Darren Daugherty - Director of Investor Relations Marc Gerard Rex Edwards - Chief Executive Officer, President, Director and Member of Executive Committee Gary T. Krenek - Chief Financial Officer and Senior Vice President

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division Ian Macpherson - Simmons & Company International, Research Division Todd P.

Scholl - Wunderlich Securities Inc., Research Division Gregory Lewis - Crédit Suisse AG, Research Division Darren Gacicia - Guggenheim Securities, LLC, Research Division John Booth Lowe - Cowen and Company, LLC, Research Division David Smith

Thank you, Maria. Good morning, everyone, and thank you for joining us.

With me on the call today are Marc Edwards, President and Chief Executive Officer; Gary Krenek, Senior Vice President and Chief Financial Officer; Kane Liddelow, Director of Contracts and Marketing. Following our prepared remarks this morning, we'll have a question-and-answer session.

Before we begin our remarks, I should remind you that statements made during this conference call may constitute forward-looking statements, which are inherently subject to a variety of risks and uncertainties. Actual results achieved by the company may differ materially from projections made in any forward-looking statements.

Forward-looking statements may include, but are not limited to, discussions about future revenues and earnings, capital expenditures, industry conditions and competition, dates the drilling rigs will enter service, as well as management's plans and objectives for the future. A discussion of these risk factors that could impact these areas in the company's overall business and financial performance can be found in the company's 10-K and 10-Q filings with the SEC.

Given these factors, investors and analysts should not place undue reliance on forward-looking statements. Forward-looking statements reflect circumstances at the time they are made, and the company expressly disclaims any obligation to update or revise any forward-looking statements.

And now, I'll turn the call over to Marc.

Thank you, Darren. Good morning, everyone, and welcome to our first quarter conference call.

Many of you will already know me from my prior role in the broader oil field services sector. And no doubt you will be keen to learn what will be by areas of focus, moving forward as President and CEO of Diamond Offshore.

I don't think it will come as a surprise, but I will be focusing on 3 main value drivers. These being, investment excellence to include asset optimization and capital efficiency allocation.

Commercial excellence, centered around customer relationships, pricing, utilization and fleet positioning and operational excellence, whereby we minimize downtime and maintain discipline in operating expense and SG&A. While of course, continuing our ongoing focus on the health and safety of our constituents.

Allow me to dwell on that last point for just a moment. I've been with Diamond Offshore for a little over 7 weeks.

One of my first undertakings was to understand and review Diamond's approach to safety and the protection of the environment. I also reviewed our operations management systems and I'm pleased to report, I liked what I saw.

I have met all of our rig managers, spent time in our new training facility, witnessed the ongoing construction of our drillships in South Korea, and I have been offshore to visit our newest semi, the Ocean Onyx. Where I witnessed firsthand the outstanding reliability and advanced technology that such a rig from the Victory-class era can offer.

I have visited clients both here in the U.S. and overseas, met many of our frontline employees and a number of our investors.

The message I received is consistent. Diamond is a proven performer with great people and a solid track record.

We are well known for our strong safety culture. Have a competent and highly trained workforce and cost controls that are amongst the best in the industry.

And as you, of course know, Diamond Offshore has recently added new builds and upgraded its fleet, whilst maintaining the highest credit-rating and the strongest balance sheet amongst its industry peers. So when people ask me, what is it that attracted me to become a part of the Diamond family.

Well, frankly, it's all of the above, which leads me into our first quarter 2014 financials. Results were good, although we did have a few items working in our favor.

Most notable was a $0.12 per share benefit to tax expense related to a settlement with Egyptian tax authorities. Additionally, our operating costs benefited from some rig survey shifting into the second quarter, as well as our successful efforts at managing expenses.

More from Gary on this topic in a few minutes. As for the fleet, allow me to say a few words as an update on contract fixtures as well as the status of some specific rigs.

