Noble Corporation Plc (NE) Q4 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.'s Fourth Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, January 23, 2014. Thank you. I would now like to introduce Mr. Jeff Chastain, Vice President of Investor Relations. Mr. Chastain, you may begin your conference.

Okay. Thank you, Regina, and welcome, everyone, to Noble Corporation's Fourth Quarter 2013 Earnings Call. We appreciate your interest in Noble, and a copy of our earnings report issued last evening, along with the supporting statements and schedules, can be found on the Noble website, 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 or 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 risks 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 the website. With that done, I'll now turn the call over to David Williams, Chairman, President and Chief Executive of Noble.

All right, thank you, Jeff. Good morning, everyone, and welcome. Joining me today on the call, along with Jeff, are James MacLennan, our Senior Vice President and Chief Financial Officer; Roger Hunt, our Senior Vice President of Marketing and Contracts; and Simon Johnson, Vice President of Marketing and Contracts. Jeff is handling things from Houston while James and I are in London today. Roger and Simon are in Singapore, participating in an active week of events, which includes the naming ceremony for the Noble Houston Colbert, which was delivered early in January and represents the third of our JU3000N units to be delivered from the yard, along with the steel-cutting ceremony for our ultra-high specification CJ-70 jackup. You will recall that we announced last June a 4-year primary term contract with Statoil, at the time we ordered this highly advanced rig that's expected to commence work for Statoil in the Mariner Field over the North Sea during the second half of 2016. We are very excited about this future addition to our fleet and the relationship with our new customer, Statoil. We're also very pleased with the progress made on our newbuild program and the excellent execution and timely deliveries made in 2013 with more units to come in 2014. These premium rig additions continue to drive an impressive earnings and cash flow growth profile for the company. I'll offer more on the fleet additions in just a moment. Today, I'll make some opening comments on the fourth quarter and the full year 2013, then I'll turn the call over to James for a more detailed review of the quarterly results and some guidance for 2014. Roger will provide his take on the offshore markets, and I'll close with a few final comments. But before we begin today, some of you may recall a filing we made last December reporting that after 40 years in the industry, Roger Hunt will retire effective March 1. Since joining Noble in 2009, Roger has successfully directed the expansion of Noble's marketing and contracts efforts. I believe Roger's leadership and dedication has created the best marketing and contracts team in our industry as evidenced by the leading-edge dayrates he and his team have delivered for both floating and jackup segments of the fleet and the improved terms and conditions now found in many of our contracts. It goes without saying that Roger will be missed, and we wish him and his lovely wife, Liz, all the best in retirement. In creating a highly successful marketing and contracts department, Roger was instrumental in building a broad team of top-tier professionals who are fortunate to have been mentored by one of the best, and I'm delighted today to introduce Simon Johnson who will take over as Senior Vice President of Marketing and Contracts upon Roger's departure. Simon who joined Noble's Marketing and Contracts department in 2010 has a wealth of industry knowledge and close customer relationships, having worked in several international locations over his 20 years in the business. Some of you may have had the opportunity to meet Simon while he was participating recently with Jeff in some industry conferences in different places. So Simon, we welcome you to your new role, and look forward to putting you to work. Now for some comments on the fourth quarter 2013. We've changed covering the numbers in detail. I want to focus on 2 significant accomplishments. As I mentioned earlier, shipyard execution was exceptional as it has been all year. Two new rigs were added to the active fleet during the quarter and were contributors to the 8% growth in revenues when compared to the third quarter. Following a late third quarter delivery in 2013, the first of our 6 JU3000N jackups, the Noble Mick O'Brien began its contract in the Middle East in November, while the second of our Hyundai ultra-deepwater drillships, the Noble Bob Douglas, commenced a 3-year contract in December following the rig's delivery early in the fourth quarter. The Douglas is currently drilling offshore New Zealand and the operational readiness of the rig and its crew was spectacular. The rig is expected to complete its New Zealand assignment and begin mobilizing the U.S. Gulf of Mexico in April. In November, we took delivery of the Noble Regina Allen, the second of our JU3000N jackups. The rig has completed its mobilization and commenced its 18-month contract in January of this year, January 17, in the Dutch sector of the North Sea. Finally, since the start of 2014, we took delivery of the jackup, Noble Houston Colbert. Following a 30-day period to winterize the rig, we'll mobilize the Colbert to Argentina to begin a 10-month contract offshore Tierra del Fuego in April with Total. To summarize the shipyard activities in 2013, we delivered 3 ultra-deepwater drillships and 2 high-specification jackups. In 2014, we anticipate the delivery of 6 additional newbuilds, the final 2 Hyundai ultra-deepwater drillships, and following the Colbert's delivery already in January, the final 3 JU3000N jackups. This leaves one final project in our backlog, the CJ-70 jackup for Statoil. I mentioned earlier the meaningful financial contribution made by our new rig additions as evidenced by our growth in earnings in 2013, which have doubled since 2011. I stated this in 2013, and I will emphasize it again: I'm very, very happy with the exceptional timing of the orders placed for the 12 premium floaters and jackups to be added to the Noble fleet by the end of 2014 and the outstanding shipyard execution that has been evident from the start. This remains a major aspect of the success of our fleet transformation and should not be overlooked as we continue to evaluate future growth opportunities. The second significant accomplishment in the fourth quarter deals with the measurable progress made towards the divestiture of our standard capability fleet. Before the quarter concluded, we had cleared 2 significant hurdles when we received the long-awaited Private Letter Ruling from the IRS, followed by our S-1 filing with the SEC under the temporary company name, Noble Spinco Ltd. Since that filing in late December, we have received an initial round of comments from the SEC that we view as very manageable, therefore, keeping us on pace to complete the divestiture of these assets by the end of this year. I'll now turn the call over to James for the financial discussions.

