Rowan Companies PLC Earnings Call Insights: India and the Gulf of Mexico Units

Rowan Companies PLC (NYSE:RDC) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

India

Greg Lewis – Credit Suisse: Mark, you touched on some of the strength in the Middle East, and you mentioned ONGC. I believe earlier this week, ONGC put out a tender for 10 rigs. From what I gather, there was a lack of rigs being bid on that contract, could you talk a little bit to what’s going on in India? Also, I know you have the Paris in the Middle East, is there any chance that we could either see that rig be reactivated by Rowan or potentially sold to maybe somebody else.

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Mark A. Keller – EVP, Business Development: I will address the India part of it and I’ll let Kevin talk to you about the Paris. Obviously, if we got a contract that would warrant bringing the rig out, had enough term and the day rate was high enough we would certainly look at it, but I’ll let Kevin talk to you about our alternatives position on selling the unit possibly. As far as India goes, Greg, their plans are initially were to tender for a total of 17 rigs. I know they’ve had some resistance to their last round of tenders, I think a lot of that is the reason that we don’t tender there, so I can’t really give you a lot of detail, but I think part of the challenge with working with ONGC is the owners contract terms that they make you sign, and with the market increasing like it is, I think they’re meeting some resistance and they may have to rethink some of the liabilities that they’re forcing on drilling contractors today. But they are trying to high grade that fleet is what they’re trying to do.

J. Kevin Bartol – EVP and CFO: Greg, I can comment briefly on the Paris. As Mark mentioned, we would consider opportunities to bring that out and put it on contract, as we did with the Gilbert Rowe, its sister rig for ARAMCO. The Paris essentially requires some hull replacement and some jacking system repair, so there would be some money that had to be invested into the rig to get it ready to go to a contract. We also would consider an offer for the rig and on an as is, where is basis. So, we’re considering both options there.

Greg Lewis – Credit Suisse: Then just real quick. I know you mentioned, the unbillable down time and potentially improving systems to maybe bring that number down. The CapEx guidance that you provided does that provide the sort of improved systems costs potentially or is it more additional?

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Thomas P. Burke – COO: Some of the things that we are doing which are new projects would be capitalized but it would be a small amount relative to the numbers that are there.

W. Matt Ralls – President and CEO: I do think it’s important to maintain the context of Tom’s remarks here because our unbillable downtime is pretty low by industry standards and only a couple of percent. So I mean it does get asymptotic from here, it’s pretty hard to drive it to zero but the main thing we are focusing on is causes – again the types of events that cause down time and making sure we are doing as much preventive maintenance as possible to catch those before they happen.

Greg Lewis – Credit Suisse: I was wondering, how much lower that was going to get. So it didn’t seem like there was much room for it to push down. So it didn’t really seem like – so missing costs on that would be rather attractive.

The Gulf of Mexico Units

Eduardo Royes – Jefferies: I’d like to ask a question on the Gulf of Mexico units. I guess we finally seen some clarity on the McMoRan side but the Joe Douglas and the EXL III both working with other customers and seemingly there is no time there left for the McMoRan. I am just wondering, obviously that’s a very, very good market kind of all the way down the ladder in terms of specs. But is it still – are these rigs still more likely than not to go international or is there the kind of work that can bring attractive margins I guess in the Gulf of Mexico on those rigs as you think about it now?

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Mark A. Keller – EVP, Business Development: Sure. Eduardo, first off, I would address the McMoRan part of the question. We still have a very close relationship with McMoRan and their partners. We’re in discussions with them all the time. We are talking to them currently about the EXL III and the Joe Douglas and the Rowan Louisiana and what the timeframe will be for projected wells and completions as they go to Davy Jones 2 and go back to Davy Jones 1 with the EXL III. So there are a lot of – just to make it clear, we still have a very close relationship and are in constant communication with them as they get their plans finalized after their restructure of their company. As far as the second part of your question, we are continuing to market those rigs internationally. We are seeing a lot of demand as you mentioned in the U.S. Gulf. We’ve been able to term up the (indiscernible) in the Gorilla IV. I think that we will be offered some opportunities on the EXL and the Joe Douglas. However given the high-spec nature of those rigs, capabilities of those rigs, we are tendering those rigs overseas and we’ve done that all along, but being respectful of our commitments and our obligations to McMoRan. But we see the market staying strong in the Gulf. As you can see from the fleet status, we have several operators that are willing to walk their rigs along through 2013 in the eventual case hopefully that McMoRan will proceed with their ultra-deep gas program.

Eduardo Royes – Jefferies: Then just one unrelated follow-up, I think we’ve seen now for some time that the well equipment upgrade on the Tarzan Class rigs gets pushed out and I guess as of now, there are still on the fleet status for late in the year type event. I think we had heard at one point that might not need to happen. Any latest thoughts or idea on there, I know they’re still on the fleet status, but how do you guys think about that?

Thomas P. Burke – COO: I would say where that is. We’re continuously working with our customers in ARAMCO and all of our customers to help optimize their efficiency and our efficiency. So we’re just working – regarding that drilling program and looking at what is most efficient to them and for us. So, you’ll see in our fleet status that we have – we’ve taken the time kind of split it to do an initial inspection, particularly on the Scooter Yeargain, and then depending on what we find through that we’ll come back later on in the year after going back to work. So, it is something that is on the table, but we’re continuously working with the customers to see if we can – to minimize operated time.

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Mark A. Keller – EVP, Business Development: Eduardo, along the lines what Tom just said, Saudi ARAMCO is currently at 37 jackups and they are trying to increase our fleet up into the mid-40s. There is a big push for gas drilling, which those rigs are capable of doing, and most of the time that’s what their operations are comprised of, is drilling for deep gas. So, I think the potential of moving that, I don’t think that they want rigs down right now, but that’s just my opinion.

A Closer Look: Rowan Companies Earnings Cheat Sheet>>