Last night, we released our Rig Status Report, which included the announcement that the Ocean Quest has received a contract in Vietnam that should extend until year end. This rig is new to the Southeast Asian market, following its relocation from Brazil.

And the rate at $199,000 per day is considered, a rate that was opportunistic to get the rig working in that part of the world. We are constant -- consequently pleased to put this rig to work, and anticipate additional follow-on opportunities.

Also in Southeast Asia, we have announced that the Ocean Monarch has been signed to a job in Indonesia for our customer Total. This should commence in late May or early June at a rate of $420,000 a day and last between 60 and 150 days.

I'm very pleased to see this rig return to work, and we are also in advanced discussions on some additional longer-term opportunities for the Monarch in the region. We previously announced the 2-year term contract for the Ocean Victory in Trinidad at a rate of $398,000 per day.

We are actively marketing the rig to fill the gap before this contract begins next year, but in all likelihood, we will see some idle time during the remainder of this year. Our deepwater rig, the Ocean Valiant has been idle since completing its special survey earlier this year in the Canary Islands.

We are therefore looking at mobilizing this rig to the North Sea, where we believe, there will be ongoing opportunity. The Valiant was originally designed to work there, so it'll require a limited number of modifications to meet the most up-to-date North Sea requirements.

However, due to long equipment lead times typical in the industry right now, this work cannot be completed prior to year-end. In the meantime, we will continue to market the rig for opportunities outside of the North Sea.

I do have additional comments, but first, I will hand the call over to Gary to discuss our financial results in greater detail.

Thanks, Marc. As always, I'll give a little color on our quarterly results, and then cover what is to be expected for the upcoming quarter and the remainder of 2014.

For the quarter just ended, we reported after-tax net income of $146 million or $1.05 per share, based on contract drilling revenues of $685 million. This is an increase in EPS from $0.67 from the fourth quarter of last year.

And as Mark has mentioned, it was mainly driven by decrease in both tax expense and contract drilling expense. Reduction in tax expense was primarily due to 2 reasons.

First, was the successful settlement with the Egyptian taxing authorities of certain items related to our operations there for the years 2006 through 2008. This settlement enabled us to record a $17 million decrease in tax expense in the first quarter.

Second, the normal tax rate, excluding the Egyptian settlement was slightly lower than expected which also benefited net income. I'll provide a little bit more information on that momentarily.

Our quarterly results were also aided by incurring rig contract drilling expense of $370 million, which was below the prior quarter's expense of $409 million, as well as the guidance of $405 million to $425 million issued on our last conference call. Part of this reduced cost is simply timing.

Both the Yatzy and the Alliance had their Q1 survey shifted into the second quarter, which reduced our cost in Q1. Additionally, the Ocean Endeavor completed its job in Egypt, 1 month ahead of schedule, allowing the rig to mobilize to the shipyard to prepare for its next job in the Black Sea working for ExxonMobile.

The derrick was taken down, and the rig was then transported aboard a heavy lift vessel through the Bosphorus Strait. We're now reassembling the derrick and preparing the rig to go to work.

During the rig transport and while in the shipyard, operating costs were capitalized further reducing first quarter costs. In total, shipping -- the shipyard time accounted for about 1/2 of a variance between expected and actual contract drilling cost.

The remaining favorable variance can best be attributed to our ongoing efforts to control cost, which, as always, after safety, remains one of our top priorities. Turning to a few of the other line items on the income statement.

The increase in depreciation expense to $107 million from $97 million in the prior quarter is primarily a result of the shipyard deliveries of Ocean Onyx and the crew ship, Ocean BlackHawk, which were delivered in Q1. The increase in interest expense to $18 million versus the $8 million, we recorded in the prior quarter stems from additional debt that we issued in Q4 last year, along with a decrease in capitalized interest, again, due to the delivery of the Onyx and the BlackHawk.

As I stated earlier, our tax rate for the quarter was impacted by the Egyptian tax settlement. Without that discrete item, the tax rate would have been approximately 23% below our guidance of 25% to 28%.

