Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Lawrence Dickerson, Diamond Offshore President & CEO, tonight on "The Kudlow Report" at 7PM ET.

All references must be sourced to CNBC.

LARRY KUDLOW, host: Now, with us for his very first interview since the BP oil spill disaster began, a CNBC exclusive, we have Mr. Larry Dickerson, president and CEO of Diamond Offshore, one of the world's leading drilling contractors.

Larry, welcome back to the show.

Mr. LARRY DICKERSON: Good to be here, Larry.

KUDLOW: Let me just ask you right at the top. How furious are you at BP?

Mr. DICKERSON: Oh, I'm pretty furious at the situation. I'll withhold coming down on BP till we finally get some real answers as to what happened. But certainly from our perspective, it seems--and from everybody I've talked to--that there were a number of system failures and human failures. A lot of the concentration has been on equipment failures, which I'm not sure is correct. I think that there are systems and procedures out there that would've prevented this had they been followed.

KUDLOW: Have you been in consultation? Has BP called you up? I mean, you're a leading driller. You have a good, clean record. I might add, your stock has fallen a lot less than these other stocks. You're off 30 percent. I mean, that's a rough hit, but BP's off 45 percent, Transocean almost 50 percent, and Anadarko almost 50 percent. Have they called you in to consult? You know a thing or two about this. Have they called you?

Mr. DICKERSON: Well, we've were--have been contacted almost from the start, seeking to get various types of equipment that would aid in their efforts to try to get this thing plugged, and I issued an order to our people, if they call, give it to them. We'll figure out the paperwork later. But other than that, no, we haven't consulted on the actual fix of the leak. And although we got lots of skills, I think that this is--these are skills that are resident within BP and within the operator community.

KUDLOW: Well, heck, I don't know. There's a company out of Amsterdam said they offered to help weeks ago. They've done this thing before in the North Sea. BP didn't bother. They dissed them away. Let me ask you this. Let's go to the governments. I'm going to come back to the safety regulations and all the other issues, but I want to start with the government. How badly has the government handled this, in the sense that the government may be making a bad situation even worse? Is the government killing a great American drilling industry?

Mr. DICKERSON: Well, I mean, I--the efforts and the pronouncements that have come about where there's been a complete moratorium and a cessation of wells that were under way has been disastrous for the business and for the American communities. There will be, if this continues, a number of layoffs, primarily in Louisiana and Mississippi, but in Texas, Alabama, and some other states as well, which I think are just uncalled for. I don't mean to make light. We're very concerned about this disaster that has occurred, but the industry has drilled nearly 50,000 wells since we began drilling offshore in the US gulf in 1947, and we've not had anything that approaches this present disaster. So we need to fix the disaster. We certainly need to review the procedures. We need to see what we can change, but to completely stop things and to put people out of work is, I think, very short sighted.

KUDLOW: I'm sure you saw The Wall Street Journal editorial today. Interior Secretary Ken Salazar recommended to President Obama that all drilling, that there be a moratorium on all drilling. However, the Academy of Engineers that they apparently consulted said, `No, no, no, a moratorium on new offshore drilling, but not existing offshore drilling.' Now, the White House has carried this ball much further than the scientific experts have asked for. What do you make of that?

Mr. DICKERSON: Well, again, I don't--I don't think it's particularly called for. I mean, you know, it's--in one sense, we feel like kids who've had their recess taken away when somebody else did something wrong for the teacher. This blanket punishment just doesn't seem right. But most importantly, there are lots of jobs at stake here, and there still is demand for our equipment, and we can't sit idle for what may be six months, what may be longer. We are on the verge right now of signing a commitment to take one of our deepwater rigs across the Atlantic to the African coast. And I can tell you that the vessel that we're talking about would normally sleep about 120 people. Right now we only have 70 of those bunks filled with our own personnel because all of the other service companies and oil company personnel are gone. But when we go overseas, out of that complement of 70, we'll probably only take 35 or 40, and employ the rest of them locally, which local laws require us to do. And that is just disastrous for employment.

