- The first quarter drilling expenses were $157 million, representing an increase of 7% over the prior year quarter and 1% over the last quarter.
- The year-over-year increase was a result of higher compensation and related burden costs between periods.
- The management expects Q2 drilling expenses to be comparable to the Q1 amount due to various cost reduction initiatives underway which are forecast to offset the impact of inflationary pressures.

The manufacturing operations generated external revenues of $145.1 million for the quarter.

- This is a decrease by 17% from the first quarter of 2007 and by 42% from the record fourth quarter of 2007.
- The company’s income from manufacturing operations was $4.1 million during the quarter, down by 34% from the same period last year and by 89% from the fourth quarter of 2007.
- The Q1 manufacturing revenues totaled $224 million inclusive $79 million of arm’s length sales to the drilling division.

The quarterly drilling products and systems revenues totaled $170 million including the sales to the drilling division.

- The external revenues totaled $91 million inclusive of $43 million from six offshore rig kit projects, $20 million from land and offshore rig component packages and another $9 million from drilling equipment.

The first quarter mining, forestry and steel products revenues were $54 million.

- This is inclusive of $16 million from shipments of mining and forestry equipment, $15 million steel plate and $17 million after-market parts.

The quarterly cash capital expenditure totaled $156 million, the majority of which related to construction of the four Tarzan Class rigs and further deposits on the four new Super 116Es.

- The management estimates that the remaining CapEx, including the progress on the two additional 240Cs to be built at Vicksburg would be in the range of $350 million and $375million.
- These will continue to be financed through operating cash flows.

During the quarter, the total costs and expenses were $337.8 million versus $330.3 million in the previous year quarter.

- The operational expenses decreased from $304.4 million in the last year quarter to the current quarter level of $282.7 million.
- The depreciation and amortization increased from $27.6 million in the first quarter of 2007 to $33.1 million in the first quarter of 2008.
- The SG&A were $27.4 million during the quarter compared with $22.4 million in the year ago quarter.
- The company reported a loss on sale of property and equipment of $5.4 million during the quarter. In the year ago quarter, the loss on sale of property and equipment was $24.1 million.

Fiscal 2008 Guidance:

- Full year external revenues are forecast to be $900 million.
- The Q2 external revenues are in the range of $210 million to $225 million and an average of $275 million per quarter over the last half of the year.

Key questions and answers from the first quarter fiscal 2008 earnings call conducted by Rowan Companies on May 1, 2008.

Collin Gerry (Raymond James): On the cost side, you delivered a little bit above expectation on the drilling side. Last quarter forecasts were about 5% year-over-year for the full year 2008 as you had some insurance costs that were going to come down a little bit. Are you still comfortable with that at the year-over-year cost range for drilling costs?

D.F. McNease: Yes, we are.

Collin Gerry (Raymond James): That would imply if we were up 7% this quarter, then may be that percentage would come down a little lower than what some of you peers are. Could you give more detail into how the different dynamics are driving that?

D.F. McNease: First of all, our insurance costs are considerably less than they were last year. The other thing is we are continuing to replace our expatriates in the Middle East with local labor, which is lower than our cost. Additionally, since the fact that we sent a lot of rigs international market, we are in the process of downsizing both here in the office and in the field related to the number of people we need to actually operate the rigs in the Gulf of Mexico.

Collin Gerry (Raymond James): The Gulf of Mexico does seem to be picking up. The bidding activity has been stronger through hurricane season and one of your rigs has a 6-month contract. What’s the tone coming from the operators as it relates to hurricane season?

D.F. McNease: As we said a few years go, ex-Katrina and Rita, all drilling contractors got together and came up with a plan to be able to work through hurricane season and that plan involved moving the rigs in shallow water, taking cores to locations and things like that. We’ve demonstrated over the last couple of years that we had the ability to move the rigs in shallow waters and operators worked with us to do that. The operators have started planning their business around those water depths and it''s working well for all the drilling contractors here in the Gulf of Mexico.