Executives: Samir Ali - Vice President, Investor Relations and Corporate Development Marc Edwards - President and Chief Executive Officer Ron Woll - Senior Vice President and Chief Commercial Officer Scott Kornblau - Vice President and Acting Chief Financial Officer

Analysts: Kurt Hallead - RBC Capital Markets Judson Bailey - Wells Fargo Securities Ian Macpherson - Simmons & Company International Scott Gruber - Citigroup James Wicklund - Credit Suisse Michael Urban - Seaport Global Securities David Smith - Heikkinen Energy Advisors LLC

Operator: Good day, ladies and gentlemen, and welcome to the Q1 2018 Diamond Offshore Drilling Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions prior to participate will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Mr. Samir Ali, Vice President of Investor Relations and Corporate Development. Please go ahead, sir.

Samir Ali: Thank you, Jimmy. Good morning, everyone and thank you for joining us. With me on the call today are Marc Edwards, President and Chief Executive Officer; Ron Woll, Senior Vice President and Chief Commercial Officer; and Scott Kornblau, Vice President and Acting 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 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 maybe 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 filing 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 will turn the call over to Marc.

Marc Edwards: Thank you, Samir. Good morning, everyone, and thank you for joining us today. For the first quarter of 2018, Diamond Offshore announced earnings of $0.14 per share, which includes restructuring costs, a non-cash tax reform adjustment, and other one-time charges. Excluding these adjustments, our earnings per share for the first quarter of 2018 was a negative $0.16. Much of the impact is attributable to the tax reform adjustment which Scott will speak to in his prepared remarks. So allow me to start by providing some highlights around our innovation and thought leadership efforts to help make offshore drilling more viable both in current market conditions and for the future. Our unique to the industry Pressure Control by the Hour model continued to produce tangible benefits on our black ships in the first quarter of 2018 as we achieved a second consecutive quarter of less than 0.8% unplanned subsea downtime. We continue to demonstrate that this model is delivering sustainable results benefiting all parties involved. Additionally, when we have had situations that required an unplanned pull of the BOP Stack, we have seen a faster turnaround time to get the BOP back in the water and operating. For example, during the quarter, one of the black ship crews was able to retrieve and redeploy a BOP in less than three days, a task that can sometimes take up to 14 days. As each quarter goes by, we continue to show that the results of Pressure Control by the Hour are sustainable and that we have transformed subsea reliability. Further, Diamond Offshore recently received a Meritorious Engineering Innovation Award in the subsea category for our new Helical Riser Buoyancy Technology. This award recognizes technical advantages that open new and better avenues to the critical challenges the industry faces. Recall that this solution is an alternative to adding fairings or strakes to the drilling riser to reduce drag and riser vibration in high loop currents, which can reduce deployment time by up to 50%. The design also improved safety in challenging environments by eliminating the need for personnel to work below the drill floor to attach separate apparatus. We now have this technology installed on all four black ships currently working in the Gulf of Mexico. And during this past month alone, Diamond Offshore took yet another step towards improving offshore drilling efficiencies with the recent launch of our Sim-Stack service, the industry's first cybernetic BOP service. Using a highly sophisticated and complex virtual replica of a BOP system, this new service performs advanced digitalization, simulation and data fusion to improve efficiencies, lower non-productive time, and reduce costs of deepwater drilling. With Sim-Stack, Diamond Offshore is able to continuously and accurately assess BOP status and regulatory compliance after a single or multiple component failure has been identified. When issues arise, Sim-Stack immediately provides critical feedback without human bias in a systematic method. Based on this, Diamond is able to determine a proper course of action while providing a third-party statement of fact to the operator and regulatory bodies, such as the Bureau of Safety and Environmental Enforcement, otherwise known as BSEE. The traditional process takes hours, days or even weeks to reach consensus, whereas with Sim-Stack service, this can now be accomplished in a few hours or less. By way of example, had we had the Sim-Stack service available in prior years an analysis of previous unplanned stack pulls would suggest that our historical subsea non-productive time would have been reduced by a minimum of 36%. Since its establishment in 2011, BSEE has been the lead federal agency charged with improving safety and