Darren Daugherty - Director-Investor Relations Marc Edwards - President, Chief Executive Officer & Director Gary T. Krenek - Chief Financial Officer & Senior Vice President Ronald Woll - Chief Commercial Officer & Senior Vice President

Sean C. Meakim - JPMorgan Securities LLC Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker) Ian Macpherson - Simmons & Company International Judson E.

Bailey - Wells Fargo Securities LLC Samantha Kay Hoh - International Strategy & Investment Group LLC J.B. Lowe - Cowen & Co.

LLC Angie M. Sedita - UBS Securities LLC Theo Meryanos - Tuohy Brothers Investment Research Praveen Narra - Raymond James & Associates, Inc.

Michael Kirk Lamotte - Guggenheim Securities LLC

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; and Ron Woll, Senior Vice President and Chief Commercial Officer. Following our prepared remarks this morning, we will have a question-and-answer session.

Before we begin our remarks, I'll 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 the statements. These risks and uncertainties include the risk factors disclosed in our filings with the SEC, including in our 10-K and 10-Q.

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 today are covered by that disclosure.

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

Thank you, Darren. Good morning, everyone, and thank you for joining us on the call today.

Allow me to begin by addressing what continues to be an anemic market for offshore drilling. Although our industry is cyclical in nature, we believe that any green shoots of a market recovery remain well over the horizon with industry fundamentals that today continue to look very challenging.

The ultra-deepwater market will remain weak due to the substantial number of rigs available for contracting, the high sublet availability, and the significant reduction in contracting opportunities. Today, floater utilization is at its lowest level in 10 years.

And during the quarter, the industry experienced further examples of tenders being postponed or cancelled. The industry also continues to see contracts terminated for convenience.

Despite these trends, Diamond Offshore continues to secure new works beyond what its market share would suggest. For example, during the past four quarters, Diamond Offshore has secured close to 25% of the available backlog despite owning less than 10% of the global floater fleet.

Moving specifically to this past quarter, we had a number of important successes. Our second and third newbuild drillships, the Ocean BlackHornet and the Ocean BlackRhino, began working in the Gulf of Mexico; and we have taken delivery of our fourth and final newbuild drillship, the Ocean BlackLion, which we expect to go on day rate towards the end of the year.

All four of these units will be working in the Gulf of Mexico at solid day rates, where we will enjoy operational economies of scale. Earlier today, we also confirmed that the Ocean Apex has been signed for an 18-month job in Australia at a rate of $285,000 per day, beginning in Q2 of 2016.

This represents a significant win in what is a very challenging market at a rate which validates our capital investment to enhance the rig. Also included in our updated fleet status report is a blend and extend amendment to the Ocean BlackRhino in overall contract, at a blended rate of $398,000 per day, approximately seven months have been added to the term with a provider for a true-up payment in case of contract cancellation.

Our final newbuild still under contraction is the harsh environment semi, the Ocean GreatWhite. She will be delivered midyear 2016, which allows her to begin work in offshore Australia towards the end of the same year.

Given today's market conditions, it is worth reemphasizing that all five of our newbuild assets will be delivered with long-term contracts in place stretching into 2019 and 2020. Diamond Offshore has not had to delay the delivery of any of its newbuild assets.

In anticipation of newbuild completion payments, recall that last year we increased our revolving credit facility to $1.5 billion. We now have utilized the revolver for our final payment on the Ocean BlackLion, and we expect to have borrowing capacity when in excess of the final completion payment on the Ocean GreatWhite in 2016.

So turning now to operations, let me begin with our safety performance. We have made steady progress this year further improving our safety record.

And during this past quarter, we delivered the best quarterly safety performance in the history of the company. As to equipment reliability, our entire fleet experienced 82 days of unplanned equipment downtime, which is a significant reduction from the prior quarter, and this included the startup of two new drillships.

I think this measure along with safety performance is representative of the quality of our operations here at Diamond Offshore. Our safety culture, customer service focus, quality of training, and cost controls are amongst the best in the industry.