Thank you, David, and good morning to everyone on the call. As is our practice in Noble's annual fourth quarter calls, I'll spend some time this morning providing our financial guidance for the full year 2014, including a number of line items from the consolidated statement of operations and details regarding our planned level of CapEx for the year. I'll also make some comments relative to the proposed upcoming spin-off. Before I begin the discussion on guidance, I want to make some high-level comments regarding our fourth quarter revenues and operating costs and certain balance sheet items. I'm happy to address items that are not covered in my prepared comments during the Q&A session of today's call. Last night, we reported fourth quarter 2013 net income of $174 million or $0.68 per diluted share on total revenues of $1.17 billion. The quarter's results include a loss on impairment of the FPSO, Noble Seillean, which resulted in a net after-tax charge of $36 million or $0.14 per diluted share. Excluding this impairment charge, our net income per share would have been $0.82. The results, compared to net income in the third quarter, of $282 million or $1.10 per diluted share on total revenues of $1.08 billion. As you may recall, the third quarter results included a number of onetime events that contributed an after-tax net income of $63 million or $0.25 per share. Putting these items aside, our net income per share would have been $0.85 in the third quarter. Contract drilling services revenues for the fourth quarter grew by $84 million or approximately 8% from the third quarter of 2013 to $1.12 billion. The revenue improvement was driven primarily by contributions from the Noble Homer Ferrington, which commenced a short-term contract in the Eastern Mediterranean, and the addition of 2 new rigs, our ultra-deepwater drillship, the Noble Bob Douglas, in late December and the Noble Mick O'Brien, our newbuild jackup, in November of 2013. Together, these rigs added approximately $53 million in combined revenue. In addition, the 2 newbuild drillships that we added in the third quarter, the Noble Don Taylor and the Globetrotter II, had a full quarter of operations in Q4, which added a further $37 million to revenue. Partially offsetting these increases was a rise in nonoperating days attributable to idle time and shipyard programs on several rigs located primarily in the Middle East region. Contract drilling services costs in the fourth quarter increased $74 million to $560 million, which compared to $486 million in the third quarter of 2013. The quarter-over-quarter increase reflects the addition of a full quarter of operations for 2 of our newbuild rigs, together with the completion of certain shipyard projects, primarily the drillship, Noble Roger Eason, in Brazil and the semisubmersible, Noble Paul Romano, in Eastern Med. And on a combined basis, that had a $46 million impact. Also costs rose in the quarter due to higher mobilization transportation and fuel costs, as well as an increase in repair and maintenance and shore-based costs. DD&A for the fourth quarter was $237 million compared to $224 million in the third quarter. The increase quarter-over-quarter primarily relates again to the 2 newbuilds that we placed in service during the quarter, together with the completion of the Roger Eason project. G&A expenses of just under $32 million in the quarter dropped $2 million from the third quarter. The decrease relates primarily to higher professional fees incurred during the third quarter. Interest expense, net of amounts capitalized, increased $8 million to $31 million in the fourth quarter compared to $23 million in the third quarter. We capitalized approximately 42% of interest in the fourth quarter compared to 57% in the third quarter, reflecting the completion of several newbuilds and other major projects during the quarter. Our effective tax rate for the fourth quarter was 18%, reflecting unfavorable changes as compared to the third quarter and the geographic mix of pretax income and the recognition of certain discrete benefits in the quarter. The tax rate was also unfavorably impacted as we executed certain restructuring steps pursuant to the plan of separation as we prepare for the spin-off. Moving next to capital expenditures. CapEx in the fourth quarter totaled $763 million, including capitalized interest, below our guidance of approximately $875 million. The lower-than-expected amount was due primarily to the timing of certain newbuild milestone payments, primarily the Noble Houston Colbert, which was delivered from the shipyard in early January, resulting in a final payment to the shipyard falling into the 2014 capital budget, which I'll review with you in a moment. The fourth quarter total spend included $505 million related to newbuild assets. This brought our capital expenditures for 2013 to a total of $2.5 billion. The components of that number are: firstly, $1.5 billion for newbuild rigs; $593 million for major projects and other, including $73 million in subsea-related expenditures; $253 million for sustaining capital; and $115 million in capitalized interest. Now I'd like to comment briefly on liquidity and on our debt level. At December 31, 2013, cash and cash equivalents totaled $114 million. Liquidity, which is measured as the sum of cash and cash equivalents and availability on the revolving credit facilities, totaled approximately $1.45 billion. Finally, long-term debt at December 31, 2013, was $5.56 billion, up $248 million from September 30, 2013. The increase compared to the third quarter number reflects additional borrowings against our short-term debt facilities to fund our ongoing capital expenditures. Debt to total capitalization was 38.0% at December 31. I'd now like to focus on guidance for the full year 2014 and for the first quarter of the year, covering certain line items from the P&L, as well as capital expenditures. First, operational downtime in the Noble fleet for 2014 is expected to average 5%. This compares to actual operational downtime in 2013 of 5.1%. As we continue to add new rigs, we will continue to guide to 5%. Contract drilling services costs are expected to be in the range of $2.4 billion to $2.5 billion for the full year 2014. Let me provide a reconciliation of the increase from the 2013 level of $2.02 billion. Firstly, new rig operating costs, including their start-up costs, adds about $250 million. Cost inflation, which it looks to run about 7% in the aggregate, adds $100 million, then higher mobilization expense of $50 million primarily newbuild-related. It's worth noting that we expect corresponding mobilization revenue for substantially all of those costs. Operations and shore-based costs of $50 million including initiatives in subsea, safety, training and maintenance and also we anticipate 2014 costs in the range $120 million to $140 million, for labor contract drilling services, representing our support of ExxonMobil's Hibernia platform offshore Eastern Canada and client reimbursables, resulting in total operating costs forecast at $2.5 billion to $2.6 billion. For the first quarter, contract drilling services costs are expected to be in the range $605 million to $615 million. These costs are expected to increase approximately $10 million per quarter for each of the third and fourth quarters. Costs associated with labor services and reimbursables are expected to run $30 million to $35 million per quarter. DD&A for the full year is estimated to be in the range $1.03 billion to $1.04 billion. The increase is due primarily to the full year impact of the drillships, Don Taylor, Bob Douglas and Globetrotter II, and the jackup, Mick O'Brien, in late 2013, along with the 2014 newbuild additions, drillship, Noble Sam Croft, and jackups, Regina Allen, Houston Colbert and the Sam Turner. These newbuilds, in the aggregate, will add about $100 million to our DD&A in 2014. And for the first quarter, DD&A is expected to be in the range of $245 million to $250 million. SG&A is expected to total $115 million for the year and approximately $28 million for the first quarter, with the remaining costs steady evenly from quarter-to-quarter. Interest expense, net of capitalized interest, is expected to total $180 million to $190 million or about $80 million above the total for 2013, primarily due to lower amounts of interest capitalized, approximately $60 million, due to the completion of 8 newbuilds in 2013 and 2014 and the major drillship project in Brazil. Net interest expense in the first quarter is expected to be $35 million to $40 million and remain at this level until the third quarter when it is forecast to increase by $15 million upon the start-up of operations on the last 2 scheduled 2014 newbuild deliveries. The minority interest line on our P&L, which represents the Bully I and Bully II 50-50 joint ventures with Shell, is expected to total $55 million to $60 million in 2014 and run approximately $15 million per quarter through the year. Our effective tax rate for the year is expected to be in the range 20% to 22% and likely towards the high end of this range. As you are aware, changes in the geographic mix of sources of revenue or levels of profitability, as well as tax assessments or settlements, or movements in certain exchange rates all can affect this line. Finally, we expect our capital expenditures for 2014 to be approximately $2.6 billion, up from approximately $2.5 billion in 2013. Before I walk you through the 2014 CapEx breakdown by major category, I'd like to point out that approximately $600 million of the estimated CapEx relates to the slippage of a final payment on the newbuild jackup, Houston Colbert, and certain major project activities from 2013 into 2014, including subsea and newbuild capital spares. Also included in the $600 million is a possible project on the semisubmersible, Noble Paul Wolff. The execution of the Paul Wolff project is currently under review, pending final costs and contract opportunities for the rig beyond its contract commitment in Brazil. I mention this detail to help reconcile the difference between the 2014 expected CapEx budget and previous disclosures where we estimated a CapEx level closer to $2 billion. With both items noted, the breakdown by major spending category is expected to be as follows: in our newbuild program, we expect to spend $1.4 billion; remaining CapEx needed to complete the newbuild program in 2015 and beyond should total approximately $510 million; major projects in 2014 are expected to total approximately $900 million, up from $593 million in 2013. The amounts includes subsea component purchases and newbuild and other capital spares of $300 million and several rig maintenance and regulatory inspection programs including work on the Paul Wolff and Amos Runner. As I mentioned, the Wolff product -- excuse me, the Wolff project is still under review. Sustaining capital expenditure are expected to total $300 million of the CapEx spend in 2014, up from $253 million in 2013 as a result of the increase in fleet size and the change to a more premium mix of assets. Capitalized interest is expected to total $55 million to $60 million in 2014 distributed evenly across the 4 quarters. And total capital spending for the first quarter is expected to be about $450 million. Moving to the spin-off. My guidance comments up and to this point have been directed at consolidated Noble as the company exists today without the incremental costs to be incurred in connection with the spin-off. As you know, we have announced our attention to spin off most of our standard specification business before the end of 2014. We will continue to incur both onetime and other expenses that relate to the spin-off and/or to Spinco, and we're in the process of finalizing the respective budgets for each company on a standalone basis. In future quarters, we'll be better able to break out the spin-off-related costs to provide visibility into the impact of the spin-off on our G&A and other cost line. Even after the planned initial public offering, our consolidated financial statements and results will continue to include the combined results of Noble and the spin-off business until a complete separation is effected through the final distribution. We are targeting late 2014 for the spin-off to be complete. Throughout 2014, activities will continue as we prepare to establish 2 independent companies. To that end, we expect to incur costs of approximately $50 million to $60 million in onetime spin-off-related costs. In addition, we'll incur operating and administrative expense as we continue the process of creating separate operation support, shore-based and administrative staff for the spin company, as well as building the facilities and systems required for the new company. Additional income taxes will also be incurred in 2014. We will provide more specifics on all of these items as we progress down this path. That concludes my comments, and let me hand over to Roger who will cover the market outlook. Roger?