ensuring environmental protection related to U.S. offshore energy industry. The Bureau vigorously regulates oversight of worker safety, emergency preparedness, environmental compliance, and conservation of resources. The underlying Sim-Stack technology which is the result of a three-year development program has also just received a designation as a star initiative from BSEE being one of the industry's best available and safety technologies. In addition to being an innovative efficiency and safety tool, Sim-Stack is also a robust training tool for offshore personnel. Similar to the flight training simulators used in the aviation industry, Sim-Stack provides our technical talent a safe and dynamic learning environment to train and further develop their skills and expertise. This service is exclusively available from Diamond Offshore and is currently on our four black ships working in the Gulf of Mexico. We are working to implement this service on other six generation rigs in our global fleet over the coming quarters. We will continue to look for innovative ways to reduce downtime, while enhancing operational efficiencies for our customers. We have several more projects in the pipeline that we hope to announce in the near future that will further drive efficiencies into offshore drilling and critically differentiate Diamond Offshore from its peers. Diamond continues to set performance benchmarks in the Gulf of Mexico with one of our drillships drilling and completing a well 54 days ahead of schedule and with another reaching 28,000 feet after only 38 days. And in the North Sea for the second consecutive year, Diamond was recognized by the International Association of Drilling Contractors for having the best safety performance in the floating rig category under 100 million man-hours for 2017. In addition, during this quarter, we again set a new benchmark with another record safety performance. These continued successes are a testament to the quality of our operational and technical teams and I would like to extend my appreciation to the men and women that delivered this record breaking performance within the Diamond fleet. Now turning to our contracting activity. We are pleased to announce that we have secured additional work for the Ocean Apex and the Ocean BlackRhino. And we have been awarded the multi-year Penguins work for the ocean Endeavor in the North Sea. As we shared on our last call, Diamond entered into an option period earlier this year with Woodside for the Ocean Apex. Woodside has elected to exercise the option and the rig will begin work in the second quarter of 2019. Though the initial contract is of shorter-term, we are optimistic that more wells will be added as the rig continues to excel for the client. Regarding the Ocean BlackRhino, one of our sixth generation drillships Hess has extended the asset for an additional 90 days at the current day rate. The performance of our ultra-deepwater drillships is class leading and as I have spoken to many times before, we uniquely have all of our six and seventh generation ultra-deepwater assets contracted. However, we have now embarked on new customer conversations that would keep our drillships contracted until the next decade. As to the Ocean Endeavor, we have been awarded a 12 plus two option well contract that will keep the rig working for at least two years. We will accelerate startup activities to prepare the rig to commence work in the first half of 2019. This contract award for a formally cold stack rig in an oversupplied market is a testament to the Endeavors capabilities and Diamond’s reputation and operational excellence in this region. And now allow me to update you on the market. The dynamically positioned floater category is still facing many headwinds. We estimate that there is open demand of 115 years in the next 12 months, yet 169 years of available DP supply. Though the supply demand gap is still wide, it has narrowed from the lows of 2017. Fixed account has more than doubled compared to this time last year, which signals that customers are trying to lock in today's rates for longer periods. We still remain cautious on the DP drillships segment, but I think we may be close to approaching a bottom in both utilization and pricing alike. However, we do not expect pricing to recover quickly. Looking to the Moored segment, the signs of a recovery are more prominent as we continue to see an increase in tendering activity, clearly the North Sea market has tightened and opportunities to start modestly pushing pricing, not just in the harsh environment segment are apparent. Diamond prides itself on being a top leader in offshore drilling, driving innovation that is focused on lowering total cost of ownership for our customers with Pressure Control by the Hour, Riser Buoyancy Technology, and most recently our Sim-Stack service, and with more projects under development, we will continue our efforts to make offshore drilling more viable, while the best positioning Diamond for the eventual market recovery. So with that, I will turn the call over to Scott to discuss the financials for the quarter and then I'll have some closing remarks. Scott?

