Diamond Offshore Drilling, Inc. (NYSE:DO) Q2 2019 Earnings Conference Call August 5, 2019 9:00 AM ET
Samir Ali - VP, IR & Corporate Development
Marc Edwards - President, CEO & Director
Scott Kornblau - SVP & CFO
Ronald Woll - EVP & Chief Commercial Officer
Conference Call Participants
Coleman Sullivan - Wells Fargo Securities
Chase Mulvehill - Bank of America Merrill Lynch
Sean Meakim - JPMorgan Chase & Co.
Ian MacPherson - Simmons & Company International
Kurt Hallead - RBC Capital Markets
Good morning, ladies and gentlemen, and welcome to the Q2 2019 Diamond Offshore Drilling Inc. Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded.
Thank you. I will now turn the conference over to your host Mr. Samir Ali. Please go ahead, sir.
Thank you, Tiffany. 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, Executive 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 the information reported on this call speaks only as of today, and therefore, you're advised that time sensitive information may no longer be accurate at any time of 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 risks 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 the reconciliation to GAAP financials on our website.
And now I'll turn the call over to Marc
Thanks, Samir. Good morning, everyone, and thank you for joining us today. In the second quarter of 2019, Diamond Offshore posted an adjusted loss per share of $0.99. This compares to an adjusted loss per share of $0.33 in the second quarter of 2018.
The decline year-over-year was primarily driven by the Ocean BlackHawk being off rate while undertaking its special survey and undergoing technology upgrades in the second quarter of 2019.
Additionally, the Ocean GreatWhite, though on contract in both periods, was at a lower rate in 2019 compared to the prior year. Partially offsetting the year-over-year revenue decrease was the start-up of three premier moored rigs: the Ocean Apex; the Ocean Valiant; and the Ocean Endeavor. Of note, we continue to see improved dayrates in all geographies for these moored assets.
Now allow me to start with an update on our operations during the second quarter of 2019. For the Ocean Monarch, we took the rig out of service for approximately 45 days in the second quarter to perform an earlier than planned maintenance program. It is important to emphasize that the revenue, which would have been received in the second quarter was differed predominantly to the third quarter of 2019. The contracted wells will still be drilled largely in the third quarter of 2019 instead of in the second quarter.
Additionally, during the quarter, we experienced a delay in the start-up of the Ocean Endeavor, following its reactivation from cold-stack. The rig is now fully operational and is progressing its maiden campaign post reactivation. The slight delay does not impact overall contract revenue. Also, I am pleased to announce that we executed a very successful rig start-up of the Ocean GreatWhite in the North Sea. Recall that the GreatWhite began its inaugural drilling campaign in March and during the second quarter of 2019, it achieved an operating efficiency of over 97.5% on its first and second wells.
Now moving to the fleet update for the second quarter. In addition to the $450 million of backlog awarded earlier this year, we were able to secure an extra exploration well for the Ocean Monarch with Exxon in Australia. This new well will fill the gap between our work in Australia and the commencement of the Myanmar work.
Switching to Brazil. We completed the implementation of the Sim-Stack service on the Ocean Courage and the Ocean Valor. We are excited to now offer this service in the region and immediately saw benefits of this implementation by avoiding two unplanned stack pulls. Since Stack has not only differentiated Diamond but it has helped us keep BOPs safely deployed for longer periods of time, increasing our revenue efficiency and cash flow as well as that of our customers.
Now turning our attention to the Gulf of Mexico, we completed the special survey and technology upgrades on the Ocean BlackHawk. The upgrade plans for the remaining three Black ships will proceed over the coming year to ensure that they remain at the front of the deli line of desirability. As announced last quarter, we have already seen the success of our differentiated strategy with the successful addition of over $450 million of backlog in what has been one of the largest recent drillship contract awards at rates that are close to double other fixtures awarded during the first half of the year.
And last week, we announced a new addition to our portfolio of services, which will help improve operational efficiency, reduce the total cost of ownership for our customers and further differentiate Diamond Offshore. I have stated in previous calls that unplanned BOP stack pulls are the major contributor to our deep order rigs nonproductive time, resulting in a material loss of revenue for the drilling company and significant additional costs for the oil and gas operator.