Thank you, James. Good morning, folks. As David mentioned, this is my final opportunity to address each of you before I place the Marketing and Contracts responsibilities into the very capable hands of Simon Johnson and his talented organization. I have enjoyed these opportunities to discuss the offshore outlook and the professional manner in each of you have probed and challenged the commentary offered. I wish each of you the very best in your future endeavors. I will now turn the call over to Simon. Simon doesn't seem to be ready for this call. Looking at -- anyway, in all seriousness, looking at the ultra-deepwater segment, the market seems to be in a period of absorbing this significant increase in rig count to prosecute exploration and development programs sanctioned over the past 3 years. On a relative basis, tendering activity is less today than 12 months ago. At that time, 22 jobs were required to fully employ contract rollovers and newbuild deliveries over the year. And indeed, near full employment was the result for 2013. Today, we count 38 rigs that are either scheduled to be delivered from the yard and do not have a contract or are rolling off an existing going contract. To maintain full employment in the ultra-deepwater fleet, during 2014, we would need a compound demand growth rate of about 8% to 10% annually. Given the paucity of bidding opportunities, it's possible in the near term we will observe a high-spec ultra-deepwater rig taking a sub-spec to Simon. How might this outlook impact Noble? Fortunately, our contracting success over the past several quarters leaves the company with little exposure in 2014. As we start the year, an estimated 78% of our floating fleet operating days are contracted, with 22% of available days, including the dates associated with 2 cold-stacked units, represented by essentially 5 rigs. As for the jackup sector, we expect a steady state of activity in 2014 with solid contracting opportunities continue in Mexico and the North Sea -- 2 primary reasons of operations for Noble. In the Middle East, we saw a slight decline in jackup utilization during the fourth quarter and we will start 2014 with a handful of rigs in the region looking to secure contracts. How this region behaves will have a lot to do with tender activity in Saudi Arabia. Among our jackup fleets, 75% of our operating days are contracted in 2014. Maybe an appropriate way to paraphrase the current state of the offshore industry is to define it as entering a cyclical pause. We know that past, more pronounced disruptions in the offshore cycle have been caused in many instances by a decline in client exploration and production spending, resulting from a deteriorating long-term outlook for crude oil prices, which led to a reduction in customer rig needs. We did not sense declining crude oil prices are as much of a client concern today as are increasing spread costs and flat production curves. Upstream spending is continuing to grow in 2014, but the pace of spending is expected to be slower than the heated pace set over the past 3 years, which set an inflationary environment into motion. We would argue a cyclical pause is a necessary phase of the cycle to encourage a cooling off period, especially as it pertains to costs for labor and the various stresses associated with the offshore drilling supply chain, allowing pressures on our drilling margins to subside. After 40 years in the offshore industry, I have never seen our business more structurally sound and opportunity-rich. Geologic success, despite what some may define as an off-year in 2013, has been consistently strong with over 240 announced deepwater discoveries since 2008. In 2013, there were 11 announced deepwater discoveries in the U.S. Gulf of Mexico, a new single year record for the region. Deepwater discoveries have been recorded offshore across an increasing number of countries with several areas once considered frontier plays now in a phase of steady exploration and appraisal activity. And because of the geologic successes, we are looking at a wave of multi-year field development activity as we move into the second half of the decade. We will watch with increased focus the emergence of new opportunities such as the growing operating interest in the Arctic where it appears a significant increase in investment is on the horizon. In 2013, 5 discoveries were announced in the Bering Sea. Also, Brazil and the potential rig demand come from the development of the Libra field, which could draw a large number of rigs. Finally, let's not forget about the opportunity present in the ultra-deepwaters offshore Mexico where political reform should lead to increased participation from international operators and numerous rig needs. We are encouraged by the strong industry position that is increasingly evident at Noble. The company has been on a rapid pace to transform its fleet and the capability set that can be offered to our customers as David covered earlier. We have diversified our customer base to include global exploration and production names, such as Statoil and Freeport-McMoRan. Our participation with Shell in their Alaska drilling program will extend an additional 3 years following a recent contract extension on the drillship, Noble Discoverer, and will provide Noble with the experience and technical capabilities needed to expand into other emerging Arctic opportunities. Finally, our revenue backlog of $15.4 billion, as we begin 2014, will provide the company with a useful bridge across any short-term weakness in activities while providing the visibility over the next 4 years to facilitate the evaluation and further growth in the premium rig sector. And with that, I'll turn the floor back to David.

