Noble Corporation Plc (NE) Q1 2013 Earnings Report, Transcript and Summary

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Noble Corp. First Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, April 18, 2013. Thank you. I would now like to introduce Mr. Jeff Chastain, Vice President of Investor Relations. Mr. Chastain, you may begin the conference.

Okay. Thank you, Regina, and welcome, everyone, to Noble Corporation's First Quarter 2013 Earnings Call. We appreciate your interest in the company. A copy of Noble's earnings report issued last evening, along with the supporting statements and schedules, can be found on the Noble website, and that's noblecorp.com. Before I turn the call over to David Williams, I'd like to remind everyone that we may make statements about our operations, opportunities, plans, operational and financial performance, the drilling business or other matters that are not historical facts and are forward-looking statements that are subject to certain risks and uncertainties. Our filings with the U.S. Securities and Exchange Commission, which are posted on our website, discuss the risk and uncertainties in our business and industry and the various factors that could keep outcomes of any forward-looking statements from being realized, including the price of oil and gas, customer demand, operational and other risks. Our actual results could differ materially from these forward-looking statements, and Noble does not assume any obligation to update these statements. Also note that we may use non-GAAP financial measures in the call today. If we do, you will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation, on our website. With that, I'll now turn the call over to David Williams, who's the Chairman, President and Chief Executive of Noble.

All right. Thank you, Jeff. Good morning, everyone, and welcome. Joining me today on the call with Jeff are James MacLennan, our Senior Vice President and Chief Financial Officer; and Roger Hunt, our Senior Vice President of Marketing and Contracts. Jeff, James and I are in Houston this morning, while Roger is joining us from Geneva. Hopefully, in addition to our improved operating results for the first quarter, you saw the news we issued early this morning regarding the contract awards for our new ultra-deepwater drillships, Noble Sam Croft and Noble Tom Madden, both from Plains Exploration & Production Company. These contracts, which add in excess of $1.3 billion in backlog, mean we now have contracts for all 5 of the drillships that remain under construction. We're absolutely delighted to have Plains as a customer, and we look forward to supporting them in their Gulf of Mexico drilling programs, and I know Roger will have more to say in this subject in just a moment. I want to start this morning with some brief comments on our first quarter results which did see an improvement in our fleet downtime. Clearly, this is not by accident, as this area of our operational execution process is receiving a great deal of attention and we expect to deliver more consistent fleet performance going forward. I want you to be aware that operational performance will continue to be a focal point, and we do expect to see further operational improvement. Also, we continue to enjoy a robust business climate, as evidenced by our contracts for not only the Croft and Madden and several other recent contract awards are discussed and in progress that we hope to conclude in the near future. I want to mention some business developments that keep me excited about the industry and the foreseeable future. And after James and Roger provide expanded commentary on our quarterly financial performance in the market, I'll close with some final thoughts on some key topics for investors regarding Noble and continued transformation of the company. After that, we'll take some questions. One highlight of our first quarter results was a reduction of about 2 percentage points in overall fleet downtime from the fourth quarter of 2012 to about 5%. While the 5% level is not the goal, when compared to levels experienced over the second half of 2012, which averaged about 6.5% over the last 6-month period, our first quarter performance represents a significant improvement. Remember that the 48 days of downtime in the first quarter were the result of the failure of the wellhead connector bolts on the Noble Paul Wolff in Brazil. In the absence of this event, which had a negative impact on the whole industry, downtime would have been around 4%, and this primarily is due to downtime on the Noble Clyde Boudreaux in Australia and the Globetrotter I in the Gulf of Mexico. The overall improvement is noteworthy because it was accomplished in part due to operating improvements on the new ultra-deepwater drillships, Noble Bully I and Noble Bully II, and the deepwater drillships, Noble Phoenix and Noble Leo Segerius, 2 rigs that completed significant upgrade and maintenance programs late in 2012. Now I'm not suggesting that 4% or 5% is an acceptable level of downtime in the quarter or that one quarter of improvement is necessarily a trend, but we are encouraged by the performance on these recent additions to the fleet and believe that some of the early challenges regarding individual component failures are behind us. Also, with the return to work of some of the rigs in the quarter, we saw a reduction in days stacked and days in the shipyard which contributed to the improvement in the quarterly results. Again, James will provide more detail in the quarter in just a moment. As you know, we've initiated a number of process improvements to drive performance. Some subsea systems control failures accounted for as much as 60% of the downtime days in 2012 and contributed to the majority of the downtime in the Globetrotter I and the Clyde Boudreaux experienced in this first quarter. Last year, we launched our Subsea Uptime Performance-Enhanced Reliability, or SUPER initiative, to address the root cause of the downtime on this critical component of our operations. The initiative includes a zero-tolerance policy with regard to noncompliance to the Noble Subsea Standards and Well Control Policy, strict adherence to end-of-well preventative maintenance procedures and quality oversight on repairs performed on all subsea control systems and components. Other operations enhancements involve upgraded processes for recruitment, retention and advancement, including web-based systems to meet the requirements for crewing our new rig additions and sustaining our business with qualified crews over the long term, and training, safety and competency assurance programs, including a new state-of-the-art training center in Sugar Land, with additional simulated based training in Brazil, Korea and Singapore. Finally, with 11 new rigs to deliver from shipyards over the next 21 months, including 6 by the end of this year, we've made a significant investment in terms of management commitment and process improvement that will provide a smoother transition of these rigs from shipyard departure through commissioning and into initial start-up operations with our customers. And it's finally important that we step up our game now. We believe we will see high levels of offshore activity for both the deepwater and shallow water sectors continue. This is evidenced by recent multi-year contract signings for the Croft and Madden, on the deepwater semisubmersible Noble Amos Runner and on the jackups Noble Julie Robertson and Harvey Duhaney, both recently extended into 2016. Successful deepwater drilling results are driving a backlog of appraisal and development programs, and tighter jackup test is compelling many customers to contract beyond their immediate needs. Roger will provide more -- will provide additional market observations in just a moment, but right now, I'll turn the call over to James.

