunity that would enable the rig to commence drilling operations. The Ocean Great White is one of the largest and most capable semis that has been introduced into the market. It is the only CS60 design that has been through customer acceptance testing to date, and we believed that the North Sea represented the best opportunity for the rig to gain a follow-on fixture after the BP contract.

Consequently, I am pleased to announce that the rig has now been contracted with Siccar Point for their development needs west of Shetland with a start-up planned for March 2019. Once again, we can now confirm that unique amongst our peers, we are the only offshore player who has all of its sixth and seventh generation assets under contract, the majority of which are at day rates significantly higher than the current market.

The first of the two new contracts secured in Australasia is with Woodside for the Ocean Apex. The rig continues its strong performance and we were able to secure another four wells on an estimated nine-month program planned to commence in early 2020. Not only were we able to win new work for the rig, but the new award is at a higher rate than the previous contract. The Ocean Apex is a strong rig with a solid performance record, which should allow it to continue to secure work well into the future.

Finally, we secured a seven well contract for the Ocean Monarch with Posco Daewoo in Myanmar. This new award will keep the Monarch secured from the end of 2019 well into 2021, and we are excited about this opportunity as it allows us to enter a new market with another Tier 1 client.

Allow me to provide some commentary on the market. We believe the moored market has hit bottom. We have previously stated that there has been tightening in the North Sea, but it is not limited to just that region. We are seeing it in non-harsh markets as well, where we are attaining incremental price increases as a result. Customers are looking to lock in capacity for 2020 and beyond as they see the coming strengthening of this asset class, as evidenced by the Apex and Monarch contracts.

We also believe the DP market has bottomed, but the question remains what type of a recovery will we have. We do not expect day rates to recover rapidly; however, we do believe the rates have found a floor and there is more upside than downside from here forward. Though we have seen consolidation in the market, we here at Diamond Offshore will remain disciplined as it pertains to the future allocation of capital. We have the ability to build next generation rigs, albeit with a contract, buy assets or companies, or reactivate existing semis. The ability to pull any or all of these strategic levers is driven by the sole goal of maximizing shareholder value. Prudent allocation of capital remains our mantra at Diamond Offshore, and with a strong balance sheet and liquidity, we are in no rush to transact at this time.

Diamond prides itself on being a thought leader in offshore drilling with innovation focused on lowering the total cost of ownership for our clients. Blockchain drilling, Sim-Stack and pressure control by the hour are just a few of the innovations we have introduced to date. We will continue our efforts to make offshore drilling more viable while best positioning Diamond for sustainable success in an eventual market recovery.

With that, I will turn the call over to Scott to discuss the financials for the quarter, and then I will have some closing remarks. Scott?

Scott Kornblau

Thanks Marc, and good morning everyone. Earlier today, we reported a net loss of $51 million or negative $0.37 per share for the third quarter of 2018. Our third quarter results include a charge to settle a previously filed lawsuit and further restructuring costs. Excluding these one-time items, Diamond had an adjusted net loss of $35 million or negative $0.26 per share. This compares to our second quarter 2018 adjusted net loss of $45 million or negative $0.33 per share. The quarter over quarter improvement was primarily driven by higher revenue associated with increased operating efficiency in the third quarter compared to the second.

Before I get into our results, let me first discuss our new revolving credit facility that further enhances our already strong liquidity. At the beginning of October, we entered into a new five-year $950 million facility. The new revolver is in addition to our existing revolver, which was amended to $325 million and matures in the fourth quarter of 2020. As a result of these transactions, we currently have over $1.25 billion of borrowing capacity until 2020, and close to $1 billion of capacity well into 2023. These currently undrawn facilities, along with over $475 million of cash and cash equivalents provide Diamond with ample liquidity until the expected market recovery.