Well, thank you, Roger. I'll close this morning with 2 final comments. First, I want to clarify one point as it pertains to the divestiture strategy and the transformation of the Noble fleet. The current environment of uncertainty and concern toward the offshore drilling industry that Roger just reviewed does not change our view on value or timing of the divestiture of the standard capability assets. This divestiture has never been specifically about timing. The divestiture has always been about the strategic importance to Noble, a step necessary to allow the 2 fleets to be optimally managed and operated, placing both in a stronger competitive position for future cycles. Also regardless of the duration of the cyclical pause in offshore activity, we remain confident in the long-term outlook for the business. As a result, we continue to evaluate the best alternatives for growing our premium fleet, as well as other strategic alternatives for capital deployment, including dividend growth and share repurchases. It's easy to get lost in the short-term outlook, which is shaping up to be more challenging at least during the first half of 2014. But as Roger touched on, our business remains fundamentally sound over the longer term. Crude oil prices continue to display real stability. In the deepwater sector, geologic results for many exploration plays continue to be encouraging with another year of over 30 announced deepwater discoveries worldwide, including many in new frontier plays. Geographic expansion continues across all continents, and the Arctic is a growing region of interest for many operators. Further, a meaningful backlog of field development projects exists, resulting from years of successful exploration and appraisal efforts. A strong case can be made that our business will experience a stronger up cycle than before when given a chance to pause and allow the various participants in the industry to consider their next moves. And when the next move begins, we believe Noble will be advantageously positioned to address the incremental customer demand for ultra-deepwater and high-specification jackup requirements with our fleet transformation to a predominantly premium modern and versatile fleet well advanced by the end of 2014. And with that, I'll turn the call back over to Jeff in Houston, and we'll take some questions.