With this always top of mind, Diamond Offshore continues to look for ways to improve subsea uptime and our new Stack-View service is the first of its kind solution that applies 24/7, real-time monitoring, data visualization and advanced analytics to identify trends and detect anomalies in BOP performance. In other words, Stack-View produces leading indicators by continuously overlaying or stacking historical data to track and predict the health of all BOPs in-house fleet. We will be able to see whether components are performing as expected or are close to potential failure prior to the next maintenance cycle. This real-time data driven knowledge enables Diamond to optimize our BOP maintenance program and potentially prevent subsea downtime. Further, it will shift us from time or calendar-based maintenance to more predicted maintenance, which mitigates BOP stack pulls and maintenance-induced issues and possibly further reduces our already industry-leading nonproductive time by another 50%.
Before I comment on the state of the market, I would first like to thank our teams around the world for their extraordinary effort in helping Diamond maintain our industry-leading safety record. Our rolling 12-month safety results continue to set new benchmarks and it's a point of great pride for the company.
So we continue to see signs of improvement in the moored asset category and this improvement is occurring in both benign and harsh environments. And as I stated earlier, we continue to see pricing traction in this space where Diamond maintains one of the largest and most capable moored fleets in the market. Our moored fleet backlog remains double that of our closest peer. Our unique strategy has not changed. We will continue to focus on providing class-leading operational performance and innovation that helps oil and gas companies lower their total cost of ownership, evidenced with the introduction of our Stack-View service and as such, we are the only company that has contracted all of its ultra-deepwater drillships until 2022 at dayrates meaningfully above the market.
We continue to invest in the underserved moored asset category, which is the asset class showing the most improvements.
So 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.
Thanks, Marc, and good morning, everyone. As always, I'll give a little color on this past quarter results and then I will provide some guidance for the upcoming quarter. Earlier today, we reported a net loss of $114 million or negative $0.83 per share for the second quarter of 2019. On a normalized basis, adjusting for onetime asset sales and tax reform impacts, our net loss was $136 million or negative $0.99 per share. This compares to our first quarter 2019 net loss of $73 million or negative $0.53 per share. The quarter-over-quarter decline was primarily driven by higher operating expenses due to the noncash recognition of previously deferred costs and planned ship yard time for two rigs.
Now let's take a closer look at the quarter-over-quarter variances. First, contract drilling revenues of $207 million during the second quarter 2019 was $20 million lower than the prior quarter, primarily due to the shipyards stays for two rigs. The Ocean BlackHawk spent the entire second quarter in the shipyard undergoing a special survey and the upgrades Marc mentioned earlier compared to one month in the yard during the first quarter. The Ocean Courage was also in the shipyard for two months of the second quarter, undergoing its five year special survey and upgrade compared to working the entire first quarter. Partially offsetting these decreases was the second quarter commencements of the Ocean Apex in Australia and the Ocean Endeavor in the North Sea and a full quarter of revenue for the Ocean GreatWhite, which began her maiden campaign towards the end of the first quarter.
Contract drilling expenses of $225 million were $58 million higher in the second quarter compared to the first quarter and were at the low end of the guidance range. Most of the increase is attributed to $45 million of noncash amortization of previously deferred mobilization and contract preparation costs. As discussed on prior calls, U.S. GAAP accounting rules dictates every amortized contract preparation and mobilization costs over the term of the initial contract after the mobe and shipyard stay. As the initial contract on the Ocean GreatWhite and Ocean Apex were relatively short, the amortization is accelerated and mostly occurring during the second quarter. The remainder of the quarter-over-quarter increase is primarily related to the special surveys and shipyards stays of the Ocean BlackHawk and Ocean Courage previously discussed.
Second quarter depreciation expense of $88 million and net interest expense of $29 million came in at previous guidance while G&A expense of $15 million came in slightly below prior quarter guidance. The gain on disposition of assets includes the sale of the Ocean Guardian discussed last quarter, partially offsetting the gain with a noncash loss related to the disposal of drilling equipment during the quarter. During the second quarter of 2019, the U.S. Treasury issued final regulations, modifying previously proposed regulations related to the mandatory deemed repatriation provision of the U.S. Tax Reform Act. As a result, the $20 million prior year charge is being reduced by $14 million during the second quarter of 2019. Excluding this and the tax impacts on the two asset disposals discussed earlier, our second quarter effective tax rate of 9% resulted in an income tax benefit of $13 million and was in line with our previous guidance.