Now, if I were arguing that somebody had to take an unreasonable risk or thatthere was a chance of another blowout, I would--I would understand that. But we feel very confident with the systems of procedures on Diamond offshore rigs, and I think on most of the--of our competitors as well, that we could assure the government and assure whatever experts they want to send out to those rigs that we can prevent the type of disaster that occurred on the Deepwater Horizon.

KUDLOW: Larry, does Congress and the White House have any business telling BP or Diamond or Anadarko, whatever the case may be, about their dividend policy? Does the--is that a--something the government should be doing?

Mr. DICKERSON: Well, probably not. In some sense, if you were looking at a--at a company that was just disgorging whatever cash resources they had ahead of schedule or doing something unusual, then certainly I would think

people would look at it. But BP, like most oil companies, like many other companies, pay regularly scheduled dividends, and I don't think any of the dividends that we're talking about here are not something that's just part of the regular schedule of their capital activities.

KUDLOW: What's your thinking about the liabilities of BP, unlimited liabilities? In other words, they got to pay for cleaning up the spill, they got to play***(as spoken)***for onshore, they got to pay for the businesses that have been directly affected. What about paying for the laid off workers from the moratorium? I mean, there are limits to this. Those limits may be waived. There's a lot of legal questions here. Shouldn't BP--shouldn't BP have to pay for this instead of the US taxpayers?

Mr. DICKERSON: Well, I think so. There was a legal limitation liability, and I think BP stepped up and said, `We're not going to be bound by that,' and they have been indicating that they will pay claims, that they will handle cleanup so that--and fortunately, they have the resources to do that. When you get into paying for the effects of the government moratoria, that's probably--I'm not a lawyer, but I think that's probably a little more difficult, and somebody's got to realize that there are limits to how much resources and cash and income-generating properties BP has, that to pay for the cleanup will be substantial. I would like to have our lost profits. I would like to have a lot of the impacts that I see have hit Diamond Offshore, but if you add all of the impacts to the entire industry, all of the laid off workers that are being affected by this moratoria, this could be a huge number.

KUDLOW: I mean, inside industry circles, do people feel that Anadarko should share in these liability payments and that Transocean should also share in them?

Mr. DICKERSON: You know, that would get into these indemnity agreements that go back and forth between BP and certainly--and Transocean, and I'm not actually aware--I know the type of agreements that we have between our customers, so I can assume what may be present between Transocean. I don't know what's--the agreement is between Anadarko and BP. BP were clearly the operator and bears a lot of responsibility, but that's really outside of my area of expertise, to say who's going to...

KUDLOW: Well, in...

Mr. DICKERSON: ...who's going to pay.

KUDLOW: All right. But in terms of your relationships, if something like this happened to you, would you want--would you be able to share the liability expense of all this?

Mr. DICKERSON: Well, we maintain liability insurance, but typically our position that we negotiate with the customers is that we'll be responsible for the rig, and we're very clear about that. We're responsible for all the people on the rig and the destruction of the rig, if that should occur, but we don't really understand the geology of what the customer's drilling into. So they agree that they will take any damages that result from pollution coming from that hole. And I think that's worked fairly well, and I--and typically, for a company like BP, they've got much more resources than the drilling contractor.

KUDLOW: All right. I got a bunch of other things. You're wonderful to come on, and you're wonderful resource for this, Larry.


KUDLOW: Appreciate it very much. You're a drill, drill, drill guy. I'm a drill, drill, drill guy. But this is not exactly how we expected to meet again.

You know, President Obama has yet to talk to Tony Hayward, the USA North American head of BP. Were you or other drillers ever called to the White House to consult with the president to create a battle plan to fight this?

Mr. DICKERSON: I haven't been, but from the--from the moment of this disaster, Secretary Salazar did call some oil companies into his office and say, `You have to demonstrate what you can do to assure the American people that we will be--that operations can continue in a safe manner and we won't have a repetition of this.' And we immediately formed two task forces, broke the task up between procedures and equipment, and it was a Diamond Offshore individual that headed up the equipment task force. We initially thought we might have two weeks to do this. It turned out we had about a weekend.