Scott Kornblau: Thanks, Marc and good morning, everyone. Earlier today, we reported net income of $19 million or $0.14 per share for the first quarter of 2018. Our first quarter results include a favorable non-cash tax adjustment related to tax reform further restructuring costs and a gain from the sale of a cold stacked rig cult. Excluding these items, Diamond had an adjusted net loss of $21 million or negative $0.16 per share. This compares to our fourth quarter results of an adjusted net loss of $7 million or negative $0.05 per share. The quarter-over-quarter decline was driven by lower revenue caused by the continued weakness in the offshore drilling market, but was partially offset by our ongoing focus on cost reduction. Before I go into our first quarter results, let me provide additional color regarding the Ocean Endeavors’ reactivation. When we consider the economic feasibility of reactivating a cold stacked rig, we include not only the cost to turn on the light, but all cost associated with getting the rig operational and on location, such as the special survey, recertification of the BOP and Riser, crewing, move to a shipyard and then to location, rig enhancements and customer requested modification. This is our true cash cost of reactivation, what we modeled to and what we guide to. And with the long-term contract announced earlier coupled with the future prospects for the rig, reactivating the Endeavor meets our requirements with the return hurdle aligned with the business opportunities. Now turning to our first quarter 2018 results. Contract drilling revenues of $288 million during the quarter represented a 15% decrease from the fourth quarter of 2017, mostly driven by the Ocean Valor’s reduced standby rate in the first quarter. As discussed on our last call, the resolution with Petrobras on the Ocean Valor contract involved Diamond taking a lower standby rate in exchange for an additional two years of work, extending the Valor’s contract out to September 2020. Also contributing to the decrease with the Ocean Patriot and Ocean Apex working fewer days during the first quarter of 2018 compared to the fourth quarter of 2017. The Patriot spent most of the quarter undergoing a special survey prior to commencing over two years of work in the North Sea, while the Apex completed its contract in Australia midway through the first quarter. The revenue decrease was partially offset by the Ocean Guardian returning to work in the North Sea during the first quarter after being idle for all of the fourth quarter of 2017. Contract drilling expense of $185 million came in 10% lower in the first quarter, compared to the fourth quarter and below the low-end of our guidance primarily due to the timing of certain maintenance projects. The quarter-over-quarter variance is mostly driven by the non-repeating fourth quarter modes of the Ocean Onyx, Ocean Monarch, and Ocean Scepter, the impact of the restructuring measures implemented during the last few quarters and the continued cost reduction focus. G&A cost of $19 million decreased $1 million from the fourth quarter, but came in slightly above guidance mostly due to advisory fees associated with tax reform and the timing and mix of restructuring actions taken during the quarter. Also as expected, we took an additional $3 million restructuring charge during the first quarter as we continue to find opportunities to streamline the organization. Depreciation of $82 million and net interest expense of $29 million both came in at previous guidance and are expected to remain relatively flat in the second quarter. During the first quarter, we recorded a small gain related to the sale of the Ocean Victory which was previously classified as held for sale. Since 2012, Diamond has sold 33 rigs the majority of which have been scrapped as we continue to high grade our fleet while taking supply out of the market. And finally during the first quarter, we recorded a non-cash tax benefit of $44 million. The vast majority of this benefit totaling $43 million is a result of additional guidance and clarification issued by the U.S. Department of Treasury relating to the use of certain foreign tax credit under the Tax Reform Act enacted at the end of 2017. Excluding this benefit and other discrete item, our normalized tax benefit for the quarter is $1 million for an effective tax rate of 5%. Now let me provide some thoughts on the second quarter of 2018. We expect contract drilling expenses for the second quarter to come in between $210 million and $215 million. This quarter-over-quarter increase is due primarily to the Ocean Valiant’s scheduled special survey and upgrades, maintenance on the Ocean Courage, and additional work required on the Ocean Valor as it preps for its long-term contract in Brazil. G&A costs are expected to be between $17 million and $19 million during the second quarter. While we are still on schedule to achieve cost savings due to the recent restructuring activities in line with expectations, most of the actual reductions that have occurred run through contract drilling expense as opposed to G&A. Also during the second quarter, we expect to take an additional restructuring charge of about $1 million. We anticipate our effective tax rate to be between 10% and 15% during the second quarter, but as always this may fluctuate up or down based on a variety of factors including but not limited to, changes to the geographic mix of earnings, further clarification around tax reform, as well as tax assessments, settlements or movements in exchange rates. The offshore market continues to be challenging. However, Diamond is well-positioned to weather this down cycle, while remaining focused on the future. During the quarter, we added over $50 million of cash, increasing our cash balance to $430 million, while our $1.5 billion revolver remains undrawn. We will continue to remain focused on reducing cost while still managing our business for sustainable success in the eventual recovery. And with that, I'll turn it back to Marc.

