Noble Corporation Plc (NE) Q2 2014 Earnings Report, Transcript and Summary

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Noble Corporation Second Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, July 31, 2014. Thank you. I would now like to introduce Mr. Jeff Chastain, Vice President of Investor Relations. Mr. Chastain, you may begin your conference.

Thank you, Melissa, and welcome, everyone, to Noble Corporation's second quarter 2014 earnings call. We do appreciate your interest in the company. A copy of Noble's earnings report issued last evening, along with all the supporting statements and schedules, can be found on our website, that's noblecorp.com. Also, I want to take this opportunity to remind everyone about the luncheon Noble will host in New York on the afternoon of September 4. A save-the-date notice went out earlier this month and we intend to provide additional details, including an agenda for the luncheon next week. If you do not receive information from the company on the event and wish to attend you will find the details posted in the Noble website. 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. This includes the price of oil and gas, customer demand, operational and other risks, and the cause and effects of the spin-off of Paragon Offshore. 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 direct comparable GAAP measure and an associated reconciliation on the website. Finally, consistent with our quarterly disclosure practices, we will post to our website, following the conclusion of our call, a summary of the financial guidance covered on today's call, which will highlight third and fourth quarter 2014 post-spin and figures. With that, I'll now turn the call over to David Williams, Chairman, President and Chief Executive Officer of Noble.

Thanks, Jeff. Good morning, everyone, and welcome. In addition to Jeff, who's here with me in Houston, I'm joined today by James MacLennan, our Senior Vice President and Chief Financial Officer, who is in London; and Simon Johnson, our senior Vice President of Marketing and Contracts, who is in Singapore today, having earlier this week participated in the dedication of the ultra-deepwater Noble Tom Madden in Korea. The Madden is another on-time project for Noble and is the last of our 4 drillships from the HHI yard in Ulsan, Korea. This is another example of exceptional execution and I thank HHI and the Noble project team for setting a high standard of excellence. Later this week, we'll dedicate the JU-3000 and jackup Noble Tom Prosser at Sembcorp Marine's Jurong yard in Singapore, yet another example of excellent performance and delivery. I have more to say on our best-in-class shipyard execution in just a moment. As you can see, for this conference call, our team is a bit spread out across the world, but that really shouldn't interfere with our process today, so we should be able to bring it all to you in good course. I'll begin with some brief comments on our second quarter financial results and an update on where we find ourselves at the midpoint of 2014, as it relates to an active year for shipyard deliveries. I'll then turn the call over to James for a detailed explanation on second quarter financial results and revised financial guidance for the remainder of 2014, in light of the imminent divestiture of Paragon Offshore. Simon will follow James with some comments on the offshore drilling business, including some observations on what we believe are some interesting data points from the second quarter. I'll close with some final comments on the Paragon Offshore spin-off and why we believe this significant event in our transformation provides Noble with an improved competitive posture and enhanced platform for delivering value to our shareholders. Second quarter financial performance once again benefited from contractual day rate increases, improved fleet mix and lower-than-guided operating cost. These developments, along with a favorable variance on our tax rate in the quarter, contributed to the strong quarter result, producing net income of $235 million or $0.91 per diluted share. Although fleet downtime did increase quarter-on-quarter, we continue to experience measurable opportunity improvement along our new rig additions. Strong examples of the improving level of performance were shown by the drillships Noble Globetrotter I and Globetrotter II with each recording operating utilization of 97%. And in our high-specification jackup fleet, the Noble Regina Allen recorded operational utilization of 99%. We believe these benefits stemming from our implementation of our operational readiness procedures and crew confidency measures over the past several quarters, including advanced training systems, are increasingly evident in our fleet uptime and are sustainable improvements for future operating performance. James will provide more details on this quarter -- on the quarter in just a moment. In addition to strong financial performance, we continue to experience excellent results with our newbuild projects. We entered 2014 with 6 rigs scheduled for delivery from shipyards in the year, 2 HHI drillships and 4 JU-3000 and high-specification jackups. With the second quarter behind us, we're now down to 1 drillship and 2 jackups following delivery of the Noble -- of the drillship Noble Sam Croft