The lower rate resulted from changes in our estimates, in the geographies and the various foreign tax rates, where we earn our pretax income. As a result of these changes, we're now forecasting a tax rate of 22% to 25% for the remaining 3 quarters of 2014.

Now for a look at some of the items that will affect our financial performance in the coming quarter. As always, downtime for surveys and shipyard projects will affect not only revenue numbers but also contract drilling costs.

In Q2, we expect the Alliance, Titan and Courage to incur downtime and additional cost related to their 5-year special surveys. In addition to foregoing revenue during the yard stay, these surveys will add some $20 million to our normal operating expenses.

We have 3 other rigs, however, which during the second quarter will have their operating expenses capitalized and deferred, thereby reducing total Q2 cost. These rigs are the Ocean Confidence, which as previously forecasted will be in the shipyard undergoing a service life extension.

The Ocean Endeavor, which will continue its preparation to work in the Black Sea and the Ocean Patriot, which continues its shipyard upgrade for its 3-year contract with Shell in the North Sea. For the exact number of down days expected in Q2 and the timing of these projects, I'll refer you to our Rig Status Report that we filed last night.

Adding to contract drilling expense in the upcoming quarter will be the operating cost for our new drillship, the Ocean BlackHawk, which we expect to begin operations in the Gulf of Mexico in the second quarter. We will also recognize amortized mobilization and contract preparation expenses related to various rigs in our fleet, which should total $10 to $12 million.

With these pluses and minuses, we expect contract drilling expense in Q2 to increase to between $405 million and $425 million. As always, I remind everyone that I've been talking about the line on our income statement, contract drilling expenses.

These numbers that I've just given you, do not include cost incurred in the line reimbursable expenses. Reimbursable expenses as always, whatever the amount incurred, will be offset almost dollar for dollar with additional reimbursable revenues.

Depreciation expense for Q2 is expected to increase to $113 to $118 million, just as we previously forecasted. Interest expense should be $15 million to $20 million in Q2, and G&A expense should return to the range of $17 million to $20 million, all in line with amounts that we indicated in last quarter's conference call.

As I previously stated, our tax rate for the final 3 quarters of the year is expected to fall to between 22% and 25%. Our capital expenditure guidance remains unchanged from the last quarter.

For 2014, we expect to incur $285 million of maintenance capital, and $1.8 billion of new build CapEx for a total of $2.1 billion. For 2015, we're still anticipating capital expenditures to be approximately $800 million, primarily made up of shipyard completion payments on the BlackLion plus maintenance CapEx.

And finally, we've increased our syndicated 5-year revolving credit agreement by $250 million to a total of $1 billion of borrowing capacity, maturing in 2019. The entire amount of the facility is available for revolving loans, which adds considerable flexibility to the $1.5 billion of cash and cash equivalents we hold on our balance sheet.

And with that, I'll turn it back to Marc.

Thanks, Gary. Given the disclosure this morning of our share repurchases, I'd just like to make a few comments regarding our thoughts on the return of cash to shareholders.

We fully recognize that dividend income is an important attribute of Diamond Offshore stock for many of our shareholders. Accordingly, we anticipate that there could be some confusion, as to whether our share repurchase may signal a shift in our strategy for capital allocation.

The answer is no. Our strategy has always been to take advantage of industry ups and downs in order to make opportune investments, and this can include share buybacks.

Just to be clear, we anticipate that the special dividend will remain a priority, whereas we would approach share repurchase on an opportunistic basis. However, we will not give specific guidance on our plans with respect to the special dividend or future share repurchases.

Our policy remains that the decision to repurchase shares and/or declare a special dividend will be determined by our Board of Directors, based on the company's financial position, earnings outlook, capital spending and other relevant factors. Clearly, I started my tenure at Diamond Offshore at an interesting time.

After several years of strength in the offshore market, where demands for deepwater drilling rigs exceeded supply, today we find ourselves with a somewhat uncertain outlook ahead. There is a consensus view developing, suggesting, that it's going to get worse before it gets better.