Okay. Thanks, David, and thanks to all of you for your comments. Regina, we're ready to begin the question-and-answer segment of the call. [Operator Instructions] Regina, go ahead.

[Operator Instructions] Our first question will come from the line of Matt Conlan with Wells Fargo.

So Roger, first of all, congratulations on a terrific career, and all the best in retirement. But now I'm going to talk about some of the idle time that you might be facing on your fleet going forward. The Ferrington is looking for work. I mean, what's your best guess on how long it's going to take to put that rig back to work?

Yes, thanks, Matt. So to the Ferrington, and why don't I just use that question as an opportunity to walk through the 5 floaters and we did this on the last call. The Ferrington just completed an assignment in Egypt. We had hoped that, that may have -- beget some follow-on work. Unfortunately, the customer was not in a ready state. That has a lot to do with the funding situation in Egypt. So we're back in Malta. We're looking at prospects in the Mediterranean and the Black Sea, West Africa. I'd be reticent to forecast when it's going to return to work. It could be relatively short term if there's a normalization in Egypt, i.e., that the operators start getting paid -- there's some pent-up demand there or it could be later in the year. The next one would be the Driller. That's going to be available in the second half of the year. I think it's fair to say that we will be challenged on that rig. It's a moored rig. It's coming available at the beginning of the hurricane season, so we may see a gap there. On the Max Smith in Brazil, it's available in August. We like what we see. The IOC is beginning to become active as a result of the 11th round. Could be a gap, but likely the rig would stay in Brazil. And then the Danny Adkins, which is one of the most capable semis in the Gulf of Mexico, it'll become available in June. We would see that rig staying in the Gulf of Mexico. It might go on to some short-term projects and then be in a good position for some longer-term projects starting next year. So I hope that addresses the floating fleet.