With that, let me now provide some thoughts on the second half of 2019 but before I do, I will remind you to refer to our fleet status report, which was published earlier today for contract details as well as known and projected out-of-service time for the remainder of the year. We expect contract drilling expenses for the third quarter 2019 to come in between $205 million and $215 million, which includes approximately $25 million of noncash amortization of previously deferred contract preparations and mobilization cost mostly related to the Ocean GreatWhite and Ocean Apex. After this quarter, the amortization of previously deferred expenses should return to the more normal level of $10 million per quarter.
Excluding these noncash charges, third quarter contract drilling expenses are expected to come in between approximately $180 million and $190 million, which is in line with normalized second quarter contract drilling expense. The Ocean Endeavor and Ocean Apex will incur additional expenses during the third quarter as they will both be fully operational for the entire period compared to working only part of the second quarter, following their contract commencement.
We will also incur additional costs during the third quarter as the Ocean BlackHornet begins its shipyard stay for a special survey and rig upgrades, similar to the Ocean BlackHawk. The nonrepeating second quarter shipyards stays for the Ocean BlackHawk and Ocean Courage will mostly offset these increases. Also, for the third quarter 2019, we expect depreciation, G&A and net interest expense to remain relatively flat at $88 million, $16 million and $29 million respectively. We anticipate our effective tax rate to be between 5% and 10% during the third quarter of 2019. Of course, the rate may fluctuate up or down based on a variety of factors including but not limited to changes to the geographic mix of earnings as well as tax assessments, settlements or movements in exchange rates.
And finally, while the Ocean BlackHornet is in the shipyard, we will be performing additional upgrades to the rig requested for and paid entirely out by the rig's next customer. As a result, we are increasing our full year 2019 capital expenditure guidance by $20 million to between $360 million and $380 million. The reimbursement will be recognized as revenue over the two year contract starting in 2020.
And with that, I'll turn it back to Marc
Thank you, Scott. Before we open the call for questions, I'd like to reiterate that our differentiated strategy has delivered over $450 million of backlog year-to-date and it's keeping our marketed rigs contracted in what remains a challenged market. We will continue to focus on providing innovation and class-leading operational performance that adds value to our customers and our stakeholders.
And with that, I'll turn the call over for questions.
[Operator Instructions]. Your first question comes from the line of Coleman Sullivan with Wells Fargo.
On the GreatWhite, can you give us a little bit of your thoughts on the pipeline for work there later this year? And if you expect any gap between any new work?
This is Ron Woll, glad to talk about the great GreatWhite. She had a good first outing with the Siccar Point in the North Sea and she is now working for a second customer in the same geography. And her early performance is quite good. In fact, she's logged, I think, to date under 3% MPT so she's off to a really strong start for her inaugural campaign. Good, I think, example of equipment, people and process coming together effectively. I think her work in the North Sea began three to five months, probably too late to catch the contract and, kind of, lead time for Q4, kind of, Q1 work. We are confident she will pick up work in Q2 going forward and if I look to the Endeavor, the Patriot, the Valiant, who do work for the winter, I would expect that GreatWhite will have high utilization following but I think our lead time is probably still a little bit off for the -- for this winter season. So in terms of the models, I would reflect probably some gap between the end of her current job and picking up new work in early next year.
All right. On the Apex has a little bit of a gap later this year as well, any chance that closes with a -- with any extensions or options from the current operator?
I think that space, Cole, is a little bit probably too small to fit into. I appreciate the question and on paper I get it, but in practical I think contracting terms, probably not likely.
All right. And just a follow-up on the cost. I think, Scott, you said, $180 million to $190 million ex the deferred amortizations. Is that a decent level to think about in the fourth quarter? Or should we kind of factor in that extra $10 million of a sort of more a normal level on top of that for 4Q?