That 2014, 2015 could be a tough environment to the offshore drillers. The large number of rig deliveries is transparent to all, yet the short-term demand forecast is not as assured.

Such market dynamics are not new to me. For those of you that are familiar with my background.

Although we cannot exactly predict where future day rates are headed, we do believe that Diamond Offshore is best positioned amongst its peers to weather any market conditions. Offshore drilling is a cyclical industry, and by maintaining the strongest balance sheet and the best credit ratings in the Industry segment, Diamond can take advantage of these cycles as it has demonstrated in the past.

From an organizational standpoint, I'm impressed with what I've seen so far. I think Diamond's Offshore safety culture, it's service delivery, training, cost controls are all top drawer.

Nevertheless, I will continue to work with the management team towards constantly improving all of our value drivers. Over the next several months, I will be further developing our longer-term strategic options, and of course, visiting our client base, many of whom I already know well.

What I can say is that my mission is to continue to focus on safe operations, whilst enhancing our already strong stakeholder relationships. At the same time, I will be seeking further opportunities to maximize shareholder returns through efficient capital utilization.

It remains to me to thank you for participating in this call today. And with that, I'll take questions.

Operator, at this time, we'll open it up for questions.

Marc, welcome to Diamond. Congratulations on starting with a good quarter.

In the past, Diamond has used its strong balance sheet to acquire assets counter cyclically. What are the opportunities that you see out there now?

Do you think there'll be opportunities to buy new distressed assets?

Thanks, Matt. Yes, certainly, there will be.

I think, if you look at Diamond, if you look at our balance sheet, if you look at our credit rating, we've got a pretty good deck of hands that we're holding close to our chest. I'm not going to take the opportunity right now, to tip that hand and suggest specifically what opportunities are out there.

But let me just say, I think, we're best positioned going into this downside of the cycle to take opportunities as they materialize, and address some of the asset issues that parts of the investment community are suggesting are holding us [indiscernible] back at this moment in time.

Okay. Without getting specific, can we talk about what kind of sized investment you would feel comfortable making if assets became available?

Do you have a limited $1 billion, $2 billion, $3 billion? Where would you feel comfortable taking the balance sheet?

Well, that's something would be a decision made by the board. I've got certain ideas around that, and I'm sharing those ideas as we speak, as I work with the board.

We've had a number of meetings already, I've been up to New York a couple of times. And what I'm saying right now is that, everything's on the table and nothing's off the table.

But at the same time, we do have to look closely at what kind of leverage we'd be prepared to take on as we take advantage of opportunistic issues, as they arise as we approach this downturn.

Marc, let me echo that. Congratulations and welcome to this fun time in drilling and to Diamond.

The share buyback was at least in the past many years, pretty unprecedented. So I think, from that standpoint, a bit of a surprise to us.

And when we think about your first pillar you highlighted in your opening remarks with regards to investment, excellence in your balance sheet, relative competitive advantage with the balance sheet. How are we to interpret this recent opportunistic share buyback.

I mean, obviously, if you do that with much more scale, you're eating into your balance sheet advantage going forward. Is this simply the board wanting to draw off a line in the sand with regard to intrinsic value of the company?

Or can you give us anymore color behind what spurred that repurchase at this time?

Yes, sure. I'll be totally frank here.

The board authorization was given before I joined Diamond. The board authorized management early in the year to repurchase shares.

I don't think, it's necessarily an indication of putting a floor under our share price right now. I think, it was just taking a look at our balance sheet.

There's various different ways we can return value to or cash to our shareholders. And at the time, it was thought opportune to step into the market and do such.

You're right, we lost purchase shares in 2004, but all the time the board is looking at opportunities to maximize return to shareholders, and decided at that particular moment that it would be good for our shareholders to step into the market and buy those shares. I won't comment on possible future share buybacks, particularly since Diamond, specifically does not have a plan or target with regard to share repurchases.