We are also starting to see the benefits of a 20% back office and corporate head count reduction implemented earlier in the year, and we remain focused on minimizing the cost of assets as they become idle. So let me now turn specifically to our financial results.

For the second quarter of 2015, earnings of $0.66 per share were up $0.01 versus the prior-year quarter of $0.65 per share. Maintaining consistent earnings year over year in a challenging market reflects our ongoing efforts to reduce costs; and Gary will provide further details shortly.

There were two additional key drivers which were essentially offsetting. Since the second quarter of last year, we have cold-stacked 10 rigs and sold six.

However, the associated loss of earnings was mostly replaced by our newbuilds entering service along with other high-spec assets returning to work. These include: the three newbuild drillships that have gone on ticket, the Ocean Apex, which began working in Q1 after its shipyard delivery, the Ocean Valiant and Ocean Patriot, which both went to work in the North Sea after completing significant upgrades; the start of the Ocean Victory's two-year term in Trinidad; and finally, the Ocean Endeavor, which began work after a lengthy and complicated mobilization into the Black Sea.

As to the rest of the fleet, allow me to give an update on some contract fixtures as well as the status of some specific rigs. So starting with PEMEX, last quarter we disclosed that PEMEX had verbally informed us of their intention to terminate the drilling contracts on four rigs, the Ocean Ambassador, Ocean Nugget, Ocean Summit, and the Ocean Lexington, which was scheduled to begin work in September.

We later received written notices of termination on drilling contracts on the Nugget and the Summit. The Nugget went off rate in early June and has being mobilized to the U.S.

Gulf, where she is now cold-stacked. PEMEX subsequently reversed course on the Summit and elected to keep the rig and extend the contract until late August at a reduced rate of $75,000 per day, down from $86,000 per day.

Once this contract concludes, it is our expectation that the Summit will be cold-stacked. For the Ocean Lexington, PEMEX has delivered a notice to initiate cancellation of the contract, and this process is currently underway.

Most likely, we expect to begin cold-stacking the Lexington in the near future. And finally, both the Ocean Scepter and the Ocean Ambassador had their day rates lowered to $115,000 per day.

And we expect that they will complete their existing contract terms which end in March of 2016. Consistent with our previous disclosures during the second quarter of 2015, we also received written notification from Petrobras to terminate the contract on the Ocean Baroness.

This was effective as of May 31; and she's currently demobilized into the Gulf of Mexico, where she will be cold-stacked until market conditions improve. So with that, I will now hand the call over to Gary to give further color on the financials, and then I will have some closing remarks.

Gary?

Thanks, Marc. As always, I'll give a little color on this past quarter's results and then cover what's to be expected for the upcoming quarter.

For the quarter just ended, we reported after-tax net income of $90 million or $0.66 per share. This net income compares to a net loss of $256 million or $1.86 per share reported in the year's first quarter.

Last quarter's loss was primarily driven by an impairment write-down and restructuring cost, which when combined negatively impacted after-tax earnings by $2.36 per share. Contract drilling revenues increased from $600 million in Q1 to $617 million in Q2, despite a number of rigs rolling off contract and failing to secure follow-on work as a result of the depressed market conditions in our industry.

This increase in revenues from Q1 to Q2 can be partially attributed to our newbuild drillships, the Ocean BlackHornet and BlackRhino, both which began contracts in the Gulf of Mexico in the second quarter. In addition, several other rigs returned to work in the quarter, namely the Ocean Victory and Ocean Onyx in Trinidad and the Ocean Valiant in the North Sea.

And finally, as Marc has already pointed out, unplanned downtime was significantly lower than in the first quarter which helped contribute to the overall increase in contract drilling revenue. Moving on to the other lines on the income statement.

First, contract drilling expenses for the quarter came in at $343 million, which was below our guidance of $350 million to $370 million that we gave out in our last earnings conference call. A strong U.S.

dollar, particularly in Brazil, helped us to come in below our guidance, but the primary factor contributing to favorable expense results was that we executed on our cost saving initiatives. These include targets that we set for ourselves to quickly reduce cost on rigs that rolled off contracts, and controlling cost on operating rigs.