and the high-specification jackups Noble Sam Turner and Noble Tom Prosser. Following a May 1 departure from Korea, the Noble Sam Croft arrived in the U.S. Gulf of Mexico on July 10 and commenced a 3-year contract with Freeport-McMoRan on July 25 at a dayrate of $610,000 per day, excluding mob revenues. The Noble Sam Turner, which was delivered in April, has been accepted by Maersk Oil and Gas in Denmark, had all of its regulatory approvals in place and later today should commence its tow to its first drilling location. The contract provides for an attractive operating dayrate of $215,000 per day. Finally, we took delivery of the jackup Noble Tom Prosser late in the second quarter, and the rig is going to complete crew familiarization group and certain commissioning procedures in Singapore before beginning a mobilization to Western Australia in Q4, under an 18-month contract with Apache at a dayrate of $203,500 per day. Following these second quarter deliveries, we're left with 3 projects in our newbuild backlog, 2 of which should exit the shipyard before we conclude this year. The final HHI ultra-deepwater drillship Noble Tom Madden, which as I mentioned earlier, was just dedicated in Korea, is expected to exit it's shipyard early in the fourth quarter and mobilize in U.S. Gulf of Mexico to begin a 3-year contract with Freeport-McMoRan in the first quarter of 2015 at a dayrate of $610,000 per day, again excluding mobilization revenues. The final JU-3000 and jackup, the Noble Sam Hartley, is expected to exit the shipyard late this year and is the only remaining newbuild rig without a contract, although we remain in discussions with several operators and believe that with the rig's advanced features, compared to other newbuild jackups, Hartley is very likely to secure contract by its delivery date. The CJ-70 ultrahigh-specification jackup is the last of our current newbuild projects with a scheduled mid-2016 delivery from the shipyard, followed by the commencement of a 4-year primary term contract with Statoil on the Mariner Field in the North Sea, at a dayrate of $447,000 per day. The addition of new high-specification assets has been a major component of our fleet transformation strategy, and as we wind down the current project backlog, I'm comfortable stating that Noble has demonstrated best-in-class execution. With the exception of the Regina Allen jacking system incident experienced by the shipyard in late 2012, of which we made a quick recovery, our projects have exited the shipyard on time or ahead of schedule and transitioning to the full operating status or an improving trend. With the ultra-deepwater drillship Noble Sam Croft, the latest example of superior performance, a mere 85 days from departing Korea to full operating dayrate. I wish to congratulate our shipyard partners, project management teams in Korea and Singapore, and all those responsible at Noble for crew competency and operational readiness, for demonstrating excellent in the industry. I also want to congratulate our exceptional crews offshore. I'll now turn the call over to James for a review of the second quarter results.

Thank you, David, and good morning to everyone on the call. As I'm sure you've all seen in our press release issued last evening, Noble delivered strong financial results for the second quarter, reflecting increased dayrates on certain rigs, increased contribution from 2 new rig deliveries and the continued focus on project and operations execution, as well as cost control. In an effort to use our time more efficiently today, I plan to address in detail only those line items from the P&L that fell outside of the guided range offered on our last conference call held in April. For additional color on the quarter or clarification on the items in the release, Jeff and his team will be available following the call. Before we begin, I'd like to recognize the work done by our accounting, tax, treasury and planning teams as we work through the spin-off of Paragon Offshore. They've worked tirelessly over the past year to make the launch of Paragon a success and to help ensure that the new business has the systems and processes in place that it needs to succeed. At the same time, they managed Noble's own financial requirements. This is true across the enterprise, but I wanted to point out those groups' contributions specifically. Further, I'd be remiss in not singling out our banking, tax, legal and other advisors in this project, all of whom provided outstanding service and advice to Noble and to Paragon. That said, the work is not yet complete. In the coming weeks, we plan to release additional financial data that'll help in modeling the company going forward. Given the timing of the spin-off, some of those reports are still being developed. But I can assure you they will be available soon and we'll use our planned analyst luncheon, to be held on September 4, as an opportunity to disclose additionally financial detail on Noble. For today, I'll be providing the highlights of our second quarter performance and sharing our initial guidance assumptions for Noble's stand-alone, for each of the remaining 2 quarters of 2014 and noting post-spin-off guidance for the year 2014. We know this information is of interest as you fine tune your models for the company following the spin-off of