Mr. DICKERSON: But we came up with some solid recommendations, turned it over to Secretary Salazar. It went through the government, and this was presented to President Obama. We began hearing that there would be a six month moratoria on issuance of new permits, but until he made his speech, we were--we were very taken aback that all existing drilling, certainly in the deep water, would be suspended.

KUDLOW: So what's your...

Mr. DICKERSON: But we have been consulted.

KUDLOW: Yeah, I was going to say, you have been, but at least...

Mr. DICKERSON: But I'm not sure that our recommendations have been taken to bear.

KUDLOW: Right. But via Salazar, at least they called you, they dialed you up, is that right? Or at least they dialed up your man?

Mr. DICKERSON: That's right, they--yeah, they went to the oil companies, but we were all--the oil companies turned to us because they knew that--where we had expertise, and I think the industry responded very well in that sense.

KUDLOW: All right. There were some rumors that one of your rigs, Ocean Saratoga, unfortunately was involved in another oil spill. Can you put those rumors to rest?

Mr. DICKERSON: Yes, absolutely. There's been no leaking of oil from the Ocean Saratoga. The Ocean Saratoga is engaged in a plug and abandonment series of wells that result--that are the result of some damage that occurred in Hurricane Ivan, and we're working for a privately held company, Taylor Energy, and we've been conducting those plugging operations. There has been minute amounts of oil that has leaked from some of those wells, and Taylor's done an excellent job of getting that contained, and our efforts are to get those plugged back. MMS and the various authorities are absolutely aware of that, and they recognize the importance of what we're doing. And so this has been an operation that has been permitted to continue even through the moratorium.

KUDLOW: So, just to understand this, are these new leaks or are these leaks carried over from hurricanes, or what?

Mr. DICKERSON: I'm not--I'm not actually sure when the leaks began, but the--there was a large mudslide that buried these wells and a production platform in about a hundred feet of, I guess, Mississippi River mud, sediment on the bottom. And the wells were generally secure. Then a plan was developed to cap those, and then through this process there has been a minute leak. Most of the wells don't have enough pressure to produce any oil, so it's not comparable to the situation that's here with the BP leak at all.

KUDLOW: All right. Thank you for that. Now, Larry, look, a lot of ordinary citizens, you know, who basically might be pro-oil or pro-drilling, they really want to know, do you and other drillers have the good, strong, reliable technology to go miles below, miles below sea level and get this done? And let me just ask you, we were talking at the start of the interview, some of the mistakes apparently made by BP. The blowout preventers did not work, the cement plugs did not work, the heavy drilling fluid was overdone, the testing procedures were not proper. A lot of people are saying BP cut costs in order to get this thing going and look what happened, it was a total disaster. What can you say to Americans watching this show, both investors and noninvestors, do we have the drilling technology to go this deep and to do it safely?

Mr. DICKERSON: Absolutely. We wouldn't participate if we didn't believe that it was safe. We are in charge of the safety on board that rig. We have the chief officer on board, the offshore insulation manager, and it's his job to ensure that safety continues on and that all personnel are protected, the environment is protected, and our rig is protected. And we think we do a very good job of that. We think it was...

KUDLOW: But, Larry, do we need--do we need to codify new federal regulations on all of this?

Mr. DICKERSON: I think there were generally some regulations out there. I'm not sure that they were enforced, necessarily. The corners that may have been cut when we look at some of the procedures that were followed in ways that we wouldn't necessarily agree, I don't--I don't know which ones might've violated a particular law. But I can tell you absolutely right now, all of the customers I talked to either can talk about things that they do differently currently or changes that they would make, not necessarily to remedy risky parts of their operation, but to make sure that everything is conducted with belt and suspenders. And I believe that we have everything that it takes to resume operations. I absolutely agree that this needs to be reviewed, and we welcome the government and the MMS, the Coast Guard to come in and go through that. But, again, to just shut it down is going to cost so many jobs. Rigs are going to go overseas, they're not going to come back, and it's going to severely impact our ability as a nation to safely produce oil, which produces jobs and produces revenue, as opposed to just cutting a check and sending it to Venezuela, Nigeria or the Middle East.