As I've stated in prior earnings calls, after safety, cost controls and efficiencies have been and will remain among our top goals. Next, depreciation and interest expense at $123 million and $25 million respectively for Q2 came in within our guidance.

With regards to the G&A expense, we reduced our guidance last quarter as a result of cost-cutting measures introduced earlier in the year. I'm happy to report that those cost-cutting measures are paying off; and at $17 million, G&A cost this past quarter came in within our revised guidance.

Moreover, G&A costs this quarter were down 20% from Q2 2014. And finally, our tax rate at 14.8% also was within our guidance range of 11% to 16%.

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

That said, we have a minimal number of rigs that will be affected by scheduled downtime days in Q3. For the details, I refer to our Quarterly Rig Status Report that was filed this morning.

We expect rig operating cost, as reported in the line Contract Drilling Expense, to be slightly down in this upcoming third quarter. Ongoing rig costs are decreasing as a result of our efforts to reduce costs, as I've already discussed.

In addition, costs will be lowered as a result of rigs that have recently gone stacked or will be stacked in the third quarter. However, these savings will be partially offset by higher mobe costs incurred in Q3, as we relocate several rigs to stacked locations.

Also in Q3, we will incur a whole quarter of operating expenses on our drillship, the BlackRhino, which began its contract in the Gulf of Mexico at the very end of Q2. When taking all these pluses and minuses into account, we expect contract drilling expense for the third quarter to fall to between $320 million and $340 million.

As always, I'll 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 costs incurred in the line Reimbursable Expenses.

Reimbursable expenses, whatever the amount incurred, will be offset almost dollar-for-dollar with additional reimbursable revenues. With regard to other items on the income statement, we are now expecting depreciation expense to come in between $116 million and $120 million in Q3 and Q4, just slightly lower than our last quarter's guidance.

However, G&A guidance remains the same at $16 million to $18 million per quarter, as does interest expense at $25 million to $30 million per quarter for the final two quarters of 2015. As for taxes, based on current projections, we believe our tax rate will come in somewhere between 10% and 16% in both Q3 and Q4.

Any changes to the geographic mix in the sources of earnings, as well as tax assessments or settlements or movements in exchange rates will impact our effective tax rate. And finally, moving on to our capital expenditure guidance.

We are reiterating our CapEx projections that we gave in our last quarterly update, estimating that we will spend $290 million on maintenance CapEx in 2015 and $630 million in newbuild CapEx, which includes a final 70% shipyard payment for our fourth newbuild drillship, the Ocean BlackLion, which was delivered in Q2; oversight cost on the Ocean GreatWhite; final cost on the BlackHornet and BlackRhino drillships, which I previously began term contracts in the Gulf here in the second quarter; and finally, the completion cost for the service life extension project on the Ocean Confidence. Together, maintenance and newbuild capital expenditures are expected to total approximately $920 million in 2015.

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

Thank you, Gary. Since our last conference call, we've not seen any indicators that the market is improving.

Indeed, the market continues to track down. There is nothing to suggest otherwise to the thesis that there will be a significant oversupply of drilling capacity well into 2017.

In reaction to the lack of tendering activity, our competitors have delayed delivery of many newbuild drillships; in some cases by two years or more. Unfortunately, this does not eliminate capacity.

It is merely a form of the extended financing from the shipyards and will likely delay the market distress that would otherwise create asset buying opportunities. But as I've said in prior quarters, our market research suggests the deepwater production will remain to be a critical and growing component of total global energy supply.

We are in a cyclical business; and in the due course of time, our clients priorities will shift back towards deepwater production and reserve replacement. The decline in supply chain costs will help project economics and supply and demand will come into balance.

Diamond Offshore remains well-positioned with our conservative capitalization and strong liquidity. As always, we will continue to focus on conducting safe operations, delivering quality performance for our clients, rationalizing costs and utilizing our capital efficiently.

And with that, we will now take your questions.

Hey, good morning.