Paragon Offshore. The highlights of the quarter are as follows: Net income totaled $235 million or $0.91 per diluted share, on total revenues of $1.24 billion. The results compared to net income in the first quarter of $256 million or $0.99 per diluted share, on total revenues of $1.25 billion. Contract drilling services revenues declined by approximately $6 million or less than 1% from the first quarter, to $1.20 billion. The modest decline primarily related to higher nonoperating days and downtime for repairs in the quarter, driven in part by an increase in scheduled shipyard programs, including out-of-service time on the Dave Beard, Amos Runner, Scott Marks, Percy Johns and Ed Noble. Note, the shipyard programs on the Amos Runner and Ed Noble continued into the third quarter, while the Runner is expected to return to work in early October. In addition, the Paul Wolff completed its contract with Petrobras in April, and the Bob Douglas operated at a reduced rate as it mobilized to the Gulf of Mexico after completing a 2-well program in New Zealand in April. Bonus and other revenues were lower in the second quarter relative to levels achieved in the first quarter of 2014. Substantially offsetting the quarter-over-quarter revenue reduction were favorable contract pricing increases on several rigs, including in the floating segment, the Discoverer and Bully II; and in the jackup segment, the Roger Lewis and Jimmy Puckett. Revenues also benefited from full or partial contributions from our new rig recognition, the Regina Allen and Houston Colbert, and an extra calendar day in the quarter. Contract drilling services costs in the second quarter increased $16 million to $577 million compared to $561 million in the first quarter of 2014. The increase reflects a full quarter of operations from the new rig additions, the Regina Allen and Houston Colbert, and costs on the Bob Douglas as it moved to the U.S. Gulf of Mexico from New Zealand. These increases were partially offset by reduced labor costs in the quarter. You'll recall that our guidance for the second quarter, contract drilling services costs was a range of $580 million to $595 million. So, at $577 million for the quarter, you can say we were at the very bottom end of this range. DD&A for the second quarter was $254 million compared to $246 million in the first quarter. The increase quarter-over-quarter primarily relates to the newbuilds placed in service. G&A expenses of $27 million in the second quarter increased slightly by $1 million from the first quarter. Interest expense, net of amounts capitalized, decreased $4 million to $36 million in the second quarter compared to $40 million in the first quarter. The decrease is the result of the repayment of $250 million of senior notes in March, using proceeds from our commercial paper program, which are at a lower interest rate. Our effective tax rate for the second quarter of 2014 was 16.9%. This compared to 16.6% in the first quarter and prior guidance of 20% to 22%. The favorable variance from guidance relates to changes in the geographic mix of pretax income in the quarter, coupled with discrete tax items recognized during the quarter. The rate in the quarter was also lower due to deferral of finalization of a change in the U.K. tax law, which I will discuss later in this call in a little more detail. As I've noted in the past, the lower effective tax rate is not expected to continue through the remainder of 2014 as discrete items tend to go in both directions, both favorable and unfavorable. I'll come back to the matter of effective tax rate for the full year. Capital expenditures in the second quarter total $699 million, including capitalized interest and consistent with our guidance of $700 million. This brought our capital expenditures for 2014, year-to-date, to $1.2 billion. The components are as follows: for newbuild rigs, $836 million; $239 million for major projects and other; for sustaining CapEx, $114 million; and $27 million in capitalized interest. Regarding the balance sheet now, total debt at June 30 was $6.01 billion, up $285 million from March 31. This increase was primarily the result of newbuild milestone payments made during the quarter. Liquidity, measured as the sum of cash and cash equivalents and availability on revolving credit facilities, totaled approximately $772 million. The decrease in liquidity from the prior quarter also relates to the newbuild milestone payments made during the quarter. Switching now to guidance for the remainder of 2014 and our current forecast for certain line items that impact the P&L, as well as capital expenditures. For clarity, the guidance I'm about to provide relates to Noble after the launch of Paragon Offshore. It's important to note that the Paragon portion of Noble's operations for the first 7 months of 2014, or up to the completion of the spin-off, will be disclosed as discontinued operations. Those results will be condensed into this one line in our going-forward income statements. This is not the case in our second quarter published results since the spin-off will not be complete until 1 month after the close of the quarter. Further, each time I refer to pro forma data in the guidance comments, this refers to the remaining 35 rig fleet post-spin. Looking at spin-related balance sheet adjustments. In July, we