Thank you, David, and good morning to everyone on the call. This morning, I'll cover details of our first quarter revenues and operating costs, as well as certain balance sheet items. I'll focus on major highlights, with particular attention on those items that will influence our performance in the second quarter and in the remainder of 2013. I will also provide guidance where appropriate, as well as an update on our planned capital expenditures for the remainder of 2013. As usual, anything requiring additional detail can be addressed during the question-and-answer session of today's call. Last evening, we reported first quarter 2013 net income of $150 million or $0.59 per diluted share on total revenues of $971 million. The results compared to net income in the fourth quarter of 2012 of $128 million or $0.50 per diluted share on total revenues of $966 million. Contract drilling service revenues improved by $7 million or approximately 1% from the fourth quarter 2012 to $929 million. This compares with revenues of $922 million in the prior quarter. The revenue improvement was driven primarily by 3 developments. First, we experienced higher average dayrates in the fleets, as a number of rigs began new contracts or contract extensions at improved dayrates. These rigs included the Noble Max Smith, which commenced a 3-year contract in Brazil at a dayrate of $407,000, up from the special shipyard dayrate of $170,000 in the fourth quarter; also, the jackup Noble Harvey Duhaney, which began a 3-year contract at a dayrate of $111,500 a day, up from $66,000; and finally, 5 of our North Sea-based jackups, including the Noble Hans Deul, which started an 18-month contract at $242,500 a day, up from a previous dayrate of $175,000. These dayrates improvements were partially offset by a lower average dayrates on the Noble Homer Ferrington, due in part to our customer experiencing issues in executing its drilling program. Ultimately, we arrived at a settlement with that party, and, as noted in our Fleet Status Report in March, the previous contract was terminated. The financial impact of that termination was not included in our first quarter numbers. In total, the higher average dayrates in the fleet added approximately $12 million to quarterly revenues. Secondly, and as David noted in his opening remarks, a reduction in operating downtime from 7% of operating days in the fourth quarter of '12 to 5% in the first quarter. This added an estimated $9 million to revenue. Of note was the improved operating performance of the Noble Duchess and on our recent fleet additions or upgraded rigs, Noble Bully I and II, Noble Phoenix and Noble Leo Segerius. If you'll recall, these 4 rigs accounted for over 25% of downtime during the fourth quarter of last year. Thirdly, there were fewer nonoperating days in the fleet as measured by a reduction in stacked days and a reduction in unpaid shipyard time. These together added an additional $9 million to quarterly revenue, with contributions made by the return of the jackups, Noble Lloyd Noble and Noble Gus Androes, partially offset by increased shipyard time on the Noble Paul Romano and the stacking of the drillship Muravlenko late in the fourth quarter. Total revenue contributions in the first quarter were partially offset by fewer calendar days in the quarter which negatively impacted revenues by about $22 million. Contract utilization in the first quarter rose to 86% from 83% in the fourth quarter. In addition, as noted earlier, we saw downtime decrease to 5% in the first quarter from 7% last quarter. Average daily revenues showed a slight improvement in the first quarter at $174,600 per day on average. Contract drilling services costs for the first quarter were $484 million, flat with the fourth quarter level and slightly below the expected cost range of $485 million to $495 million. In addition, we saw lower mobilization costs compared to the fourth quarter with the activity then associated with the Noble Muravlenko and Seillean FPSO. Both of those units were cold-stacked in the fourth quarter resulting in lower costs in the first quarter of 2013, about $12 million. Offsetting these cost reductions were higher expenses associated with the full quarter of operations of the Noble Leo Segerius, Noble Kenneth Delaney and the commencement of the Noble Max Smith in Brazil. DD&A for the first quarter was $206 million, right in the range of guidance provided in the fourth quarter's call of $205 million to $210 million, but below the first quarter 2012 amount of $209 million. The quarter-to-quarter decline was due primarily to a reduction in calendar days, partially offset by the start of operations on the Max Smith. G&A expenses of just under $26 million were in line with guidance, which we provided on our last call, and essentially flat compared with the fourth quarter. Interest expense net of amount capitalized was $27 million in the first quarter, in the middle of its guidance range that was previously provided, but down from $29 million in the fourth quarter of last year. The decline from fourth quarter was due to higher capitalized interest on ongoing shipyard projects. Our tax rate for the first quarter was 17% compared to guidance of 20% to 21% and a rate of 29% in the previous quarter. This added between $0.02 and $0.03 a share to the quarter. The lower rate was due to the change in the geographic mix of pretax income and also due to the recognition of certain discrete items during the first quarter. Capital expenditures in the first quarter 2013 totaled $372 million. This was well below our guidance of $1 billion even, due mainly to the timing of certain newbuild expenditures which are going to occur in April. The components of the first quarter total spend were as follows: Firstly, $138 million for newbuild rigs with approximately $2.6 billion remaining to complete the ongoing 11 projects over the next 2 years; next, $153 million on major projects, including subsea-related expenditures; then $51 million for sustaining capital projects; and lastly, $30 million in capitalized interest. I'd like to comment briefly on the balance sheet and also on liquidity. At March 31, 2013, cash and cash equivalents totaled $215 million. Liquidity, measured as the sum of cash and cash equivalents and availability on the revolving credit facility, totaled approximately $1.96 billion. Accounts receivable at March 31, 2013, at $888 million, increased 19% from December 31, 2012. This large increase was mainly due to documentation issues that related to a major customer's billings. This issue, which was administrative in nature, was resolved shortly after March 31 and full payment of the overdue amount is expected in the second quarter. In fact, much of it has already been received. Finally, long-term debt at March 31, 2013, was $4.8 billion, modestly up from December 31, while debt to total cap was 35.9%. Let's focus now on guidance for the second quarter and for the full year, covering certain line items in the P&L, as well as capital expenditures. First, operational downtime in the Noble fleet for 2013 is now expected to range from 4% to 4.5%. This compares to actual operational downtime in the first quarter, as discussed, of 5.1%. The increase in the guidance level was driven primarily by actual first quarter experience and notably by the [indiscernible] issue that was discussed earlier. Contract drilling services costs are expected to remain in the range of $2.05 billion to $2.15 billion for the full year of 2013. For the second quarter, contract drilling services costs are expected to be between $515 million and $530 million. Costs will likely increase $15 million to $20 million per quarter, thereafter. Consistent with prior guidance, DD&A for the full year is expected to be in the range of $855 million to $875 million. For the second quarter, DD&A is expected to be between $210 million and $215 million. G&A is expected to total $110 million for the year and approximately $28 million in the second quarter, with costs split about evenly quarter-to-quarter. Interest expense, net of capitalized interest, is expected to total $120 million to $130 million. Net interest expense in the second quarter is expected to be between $25 million and $30 million, and the same for the third quarter. In the fourth quarter, it's forecast to increase by about $10 million as new rigs are placed in service. The minority interest line on our P&L, which represents the shareholder share of the Bully I and Bully II 50-50 joint venture, is expected to total $55 million to $60 million in 2013 and approximately $15 million in the second quarter. The amount is expected to be relatively flat across all quarters. Our effective tax rate for the year is expected to be in the range of 18% to 20%. As you are aware, any changes in the geographic mix of sources of revenue, levels of profitability, as well as tax assessments or settlements, all movements in exchange rates, can all affect this line as we saw in the last quarter of 2012. Finally, we continue to expect our capital expenditures in 2013 to amount to approximately $2.8 billion. The breakdown by major spending category were as follows [ph] . In our newbuild program, we expect to spend $1.5 billion. Remaining CapEx needed to complete the newbuild program in 2014 should be about $1.2 billion. Major projects in 2013 are expected to total about $850 million, and as mentioned in January, our primary project include our subsea investment, certain delays from 2012, completion of the life enhancement project on the drillship Roger Eason and shipyard projects for the Paul Romano, the Discoverer and the Paul Wolff. Sustaining capital is expected to total $320 million in 2013, driven by the increase in fleet size and the change to a more premium mix of assets. Capitalized interest is expected to total $95 million to $105 million in 2013, with the amount decreasing approximately 10% -- excuse me, $10 million in the fourth quarter following the commencement of contracts in our new rigs. Second quarter 2013 capitalized interest should be an estimated $30 million. And total spending for the second quarter is now expected to be right on $1 billion. Finally, please note in your modeling that the first quarter downtime event experienced relative to the Globetrotter I and the Clyde Boudreaux did linger into the early second quarter. You should expect 11 days of operating downtime at 0 dayrates in April for Globetrotter I and 24 days for the Clyde Boudreaux. That concludes my comments, and Roger will now cover the market outlook. Roger?