Okay, great. And to follow up on the Wolff, you've mentioned that there's an opportunity there to invest some money in the rig for a follow-on project. Would that project be in Brazil as well? Or to move that rig out of Brazil?

Yes. I'll pass it to David.

I'll take that one. Sorry, Roger. Matt, our current plan -- the contract on the Wolff runs into April this year, and our current plan is to take the rig out of Brazil to do the work. As you know, the Paul Wolff is the only deep version of the EVA class of rig and it's been in Brazil, kind of absent -- it's bee in the shipyard for short-term work, but it's been absent of major shipyard opportunities for a while and it's got a good bit of work. We've done some steel replacement off some of the other EVAs, and the Wolff needs -- it needs a real shipyard to pull thrusters and do some of the work. It's been very hard to get that work done in Brazil in any kind of reasonable time frame. So our current plan is to take the rig out, probably take it to the Far East, do some evaluation of the rig and the market, and we have a -- we're working on the plans for an upgrade to the rig and refurbishment and rig life enhancement, the whole bit. But we're not ready to say we're going to do that project. We're still evaluating the opportunities for it. So it's likely to leave Brazil. So if it works through, say, it works through April, by the time we load out and move to the Far East, I think we've carved out around 6 months for the project. By the time we get it over there and assess it, it's probably out of service this year and into next year, I would say. Maybe as late as mid-year next year and that's if we do the project.

Your next question will come from the line of Greg Lewis with Crédit Suisse. Gregory Lewis - Crédit Suisse AG, Research Division: I guess, my question -- my first question is more related to -- David, you mentioned comments about a potential buyback. When we think about where Noble's trading, by my numbers, it's actually at a discount to book value. Is that sort of part of the fall process and how should we be thinking about whether or not Noble decides to institute, accelerate a buyback in sort of the near medium term?

Well, we put that in -- it's in there because it's always on the radar screen for us. We have in the past, as you know, had a pretty active buyback program. We put that kind of on the shelf when we started the newbuild program. We think the market is more geared right now towards a dividend payout. But given the value of the stock and where we think it's potentially going, that may -- that's an opportunity we think, going forward, and it's on our radar screen. We think it should be on everybody's radar screen. We agree the stock is cheap and we'll continue to evaluate that as an opportunity for use of capital. Gregory Lewis - Crédit Suisse AG, Research Division: Okay, great. And then I guess, Roger, since this is the last time I'm going to have an opportunity to ask you a question, I'm going to take advantage of that. So you mentioned the Noble Driller, it's in the Gulf of Mexico, it's a fourth-gen rig. Conversations that Noble's having with customers, is there a life or opportunities for lower-gen rigs in the Gulf of Mexico? Do we think that over 1 to 2 years? Or is the Gulf of Mexico really just moving to a high-graded market where if you're not a premium high-end rig, there's really just not an opportunity for you in the Gulf?

No, I would respond fairly swiftly by saying I wouldn't agree with that assumption. There are opportunities for moored rigs on the right kinds of projects. So the trick is matching up the rig's capability with the customer's requirements. So there are projects for a finite quantity of rigs, and it is certainly possible that you'll see the Driller stay in the sector.

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

I wanted to basically ask Roger, or in any case -- or David, either one, but the point is on these -- in the deepwater arena, we've seen some multi-year tenders as kind of the dominant 3-, 5-year or even some 7-year. In this pause that you described, Roger, are the contract or the inquiries or available work getting shorter term in nature? Are there still multi-year tenders, either out there for the Gulf of Mexico, West Africa market? And what has happened in that arena?

Robin, yes. I don't think there's been any noticeable change in the range of terms that customers are tendering for. So all of those things. There's 3-, 4-, 5-year tenders that -- been alive now and we believe will continue to come to us over the next period. So I don't think there's a change in -- if a operator has a project, you'll see the 3 to 5 years in ITB. It is more the pace that operators decide to come to the market -- that's into question.

I see, okay. And then just applying that to the jackup market, we also have quite a bit of supply coming out, especially in 2015 with all the big orders this year. Now your comments on the stability of the jackup market certainly are encouraging. But is there a prospect for this similar kind of phenomena happening in the shallow water market as we get towards the end of this year and into 2015? Or is the pace of contracting and tendering stronger so that you think that those rigs will be largely absorbed without affecting the pricing structure?