Marc Edwards: Thanks Scott. Before we open up the call for questions, I would like to reiterate our belief that the long-term fundamentals of the oil and gas industry and particularly the deepwater sector remain intact in spite of the short to medium-term challenges we are facing. With a superior balance sheet and strong liquidity, Diamond Offshore is well positioned for success in this prolonged downturn. We will continue to demonstrate our ability to further innovate and drive thought leadership in the industry, so that we improve efficiencies and lower the total cost of deepwater drilling. And with that, I'll turn the call over for questions.

Operator: Thank you. [Operator Instructions] Our first question comes from Kurt Hallead with RBC. Your line is now open.

Kurt Hallead: Hey, good morning.

Marc Edwards: Good morning, Kurt.

Kurt Hallead: I was just wondering on the operating expense front, if you might be able to give us some insights as to whether the costs are related to the special survey, kind of break that out reasonably what you just have in terms of normal operating costs for the rigs?

Scott Kornblau: Yes. The Q2 survey that we have coming up is for the Valiant. And as disclosed in our fleet tax report, it will be down about 75 days. In addition to special survey, also it has some maintenance, which will take advantage of the shipyard time. We have guided in the past in the $10 million range for special survey. Now of course, that does depend on exactly what needs to be done with the additional repairs and stuff. But I think that’s a pretty good benchmark - in the range for most of our special surveys.

Kurt Hallead: Okay. And that’s a great color. And then Marc, on your end, if you look at the some of the market dynamics and getting a little bit at the margin little more encouraging on the DP asset side. When you look at the – to get one stacked DP semi right now, I think sales should confidence and your stack rates right now – how do you handicap the prospects for your remaining stack rates going back to work, to say within the next 12 to 18 months based on the demand dynamics to look like?

Marc Edwards: So you specifically brought up one of our stacked DP asset session confidence, I do not see that coming back in the next 12 to 18 months, as it relates to other assets in the fleets, specifically the – more assets. It’s too early to tell exactly when those assets might come back or the reactivated, the Onyx, the America. It's not something that's on the horizon right now. Just to touch on the Ocean Endeavor again. We announced that we were reactivating it because we had at the time and otherwise signed with the ultimate client. But there was a lot of interest in that specific rig. It is a victory class rig. It’s one that's been extensively modified as it is. It’s been to the shipyard and been upgraded and it's a very attractive rig. We had at least three clients inquiring about that rig at the time, which speaks to somewhat of a recovery in the moored space. But I do understand that at this moment in time, we will not be reactivating rigs on the stack. There was a specific long-term demand that we saw for that asset and we're pleased to announce that it's actually being selected for the shell Penguins work in the North Sea and we believe that has an extensive life beyond that program and with the interest in that specific rig. The tightness in the moored market, especially in the North Sea, we expect that rig to keep working, now that we are reactivating it.

Kurt Hallead: Great. And then one just quick follow-up on your cybernetic BOP, Sim-Stack services, is something proprietary to Diamond or is this something that the rest of the industry could develop on their own through some sort of open source architecture?

Marc Edwards: All right, yes, I'm not saying that it's unique to us. It can be developed by the rest of the industry. To understand however that this specifically was something that was in development for at least three years. We believe that once again differentiates our sixth generation drillships that push them to the front of the daily line of desirability and for anyone to copy this system because it is BOP specific. You have to design it for each BOP that's perhaps an obvious statement. But it would take the rest of the industry a while to be able to catch up. But critically, we've got this technology first in the industry with any people that have it today and it speaks to our continued thought leadership. We also do have other technologies that we're looking at in the pipeline as it relates to improving efficiencies of deepwater drilling and over the next few quarters we expect to be able to announce those as well.

Kurt Hallead: Great. That’s great color. Thank you.