But suffice it to say the board regularly reviews the company's liquidity and prospects, and makes these decisions regarding capital allocation and value creation alternatives. And that's what they felt was appropriate at the time.

Okay. That's very helpful answer.

And if I can have a separate follow-up. Brazil demand, it's obviously been a pretty clear downward trend for the past year or 1.5 year, I guess.

And yet still, an important mid-water market for Diamond today, and you have numerous rigs facing rollovers over the next year or so. What is your view of where we are, what inning might we be in in terms of this unwind in terms of Petrobras' low end floater demand.

And how you see that market? Regardless of what happens with their the [indiscernible] new builds.

How do you think that their demand looks over the next year or 2 with regards to the mid-water fleet that's rolling off contracts?

Yes. Look we generally have contract coverage in Brazil well into 2015.

And of course, as you know, we are engaged in discussions on expanding a number of rigs down there. Those discussions had slowed down, but they've speeded up again, and we are at a sensitive stage in those negotiations right now.

So I'm not specifically going to cover where we are on that. Suffice to say that, we should have stuff pretty close to inked up during Q2, and of course, it needs to go to their stakeholders.

So perhaps later in the year, we'd be able to give you the outcome of those discussions. So we remain optimistic in that market.

Having said that, yes, there is concern about the general direction of that market. What we have done in the 7 weeks that I've been here, is that we've gone back to a clean sheet of paper and looked at the ultimate deepwater market.

Sure, we're going into a period of uncertainty. The cycle is probably going to be a U-shaped recovery rather than a V-shaped recovery, but you cannot escape the fact that in the long run, the deepwater market is going to be very, very important for our energy needs moving forward, and Brazil is going to be a component of that.

So we certainly, got headwinds in our face in that market space. Petrobras of course, is from a supply-chain perspective, not only a good customer to be positioned with but also one that is very sophisticated in that market.

And so, we believe, Brazil, we've got a good propensity down there. They'll be part of Diamond's future, and we're very pleased to be participating in that market.

We have had lot of success down there in the past. And will do so moving forward.

So I just wanted to touch base with you guys on the Yorktown. Are you guys -- that comes due in kind of the middle of summer.

You guys at the point we were having conversations with Pemex on the future of that rig after its contract is complete.

Yes. I can answer that.

Yes, we are in discussions. We believe that rig will be extended, and we also see follow-on opportunities for that rig in that market.

Okay. And I know you guys don't have a lot of jack-ups anymore, but in the regions where you do have jack-ups, what percent of that market that you -- and for the Titan, once it completes its 5-year survey, is that rig expected to go back to work for Pemex, or is that going to be bid outside of Mexico?

We would expect that Titan to continue working in Mexico, whether or not it's for Pemex or potentially another operator remains to be seen. But we certainly see a future for her in that market.

And what is your sense of the jack-up market in general in the regions you operate?

Well, we are only operating in Mexico and of course, the Gulf of Mexico. Let me just go back to some commentary I was saying earlier about what we believe is the ultimate strength of the mid and deepwater market.

Certainly, if you look at energy needs out for the next 10 years, a lot of that growth is going to come from the mid-water and the deepwater space. We don't quite see the same coming from the shallow water space, with probably the exception of the Middle East.

So the Middle East is certainly going to be relatively strong moving forward. But the Gulf of Mexico and to a certain degree, Mexico, I think, this is not news to anybody is not going to show the same growth as perhaps Mexico moving forward.

What we're going to see in terms of growth in Mexico is Pemex and the ICs that are going in there. A move into the deeper water space, which of course, we're well-positioned in.

I guess, my first question is around the BlackRhino and really the opportunities for that rig. And I guess, the way I would ask this question is, when we think about opportunities for new build rigs coming out of the yard, it seems like bifurcation and the price spread between older and new rigs has really been wide.

Do you get a sense that the spread between a sixth gen new-build and sort of the fifth gen rigs that you have in your fleet. Do you get the sense that, that spread is actually widening, sort of staying the same or even potentially contracting?