Thank you, James, and good morning, folks. And what a jolly spring morning it is. Not often can we give you an almost direct line of sight into an exciting new fixture in the ultra-deepwater arena. Our new contracts with the Plains Exploration and Production Company were executed yesterday and a fresh off the press, so to speak. I'm sure you'll all agree this picture speaks to several key takeaways: it reinforces the strength of the sound fundamentals that underpin our sector; it demonstrates building interest by diversifying customer base; it increases long-term demand visibility; and most importantly, it affirms a considerable confidence our customers placed in Noble's engineering, project management and operations team. If this was a videoconference, you would see that we are very proud of this award. As to the details of the commitment, Plains has awarded 3-year contracts to the ultra-deepwater drillships, Sam Croft and Tom Madden. Most rigs are under construction at the Hyundai Heavy Industries shipyard in Korea. Delivery is expected from the yard during the first half and the second half of 2014. The rigs are planned to operate in the U.S. Gulf of Mexico, with each receiving a dayrate inclusive of mobilization of $632,000 or an aggregate total contract value in excess of $1.3 billion. The awards allow Noble to further diversify its customer base, establish increased visibility, which now extends deep into the decade, and assemble in the Gulf of Mexico, one of the industry's youngest, most advanced and versatile deepwater fleets. With these awards, Noble has now secured contracts on all 5 of its remaining ultra-deepwater drillships under construction, leaving only the 3 JU-3000 jackups uncontracted in our newbuild project portfolio. As we've said before, the placement of our new rig orders, both deepwater and high-spec jackups, was well timed and favorably positioned for the company to deliver enhanced returns to our shareholders. While I'm on the subject of rig contracts, I want to briefly comment on the developments involving the jackup Houston Colbert. As you may have read, ConocoPhillips decided to exercise their termination right following the decision to defer their Arctic drilling plant. With the termination, Noble will receive a settlement of $18 million and reimbursement for any expenses incurred that relate to the planned winterization of the rig. The Colbert is expected to be delivered from the Jurong Shipyard in Singapore during the fourth quarter of 2013. Given customer interest in the advanced features of this unit and the late 2013 timing of the rig's delivery, we expect that a replacement contract will be secured by the rig's date of delivery. The company's revenue backlog at March 31, 2013, was $14 billion. Approximately $11.4 billion or 81% of the backlog is from our semi-fleet and drillship fleet, while $2.6 billion or 19% is from the jackup rig fleet. The figure at March 31 does not reflect the $1.3 billion in estimated revenues to be generated from awards for the Sam Croft and Tom Madden or the recent 2-year contract extension for the semi Amos Runner. Together, these additional awards increased the backlog to a healthy estimated $15.6 billion. As our recent contracting successes suggest, the offshore drilling business continues to benefit from excellent fundamentals which is driving robust customer spending plans beyond 2015. The crude oil price environment remains highly supportive, and deepwater discoveries continue, following a record year in 2012. During the first quarter of 2013, 10 more discoveries were added to the impressive totals over the past 5 years. West Africa and the U.S. Gulf of Mexico continued to provide the lion's share of new opportunities in the deepwater sector, as both possess abundant resource potential. As we have witness for the past 5 years, deepwater activity continues to expand geographically as more countries explore their offshore potential and operators gain increased access to promising frontiers. Although the first quarter produced few new signings for deepwater-capable rigs, we believe this had more to do with 2013 programs already being billed versus a reduction in base demand. As our contracts on the Croft and Madden suggest, we should see a pickup in contract awards as we progress through the year and operators finalize exploration and development plans in 2014 and 2015. Just in the span of 2 days, the number of uncontracted deepwater rigs set to deliver in 2014 has been reduced by 3. In the jackup sector, we remain encouraged by the tendency for operators the contract rigs beyond their initial needs as evidenced by the recent awards on the Harvey Duhaney in the Middle East and the Julie Robertson in the North Sea. Most rigs receive 3 extensions, extending their contract terms into the first half of 2016, and we are currently evaluating other multiyear opportunities. We expect incremental demand to surface over the year in Saudi Arabia, Mexico, Southeast Asia, and the jackups with the highest specifications, offshore Norway. In short, the strength of the jackup sector remains a pleasant and welcome development in the current cycle. Finally, I want to close with an update on the outlook to some of our deepwater rigs with current or near-term availability. First, reported in the last Fleet Status Report, a short, 75-day program for the semi Paul Romano offshore Egypt at $465,000 a day. The rig is expected to leave Malta in July and begin the program in early August. Also, the semi Homer Ferrington is now idle in Malta, following the early termination of a contract. We are evaluating several opportunities with varying commencement dates in 2013, but currently do not expect the rig to return to work before mid-third quarter. And finally, the Paul Wolff is expected to complete a 5-year survey and major maintenance program in 2014, covering an estimated 180 days. Since this program is expected to conclude around November 2014, consuming the remainder of the time under the current contract, we could see the 180 days needed to complete the program added to the back of the current contract, therefore, extending the contract into the first half of 2015, or we could negotiate a new term program in Brazil, or we could move the rig to another region altogether. And with that, I'll turn the call back to David for some closing comments.