Operator: Thank you. And our next question comes from Jud Bailey with Wells Fargo. Your line is now open.

Judson Bailey: Thanks, good morning. I wanted to ask about the Apex and kind of the Australian market and generals. It looks like you've got that the work for start at the May 19, could you maybe talk about the prospects for that rig between now and then do you expect to get some contracts kind of fill the gap before that rig starts to next job? And then along with that if you could also comment maybe on the Monarch controls later on this year as well, kind of the outlook for work there?

Ron Woll: Good morning, Jud. This is Ron. So let's talk about the Apex first. And so as we think about her contracting sort of outlook, I think it's pretty strong. She is in the yard now for some planned work that's certain. I think as I look at the prospects of that rig has with a number of customers, I think it's more likely that the added term will come after she returns to the market back in 2019. I think the period between now and the end of that shipyard work was probably not where I see the added work coming in. There are a number of conversations we have with customers today on her, but just to kind of put those on the calendar; those really come in, really after she comes back in the first half of 2019. Although, I am and we are rather optimistic that more term will go on her as a proven mode rig, and to Marc’s comments, there is a tightening market kind of in that space. So I think the likelihood that moratorium gets placed on her is relatively high. Saying with that on the Ocean Monarch, I think of course she is working for Cooper today and then has worked with Exxon. We also have a number of inquiries kind of on her as well in Australia and elsewhere. And so I would kind of offer a similar outlook, which is a good amount of conversations and interest on her nothing that we're now seeing today. But in contrast to sort of to some other rigs there that are as Marc said are stacked and sort of not in our forecast to come back anytime soon. I think the likelihood of adding term on the Monarch is also pretty realistic. Again a proven rig, good track record, satisfied customers’ kind of all the right ingredients that we see for more term now going forward.

Judson Bailey: Okay. And just a follow-up there. So Ron, you may have mentioned, so how long is the Apex expect it to be in the yard in terms it’s going to be right there the rest of this year did you say?

Ron Woll: Well, in terms of the time in the yard here is I think probably relatively brief, I would say probably maybe two months plus or minus. I think then for us it's a matter of matching her is the right opportunities. So to be kind of a response to your question, I think those opportunities are more likely to occur in 2019 as opposed the rest of 2018 right now.

Judson Bailey: Got it. Okay. And then my follow-up is just on the operating cost guide, a bit of bigger step up than that I think we anticipated. Is there I know argument coming on the third quarter yet, but how much does that kind of normalize back down in the third quarter based on what you know today?

Scott Kornblau: Yes. It’s Scott. Yes, I would call Q2 more of an anomaly. We do have a – the Valiant which we spoke about and still have the maintenance we need to do on the Courage and the Valor. So I would consider this kind of a high mark if you’re looking going forward. I would say the guidance that we gave for Q1 in the mid-190 is probably a fair run rate. Also say that Q1 was a little lower just because of timing of some projects that also got pushed into Q2, but if you kind of normalized all that I think look at the Q1 guidance as comes in normal run rate.

Judson Bailey: Okay, perfect. Thanks Scott. Appreciate it.

Operator: Thank you. And our next question comes from Ian Macpherson with Simmons. Your line is now open.

Ian Macpherson: Thanks, good morning.

Marc Edwards: Ian, good morning.

Ian Macpherson: Marc congratulations on Penguins and Sim-Stack. Those are encouraging developments, so well done to you all for that.

Marc Edwards: Thank you.

Ian Macpherson: I wonder can you tell us with your $2.2 billion backlog at the end of the quarter, which of the – between Endeavor, Apex, and BlackRhino, which of those recent backlog adds or – are not reflected in the $2.2 billion, and would you be willing to roll up the decimal point what we will see in the 10-Q with regard to your absolute backlog?

Scott Kornblau: Yes. This is Scott. I will take that. The Endeavor work is not in the $2.2 billion. That backlog number is as of the end of the quarter and this was announced subsequent to that, so we do have that to tack on as your modeling going forward. The other two are in there.

Ian Macpherson: Okay. That's good. So how were you able to finagle another 90 days on BlackRhino at the current rate given that has had – I thought they had unpriced options that they could exercise.