Well, let me talk about the BlackRhino for a minute. That was the rig that I was actually climbing all over in South Korea a few weeks ago.

And therefore, naturally, it's our next deepwater drillship that's coming out of the yard. Let me first address that by suggesting that there was a rumor going out in the market space that we had contracted the rig for $400,000 a day.

That's incorrect. I don't know where that came from.

But let me follow-up on that. The BlackRhino will be leaving the shipyard probably September, October time this year.

And we are in advance discussions with a key client of ours that's already established as one of our key customers on contracting that rig. And I will have an update for you during our Q2 conference call.

In terms of the rates, again, we've seen one of our competitors offered in for a 5.5 generation rig, if you want to call it that in Brazil. We're are at a sensitive time on negotiations with some of our ultra-deepwater ships.

So I don't specifically want to come out here and tip our hand with respect to rates. But suffice to say, we will get the Rhino contracted at a rate that will be higher than the rumor that was suggested at $400,000 a day.

Okay. And then just, I guess, moving over to the North Sea, the Princess was contracted.

It was that one well extension, was that option already priced? Or is that sort of an indication of where short-term work in the North Sea currently is?

I would say yes to both. That option was priced and we're in discussions about follow-on work at similar price levels.

I wanted to ask -- there was comments made in this earnings season so far about kind of plowing through some of this capital budgeted betting issue that kinds of pushed a lot of activity to the right and we're starting to find -- it seems like we're starting to find some solutions via standardization being finding ways to lower some of the production infrastructure that's involved with some of these fields, and it may bring activity back a little bit sooner rather than later. If you kind of think over the last 6 months in terms of change of view on the floater market, is it starting to get a little bit better in terms of maybe the -- with a thought toward duration or is it staying the same?

How are we sort of thinking about -- how the market outlook [indiscernible] changing, and maybe how you're thinking about contract durations as you go forward in light of that?

Yes. That's an interesting observation because we've certainly seen some improved points of that scenario, somewhat starting to develop.

If you go to Total, I mean, that's one that's in the public domain and what they recently announced some 10 days ago, about block 32. And how they've taken the investment cost from $20 billion down to $16 billion.

On the back of addressing some of the infrastructure costs and the like. But nevertheless, you cannot escape from the fact that with the repositioning of the deepwater day rates, some of our clients, and I've heard this -- I can speak to Total because that's in the public domain, but I have heard some commentary from some of the larger clients suggesting that as rates normalize if that's the correct term.

But it does change the investment metrics. And so we might see some of the projects that have been pushed -- pushed somewhat out towards the horizon, becoming more attractive and coming forward.

At the same time, I think, let's not underestimate the sophistication of the supply chain that exists in -- supply-chain processes that exists in some of the larger RAC's [ph]. And obviously, they are deferring many of the contracting opportunities that they otherwise would've taken today.

On the assumption, the rates are coming down. So if they can push those decisions out, or those [indiscernible] out further, the assumption then would be that they will get a better price, which again, impacts the economics of these very, very huge investments.

And we've certainly seen that. I think, we've seen next -- well we've seen 0 contracting over the last -- as we closed out 2013 and moved into 2014.

And some of the contracting, well, opportunities have slightly improved. But I guess, the suggestion as one commentator put it, was it's still next to 0.

I think, there's going to be somewhat of a bottleneck that will need to be uncorked at some stage moving forward, and we'll start to see opportunities and contracting opportunities manifesting themselves, more so than they have done in the past. As we move into towards the end of 2014, I'm not suggesting specifically that we're out of the woods or we're beginning to see the seeds of -- the early seeds of the market turning around at this stage.

But you've got to take that into consideration. And I certainly heard it from some of the operators that I have been speaking to in the past, whereby the suggestion is that the economics are somewhat changing that might bring back into play, what we exactly saw with Total and Angola just about 10 days ago.