All right, thanks, Roger. As you can see from our comments this morning and the recent contracting successes, we have good reason to be enthusiastic about our business and the progress being made towards the transformation of Noble. I've already covered some of the steps being taken to improve operations execution with the new process, procedures and systems that address critical components, hiring, retention, training and competency of the crews, there are other important developments at various stages of progress that will also contribute to our transformation. The possible divestiture of standard specification assets is one. I noted from meetings held with many of you over the first quarter that you'd like to have more information on this particular opportunity. Let me state that we are making meaningful progress. As previously disclosed, we are currently pursuing a path to potentially spin off a pool of standard specification assets. We are completing carve out financial statements, preparing the internal restructuring steps and pursuing a preparatory tax ruling that will address the tax sufficiency of the spinoff strategy. We expect our board to be in a position to consider this path once these steps are complete. And if approved, I would expect a swift process of communicating the details of the plan. Also, let's not forget the significant task at hand in delivery of 11 new rigs over the next 21 months, including 6 rigs in 2013 and 5 rigs next year. As we wind down these newbuild projects, capital expenditure levels are expected to trend lower beginning in late 2014, while free cash flow grows. This combination should offer the company numerous alternatives for allocating capital in the future. You already know that the board has recommended to shareholders that they approve increasing our annual dividend to $1 a share for the 2013 and '14 cycle. Let me end by saying, Noble offers investors an improving mix of premium assets, available high specification rig capacity at a time when operators' needs are expanding, an asset divestiture potential that could take the form of a spin, and a capital allocation strategy that is transitioning to one with multiple alternatives. I believe these catalysts for value make Noble a unique choice for investors in the offshore drilling space. And with that, that ends our entire prepared remarks. And I'll turn the call back to Jeff.

Okay. Thank you, David. Regina, before we start assembling the queue. We want to clarify a statement made earlier today. James?

Yes. Thanks, Jeff. Just to clarify a relatively minor point, I wanted to be sure to get this out. I made a statement that the settlement of the issue with a customer on the Homer Ferrington was not included in the first quarter, in fact it was. It was the other settlement relating to the Houston Colbert that Roger mentioned that was not in part of the first quarter's numbers. Thank you, Jeff.

Okay. Thank you, James, David. Regina, we're now ready to begin the question-and-answer segment of the call. So if you'd go ahead and assemble the queue, we thank you.

[Operator Instructions] Our first question will come from the line of Edward Muztafago with Societe Generale.

Just wanted to follow up a little bit on a comment that you made before in terms of an eventual uptick in the pace of contracting for deepwater rigs slated for delivery in '14. I think what we've typically seen as we've got into the contracting window for the rigs is you get in a bit of a fervor amongst the operators to secure supply, and we tend to have an uptick in dayrates. Can you all talk about what your expectations are for deepwater dayrates as we get a little bit more firmer in contracting with them?