Ron Woll: Ian, this is Ron. So let me handle that one. So you're right, they do, and this is really not that. So those unpriced options still remain, so those are still out there. The program of this size, the Stampede, multiple rigs, many years, it's not uncommon to have sort of puts and takes on a program just for a complex. And so there were some moves back in the forth – and what we announced here was really a kind of a completing that circle on some other trades here in the portfolio kind of with Hess.

Ian Macpherson: Okay. Thanks Ron. Then lastly beyond the downtime that’s in Q2 for the SPS and the Valiant, and the Courage with the maintenance there, do you have any other big chunky items in the second half of the year that we should put in our models?

Marc Edwards: For the second half of the year, the only comment I’ll make on that is Ron had mentioned the Apex is in the yard right now. So there is some work to do there and then as we get into Q3 and Q4 we will guide if there's any other further downtime expected.

Ian Macpherson: Got it. Thank you everyone.

Marc Edwards: You’re welcome.

Operator: Thank you. And our next question comes from Scott Gruber with Citigroup. Your line is now open.

Scott Gruber: Yes, good morning.

Marc Edwards: Hey, Scott. Good morning.

Scott Gruber: Marc, I'm curious just to get your thoughts on how the rate of recovery plays out going forward, particular on the day rate side. I know you guys are still cautious, but just kind of thinking through how the recovery could play out here, and historically we wait for utilization to rise up toward 80%, 85% and day rates are really start moving. If we look at the viable DP rigs, which are mainly the six and seventh generation rigs now, do we need to wait to see utilization rise up towards that 80%, 85% mark, excluding the [indiscernible] rigs, so just look at what's marketed out there? Or is there sufficient differentiation across the DP fleet such that we could see rates move before we hit that 80%, 85% utilization mark?

Marc Edwards: So there's a lot of questions that you actually asked. Scott in terms of how rates are going to move, we're starting to see rates moving in some sectors in the moored asset category, and I think everyone's familiar with what's happened in harsh environment in Norway. As we've already discussed in a previous call, we actually were able to push right higher albeit small on one of our assets in the North Sea, again, this is on the UK sector. So I think it depends how each market tightens. You're going to have sub-sectors to tighten before others to speak for the North Sea as an example right now. But I think you've got to look at the marginal cost of supply. And in looking at the marginal cost of supply on a rig by rig basis, something we've done for all floaters in our space. There is a day rate that will be required before stacked rigs come back into the market. So I think you'll have a bifurcation and that bifurcation will be rigs that are hot and are working today against those that have been warm-stack for considerable period of time or even are cold-stacked. And the owners of those rigs are not going to bring them back unless they get a decent return and have a vision or a path to making a return on that reactivation fee. So when you're looking – when you're specifically looking at utilization, I think you've got to look at utilization of what rigs are desirable to the clients themselves today, in other words being hot. And then what rates come or reach before people are going to consider bringing other assets into the market. So I think in terms of what is the path for a price recovery, I think it's probably going to come sooner than many are expecting, and we don't need 85% utilization for the complete fleet. I think you'll get to a utilization, for example, in the North Sea, we're almost about 100% if you just look at that sub-sector for the moored assets. You will see pricing materialize without 85% for the whole fleet because of that bifurcation effect.

Scott Gruber: That makes a lot of sense. Is there any other pockets of the rig fleet that you could see gain pricing traction before we kind of hit more elevated levels of utilizations? I’m thinking about potentially rigs with a high pressure system or maybe to the seventh gen fleet starts to get rate ahead of the sixth gen? Is there enough differentiation there?

Marc Edwards: I don't think at the moment there necessarily is, but I think in a due course of time, if you look at the seventh generation fleet, we – our assets sit in that category certainly the black ships, although we do refer to them a six. What I would prefer to say is those drillships that have 2 million pound plus hook-load. They have a dual BOP. They have dual activity I think you might see in a dual course of time, rates pick up on those before let's say the early sixth generation assets out there. And if you look at the – true daily line of desirability is it relates to that asset class. I think there's less than 30 assets to fill that that categories. So I think you will see a slight increase in day rates for those specific assets. But it's still a couple of years out. We've certainly seen an uptick. It is a material uptick and tendering activity around both asset classes to include DP with certainly at a better place than we were this time last year for both asset classes, and that’s always for the start of a recovery. So we certainly see a clear path forward and understand what's going to happen over the next few years, but pricing certainly for the DP assets is probably 18 months to two years away before we see marginal increases.