Good morning, Sean.

I just want to start off talking about the newbuilds in the Gulf of Mexico. How has the performance been thus far in terms of maintenance, relative to expectations, thinking about the budget, just thinking about how long of a break-in period do you anticipate before you get up to say 95%-plus on the operating efficiency?

Thanks for the question, Sean. Let me be specific around the BlackRhino, which started work during the quarter.

Straight out of the traps, the Rhino delivered on its first well by bringing it in $25 million below the AFE and 30 days faster than the drilling curve had planned for the well. We spend a lot of time and effort in project costs as we ramp up to deliver these units for our clients here in the Gulf of Mexico.

So we've actually had quite a lot of success in bringing these units out from the yards and putting them to work quite quickly. The two drillships that we have working for Anadarko are also delivering a similar performance.

So when it relates to getting these newbuild rigs to work, we don't appear to have any issues. They come out of the traps and their efficiency is pretty good from the off.

Okay, that's good to hear. And then can you give us a little more detail on the plans for the Ocean Confidence?

Are there any repairs or upgrades that you're looking at for some of the moored semis that are coming off contract in the second half of the year?

Sean, this is Ron. Good morning.

In terms of the Confidence, she's just wrapping up of course her upgrade period there in the shipyard. We are bidding her into a few opportunities across a few geographies.

Although it's fair to say that the high-spec DP market is pretty well supplied, utilization I think will have to tighten up a lot before she gets a lot of traction, and we'll have to make a decision I think later this year about her future. But we do intend to bid her into several opportunities here later this year.

Okay, fair enough. Thank you.

Thank you and good morning.

Good morning, Greg.

Just touching back on the BlackRhino again, you have the potential extension as you read through the note whether Murphy decides to go forward with that or not. Was that something that Murphy approached Diamond or Diamond approached Murphy about plugging that gap before the rig then goes to work with Hess?

Greg, this is Ron, I think that was probably best described as a mutually shared conversation. They have a need, we have a need, and we were able to match those together.

Okay. And then just are there other opportunities just given where that rate came in at?

Is that a sign to other potential customers that have rigs with you guys that maybe hey, these blend and extends could be beneficial for you on rate savings and us on keeping our rigs working through what is as everyone mentioned on the call a pretty challenging market?

Again, this is Ron. I think that certainly trading rate and term is a popular and well known I think commercial technique in this part of the cycle.

We've done that with a number of operators. I wouldn't I think draw too broad a conclusion off of this work.

This represents an important gap filling measure that we took between two important customers. So I think it fit this particular situation very well.

So let me just come in here and just talk about the supply of six-gen assets in the market right now. I think there is a perception that the market for six-gen assets will become balanced simply because they will replace the older, less capable rigs, but we don't believe that's necessarily correct.

From a rig supply perspective, we subscribe to the theory that there are simply too many high-spec drillships looking for work. They will be able to compete down with the lower spec fifth-generation assets.

But we've started work with the Monarch in Australia, so we believe capable units do have a future. In other words, there remains a market for moored rigs in shallow environments.

We've just demonstrated that in my prepared remarks. So in terms of closing the gap between the Hess contracts and the end of the Rhino contract with Murphy, we do feel that it's important to take whatever is out there and make sure that the rig stays working in this market.

Thank you very much.

Thanks, good morning.

Good morning, Ian.

Marc, it was an interesting comment at the beginning how you've seemingly been taking share with the limited backlog that's been on offer. Trade secrets notwithstanding, do you have any strategy that you think explains that?

Do you think that you've been more realistic on price? Do you think you've been winning contracts on price, or do you think that there have been other soft criteria in your bids that have helped you prevail in this tough market?

To answer your question, yes, without giving trade secrets away. We've taken a look at how we approach commercialization and the marketing of our rigs, and we've gone to somewhat of a more formal supply chain philosophy in that regard, and I'll leave it with that.

Suffice to say, we think that we're being very successful in understanding what our clients' needs truly are moving forward, and then that's made us punch above our weight in terms of contracting. And, Ian, I'll leave it at that.