Yes, it's a great question that all of us probably are asking. If you look at the last couple of years, there has been a similar influx of new supply into the market and that supply has been absorbed, and we've had this discussion about right bifurcation over the past periods. I think the last time we looked, all new deliveries, some 70 fixtures since January 2011, 2012, have averaged around $153,000 a day. The pace of influx this year is, I believe, we counted some 23 jackups entering the market. And as you observed, that number will double next year. So we look at demand to be relatively stable on the jackup side. We like what we see in Mexico, we like what we see in the North Sea, both great markets for Noble. The Middle East has been -- a little of a pause, but it's difficult to get accurate insight into what Aramco is going to do. Southeast Asia, we look for the jackup count to stay relatively stable. So yes, you've got the supply coming in and I guess it's all about the pace of rig retirements, which is one of the data points we should be watching over the next period.

And do you have a view on the pace of retirements?

Sure, it's not fast enough. I think 7 to 10 to 12 is the most we've seen in recent years, but that might pick up if the rates are to stay at the level they are now.

Your next question will come from the line of Ed Muztafago from Societe Generale.

I guess I was wondering if I could follow up a little bit on more of a Noble-specific issue and that's really kind of the trend of operational downtime as we go through the year. Last year, we obviously came -- saw that operational downtime come down pretty significantly as we went through the year as you guys worked on some efficiency issues. As you kind of think about 2014 in that kind of 5% bogey, can we kind of think about that as being relatively steady state through the year? Or is that something more of an average to where you may be targeting a little bit lower downtime rate by the time we get into the year end, say, maybe a 4% rate or something like that?

Ed, I'll take that. I'm not quite sure how to take these downtime questions are Noble-specific because I think everybody is having some. Our numbers have done -- with the fleet status, our numbers have not come down much after our fleet status reports over the last several months. So I would say that our downtime performance has actually improved year-over-year. The 5% that James referred to in guidance is intended to be a steady state even in light of the fact that we just delivered 5 rigs last year and we intend to deliver 6 this year, one of which has already been delivered. So with the 11 rigs coming into the fleet, one might expect that downtime expectations would move up. Our expectation is that we should be able to maintain a steady state of around 5% of downtime. And then I would look for that -- as the rigs continue to move on, on a fleet-aggregated basis, I would look for that to start to come down in the out years.

Okay. And then I just maybe wanted to shift gears back to the jackup market a little bit. You do have a couple of newbuilds coming in at the end of the year that don't have contracts yet and the Mick O'Brien, obviously, is up for renewal, I believe, in the second quarter. Can you sort of talk to the state of what you're seeing on the premium market? Is it any better than that steady state that you referred to for the jackup margin in aggregate?

Yes, the steady state. If we look at Noble's high-end jackups, the average of the last 9 fixtures has been $243,000 a day. So let's address the question in that light. Yes, we've got 2 more contracting opportunities, middle of the year, later in the year. We've continued to track projects that are similar in nature to the ones we've already secured. And yes, we've got some availability on the Mick O'Brien. So I'd prefer to stay away from kind of predicting where that might be just from obvious competitive reasons. But we still feel very good about this product that we're bringing to the market and it's performed well.

Your next question will come from the line of Byron Pope with Tudor, Pickering, Holt. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Just one question from me. Was wondering, Dave, if you could elaborate a little bit on the commentary in the press release regarding changing customer expectations with regard to bonus realization and such? I'm just curious as to what drove that decline in the backlog, and kind of what are the changes and what's the root cause of those? If you could add some color on that, that'd be great.

I'd say we decided just to live with the backlog and we had made some assumptions early on about what our performance would be and had been and we had not realized -- some of these contracts are very long, so you're talking about real dollars over a 10-year contract. It's not a big -- it wasn't a big hit. But we just decided to -- the backlog included an expectation of some realization of, I think, about half of the Shell payout and look more than that on the Petrobras and we decided to bring that down to reflect what we're actually doing, which is probably half again of the expectations. So it was a forward-looking estimate basically to reflect the reality. James, do you have any more color on that?

The only thing I would add to that is that our actual realization of bonuses through 2013 was between $50 million and $60 million, so it's still a material number.

Your next question will come from the line of Collin Gerry with Raymond James. Collin Gerry - Raymond James & Associates, Inc., Research Division: Just want to dig in a little bit more on the contracting activity out there. I guess, my question is what has changed in the last 6 months from your customers' behavior? Oil prices, especially Brent still look relatively strong. So is it a lack of people? Is it project-specific? Is it just some sort of natural pause? I mean, maybe a little bit more color and specifically what your customers have changed over the last 6 months?

Collin, I think it encompasses all of those things. As I said in our prepared remarks, that our customers really have had an extraordinary increase in activity over the past 3 years. And so when you look at that growth rate relative to what it's going to take to keep full employment, it's greater. So I think there really is an execution phase that's going on right now where the customers are trying to swallow the proverbial pig. Now the backdrop is good commodity prices, great exploration success that are going into the hoppers of opportunities. And yes, there's been some balance sheet and some poor quarterly results year-on-year. So I think you throw all that into the mix, it's resulting in this pause that we're speaking to, particularly at the high end and the ultra-deepwater. We still believe in the fundamentals. So that's how I'd address your question.