Yes. Cole, that $10 million is -- I would say is normalized going forward. And frankly, before this, there's anomaly in 2019 with all the acceleration, that's kind of what we've been running in the past. It was just never worth much mentioning because quarter-over-quarter, it kind of washed. So yes, I think going forward, no different than we thought in prior years, the 2018. So yes, so for Q3, it will be higher, 25-ish or so. So backed out $180 million and $190 billion and then I think you just kind of pencil in the $10 million range going forward. Again, subject to change based on new contracts that come up. But for now, that's a bigger number, if there are any.
Your next question comes from the line of Chase Mulvehill with Bank of America Merrill Lynch.
I guess first, maybe we can talk about the moored market here. Could you maybe talk about where you see the most opportunity for incremental demand as we look over to the next 12 months? And then maybe if you -- on the supply side, have you seen any competitors try to do any upgrades here to take advantage of the stronger market?
Yes. Thanks for the question. That's a -- so we kind of stepped back, we've had a look at where we want to invest our capital moving forward. You've got opportunities to -- rather, a very list of opportunities in various asset classes but we feel that it's in our best interest to invest in the moored asset categories, so space that hasn't had much attention from an investor perspective amongst our peers. But nevertheless we believe and we saw this last year that the water depth between, let's say, 400 feet to 1,500 feet, was actually the depth whereby most investment or the pickup in investment was being spent from our customer base. And one of the things about the moored asset class is when you get below, say, 1,500 feet, due to the need to -- in the events of the past, say, on a DP rig to emergency disconnect quickly.
The DP rigs really can't get into that space, so you've got to have a good moored asset. No, you can get there with a hybrid rig, for example. But we've taken a closer look at that space and if you look at the scrapping of the 126 rigs that have been scrapped, the vast majority of those have be in the moored space. We have in that asset category what has been recognized as the most capable assets in that space, which is why we went forward and we invested in the Endeavor and the Onyx as it's coming out of the yard later in the year. So we believe that, that's a good use of our capital. And let's face it, the dayrates we're getting for those assets today give us a better cash flow, than the market is currently in the spot market for in order to be awarded drillships. So that's very much in our stakeholders' and shareholders' interest.
Specific to your question on geographies, it goes without saying that the North Sea, I think, everyone for a while now realizes that, that has picked up, first and foremost, amongst other geographies. And, of course, Australasia, and that region as well has picked up. But to a certain degree, there's an opportunity down in Brazil, there's more opportunities in the Gulf of Mexico and possibly West Africa. So we feel that, that's a very good space to use our capital and you've seen what we've done in that area over the past 6 to 12 months.
And then also on the potential for competitor upgrades, I know it's hard for us to kind of look and understand the cost of the upgrades for mooring system. So I don't know if you have any additional color you could add here.
Well, yes, I mean it's not as easy as it quite sounds in terms of establishing what is a class because when you look at putting mooring onto, let's say, a DP rig, depending on whether you go with an 8 point or a 12 point mooring, it does take away the VDL. So you've got to get the VDL back by adding more deck space, which means more steel. So it's not just a case of putting the moorings on the rig, it is quite challenging to enable -- or to maintain the variable deck load that you have on these rigs. But anything from 40 million to 70 million, perhaps higher than that depending on what you're going to do with the rig. Are you going to put automation on it? Are you going to look at the mud systems? Upgrade those as well. Because I think what we want to do and what we've been doing is when we upgrade a rig and bring it back, we want to make sure that it has the capability and it is desirable enough to go straight to the top of, what we'd call, the deli line of desirability. So when you take a look at the Endeavor, when you take a look at the Onyx, those rigs are amongst the most capable harsh environment, moored semis that are available in the market space today. And that's why we are able to get -- launch contracts for them immediately following the upgrade.
Okay. All right. That's great color. Really appreciate it. I guess one quick follow-up, you've got a couple of rigs down in South America and I know those don't really roll over until the latter part of next year. But any color on -- in Brazil and the opportunities you have to re-contract those rigs in Brazil?
It's Ron again here. Thanks for asking. You're right that they are a little bit of ahead on the calendar but we're clearly mindful that they roll off in mid to late '20 and it's our intention, of course, to keep putting those rigs to work. I think there is opportunity in Brazil as well as in other markets as kind of Marc referenced. So we're pretty focused on making sure those rigs remain part of our fleet and contribute longer term.