Okay. The Apex contract is a welcome development, and a couple of your competitors also alluded to I guess a pocket of relative demand strength in that market on the calls last week.

Do you think that there are any legs more broadly in the Southeast Asia and Australian market to consume more of these moored rigs on term going forward, or do you think that again you may have had the advantage of being the early mover there?

Ian, this is Ron. I think there is I think a valid observation.

There's been marginally more activity, more commercial activity in Asia in the past several months. But I've got to tell you that that's a long way off from extrapolating further out on a broader trend.

I think there are some attractive rates that certainly have some customers, some operators interested. There are some programs that has some time boundaries on them and also I think generate some activity, but I would stop kind of well short of extrapolating out that line too far.

Fair enough. And then if I could squeeze in one more.

Gary, I know we'll get the 10-Q, but just curious I wanted to semi-check the CapEx. We're expecting most of that $920 million with the biggest quarter to be Q2.

And I wanted to confirm that with you just from my cash flow estimates in the back half that the majority of the CapEx is behind the sale for this year.

That's right, Ian. We had almost $500 million, I think $480 million of CapEx; of that $400 million was the newbuild.

Again, the big payment on the Lion. So you're correct.

Okay, thanks a bunch.

Thanks, good morning. Question on the North Sea.

I'd be curious to get your perspective. You disclosed a short-term contract on the Guardian.

That's a market that's actually held in a little bit better considering the commodity price than we would have thought and it seems like you've got a number of these smaller E&Ps taking some one-well contracts here and there. Do you see that is something that can continue into 2016 or is that a market given where the oil price is do you think we could see another round of weakness as we head into next year?

Jud, this is Ron. I think you're right.

We have seen I think a little bit of activity that I would describe as smaller scope, shorter-term work. And I think if you look at operators, they'll view that as more conservative bets to place in the market right now.

So I think you're right, we will be playing for some shorter term work. But I also wouldn't go out too far and extrapolate what that means for 2016.

We've had good success with the Guardian on some short work and that's attracting more interest from other operators with the Premier. We also had good success with the Valiant.

But I think about those rigs probably working on shorter term projects with some, I think, utilization to solve for in between.

So let me just put a little bit of extra color on here, if I may. As I've said before, not all assets are created equally.

During this past quarter, as I said in my prepared remarks, we have seen four of our seven fourth-gen rigs commence operations on a new contract. So in terms of life in the market vis-à-vis fixtures that are out there, we're actually seeing quite a bit of noise around assets that aren't necessarily sixth-gen, the latest high-tech units.

India being one of those examples Yeah, sure, in the North Sea I agree that the terms are shorter than we've traditionally secured. And of course, they're at low rates.

But this demonstrates that there still a bonafide market for these assets. So we're very keyed into the North Sea and other markets like Australia, where not necessarily the sixth-gen assets have a home.

So we remain optimistic that our fleet is actually quite well prepared to go into this further downturn in the market and continue to punch above our weight in terms of securing contracts.

Okay, thank you for that. And then my follow-up is I guess directed towards Ron regarding the Confidence.

I think you said you're bidding that rig on a couple of opportunities. And if I kind of understand you correctly I guess you're looking at a few live opportunities for this year, but if those don't pan out you may have to make a decision later in the year on whether or not to cold-stack that rig.

Am I interpreting your comments correctly?

I think that's a fair, broad way to describe where we are. I think there is some work that we're looking with her, but in all candor we'll have to make a call I think later in 2015 on will that work hit or do we have to shift gears to minimize cost.

Got it. Thank you, I'll turn it back.

Hi, this is Samantha actually. I have a question about the Apex.

It seems like the tender was initially as far as I understood it was for a February start. Is there an opportunity to start that new Woodside contract a little bit earlier?

And if not what's the outlook for maybe filling in some of that gap?

This is Ron. Thanks for that question here.

You're right that the start date did move to the right slightly here on the calendar; and we of course work with our customers routinely adjusting commencement windows based on their needs. So if that need changes, we will be prepared to meet that.