Now let’s take a closer look at our third quarter 2018 results. Contract drilling revenues of $281 million were 6% higher in the third quarter compared to the second quarter of 2018. The increase was primarily driven by the Ocean Valiant and Ocean Courage working the entire third quarter compared to the second quarter out of service time associated with the special survey and upgrades to the Ocean Valiant and maintenance to the Ocean Courage. Partially offsetting this increase was the Ocean Great White rolling off contact early in the third quarter to begin mobilizing to the U.K., whereas the rig was under contract the entire second quarter of 2018. Recall earlier this year, we mutually agreed to terminate the Ocean Great White contract in exchange for $135 million of margin commitment and four years of drill ship work at above-market day rates.

Contract drilling expense of $188 million stayed relatively flat quarter over quarter and was below the low end of our guidance. This was primarily due to contract preparation costs associated with the Ocean Valor, Ocean Great White, and Ocean Apex being deferred as these costs will be amortized over their respective contracts upon commencement. In addition and as we cautioned last quarter, the timing of expenses related to the Ocean Endeavor’s reactivation and special survey remain fluid as we focus on the most cost efficient ways to perform these projects.

Excluding the settlement of the lawsuit I mentioned earlier, third quarter G&A costs of $16 million decreased by $1 million compared to prior quarter and were slightly below guidance as we continued to be diligent in our cost cutting measures. Also during the third quarter, we took an additional $1 million restructuring charge as we further execute our restructure plan implemented at the end of last year.

Net interest expense of $32 million in the third quarter came in above previous guidance due to interest charges related to foreign customs and payroll tax assessments. Excluding these non-recurring items, interest expense came in at guidance.

Finally, during the quarter we recognized a tax benefit of $5 million for an effective tax rate of 9%. Normalizing the rate for the settlement and restructuring charges discussed earlier results in an effective tax rate of 6%.

Now I will provide some thoughts on the fourth quarter of 2018, but before I do, I will remind you to refer to our fleet status report which was published earlier today for known and projected out-of-service time for the fourth quarter.

We expect contract drilling expense for the fourth quarter to decrease slightly from the third quarter and come in between $180 million and $185 million. The decrease is mostly driven by the third quarter write-off of the unamortized expense related to the early termination of the Ocean Great White contract discussed on our second quarter call. This decrease is partially offset by the ongoing shipyard projects on the Ocean Endeavor and Ocean Apex.

We expect fourth quarter depreciation and normalized G&A expense to remain relatively unchanged at $82 million and $16 million respectively. Net interest expense during the fourth quarter should come in about $29 million. The increase from the prior quarter’s normal run rate of $28 million reflects the increased commitment fee under the new revolver. We anticipate our effective tax rate to be between 10 and 15% during the fourth quarter of 2018, but as always it may fluctuate up or down based on a variety of factors, including but not limited to changes to the geographic mix of earnings, further clarification around tax reform, as well as tax assessments, settlements or movements in exchange rates.

To close, I want to reiterate the strength of our balance sheet and liquidity position which allows us to act quickly on any strategic options that may present themselves. This coupled with our class-leading operational performance, which was further demonstrated during the quarter, positions Diamond Offshore well as we navigate through the recovery.

With that, I will turn it back to Marc.

Marc Edwards

Thank you, Scott. Our recent contract successes, to include those in the most distressed asset class, the ultra-deepwater drill ships, are a reflection of our ability to create differentiation in what is a traditionally commoditized market. We will continue to look for ways to drive the industry forward with innovation and thought leadership focused on lowering total costs and improving operational efficiency. We believe the long term fundamentals of the oil and gas industry, and particularly the deepwater drilling sector, remain intact.

With that, I will turn the call over for questions.

Question-and-Answer Session

Operator

[Operator instructions]

Our first question comes from Ian Macpherson with Simmons. Your line is now open.

Ian Macpherson

Good morning, gentlemen.

Marc Edwards

Hey Ian, hi.

Ian Macpherson

Hi Marc. Congratulations on all the new contracts. I want to get back to that in second, but Scott, I didn’t hear you update your capex guidance for this year. Can you refresh us on that? You originally described a $50 million to $100 million budget for the Endeavor work, and as you said, that remains fluid; but it sounds like you’re not experiencing creep, so maybe you can just talk a little bit about your capex and any puts and takes there.