Yes. I think, Ed, that's an easy question to answer. The expectation is, we literally in the last 24 hours have set the dayrate for work in the Gulf of Mexico. And one would assume that, that was the product of the customer looking at what all their options were and their choice, and the customer arriving at a mutual agreement contract. So I think you should focus on that and look at various parts of the world and adjust those rates relative to the relative cost of doing business in different parts of the world.

Okay. Secondarily, I wonder if you can comment just a little bit on the Croft and Madden. Those rigs I know are dual BOP-capable. Did the contracts include a second BOP or was that for a single BOP on these rigs?

Yes. Fortunately, the leadership team had the foresight that when we placed the order of 4 of the ships initially, we also ordered the second BOP sets. So both of those contracts with 2 BOPs.

Okay. So presumably, that dayrate reflects the -- some premium for having the second BOP on the rigs.

Correct.

Your next question comes from the line of Byron Pope from Tudor, Pickering, Holt. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Roger, last quarter, you commented on the fact that you thought we could potentially see incremental demand in some of the midwater deidries [ph] potentially soak up any softness in Brazil. So I was just hoping you could speak to your take and your outlook on the midwater, the major midwater deidries [ph] around the world.

Yes. I don't think I made a specific reference to midwater, Byron. I think, to Brazil, yes, there's going to be rigs leaving out there. Fortunately, we are in a position where we believe -- and I wouldn't call rigs like the Homer Ferrington and the Paul Romano midwater. We feel good about the potential for those units. We're tracking approximately a dozen different projects in the area of the Mediterranean, some of them are short-term, some of them are longer-term. But I think that's what I meant by those remarks. We're confident that both of those units will be employed over the near-term. I think some of the midwater units will be challenged over the near term. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: And then Dave, I respect that the management team and the board are still evaluating what to do with the relative standard capability assets. But I was just hoping that maybe you could couch the discussion in terms of maybe rig characteristics that would classify as standard capability. I mean I know it's much more involved than just necessarily leg length with regard to jackups. And then just wanted to see whether or not, as you think about standard capability assets, might that also include some floaters in addition to the standard jackups.

Byron, we have not really given a lot of clarity on exactly what the spin makeup might be. But you can expect that, yes, probably we would -- standard rigs is not necessarily a euphemism for necessarily jackups. Yes, I think you could expect that it would include some jackups and floaters. But again, we've not provide a lot of clarity. We expect the company would be a viable, realigned successful company. And if we go down this path, we want the company to trade well. So it will be a company that has a great future and has an opportunity to consolidate and be a viable player in that space. But we've not given a lot of clarity on exactly what the fleet makeup would be.

Your next question will come from the line of Ian Macpherson with Simmons. Ian Macpherson - Simmons & Company International, Research Division: How does that backlog addition influence your attitude towards more newbuilds for Noble this year or next year?

Well, we've always felt pretty comfortable -- confident, Ian, that our timing was good. I'm not sure the market gave us a lot of credit for our timing. But our marketing, operations and engineering guys did a spectacular job, I think, of coming up with a strategy and are convincing the board that it was a good idea to build this many rigs at the same time. I mean, our guys did a super job, I think. We've always had a lot of confidence in our timing. We still have 11 projects to deliver. So I don't think you'd see us jump off to more and order a bunch more rigs on spec. But we still like the fundamentals of the business. As Roger pointed out, we think that the backlog of deepwater delineation development and production programs that's building gives the deepwater, ultra-deepwater sector a lot of runway still. We think that the jackups that are spec-ed correctly have huge upside. I mean, I think the jackup flooring that we've got really is going to be one of the things that we're most proud of at the end of this process. So you will see us, I think, continue to build rigs. Right now, we still have 11 rigs in the queue. We are always talking with operators about specific newbuilds against contracts. And one of those could hit almost any time -- I wouldn't say any time, but those discussions are ongoing all the time. But on a speculative basis, I think you'll still see us -- it will be a little bit of time before we go back on speculative newbuild opportunities, but you will see us build again. We still like the fundamentals of the business. We think product prices, in spite of the slash in the last couple of days, fully support what we're doing and support more. We think there's an aging fleet out there, so you'll see an acceleration of retirement for the older end in the next 10 years, and shipyard prices are still good. So I mean, all that points to continued opportunity we believe. Ian Macpherson - Simmons & Company International, Research Division: Very good. A follow-up question, unrelated. Can you update us on how you're tracking with the capture of your bonus component of your dayrates, particularly with Shell and Petrobras? I know that at your Analyst Day last year, the answer to that question was that the capture was quite low. But we are seeing some measurable improvement with your revenue efficiency. So anything, even if it's sort of broad stroke, you could say around that would be helpful for revenue modeling purposes.

I wish I could. I mean that's not something that we'd broken out in a great detail yet. I think our performance has not been where we wanted to be, although I will tell you it's improving. So let us get -- give us a little time, and we'll see if we can provide more clarity down the road. But I will tell you, it's improving. It's not where we expect it to be, either with Shell or with Petrobras. I will say some of the rigs are doing really well and some are not doing as well as they need to be. So it is improving, but we still got room to move.

Your next question will come from the line of Robin Shoemaker with Citi.

So I wanted to ask you about the surge in jackup orders that we've seen in the industry here year-to-date, quite surprising that so many jackups have been ordered and in contrast to relatively few, if any, drillships. So do you -- and Roger spoke very positively about the jackup market. But is it simply that or some new entrants in the business that are fueling this? It appears to have some of that as well. But I just wanted if you have any thoughts about the new jackup orders for 2015.