I think filing in the gap between where we are now and the start of that work, that would be somewhat challenging. We're looking at some potential things to examine, but candidly that will be a hard gap to fill in.

Okay, thank you.

Hey, good morning, guys. I just had a quick question on the rigs that you have stacked currently.

First, can you guys kind of give us an idea of how much your stacked fleet collectively is costing you on a daily basis? And then secondly, is there any thought of I knew you guys have scrapped some rigs previously.

Is there any thought of moving some of those stacked rigs and going ahead and retiring some of them completely?

I'll answer the question, J.B., on the cost, then turn it over to Marc on strategy. We've got 11 rigs that are cold-stacked right now, and it varies in cost, but nothing is more than $5,000 a day, probably on average $2,500 a day; and a big part of that is insurance on the rigs.

And we're always reviewing the market and assessing our options, J.B. Every quarter, we look at the fleet and determine whether we should impair assets based on market fundamentals.

This past quarter, of course, we did not see the necessity to further impair or scrap assets. And we undertake this review every quarter, and we'll do the same review on a quarterly basis moving forward.

All right, thanks very much.

Thanks. Good morning, guys.

Hi, Angie.

Hi. So, Marc, in regards to, just a quickie on the remark you made a little bit late on the call on the six-gen markets not becoming balanced, and obviously there's a perception that it will and you're saying otherwise, which I agree.

So how do you think this will play out in 2017 and beyond? Do you think that the unestablished contractors don't get contract for the rigs?

Or that or that some of these sixth-gens are now in the fourth-gen and fifth-gen markets, or how does this play out do you think?

Lots of people are saying, Angie, that the scrapping and rigs leaving the market is the solution here. I don't necessarily subscribe to that, but sure more scrapping is needed, but this is not simply a supply issue alone.

You've got to look at it from a demand perspective, which is currently at historical lows too. I think there's been 20 contracts announced so far this year year-to-date, compared with well over 125 contracts in 2014.

And I think there's well over 200 contracts in the prior year to that. So you have to look at it in terms of scrapping across all floater categories, not just second-gen and third-gen.

We'll need to see a number of fourth-generation and fifth-generation assets go too. So one of the things that Diamond is very good at is we've got a very good maintenance record on our older assets.

And as I've said before, not all assets are created equally. And I'd just bring you back to the point that in this past quarter, we've had four of our fourth-generation assets start work on new contracts.

Okay, they're lower rates and they are shorter duration, but it just goes to show that there's a market out there for certain fourth-generation assets. So the sixth-gens won't be able to compete with them.

I think what you're going to see is the sixth-gens competing down into the fifth-gen market, and that's probably the area that's at most risk. But again, we've just seen the Monarch, the Ocean Monarch, which is a fifth-gen asset, go to work in Australia, so it's still going to be horses for courses in certain markets.

But I think the sixth-gen fleet is going to see a lot of distress moving forward. If you look at the 77 floaters that are on order, 57 of which are under construction, only 28 of those are contracted.

So it's going to be a very competitive market moving forward, which is why it was so important at the time for us to get all our sixth-gen assets contracted for the next three-plus years moving forward. So that space is going to be very interesting as we track through what is going to be an extended downturn.

That's very helpful. So then if you think through the sixth-gens that are coming into the market that are uncontracted, obviously the unestablished players are most at risk as far as not receiving a contract, but it would change based on – and I agree on the demand side the demand is simply not there – that even established contractors won't be receiving contracts either.

There are teething problems with the new rig and the demand is simply not there, so the push out beyond 2017 could continue.

I think that's an interesting thought process, an interesting view of the future. When we bring our sixth-generation assets into the market, we prepare them extremely well.

I mentioned the success we've had with the Rhino. It came out of the traps and frankly knocked the ball out of the park.

We don't necessarily see that with others in this marketplace. And there are 164 ultra-deepwater assets out there, and I think utilization today is about 83%.

If you go down to the fourth-gen assets, there's much fewer in the market. I think there are about 40-plus in that space.