Scott Kornblau

Absolutely, and good morning. Thanks for the question. Through the first three quarters, our capex was $160 million, and as you recall we previously guided at the beginning of the year $220 million. We are still on target for the 220, but to your point, the Endeavor, the Apex and even the Great White to a lesser degree, since those contracts start during the first and second quarter of ’19, we don’t have a hard stop on those projects at the end of this year, so since they straddle, the costs also straddle and it’s possible for some of those costs that we think are going to happen in ’19 to maybe come through the end of ’18, or vice versa - some of the ’18 gets pushed into ’19. We’re still sticking with the 220, but if you do see a shift, it would be more timing than actual changes to our estimates.

Ian Macpherson

Okay, but we would still be thinking of something closer to a 150 budget, ex projects normalized, right?

Scott Kornblau

That is fair.

Ian Macpherson

Yes, okay. Marc, it seems like the Great White now is in a good stocking position for something like Rosebank. Can you talk about how the change in operatorship there has impacted the tender or maybe a re-tender process, and what your expectations are on that opportunity and other follow-on opportunities in that West Shetlands area where she’s going?

Marc Edwards

Sure, thanks for that, Ian. Let me be very clear here - we were actually very pleased and worked with BP to get that rig back from the contract which it was on, because I think as you were aware, the rig was basically idled, not drilling. We needed to get that rig drilling. If it’s not the best, one of the best semis that are out there in the market, being a CS60 design, and of course as also you’re aware, originally when Rosebank was first looking like getting sanctioned, a CS60 design was chosen for that development.

But really, we didn’t take it to the North Sea to chase Rosebank. We took it to the North Sea to chase the many opportunities that are developing west of Shetlands. I was over in Aberdeen visiting certain clients in that space over the summer, and it is clear that the U.K. is able to compete very effectively on a worldwide basis with the capex that is available to our clients, and that also includes west of Shetlands, which is open of the reasons why we were so keen to get the rig up into that area and we mobilized it before we had a contract.

As we stated on the call in my prepared remarks, its launch contract in the North Sea will be for Siccar Point, but clearly there is a lot of development work that is going to happen west of Shetlands that this rig will be ideally placed for follow-up work, and that may include Rosebank which is now with Equinor, or indeed many of the other opportunities that will materialize on that part of the world. It’s not just Rosebank that we’re chasing. There are a significant number of opportunities west of Shetlands that we see as follow-on work for the Ocean Great White, so we are very, very optimistic that this rig will continue working under contract as we move forward, if not for Siccar Point than for others.

Ian Macpherson

Good, understood. Thanks, Marc. I have one or two more, but I’ll re-queue for now. Thanks.

Operator

Thank you. Our next question comes from Kurt Hallead with RBC. Your line is now open.

Kurt Hallead

Good morning.

Marc Edwards

Kurt, hi.

Kurt Hallead

It’s a great update. I wanted to hit up on the dynamics relating to your comments on Blockchain. It looks like some very good acceptance from industry to start to roll that out on a broad basis on offshore fleet. When you guys think through the benefits of that, how should we start to think about it in context of either lower operating expenses or higher revenue and the return that you think Diamond could get from implementing it?

Marc Edwards

You know, one of the reasons we introduced Blockchain was not so much to use it as a line item on a ticket to generate revenue. It was to further differentiate our assets from everyone else, and there’s been a lot of--I don’t know if the right term is hubris or hubbub in the industry around managing data. The problem with the data that we have in the industry is it’s all uni-directional. What Blockchain does is it enables data to be managed in a bi-directional manner and truly comes into its own or adds value when you’ve got a significant number of parties contributing to a single transaction. We look at that single transaction as being the manufacturer of a well, and so by truly taking the data on board in what is basically a universal distributed ledger with the immutability that allows a lot of security to be embedded into the handling of that data, what you can do is you can develop smart contracts, you can truly share logistical support and assets across multiple operators, for example the supply chain involved on taking material out to the Gulf of Mexico. You can have the supply vessels contracted to multiple parties so they don’t just go out and serve one rig, they can serve many different rigs and many different parties in the same place.