There is some, it appears, some new entrants, some speculative participation in that element. Frankly, we like the jackup business. Does it scare us? No, it doesn't scare us. But for us, it depends on the type of rig that's being built and the class of rig. There are some of those folks out there that are building some rigs that I wouldn't say standard spec, but they are not as high spec-ed as the rigs that we build. I think the capital required to build the rigs like the JU-3000 that we're building compared to the capital required to build some lower-spec rigs and the rates that we've been able to achieve, our average rate has been around 230 -- I think around 230 to 235 a day, I really like where we've landed. We like the jackup business. I mean, if you look at the global jackup market, there's about 500 rigs, on any given day, about 100 are stacked, a bunch of those probably ought to be cut up. And of the rest of them, half are 30 years old or better and half are not. And so I think there's going to continue to be opportunities for higher specification jackups and new equipment. So it doesn't surprise us, it doesn't surprise me, given what's going on with shipyards. If you have access to capital, which is one of the things that's keeping the real speculators on the sidelines, I think, is their capital models are still fairly tight. But if you have access to capital or the yard views you as a reasonable risk, they'll finance most of it. And it doesn't surprise me at all that with the state of the shipyard business right now, that prices are down and people are building. So -- but I still think that the market is strong enough to be able to support it.

Great, interesting. Okay. Well, my follow-up then, I was kind of thinking that you would give us an update on what you'd discovered with the Regina Allen investigation in terms of the jacking incident. And how you feel about the resolution to that problem on that rig and the timing of all the rest of your jackups and whether there'll be any further impact.

Okay. Yes, we probably should, I think -- I thought we covered that before but that's probably -- that's a good point. We -- I just returned from Singapore and met with the project team at the shipyard. There were about 5 separate studies done outside of the shipyard study; the manpower, a regulatory body, a third-party group that we hired and a third-party group that the manufacturer hired. So there were a number of different studies done at this incident. They all came to the same conclusion. It was a software issue in the jacking system itself. And once the jacking system began to fail, the brakes -- the whole momentum, the brakes weren't robust enough to stop the momentum. So the fix is a software fix in the programming for the jacking system and we've upsized the brakes. So we all have a lot of confidence in that solution. We -- other than Regina Allen, we don't believe that, that incident is going to cause any delays on the rest of the rigs. The rest of the rigs all are within their original plans with the shipyard, where our timing is good on the rigs. So we don't believe there's any meaningful impact to any of the rigs with the exception of Regina Allen, which is progressing just fine. So the information in the most recent Fleet Status was given based on the conclusion of those reports, and there's really nothing else to say about it. We feel good about the conclusion that was drawn by all different studies, and we have a lot of confidence in both the builder and the manufacturer of the jacking system and the designer of the rig. So we feel very good about that program.

Your next question will come from the line of Harry Mateer with Barclays.

Just wondering if you can talk a little bit about your financing plans for the year. I know CapEx is going to pick up over the next few quarters and you got a maturity coming up in June. So should we expect to see you guys trying to get out in front of that while the bomb [ph] markets are still pretty robust in the next few months, and then secondly, how do you think about the balance sheet as it relates to timing on any potential spec newbuilds? You mentioned you're not quite ready to move down that road yet, but when do you think you'll have the balance sheet flexibility to potentially enter into some newbuild arrangements?

Yes, I'd be happy to answer that. As I mentioned during the call, total liquidity at the moment is about -- is just short of $2 billion, including our revolver as well as cash on hand. We do have some large commitments coming up. As I mentioned, too, we had some slippage from the first quarter into the second on our newbuild program. Doesn't reflect anything other than a slippage in the timing on the payment. We do have a maturity coming up, a relatively small one. We have not yet decided which way we'll go there. We're not compelled necessarily to do anything. We will make that decision as we go through the year. To the other part of your question, we believe our balance sheet, especially considering that the backlog is now obviously significantly increased by more than 10% in fact through these very recent development, we believe that we have a good way to go as far as balance sheet support our further programs. I'm not forecasting anything necessarily. As David mentioned, any newbuild activity is more like to be backed by a contract. So you would see those come in tandem.

Okay. And then in terms of your credit ratings, I know last month, Moody's took you down 1 notch to mid-BBB. You still remain high-BBB at S&P. What's a good place for you to be in terms of your credit ratings. Do you like being at that mid-BBB level? Would you be willing to go low-BBB?

We like where we are.

Your next question will come from the line of JB Lowe with Cowen Securities.

I just had a question on some of the processes you're putting in place to deal with the 11 newbuilds that you're bringing online over the next 2 years. What are some of the programs you're going to put in place to ensure a smoother transition of all those assets?

Well, I'm not sure we have enough time to describe a whole lot of them. We -- I've covered some broadly, I think. Primarily, it's been -- every drilling contractor that I've ever seen, there's a black hole between the guys who do the projects and the guys that run rigs. And so you got a project team who's focused on AFE and delivery, and you got a drilling operations team who's focused on running rigs for customers and uptime. What we've done is try to create, basically, an organization. We put a VP level, very experienced, great mentor and great driver, into that gap between those 2 to create basically a transitional organization. And this gentleman works both with the shipyard team and operations team to ensure that everybody is pulling the same way. And it may sound a little odd and a little crazy, but I mean, project guys are there to run an AFE project and they're focused on AFEs and deliveries and not lowering AFE. Drilling guys are focused on drilling operations for their customers. So naturally, it creates this kind of gap between the 2. So what we've done is put a lot of processes and people in terms of -- including embedding operations people in the project team, changing some lines of reporting during the project and delivery, incentivizing different people on both sides to make sure the rigs are not only delivered on time and on budget, but also that they're incentivized based on their operational performance coming out. So there have been a litany of things that are going into streamlining that organization, and the processes to ensure that everybody is focused on the right thing. Getting the rig out of time -- getting the rig out of the shipyard on time, on budget, and then have 40% downtime is not what we want to achieve. Having the rig come out late by 6 months is not what we want to achieve. So you've got to incentivize everybody the same way. And so a lot of this has been processed that way, things of that nature. Also there's been a lot of training, a lot of movement of people and a lot of commitment of senior managers just to that gap management.