Scott Gruber: Got it. Is there an indifference point that we could think about from the efficiency standpoint when you add things like dual BOP, dual drilling, things like that that’s the higher-end seventh gen rigs? Is there an efficiency delta that you see versus a more kind of standard sixth gen that would create some pricing delta once the market sector firm up better?

Marc Edwards: Yes, obviously it depends on what depth you’re drilling in, but typically anything from 8% to 10% with the higher assets, if you go really deep you might see 12%. But there's also a total cost of ownership in other words with dual BOPs, you have less NPD, so it’s not just drilling efficiency. It’s the ability to keep the work – the drillship running and of course progressing well, which from our perspective, this is one of the things we focus so much on and that is truly eliminating NPD as you've seen we've been quite successful in doing that, so that we become more desirable and differentiated from our pears.

Scott Gruber: Got it. That’s great color. I appreciate it. Thanks.

Operator: Thank you. And our next question comes from Jim Wicklund with Credit Suisse. Your line is now open.

James Wicklund: Good morning, guys, and congratulations on the safety record, Marc. That's impressive and important.

Marc Edwards: Thank you, Jim. If I could follow-up on Jud Bailey's questions on costs, we hear a lot about how since day rates aren't going to move that drilling industry is going to have to reduce costs? What is the potential for reduced costs over the next year or two? I have trouble believing its people, the supply chains already seeing inflation? Can you talk a little bit about the potential really to reduce costs over the next year or two or however it takes until the day rates start to move, and then of course we're in a much better position to take the inflection?

Marc Edwards: So we’re in a much better place in terms of efficiency Jim, as an industry than we were at the peak about a few years ago. On the call, I’ve just mentioned that we've drilled the well to 28,000 feet in the Gulf of Mexico in 38 days.

James Wicklund: That’s amazing.

Marc Edwards: That is a massive increase in drilling time than we saw about two years ago. So we're driving efficiencies into offshore drilling and if you look at most of the deepwater projects today, they are competitive on a full life cycle basis with North American shale. There's no doubt about it. You speak to the Petrobras’, you speak to the Statoil. Statoil has levied on the fact that all of that – well let me just say that – let me quantify that. The vast majority of that deepwater programs are profitable when the oil price is $40. So we've made significant gains through simplification, through standardization and through scope. But we've also delivered significant gains using the technologies that we have today. And I spoke to that in my prepared remarks about the work we're doing in the Gulf of Mexico with our drillships. And then on top of that…

James Wicklund: So this is going to be more an efficiency gain than a reduction in daily operating cost, right?

Marc Edwards: Well the reduction in daily operating costs are already delivered. I think I was once aware what's happening with day rates on the full spread costs, you’ve seen that – on the full spread costs, you've probably seen maybe a 10% to 20% reduction in cost and those have already been delivered. So in terms of the individual costs that we're charging, you are not going to see any further decrease. The future decreases has to come from efficiency gains.

James Wicklund: Perfect. That's helpful. And a follow-up if I could, now I apologize I was going through security this morning. So I may have missed this. On your cyber-BOPs, where does GE play into the development map location of these technologies?

Marc Edwards: Okay. So this is very separate to what GE is providing to us. So GE is providing Pressure Control by the Hour, which is the maintenance aspect of keeping the BOP running similar to what they do in the aviation industry, but this was developed separately by us and a third-party company out of New Orleans on the request, well with guidance from the regulator. So this is a huge step forward in driving efficiency gains and reducing NPD further.

James Wicklund: Okay. Perfect. Thank you very much guys. Appreciate it.

Operator: Thank you. And our last question for today is from Mike Urban with Seaport Global. Your line is now open.

Michael Urban: Thanks. Good morning.

Marc Edwards: Good morning, Mike.