Your next question comes from the line of Sean Meakim with JP Morgan.
Well, Marc, your peers have begun publishing dayrates again and they're sticking back in the norm going forward. You may have helped get this trend started last quarter, can you maybe just talk about how drillship dayrates are progressing this year versus what your expectations would have been coming into 2019?
Sure. We've long said that the drillship market is the market that is most stressed in this space, which is why we were successful in contracting what was the last major drillship contract of any term going into the downturn. And we believe why we have contracted the first major term contract or one of the first major term contracts coming out of the downturn. And so effectively, all of our drillships, uniquely for us amongst our peers, are now contracted through 2022 and beyond at dayrates that are meaningfully above the fixtures we've seen this year. Now from a clean perspective, if you look at a clean dayrate, I'm not familiar with any dayrate that's got a handle the two in front of it.
We think come in at $170,000 but we've seen others come in for the seventh-generation assets that are $130,000. So I think this space is quite challenged moving forward, which is why we're very, very comfortable with the fact that we've contracted all of our drillships at dayrates meaningfully above the numbers I've just suggested. With the performance bonus, I think the market is suggesting that is close to a three handle on two of our drillships and we're very, very comfortable that we're in that position right now. So we're disappointed. I thank all of our peers have to be disappointed with the traction that we've seen in the drillship dayrates but as I said, that's not something that we're worried about moving forward, having secured our drillships at rates meaningfully above the market.
So we're now focused on an area of growth being the moored asset category and looking at how we can differentiate ourselves in that space. Just one thing I just want to reiterate here is the success that we've had in differentiating our drillship assets. I spoke in the last call about how according to the Rushmore database, we've drilled three of the best four wells that have ever been drilled in the Gulf of Mexico. These are wells down to 30,000 feet. They're very complicated, in a regulatory environment that is one of the most onerous in the world and we've drilled three of the four best wells. And I think with that kind of performance, I think that explains why we're being so successful in a very distressed asset category to recontract these drillships for a good number of years ahead of us at rates that are much more meaningful than the numbers we've seen so far.
I appreciate that feedback. Secondly, just talk about cash priorities a little bit. So just thinking beyond the special surveys and the upgrades that you announced for this year, you [indiscernible] the CapEx budget up a bit. There is one, would you mind giving us a little insight into what upgrades are associated with the Ocean BlackHornet? And then just as we think about the CapEx likely you're going into 2019, how does cash flow look in your mind going into 2020?
I have [indiscernible] a minute but we've had a high CapEx spend year. We've had nine shipyard stays and we bought back a couple of rigs, like spoken to already in this call. On to contracts, on to contracts that have dayrates that, as I suggested, are higher than what you would get for a drillship today. We're doing special survey on our Black ships but at the same time, we are upgrading the technology on those. Now this is all driven in an attempt to further distance themselves from the pack from a performance perspective and make them more desirable and recover a higher dayrate, which we've proven we can do. So we're looking at further automating the drill floor. We're looking at the PAN management systems on the rig but specifically to your question on the Hornet, with the customers that, that rig is going to work for, later -- well, early next year, we're putting NPV onto that rig and I just want to point out that, that's around $20 million but that is being reimbursed during the contract by the client in its entirety and we are also getting paid an interest rate on that $20 million over the term of the contract. So we're protected from an NPV perspective. So this is one example whereby we are able to recover some of the CapEx we're spending from our clients on dayrate and getting paid an interest rate for that. So with that, I'll hand the call over to Scott, he can give you a little more color on the cash flows.