Okay, great. An unrelated question. In terms of the asset divestiture plans you guys have. Is it possible that before a potential spin, you could actually sell some more assets? And if so, would that pushback forming the structure of any potential spin?

Well, we have 2 rigs that we've talked about sales of already, and they're both been delayed for various reasons. I think -- we still think they're going to occur. We still feel good about both buyers. And so on one-off sales, yes, we can continue to see those, and those will have no impact on an ultimate spin. If somebody walked in the door with a lot of money and wants to buy a bunch of rigs, we're -- our door is open. And if you know somebody, give them our phone number, we'd love to talk to them. My guess, really, is that once we announced a -- once we get to a point the board considers and we can provide more clarity to the market on exactly what's in the package, that's when you might see a potential buyer show up. When they know what they're buying and know what we're interested in selling, I think, again, I think we want this company to trade well. It's -- we think -- we really believe that the standard part of the business will become a different business than what we've developed with the 21 newbuilds that we will deliver from 2007 through next year. And we think they really are different strategic drivers that drive both parts of this. So we want both parts of it to trade well, they're both important to us and both important to our shareholders. And we think there's an opportunity to unlock value. But once we -- once there's more clarity on exactly what a transition like that might look like, I think that's when you might see somebody show up and want to buy them.

Your next question will come from the line of Matt Conlan with Wells Fargo.

Roger mentioned the relative cost of doing business in different parts of the world. And today's drillship contracts benchmarks the Gulf of Mexico pretty well. But for a 3-year contract, how much of a premium would you need to accept a 3-year contract in Brazil and how much in Angola?

I'll let Roger take a stab at that one, Matt.

Yes. I would hope that people are looking at numbers that are pretty close to 7, just on the basis of the differential that you mentioned. So pick a number that's probably somewhere between a $40,000 to $60,000 a day cost differential between the areas that you mentioned. Now, is there much difference between Brazil and Angola? Perhaps; probably not.

Okay, that's terrific. And an unrelated follow-up. What's happening regarding the arbitration over the Homer Ferrington? Noble has owed $50 million or so for that contract. Do you guys -- ever going to get paid?

The process is ongoing, so I'm not sure what I can say. We expect to get paid if we wouldn't be pushing so hard. So Matt, this is -- once you turn it over to the lawyers in the processes, it takes a life of its own. But yes, we hope to get paid. But we're in a process, I don't know how long it will take.

Your next question will come from the line of Mike Urban with Deutsche Bank.

Most of my questions have been answered, but I was just wondering as you were setting the proposed dividend policy for the board if you had some reasonable inkling that these -- the contracts who are pioneer were in the pipeline or just that those are the kind of assets that were going to get this kind of contracts anyway, and therefore, it was kind of included into thinking. Just trying to get a sense for how that framed the thought process on the dividend level.

Well, I mean, I don't know where we were in the conversation with Plains. I can't and wouldn't really speak to how long that dialogue has been going on. But, no, I mean, it's -- we don't -- we're not really betting on the come [ph] . We've always have a lot of confidence in our newbuild program. We've had a lot of confidence in the marketplace. The discussion on the dividend really was independent of any other discussions that might have been ongoing at the time. We felt like, given our visibility going forward, given the strength of the business, we felt like it was the right thing to do at that time and the board agreed with us. So no, one really had nothing to do with the other. We're delighted about the Plains' commitments. But in fact, they won't even start while this '13, '14 cycle is being paid up.

Right, right. I'm sorry, I misspoken the customer. The -- and then kind of an unrelated, I know that enough, another -- a number of questions on kind of your thoughts on newbuilds going forward, and I totally understand you've got a lot on your plate still and got to get these done. Is there some view that, given you have established a pretty significant apparatus with the shipyards and proving the efficiencies and presumably driving down the cost, that you just ought to have kind of a -- even from an ongoing fleet renewal process, you ought to kind of always have at least 1 rig or 2 under construction, and maybe -- certainly not the level that you have now, but maybe level-loaded over the course of multiple years and multiple cycles?

There certainly is an argument to that effect, yes. I think that for us, what we have talked about post-delivery of the current suite of newbuilds, that we would like to have a continuing newbuild program but at a much lower pace, and I'd say a much -- I don't think we want to build 14 at a time again. But to have an ongoing program. I think that our engineering construction teams, our project management teams, I think we put together a great team, both the group in -- the group that was in China with the Globetrotter I and II. The Globetrotter II, that project is going really well. But the team that we put together and really kind of took a different approach, Scott Marks and his guys put together a spectacular team in Korea for the Hyundai program and a fantastic team in Singapore for the jackup program. So just for no other reason, I hate to break those guys up. So -- and we won't buy rigs just for that purpose, but there -- and as you say, we've got a team, we've got a program, it works, we're delighted with it, and I'm glad they're there. I think we will have an ongoing program, whether it's rig a year or a rig every other year. I'm not -- we're not to that point yet. But I'm extremely proud of the guys that we had in place to do that, and we expect to have an ongoing program. I think timing is a big part of that. Right now, we're building deepwater drillships at a delivered price of under 650 a piece, and those -- that comparable vessel was available in 2007, '08 at almost $800 million all in a piece. So I think you need to pick your time. So you don't want to build regardless of what the economics look like. But certainly with where we are now, I think an ongoing newbuild program makes sense.