Sure, the utilization in the fourth-generation assets is lower. But as we were asked I think by Ian earlier in the call, do we have a secret sauce as it relates to how we are able to interface with our clients, I can't say we do, but we do seem to be better at it than others.

So for now, we still are very, very comfortable in terms of where we sit from a fleet perspective and the opportunities that we see going forward. So sure, a lot of people are pushing deliveries of sixth-generation assets out by two years.

But I don't think in that particular sub-segment of the market, it's going to be balanced within the next two years. It's going to be a long, hard drawn-out fight for the sixth-generation assets.

All right, thanks. I appreciate it.

Good morning and thank you. All things being equal, do you have any visibility on how far along Diamond is on rate revisions with its customers?

This is Ron. Clearly, we work with our customers routinely on their needs as it shifts over time.

We do certainly respect and our customers do as well the integrity of contracts. But if there's a way for us to perhaps get something of mutual interest in the way of additional work, we do work with our customers accordingly.

We've got I think a pretty good track record built up. And perhaps part of our secret sauce that Marc had mentioned that we find a way to find solutions with operators that have sort of challenging needs here.

So we're open to mutually I think beneficial trades, but certainly expect that contracts will be respected.

Fair enough. And can you guys just speak to what factors influenced the increase in contract drilling expense for the Deepwater segment this quarter?

Let me look at that real quick. The biggest things were the two drillships going to work, the Hornet and the Rhino – I'm sorry, I should've know that.

Okay, I thought they would be in the ultra-deepwater category but my apologies. Great, that does it for me.

Thank you.

Good morning, guys.

Praveen, hi.

A question on how you think about M&A now? You guys sound like you're expecting a bit longer than you had before going into 2017 in terms of the imbalance.

So how big is that gap and is it at least closing in terms of the bid-ask spreads and how you approach M&A from here?

The bid/ask spread is still very, very wide in terms of specific strategy options moving forward. Our plans continue to evolve as the market somewhat develops.

And capital allocation is, of course, very, very important for us as an executive management team; and anything we do has to build long-term value for shareholders. So specifically to your question here, one of the five basic principles of value creation is knowing the true value of assets and being prepared to take the right action at the right time.

But with that in mind, I believe today that the arbitrage between the buyer and the seller expectation is simply too wide, it's too high; and that the market will present better opportunities further down the road. Well, let me just say, at the same time, I also believe that there are other issues in our industry that that are going to be addressed to be the value chain.

And from a strategic perspective, we're looking at exploring ideas in that regards as well. So it's not just an M&A strategy moving forward, there's other things we can do.

Thank you very much.

Thanks. Good morning.

Hey, Marc, if I could ask you to compare and contrast your experiences with attrition in the onshore market versus how you see the fifth and sixth-gen floater market unfolding here over the next four or five years? And specifically I think we all tend to think about the bigger deepwater assets as really being around forever, but is there a risk that rigs that never go to work that the stacked cost and the reactivation on the DP units, et cetera, just becomes too much so that those rigs actually never find work and we find ourselves in another bid cycle before we know it?

Very good question. This is very different to the experience that I have in unconventionals and pressure pumping in the onshore market.

I entered the industry well over 30 years ago – sorry, Mike. So I might.

And I believe that in terms of this market moving forward, it's going to be long and drawn out. I would be surprised if there are assets out there that never to go work, but what will happen as those assets will become distressed; and I think the owners of those will look at shifting them and moving them onto others.

So, in essence, if you've got a buyer out there that can buy an asset of sixth-gen drillship for a substantial discount, then the economics change on the project and you're able to then price that asset accordingly into the market moving forward. So how long can you stack these assets?

There are some people that have come up with new rates for stacking, that really is taking the asset down to a level that it would take quite a bit to bring it back up to speed. So I would be surprised if certain assets never work, the project economics will change if they become distressed; and then you could probably put them to work at a different day rate.

Okay, thanks so much.

So thank you very much folks for attending the session today. I would like to thank you for participating in the call, and we will look forward to speaking to you next time around.