But it’s not just there - we’re looking at it for maintenance applications, we’re looking at it to reduce safety, for example as it relates to the real estate on the rig and the number of crane lifts that it takes to supply the rig, and use that real estate. Blockchain brings everybody onto--or all the parties contributing to the manufacture of a well onto a single platform, which is why we are enabling our rigs in that manner.


Now, as it relates to interest, Blockchain could one day become ubiquitous to us all as email is today, but we have received significant interest from a number of parties that are not only people that we are contracted with today, who are also looking at maybe taking this technology with our assistance and driving it through the industry. We’re exploring many, many different aspects of innovation that lowers the total cost of ownership as it relates to manufacturing these holes in the ground, and Blockchain is just one of those.

Kurt Hallead

Okay, great. Appreciate that color. As maybe the follow-up, just on the pricing dynamics in the industry, wondering if you can give us some general sense on leading edge day rates for the asset classes in which Diamond is exposed. Just kind of give us some color as to that as best as you can, would be great. Thanks.

Marc Edwards

Yes sure, happy to. We have, as I mentioned on the prepared remarks, seen some incremental pricing gains as it relates to some of the moored assets. Now, I would argue today that I have a third gen rig in the North Sea that is throwing off more cash flow than the current market rates for an ultra-deepwater seventh generation asset. I think somewhat disappointingly, and this is why we don’t--we’re not going to guide to the speed of the recovery, but disappointingly we have seen a seventh generation asset get contracted down in Brazil at an extremely low day rate - some are suggesting it’s $110,000 a day. Other rigs in that asset category have gone to work in the Gulf of Mexico for $135,000 a day, so we are not seeing a recovery at this time in rates for the ultra-deepwater assets.


However, there are some term contracts that have yet been announced in terms of who has captured that work, and undoubtedly myself and my peers are very keen to understand at what day rates those contracts will be secured at. But I would say that the moored asset class, yes, we’re seeing incremental gains for sure. In the deepwater seventh and sixth generation asset class, let’s be honest, we have not seen any indications at this time of a recovery in day rates. That’s not to suggest it’s around the corner or it’s not around the corner, or that indeed it’s not coming; but as it relates to what many of our clients have--well, let’s say the top eight largest clients that we’ve got in our space have all announced their results and had their earnings calls over the last two weeks, and I think they’re still guiding to capital discipline and only one of the eight suggested that capital will be higher next year.

So to that point, and to be quite specific, we’re not going to see day rates recover for that asset class in 2019. Possibly we might see them rising in 2020 for a recovery that comes later than that, but one of the reasons why we are very pleased with the work that we did over the summer in terms of gaining over four years of backlog on our ultra-deepwater assets at a number we haven’t necessarily shared with the broader community, but some are suggesting - and there’s no reason to assume that they’re not correct - that these day rates are substantially higher than what the current market is today, which is why we’re very pleased to have all our sixth and seventh generation assets under contract and all but one is at a rate that is significantly above market.

Kurt Hallead

That’s great. Appreciate that color. Thanks, Marc.

Operator

Thank you. Our next question comes from James Wicklund with Credit Suisse. Your line is now open.

James Wicklund

Good morning guys. Congratulations on having all your sixth and seventh gen rigs contracted - that’s like getting your kids out of the house. Now you’ve got a $1.25 billion store credit until 2020, and if it was me, my wife knowing that she had that credit and it had a deadline, she’d go shopping. I understand all your comments about capital discipline and we have a great deal of confidence in that, but you also note that the market has bottomed, and I think your comments about acceleration of day rates are spot on, so you’re not getting out over your skis, but not going down anymore is usually a sign that your downside risk is limited.