Yes. So, Sean, so looking forward to 2020, obviously, we're not in a position yet to give CapEx guidance on that. I will tell you though it'll be much, much less than '19. Marc mentioned that the shipyard stays, that included finishing up the Endeavor reactivation and, of course, the full-blown Onyx reactivation throughout the year. So you can pencil in something, I always call, much more normalized level. '19 was an anomaly. Again, as far as cash flow, don't really guide to cash flow but I will provide a little bit of color. We will have, based on my comments this morning, roughly $200 million of CapEx for the remaining half of 2019. And also, as we disclosed in our 10-Q last quarter and we'll reiterate when our Q comes out today, we do expect to hit our revolver sometime during 2020. But again, as Marc told you, that is by design, we are very happy with the position of our balance sheet and it allows us to invest in our fleet today. We have no maturities until the end of '23 and that's only of $250 million maturity. But as we stand today, we have $1.5 billion of liquidity between our cash and our revolver. No new bills commitments. So while we're going to be focused on liquidity, and especially near-term liquidity, we're very pleased and content with where we're at and when we look forward to next handful of years.
So just in summary, yes, we have had a heavy CapEx year. But it's for reason. Nine shipyard stays, bringing a couple of rigs back, upgrading other rigs and to Scott's point, we've got no CapEx commitments for rigs that are still in yards and in terms of reactivating rigs, I think we're done for the time being. We may actually look at possibly putting mooring onto the Courage and the Valor. But should we do that, then we will ensure that when those ESPs come back into the market, they will be one off, if not the most capable, hybrid rigs available in the market. But we think that they'll be very, very attractive assets but we haven't yet made that call. We'll be monitoring the market and seeing where that goes. So in terms of reactivation, we're done. In terms of shipyard -- bringing vessels out of the shipyard, we don't have any commitments there. And to Scott's point, our next debt load is $250 million in 2023. So from a balance sheet perspective, we're very, very comfortable as to where we are today.
Your next question comes from the line of Ian MacPherson with Simmons.
Marc, if you were to put more ink on the Courage and the Valor, do you think that the market would afford the opportunity to do it with contract support? Or do you think that that would be more of a speculative upgrade on your part? And what type of contract stability do you think would be required in order to move forward with those?
Well, that's a very, very good question. Yes, it will be good, like, for example, on the Endeavor, we bought that rig back on a two year contract. And we know that there were two other clients wanting us to bring that back, that particular rig back. Same on the Onyx, we had three clients looking at the Onyx and we're bringing that on -- back on a one year contract but we know that there's five years of work potentially in the specific areas that the rig is going to work in.
As it relates to the Courage and the Valor, we've been doing a lot of voice with the customer interrogation to find out exactly what would the rig need to look like for them to be very attractive in that space, we've completed that work now and we're having ongoing discussions with clients that know us extremely well. We had two different geographies where we believe those rigs will be very successful, once they've been converted into a hybrid format. So let's just say, we are already in discussions with clients and -- but it's too early to say whether we're across the line in terms of agreeing to commit to some CapEx spend on those rigs, more without a firm contract in place. I wouldn't say speculative. I don't think we'll be bringing them back speculatively but we've already had some initial conversations with clients. It would -- we'll -- I'll give you a specific example. There's one IOC that we're discussing, it has somewhat of a mixed program moving forward in terms of water depth and -- so they don't want to contract either a dealership or a moored semi. They would like something that gives them flexibility on a well-by-well basis to transition well debt. So we've engaged in those discussions already and, well, we believe that the work we're doing we'll be able to capture it, but it's too early to say whether we'll have a contract or not in play.
Okay. Good. Other question I wanted to ask was just on the additional exploration well that you've recently tapped on for the Monarch with Exxon. Did that follow from an existing auction that the customer had? Or is that a freshly priced contract into the backlog in the second half of this year?
Yes. This is Ron. That was an existing auction they had, so that was something that was kind of well -- we had good visibility on for a while. But the rig's performance was something that [indiscernible] looked to and our past history with them, I think, spoke well, them entrusting us a fairly complex piece of work ahead.
Okay. So I can absolutely think about revenue generation of that rig being pretty constant through the back end of this year. And does that fill you pretty seamlessly to the Myanmar work apart from the growth early next year?
Yes. Your first assumption is pretty good in terms of, don't look for any sort of big, erratic moves on the earning power of that rig. It kind of fits in to the general trend of where we are. And the second part of your question, yes, it does kinda fill up the dance card for that rig through the Myanmar program.
And your next question comes from the line of Kurt Hallead with RBC.