KUDLOW: How big's the body blow going to be? How--what do you reckon? I know it's hard to forecast these things, and everybody, you know, the heat of the moment, the heat of the tempers and so forth. How bad is the devastation going to be to the industry?

Mr. DICKERSON: Well, you know, it's not finished. We don't know when this thing is going to be secure. I'm confident that it will be secured ultimately by the relief wells, and the sooner that we can get it shut down the easier it'll be to say that the changes--and the changes will be severe in any case--will be easier to predict. But this will be a seminal event to the industry. This is a true black swan, and it will have consequences that we don't yet see. But I believe that the industry can respond in such a manner that we can demonstrate that we will not have the risk of these type of failures again.

KUDLOW: Larry, last one. Look, regarding the onshore defense, the on--the shoreline defense, you know, the sand barriers, the fire booms, things of that sort, does the industry have sufficient emergency plans to put into place immediately? Or, in your judgment, is that a governmental function?

Mr. DICKERSON: I--whether it's the government or the industry, I think, obviously, some attention needs to be paid to this because if there--if there's one area, as we--as we all watch the efforts to secure this underseas blowout preventer after the fact, after the disaster, and to try to keep the oil from hitting the shores, all of that is, I think, lacking. It's not up to the standards that we would all like it to be, and there needs to be research. I think most of the efforts, certainly on booms and deployments and all that, haven't really changed in many years; so there needs to be improvements in that area. But just as importantly, let's prevent it. Let's not have this ever happen again so that we even have to worry with booms and dispersants and methods to collect the oil from the sea.

KUDLOW: Last question. There are two big tax hikes on your industry coming down the road. One is in the supplementary budget bill that is now before Congress, just a straight tax hike on oil and gas companies. I don't know if the drillers are going to have that hike or not. The second one is this oil spill liability fund, 8 cents--what is it, 8 cents per barrel is being raised to 42 cents per barrel. It's estimated at a $15 billion assessment. Lot of people say, `Well, sure, but that's just going to be passed down to consumers, gone downstream the consumers.' These tax hikes, what do you think of them? Are they justified?

Mr. DICKERSON: Well, I think the original oil pollution act, the same thing that had a $75 million cap on damages, offset that by the 8 cent tax on per barrel produced here. They built up a fund of about 3 1/2 billion. And, of course, the fund doesn't actually exist, it's just a bookkeeping entry. All the money went into the federal great big disbursement machine.

KUDLOW: Sure, you're paying for new federal spending. I mean, that's really it's...


KUDLOW: It's not earmarked money. There's no separate trust fund.

Mr. DICKERSON: But they--it makes sense because, clearly, you know, this was BP, and there's--there are resources at BP. But, as people point out, there are smaller oil companies that wouldn't have had these particular resources. And so it makes sense to me to collect some money per barrel of production. And I don't think that's all--happens in one year, but it should take place over several years as it builds up the fund. And I think that makes sense. I'm not sure that that would be passed on to the consumer. It would make drilling in the Gulf of Mexico more expensive, which it's going to be more expensive for everything else that's coming down the pike. And so ultimately there may be some fewer amount of wells drilled here in the Gulf of Mexico vs. those that would be drilled overseas.

KUDLOW: All right, Larry Dickerson, CEO Diamond Offshore drilling, I can't think you enough for helping us on this. You're really the first guy from the industry to come out and have an interview. You're a stand-up guy, Larry. Can't thank you enough, sir.

Mr. DICKERSON: I appreciate it. We just want to get back to work. Thank you very much, sir.

KUDLOW: Yes, sir. All right. Great stuff.

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