Your next question will come from the line of Ian Macpherson with Simmons. Ian Macpherson - Simmons & Company International, Research Division: Yes, so allow me to echo the congratulations and good wishes, Roger. A question for you James. One of the difficult things for us, and I think probably for you planning and budgeting your business when the cycle's turning, is really having a feel for what costs are doing and you hit your cost guidance for '13 on the head. But I think as you provide your guidance for '14, we're aware that if there's uncertainty about activity levels in rigs that would be idle versus working their first stack, et cetera, can you provide any flavor as to what type of upward or downward flexibility or sensitivities are inherent in that cost guide that you gave us with regard to some of your floater rigs, in particular, that have uncertain status throughout the year?

Ian, yes. The way I would respond to that is that we put the budget for 2014 together in exactly the same way as we did in 2013. I understand your comment regarding less certainty perhaps than at this time last year. However, the way the budget is built up is on a rig-by-rig basis. So any flexing in cost as we go through 2014 would pretty much follow flexing in activity or utilization. So the guidance we've given you as regards the activity of the fleet is completely consistent with the guidance on costs. Ian Macpherson - Simmons & Company International, Research Division: Okay, got it. Follow-up question, I want to think about your Mexico jackup fleet for a moment. You've sold a couple of those rigs. You have 10 remaining that should go into Spinco. Are there any plans or possibilities of selling more standard assets before the spin-off is completed? And otherwise, can you talk about what the recontracting outlook is for the handful of jackups in Mexico that roll later this year?

Ian, this is David. I'll let take the sale question. I'll let Roger respond to the contracted question. The sale question is it's unlikely that we would sell any more assets at this point. The assets that we sold -- we got rid of the submersibles because it was an opportunity to get rid of those. We didn't really expect that they were of any significant value to Spinco. The jackups, we had been engaged in those discussions for quite some time. At this point, with the spin being imminent, the rigs are worth a good bit to Spinco. Other rigs in Mexico have made a lot of money. Most of the other assets within the Spinco realm are assets that have value so I wouldn't see us selling any other. Unless it was just a terrific deal, I wouldn't see us selling anything else out of Spinco that you don't already know about. And I'll let Roger take the question on the jackups.

Ian, we would expect the jackups, the sort of roll-overs this year to continue in Mexico. PEMEX appreciates the high uptime that we experienced in that sector, so I think it'll just turn out to be an extension of negotiation in the Gulf there.

Your next question will come from the line of J.B. Lowe with Cowen and Company.

I just have a quick question. Once you reach the end of 2014, you only have 1 newbuild that's still in the yard. What's your outlook on ordering more rigs and what is kind of your steady state level of construction projects that you kind of see as normal over the next couple of years?

I don't know what normal looks like. Normal is going to depend largely on the different opportunities that we see, the different classes of rigs and whether they're built against contracts or whether they're built against -- on spec. You're correct, we only have that 1 project. We have nothing in '15 and 1 in '16. What we've said, all really throughout this process over the last few years is we want to get this slug of newbuilds that we -- our engineering and operations guys have just done a spectacular job of pushing through. Our marketing guys did a great job of timing. We want to get this through. And then after we do that, it will be a more of a steady state. And I think what we've said is whether it's 1 or 2 or 2 or 3 deliveries a year or whatever it is, it would depend on the forward outlook, the strength of the backlog, the strength of whether or not they're contracted and how we see the forward view of the market. Again, I think the takeaway on where we see today, we've acknowledged what everybody's been talking about, is some squishiness, I guess, in the deepwater, in the moored sectors of some of the operating environments around the world. But we don't see anything in the long-term view of the market that tells us anything we're doing is wrong. So we will continue to look for opportunities to build additional equipment.

Our final question will come from the line of Harry Mateer with Barclays.

Just a few more details on the liquidity situation. I know you have maturity coming up in a couple of months. You still have plenty of room between cash and bank availability, but can you give us an update for your thought process around potentially tapping the capital markets to free up some more room under the bank facility?

Harry, we really are not ready to talk about that. As you are aware and will appreciate, the transaction that we're about to get into has a material impact on our funding and all of that will be intertwined with what we do as we go through 2014. The other thing is whether or not -- most likely we will do an IPO as we've said for Spinco. But whether that's a yes or no makes a difference to our liquidity as well. So we will talk to the market as soon as we're ready to talk about that subject.

Okay. Any change from what you previously communicated in terms of possibly using some of the proceeds from the transaction to pay down debt at NE?

No, no change versus what we have communicated previously.

Regina, we're going to end there this morning. I'd like to thank everyone for your participation on the call and your interest in Noble. And please make a note that our first quarter '14 results are scheduled to be reported on the 16th of April with a call to follow on the morning of the 17th. We'll confirm those dates as we get closer. Regina, thanks again 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.