So just hypothetically if there was something to go buy, do you do better applying your technologies to, say, fifth generation rigs and making them more efficient, or do you really in your heart of hearts want to go out and build class 8 and build it to your absolute specs, and if so, what kind of contract do you have to have for that? Those are kind of return questions - where would you spend your money if that store credit was expiring in two years? Where would you go spend your money in terms of what or where or why?

Marc Edwards

Jim, great questions. Thanks for the analogy there. No, I understand where you’re coming from. We’re in no rush to transact. We’re looking at the market, we’re looking at distressed assets, and we’re looking at what possibilities there are in terms of participating in M&A. Suffice to say that we’re still a little bit concerned around asset values as it relates to some of the assets that are stranded in the shipyards, and it really gets--

James Wicklund

That’s fair, yes.

Marc Edwards

It gets back to my commentary around what is the most distressed asset class that is out there today. We still believe that day rates, as I’ve just spoken to, have been secured in this past quarter of $110,000, $135,000 a day, that we’re not prepared to move on the expectations that the current owners of these distressed assets have. If you look the mid cycle day rates that are likely to materialize certainly in the near term, we don’t believe that the--well, we believe the arbitrage between what the seller is wanting and what we are prepared to pay is still too wide.

James Wicklund

Too wide? Okay.

Marc Edwards

Then you’ve got the carrying cost as well. We also believe that the--and this is through experience, we also believe that the reactivation costs for some of these assets is significantly higher than what is suggested in market commentary at this moment in time. Yes, to reactivate an asset might, in terms of switching the lights on, might be close to some of the numbers that have been suggested, but in terms of getting the asset over a wellhead because, for the most part, you have to do a special survey, you have to recertify the BOP, the risers, you have to do customer requested upgrades because we’re in a space where they can afford to request them, and then it’s very unlikely that the asset is stacked in a location that is close to where the asset needs to go to work. You’ve got to bring the crews onboard, you’ve got to retrain them, etc., so that cost is higher than what we believe is suggested in this space.

You’ve got the carrying costs, the cost of some of these assets are still too high, and as it relates to the recovery, it’s not in ’19. It may come in ’20 and beyond that, so we believe it’s more prudent for us to be conservative moving forward from a shareholder perspective and continue to look at opportunities, but not move at this moment in time.

As it relates to your question around new builds, as I’ve said before, we’ve got that technology locked up, we’ve got it all--we’ve spoken to the yards, we’ve done the feed on the design and basically we’ve laminated everything in the file and put it into a holding pattern until maybe we can secure a contract, but we’re not going to build those on spec. Then the other option we’ve got is looking at some of our moored assets that we’ve got in inventory and bringing them back in terms of reactivating them and placing them in a market which we currently see is growing today already, so--

James Wicklund

Yes, that was kind of my question. It’s looking like older assets may have a better value today than newer assets. That was part of my question.

Marc Edwards

Well certainly I would suggest that the moored assets, it’s worth looking again at what we’ve got in the fleet and bringing them back into the market, especially in, let’s just say, the Asia-Pac region or perhaps even possibly into the Golden Triangle.

James Wicklund

Okay, thanks guys. I appreciate it.

Operator

Thank you. Our next question comes from Sasha Sanwal with UBS. Your line is now open.

Sasha Sanwal

Thank you and good morning.

Marc Edwards

Sasha, hi.

Sasha Sanwal

Maybe just to build on Jim’s question over there, as we kind of think through some of the stack assets that you guys do have, so if you look at the Ocean Confidence or maybe the Onyx or the Rover, could you just kind of give us your thoughts on maybe bringing those back and whether there are any potential discussions in the works at this point?

Marc Edwards

Sure. We’re bringing them back only if it makes sense from a rig life perspective, and we’ll use the same kind of analogy and metrics that we used for bringing back the Ocean Endeavor. The Ocean Endeavor, if you recall, was requested by three customers to come back into the market, and the first one that truly declared we gave the rig to. We believe that beyond the life of the current contract, which it’s gone to work for or will be going to work for at the beginning of next year, there is significant follow-on work. The same will apply to one or maybe more of the three rigs that you mentioned there.

