Loews (L) Q2 Earnings Call

Loews (L) CEO Jim Tisch said weakness in the oil rig equipment market hampered results

“First, let’s turn to Diamond Offshore. I want to start out by addressing the proverbial elephant in the room. Diamond’s results this quarter were severely impacted by the rig impairment charges David mentioned earlier in the call. Keep in mind that the severe downturn in the offshore drilling market, combined with the difficulty in predicting the timing and degree of this inevitable recovery precipitated these impairments. It’s important to note however, that Diamond is scrapping only two of the eight rigs being impaired today. Having been in the offshore drilling business for nearly 30 years and the supertanker business for seven years prior to that, I’ve seen cyclical downturns before. I’m hopeful that in this case, and similar to prior cases, the rigs being stacked today will work again and earn an attractive rate of return in the future.”

Loews (L) CEO Jim Tisch believes we are under-investing in finding new sources of petroleum

“As I’ve said before, if there is a silver lining to this oil price downturn, it’s that the lack of drilling activity today will only help speed the recovery of oil prices tomorrow. The effects of the current underinvestment in oil drilling are already starting to be evident, and will play out in the coming years. Demand for oil is still growing and remains quite healthy.¬†While today the situation may seem bleak, we’ve seen this movie’s prequel before and remember well how it ended.”

Loews (L) CFO Dave Edelson said energy customers are canceling existing contracts regarding their deepwater oil rigs

“The offshore drilling market continues to be extremely challenged with limited new drilling opportunities and an oversupply of rigs. In addition, customers are choosing not to extend current contracts and in some cases, seeking ways to early terminate existing contracts.”

Writing down the value of their rigs

“Diamond assessed its rig fleet for impairment at the end of the quarter and in light of the difficult market environment and Diamond management’s evolving view of the length and severity of the downturn, eight rigs have been written down to substantially lower net book values. These rigs are a mix of third generation, fourth generation and fifth generation semi-submersibles. Four of the eight rigs being impaired are stacked, two are still on contract and two are being scrapped.”