So from a benchmarking perspective, if your following the market and you're trying to make sure you kind of see where the sign posts are. Is it one of those things where if some projects were to maybe enter the queue for '15, when would you really start to -- given the dynamic you just mentioned about kind of the gamesmanship with clients and the rest are on timing of contracting, when is the latest you may start seeing?

Or when you maybe expect the time to start seeing people to kind of come to the table with kind of inquiries for rigs and the rest?

I think, it's going to be certainly a quarter or 2 away towards the end of this year. It's -- we cannot escape the fact that we got a lot of supply coming into the market over the next 18 months.

And that's going to keep a dampener on certainly, pricing moving forward. But the current scenario that's playing out today, I don't think is a long-term scenario.

I think, sure, we've got the issue with the supply coming to market. But the lack of contracting opportunities that we are witnessing today is not something that's sustainable.

I think the market will have to turn probably towards the end of this year in terms of opportunity.

Well, as you look -- if I could squeeze one last one. So if you think about kind of your fleet albeit well-maintained somewhat older, and maybe kind of more challenged by say the "bifurcation" issue that's been mentioned earlier in the call.

As the person at the helm now, how do you really think about managing those assets? What their duration is and maybe giving us an indication of kind of what may be ripe for retirement and maybe what may be ripe to kind of move on?

Because it's one of the thing, kind of a challenge I think, that people following the company sort of try to struggle with to see? See kind of what those asset values are and how to think about them?

Yes. As we look at the fleet portfolio that we have, there's various opportunities that or scenarios that can play out and we are looking at those right now.

Let me just reiterate one thing. We built 7 deepwater and ultra-deepwater rigs, that will be delivered this year through 2016.

In 2010, we bought 2 new ultra-deepwater semis at distressed prices, and we'll continue to grow the fleet. But we'll do so on an opportunistic basis.

Picking and choosing our entry points to address some of the fleet issues that are out there. But I'll say this.

When I came into the business and looked at it with fresh eyes, I was surprised that the -- at the commentary or the extent of the commentary regarding the age of our fleet. The -- at one stage in my career I was in the military, where we flew acids, that where actually very aged.

It's horses for courses. It's how you maintain them, it's how you upgrade them, that's important.

So it's no coincidence that the first rig visit that I did was to the Ocean Onyx. Now that's effectively a brand new rig.

It is very different to what came to the market in 1972. And I'll stand up and argue that is the case till I'm blue in the face with anybody that would want to take me up on that.

I visited the rig. It's a brand-new rig.

I spoke to the client that's on that rig, Apache. It just so happened that the company man running the rig was somebody that I knew 30 years ago by coincidence on the rig floor, a couple of rigs in the Middle East.

He spoke very highly of the unit. It's horses for courses.

And for the job that it's doing today, it's ideal. So I do take some umbrance with the issue that our fleet is very old.

It's -- it needs to be looked at, is it fit for purpose, how well is it maintained, how well is it operated. And I think, if you look at it from that perspective, I think, it will alleviate many of the concerns or even the suggestions that we are encumbered by the age of our fleet.

So I'm quite passionate about what the folks at Diamond are doing. We've got a great technical services department.

I've sat with them. I have spoken through a lot of their staff.

And so I've answered the question in many different ways. Yes, okay.

We will continue to invest as we grow the fleet in new assets, but at the same time, let's not underestimate the capability of some of the assets that are described as older in our fleet. And I do want to make that point that, it's -- our clients don't necessarily see it in the same way that has been suggested by some of the commentators out there in the market.

And I'll leave it with that, I'm not going to get into the specifics of what of the 45 assets we believe are perhaps nearing the end of their life cycle. I think, I just want to leave that as a general comment, if I may.

Marc, once again welcome to Diamond. I had a follow-up question on some of the Brazil commentary that you guys had earlier in the call.