Suffice to say that there is interest from the market in bringing back moored assets, but that’s only because utilization in that space is moving back up and with that, we’re able to push day rates. Now, recall what I said earlier - I have a third generation asset working in the North Sea that is throwing off more cash than a seventh ultra-deepwater drill ship has, having just been contracted this past quarter. When it makes sense, we will do it, but we are having incoming calls from clients investigating the opportunity as to whether we would be interested in bringing another rig back from that which is currently stacked in our fleet, which is moored.

Sasha Sanwal

Okay, great. That’s helpful. As an unrelated follow-up, if I could just move over to Sim-Stack. We had the opportunity earlier this year to meet with your in-house team behind that, so as we think about expanding the Sim-Stack technology internationally right now, it’s a pretty big endeavor in terms of categorizing all the BOP, essentially the components. But can you give us your thoughts on the level of conversations you’re having specifically on Sim-Stack outside the Gulf of Mexico and just the horizon specifically, I guess once we kind of move into looking at preventative maintenance as well on a global basis. Just give us your thoughts on how this technology might evolve. Thank you.

Marc Edwards

Sure, yes. As I mentioned in my prepared remarks, Sim-Stack has been similar to pressure control, but they are more successful than we actually envisioned it would be when we were planning the system. Currently right now, and it’s not something you can do overnight, as you pointed out, you have to really design the system for each individual BOP stack that you have, and the next rollout, which will be sometime next year, will be in Brazil for the Courage and the Valor, to make those assets--to give them a little bit of differentiation again from what else is currently in the fleet down there. Then beyond that, we will look opportunistically as to where the next endeavor will be, but it’s more than likely that it will be the Ocean Great White working west of Shetlands in the North Sea.

But it is a differentiator and it’s something that has been recognized by our clients, so it’s been a success and we continue to roll out benefiting that success moving forward to other rigs.

Operator

Thank you. Our next question comes from Eric Ramesmal [ph] with Clarkson. Your line is now open.

Eric Ramesmal

Thank you. Just one question on the Monarch. Are you seeing any opportunities for that one in the gap period, and also when do you expect that to start its journey to Myanmar?

Ron Woll

Eric, good morning, this is Ron. Thanks for the question. First off, we’re very pleased to have the Monarch go to work for Posco Daewoo in Myanmar. She’s a great rig, done well for us here in Australia. Posco is a blue chip client, and Myanmar is a good market for that rig, so we’re quite pleased.

As you well know, rig contracts do not always reveal themselves chronologically, so now with this new win here with Posco, we do have some room on the calendar for additional work, so that represents an area of focus for us. I would describe the pipeline for the Monarch in that space to be quite good. I think that’s based on, not surprisingly, clients that work with us like to work more with us, so we continue to talk to current and potential new clients about that rig. Given the size of the schedule opening, I think we’ve got some good room to maneuver new work onto that contract, so that represents what we’ll spend some time focusing on here in the coming weeks and months.

Eric Ramesmal

Thanks. How much time do you think you need for mobilization and preparation for that contract?

Ron Woll

Yes, given that contract doesn’t start until Q4 of ’19 here, we have quite a lot of room, I think, to both fill in new work either in Australia or other parts in Asia, so I think we’re quite relaxed about what the calendar provides us.

Eric Ramesmal

All right, then just one quick one on mobilization in general. Are you now seeing more willingness from the clients to start paying for mobilization, or how should we think about this?

Ron Woll

Yes, neat question, and the answer is not yet, although I think to Marc’s earlier points, we are seeing some tightening and some modest improvements in the moored space here. We really haven’t crossed that line where clients will now pay you to bring the rig in, so I think that’s a marker still ahead in the cycle.

Eric Ramesmal

All right, thanks.

Operator

Thank you. This concludes today’s Q&A session. I would now like to turn the call back over to Marc Edwards for closing remarks.

Marc Edwards

Thanks very much for participating in today’s call, and we all look forward to speaking with you again next quarter.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.