Thanks for the color and the varying -- dynamic set of playing in the marketplace and your positioning within it. Just wanted to get a general sense here, by virtue of the fleet status report, it would appear that the second quarter -- kind of second quarter, third quarter dynamics could mark the low point of quarterly revenue generation, obviously, absent any unforeseen, kind of, planned -- any unforeseen downturn -- I mean, downtime, excuse me. So would that kind of logic, kind of, match up with what you guys are seeing as well?
Yes. This is Ron here. So you're right in the sense that in terms of -- or let's say, from a contract and activity standpoint, you're right. They were probably into a little bit less active, sort of, phase, just given most of our -- all of our active rigs have active contracts. And -- so I think that's correct. If you look at the work ahead of putting new rigs on contract for the GreatWhite, that certainly is important to us and some other rigs. But I think you're right to describe maybe a -- we're into a little bit of less active phase, given our success year-to-date, as Marc talked about, we've put a lot of rigs on contract with a particular backlog. So I think generally, your description is pretty fair.
Yes. Kurt, this is Scott. I guess, the only thing I would add to that, if you look at the Black ships which are rolling off with their legacy contracts, there -- all four of those are 400 plus, they're rolling in way above market contracts but obviously not in the 4s anymore. And so those will be fully utilized, you will see those rigs have a decrease compared to where they were at.
No. I got that, understood. Appreciate the color as well. So, Marc, can you comment -- sorry, go ahead?
Yes. Kurt, just one thing, before you ask the next question. I saw your early note this morning. I trust that you picked up that some of the revenue missed this quarter was down to some out-of-service time on the Monarch and, of course, the late start-up of the Endeavor but that...
Yes. So your commentary this morning clarified that, so I appreciated that. In the context, Marc, of the moored semi market, which you've been very pulled up on for quite some time now. What kind of insights can you give us in terms of contract durations and do you foresee opportunities potentially lock some of these rigs up out into -- through 2021 into 2022? And you did say that the market is pretty tight as well. So could you give us some indication as to what the potential magnitude of, say, pricing improvement could be relative to where the current market is? Or just gives us some context of what you could see happening here over the next, say, two year window?
Sure. Sure. I think as I mentioned in the call earlier, the -- we've seen a quite a bit of scrapping in display in the moored asset category. If you look at just moored rigs themselves, we've lost over 55% of the asset class itself during the last four years. And in terms of rigs that are capable, in terms of rigs that are -- have five year surveys coming up, in terms of the VDLs and the desirability of the client, we think that, that space is going to see more erosion, so that space is going to continue to tighten. And that is somewhat unique, we've not seeing a tightening in the ultra-deep water space because of scrapping our rigs leaving the market.
So if you are in that particular space where a jack-up is really stressed and a moored rig can't get down to, it's like -- it's back to the mid-water category where things -- in order to develop those assets that are in place, it's somewhat cheaper than going deeper. So we do see our clients gravitating to a spend in that particular area. And in Australia and in the U.K., as I've already said, we've seen rigs still leave the market. For example, we chose that the Guardian was just not in a space whereby the CapEx investment to keep it going with a five year survey coming up at the beginning of next year plus upgrades that we would have to do to the rig to make it -- well, to address obsolescence, to address equipment obsolescence, nevermind, making the rig even more efficient than where it was today, it was just not viable to us, therefore, we elected to let it go from our fleet and it's moved on to a specific P&A purpose with another company. You're going to see more of that. So that's why we feel that this space is tightening faster than others and why over the last 12 months, we've been investing in it.
Now in terms of dayrate attrition, every contract that we are bidding on today as a higher dayrate than the prior work of a legacy contract. Now unlike our peers, we're not at a stage yet whereby we will be disclosing dayrates. We believe it's still very, very competitive and we will not do that moving forward. Now as I think most of the market today is focused on ultra-deep water drillships, whereas I've explained many times during this call already today, our strategy is focused on the moored space, having worked up our drillship. So we still see opportunity to push pricing moving forward in the moored asset category.
And at this time, I would now like to turn the call back over to Marc.
So thank you very much for participating in today's call. And once again, we look forward to chatting in three months' time. Thank you very much.
Thank you for participating. This concludes today's 2019 Quarter Two Earnings Call. You may now disconnect.