I was just curious as to, we've seen some rigs be released by Petrobras before their contracts actually ended, and I was just wondering if the contracts at any of your rigs that are down there, if you have terms that allow Petrobras to do something similar in terms of releasing the rig before the contract actually ends, and if so do you guys have termination fees associated with that? Just kind of wanted to get an idea, if that's something that you guys might be exposed to.

Well, there is no provisions in the contract that would allow Petrobras to do that. If any arrangements were to be made, it would have to be on a mutually beneficial basis.

Okay. Fair enough.

And another question I had was on potential growth of the fleet. As opposed to alternative uses of capital.

Where would you guys rank ordering new builds kind of in your list of options for using capital, be it share repurchases or dividends. I'm just trying to get an idea of where you guys stand in terms of the potential to grow the fleet anytime soon?

Or is this something that you guys would look at further down the line?

Well, we've dusted off some of our old plans. We're looking at everything right now.

We're starting with a white sheet of paper. In terms of returning cash to shareholders, you got the dividend, you got the special dividend, you got share repurchases, and of course, you got investing in assets.

A downturn provides opportunity, especially for a company like Diamond. So we'll return cash to shareholders, as I suggested on an opportunistic basis.

Picking and choosing what maximizes return on our capital. And there's various stuff that we're looking at right now.

The priority does remain with the dividend, of course, but we're also looking at other opportunities that remain out there. So we got a lot in our armory, and as we select what we're going to fire to return cash to shareholders, everything is on the table.

Okay, great. If I could just squeeze one more in there.

I just had a question on the Yatzy. I know, that's kind of a unique rig.

I just was wondering what type of work are you guys going to be putting into it when it goes in for its 5-year survey. And are there a number of opportunities for that rig coming out of that survey?

Or are options kind of limited for that rig? I'm just -- I'm curious as to where that rig might end up as we look into 2015.

Well, the first thing I would say is that Petrobras liked that rig, and it fits its specific purpose for them down there. We are exploring further opportunities with Petrobras down there.

And depending on what they see -- then [indiscernible] needing to use that rig for will determine the scope of the 5-year survey, that's something that's still under discussion, and we can't really go into any more details at this time.

Okay. But is it safe to say that, there could be a range of things that the survey might entail?

And also a range of costs associated with that?

Yes. And depending on which opportunity is selected will depend which costs we would have to undertake.

But presumably, the contract terms would reflect the investment required.

Just regarding the floater idle time, could you please talk about cost control opportunities to minimize the costs associated with those rigs when they lack the contract visibility or should we continue to model just regular operating cost?

For the time being normal operating costs may be slightly reduced. As we evaluate future opportunities, of course, if we see these rigs staying stacked for longer periods of time, we will reduce crews, armor, and could cut costs as much as 50% per rig.

Rigs that are short-term stacked that we believe will go to work quickly, we will keep the full crews on there, and costs actually go up for those rigs, because while we're working, we don't pay for boats and helicopters. We don't pay for the fuel but while they're stacked those costs are on our nickel.

So it kind of depends on the circumstances for individual rigs.

Appreciate that. And then the follow-up question is I liked your characterization of the Ocean Quest theory is opportunistic.

And I'm thinking about the Valiant and the Victory both fourth gen rigs you've got visibility on them after year-end '14. And I'm curious as they're burning up cash just to keep in service, would you consider bidding those fourth gen rigs for jobs that might go -- otherwise go to third gen rigs at opportunistic day rate?

And how do you think about the risk of doing that versus operators going to try to use those opportunistic rates in the future to negotiate for lower fourth gen appropriate work?

Well, I would say that the capital constraints that our operators are facing in 2014 is likely that there will be some additional idle time for those rigs for the remainder of the year. There will opportunities that come up, but in terms of opportunities that we could price to bring forward, I just don't know that they're actually there.

So they will be genuine. We do see visibility of genuine fourth gen opportunities, particularly in the second half of the year, but there is no third gen type work that you could price and bring forward at this stage.

Okay. Thank you for joining us on the call today.

A replay will be available on our website shortly. That concludes today's call.