Michael Urban: So it's great to hear that you consider all of the fully loaded costs when undertaking a reactivation or really allocating any kind of capital, I think that's not something your peers necessarily do. What is your thought process around that specifically in terms of a hurdle rate and has that changed over time just given the nature of the cycle when where we are in the cycle and how depressed the offshore markets have been? So is that a cost of capital return when you're allocating the capital for now? Do you think it’s better over time? Can you give us your thoughts on that?

Scott Kornblau: Mike, this is Scott. So when we determine if we're going to reactivate a rig, I went through all the costs that we look at. Off course, we put that in our model. We take a look at this next contract. We get a very good two-year plus contract right now. And then we look at the future prospects of the rig. And if that meets our return hurdle, we go forward. And when it does, we don't – we've been very active in scrapping rigs. So we've run this model many times where we didn't meet this hurdle. This time it does especially with the interest we see in the rig. So there's no mandate that we have to get the total reactivation done in the first contract. We looked over the life of the rig in the prospects of the rig and the interest in the rig and that’s when we go and make the call.

Michael Urban: Okay. And that the hurdle rate presumably is something better than the cost of capital type return?

Scott Kornblau: That’s right. We're not going to get into what our return model looks like. But yes, you can be rest assured it's definitely meets what we said about our minimum.

Michael Urban: Okay.

Marc Edwards: And Mike as I think what we as an industry need to be looking at is not the reactivation cost of the rig per se, it's the start up cost. In other words, what is the true cash burn to get these rigs that are cold stacked on two location with the bit turning to the right, because that is what the cash call that we have as an organization. So many people suggest that reactivation costs are X, but what they're talking about is the cost just to get the lights up and running on the rig. And as Scott adequately spoke to in his prepared remarks, you've got to consider all those points themselves.

Michael Urban: Yes. I would tend to agree. I not sure the rest of the industry considers the fully loaded cost. And then the last one that I had was – thanks for the round down on all the technology and efficiency initiatives. You gave us some anecdotes and some individual data points on the benefits that you receive from Pressure Control by the Hour and Sim-Stack. As you look at those in total or in the aggregate, do you have a sense for what the total cost reduction and/or efficiency improvement is in the aggregate, I guess relative to your baseline prior to these initiatives kind of along the lines of that the data point you provided on the BOP downtime with Sim-Stack?

Marc Edwards: So just for general references, with new BOPs fresh out of the shipyard and our first year of operation subsea NPD was double-digit for us. Now it's well below 1%, so that gives you an indication as to what efficiency gain we're delivering that. It's not an improvement for the client of course, but it also helps us from a revenue perspective to. And then we went back and we pulled all of our data on our unplanned stack retrievals and then applied our Sim-Stack technology to those unplanned stack pulls, and we would have been able to further reduce and NPD by 36% on a historical basis and that was a minimum. So in otherwise one in every three stack hole we could have eliminated. We've got to this level now where our average to last six months is actually 0.73% NPT on our subsea systems. So that definitely is class leading and that should give you an indication as to what kind of efficiency gains we’re driving there.

Michael Urban: Okay, great. That's very helpful. Thank you. That's all from me.

Operator: Thank you. Our next question comes from David Smith with Heikkinen Energy Advisors. Your line is now open.

David Smith: Hey, thank you. Sorry if I miss that. I know you gave some color, last quarter about the potential cost range to reactivate the Ocean Endeavor. Did you give additional guidance for that expected cost range on this fall?

Scott Kornblau: Dave, we did not.

David Smith: Okay. Is it fair to you to kind of think about the midpoint of the prior guidance that you gave?

Scott Kornblau: Yes, I mean there's nothing that changed in the last three months on how we're looking at the Endeavor.

David Smith: Okay, and if all goes well as the possible those costs could be recovered and the margin of the initial contract?

Scott Kornblau: We will not recover those cost in the initial contract.

David Smith: Okay, all right. Thank you very much.

Scott Kornblau: All right, you’re welcome. End of Q&A

Operator: Thank you. And I'm showing no further questions in the queue at this time. I'd like to turn the call back over to Marc Edwards, President and CEO for any closing remarks.

Marc Edwards: So thank you for participating in today's call. We look forward to speaking with you again next quarter.

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