Your next question will come from the line of Waqar Syed with Goldman Sachs.

My question relates to Arctic drilling. There have been a few setbacks with Shell and now ConocoPhillips. What's kind of your outlook there for both some of your rigs that are directed there and also your labor contract with Shell in Alaska?

Yes, Waqar, as published by Shell, they have postponed the next drilling season until 2014. We have the Discoverer, drillship Discoverer in Korea. We're doing a body of work. The contract runs through to February 2014, and we're engaged with that customer now. We have a discussion about an extension, which actually just as an indicator of that customer's confidence, goes significantly beyond 2014. On the labor contract, Shell has actually taken Kulluk under their own project team, and they're going to be repairing it. But we also have discussions about extending the operating contract once the rig is back in service.

Okay. So you don't think that industry interest in Arctic drilling has diminished significantly for the next 3 to 5 years’ timeframe? Or how would you -- how should we be thinking about that?

I would look at what Exxon has just done with Rosneft. It is an enormous program that they've committed on. The acreage is in the Kara Sea. And also on the, for want of a better word, on the -- Sarah Palin would say, on the Alaska side of Russia. So there's a lot of acreage there. And they're in the early stages of attempting to drill a well in 2015. I think Conoco has just decided to back away and take a pause, but I wouldn't read that as a fundamental shift away from the Arctic.

Okay. And then just finally, just a clarification on the dayrates for Sam Croft and Tom Madden. If you exclude mobilization, what do you think the clean dayrate is for those rigs?

Okay. That's an easy question. So the amount of dayrate payment for the mobilization is $22,000, so 632 minus 22, the base dayrate is 610.

Your next question will come from the line of David Anderson with JPMorgan. John David Anderson - JP Morgan Chase & Co, Research Division: I want to ask you about the jackup question, all the newbuilds out there. We've seen a lot of the -- those building them, look like they're Mexican contractors who are getting the business. You guys have a pretty big presence in Mexico. Does this change your kind of, I don't know, 2- to 3- to 5-year outlook on that business? Do you start moving back into the Gulf? We've noticed kind of a nice little uptick in the Gulf rates. Could we potentially see some movement there?

No. I think we -- Jim Day, who was, everybody knows, CEO here for a long time had the presence of forethought to move jackups out of the Gulf of Mexico, I think that was a good call, than the U.S. part. We like Mexico. We think that, yes, there's been some new rigs committed in there. They're still under-rigged, if you will, by their own estimates, so we don't see any reason to change our view of that market. We've seen an uptick in rates in the Gulf of Mexico, yes, and we've had some conversations. But bringing the jackup -- the shelf business in the U.S. Gulf of Mexico is just not a target market for us. John David Anderson - JP Morgan Chase & Co, Research Division: But are you concerned that Mexicans -- that new players are entering that market who might have a pretty quick stronghold in that market?

No. I think there's plenty of additional demand at Mexico to support some additional players and additional equipment. John David Anderson - JP Morgan Chase & Co, Research Division: Okay. One other question on the Chinese yards. We're starting to hear a lot of chatter about Chinese getting into newbuild deepwater rig market out there. Are you seeing -- are they putting out some kind of more aggressive financing terms out there? And do you think they have the capabilities to pull this off? And will people order rigs compared to what's coming out of Korea and Singapore?

Well, we've been in the Chinese yards. We built 3 jackups in Dalian and we built the Globetrotters in the STX yard, which is Korean-owned but a Chinese-based yard. I mean, the Chinese yards have been building ships for a long time. Drilling rigs is much more complex, but there's no reason to believe that they won't be able to work a learning curve and be able to develop a -- there's more than just being [ph] steel, but there's no reason to believe that they won't, in the fullest time, be able to deliver quality equipment. And if they can deliver it cheaper, then people will build up the confidence that they can develop and they can get them cheaper, they'll go there. So I don't -- I think, for us, would we go back to China and build a rig, sure. We would not go just to any yard, we would go to a yard that we had confidence in. And we've been in 2 of them, and I think we would go under the right circumstances back to either one of those yards. Some yards have been better than others. There are some -- you hear funny stories about financing schemes. My experience with financing schemes, and when they're priced at these levels is either you're going to pay for the financing or they are going to pay for the financing. But it's baked into the numbers somewhere, but there are some -- we've heard some pretty attractive financing schemes in there. We wouldn't pick a yard just because of the financing scheme. John David Anderson - JP Morgan Chase & Co, Research Division: But are they out there with much more aggressive financing terms than Koreans, like we've heard?

Well, the Koreans, in my experience with the Koreans, they'll do a 20-80 financing if that's what you want. You're just going to pay for the cost of the money. And I don't know -- are they more aggressive than that? Pass. I don't know. And it's not something we pursue very vigorously so -- and we don't have Chinese guys knocking on our door all the time presenting different deals to us. But we've heard some anecdotal things that they're very aggressive on financing. We haven't really looked into that, to be honest with you.

Okay, Regina, with that, we're going to conclude today's call. For those of you left in the queue, I will be contacting you over the course of the day to address your questions. Thank you for your participation on today's call and your interest in Noble. Make a note that our second quarter 2013 results are scheduled for reporting on the 17th of July with a call to follow on July 18th. And we'll confirm those dates as we get closer. I will be available, as I said, over the course of the day to take any follow-up questions. Regina, thank you for coordinating the call, and good day, everyone.

Ladies and gentlemen, this does conclude today's conference. Thank you all for joining, and you may now disconnect.