received $1.7 billion from Paragon in connection with the spin-off. This is being used to reduce amounts outstanding under our commercial paper program. This pay-down will be complete in August -- in the first few days of August in fact. Additionally, upon consummation of the spin-off, net assets related to the Paragon business will be eliminated and the resulting equity reduction will be approximately $1.5 billion. Additionally, our June 30 consolidated backlog of $13.4 billion will be reduced to $11.1 billion post-spin-off. Looking at the P&L. Firstly, operational downtime for the 35-rig fleet will be adjusted slightly higher compared to the current 77-rig fleet, to an average range of 5% to 6% for the second half of the year, due to the higher mix of premium rigs. Based on today's market, we do not expect the spin-off to have a material impact on our operating margins. Contract drilling services costs. For the third quarter, contract drilling services costs are expected to be in the range $375 million to $425 million with the fourth quarter about flat with the third quarter. Costs in the third quarter will be impacted by the additions of the newbuilds Sam Croft in the middle of the third quarter and Sam Turner early in the third quarter. On a pro forma basis, full year contract drilling services costs are expected to be in the range of $1.5 billion to $1.6 billion. DD&A for each of the third and fourth quarters is expected to be $155 million to $165 million. As mentioned during our April call, the single largest factor in the 2014 DD&A is the impact of newbuilds entering service throughout 2014. In the third quarter, we will have both the Sam Turner and the Sam Croft entering service. On a pro forma basis, DD&A for 2014 is estimated to be in the range of $600 million to $620 million. SG&A is expected to total about $25 million in the third and fourth quarters, and on a pro forma basis, approximately $105 million in the year. Interest expense net of capitalized interest in the third quarter was expected to be $30 million to $35 million, and in the fourth quarter, this will increase by about $5 million with a full quarter of operations for the Sam Croft and Sam Turner, and the delivery of the Tom Prosser. This interest expense is net of the debt reduction from the July receipt of the $1.7 billion in spin-off proceeds from Paragon. On a pro forma basis, net interest expense is expected to total between $135 million and $145 million for the full year. 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 approximately $70 million in 2014 and run about $15 million per quarter over the remainder of the year. This line item is wholly dependent on the performances of these 2 rigs, and the Bullies continue to experience lower-than-expected operational downtime. In the second quarter, the Bully I and II both recorded unpaid composite operating downtime of less than 2%. Our effective tax rate for the year is expected to be in the range 18% to 20%, including the impact of the recently enacted U.K. tax law change that I mentioned earlier. This change, which is retroactive to April 2014, was ruled into U.K. law in July of this year, after the close of our second quarter. It is worth noting that the taxpayers tax domicile has no bearing on this. The impact is greater for those with more rigs drilling in the U.K. sector of the North Sea. As you are aware, changes in the geographic mix of sources of revenue or levels of profitability, and tax assessments or settlements or movement of certain exchange rates, all can affect this line. Finally, we expect capital expenditures for the third quarter to be about $600 million, including amounts paid for the delivery of the drillship Tom Madden. On a pro forma basis, capital expenditures for 2014 are expected to total $2.0 billion. The breakdown by major spending category is expected to be as follows. In our newbuild program we expect to spend $1.4 billion. After 2014, the remaining CapEx needed to complete the final newbuild project, the CJ-70, is approximately $520 million, most of which is expected to be spent in 2016. Major projects in 2014 are expected to total approximately $315 million. The amount includes newbuild and other capital spares of $100 million and several rig maintenance and regulatory inspection programs. Note that we expect to spend no more than about $50 million on the Paul Wolff project this year. We need to assess the rig and cannot do this effectively until it's in the shipyard. Having said that, it is unlikely that the full $250 million will be incurred. Sustaining capital expenditures are expected to total $200 million of the CapEx spend, and capitalized interest is expected to total $50 million to $60 million in 2014. As to the discontinued operations, as I mentioned, our former interest to Paragon operations will be presented in future financial reports as discontinued operations through the date of the spin-off collapsed to a single line item, net of tax, on our income statements. We're not in a position, today, to comment on the historical results of discontinued operations. However, in the very near future, our first and second quarter financial statements will be recast to reflect Paragon as a discontinued operation, and these recast statements will be filed with the SEC. That concludes my comments. Simon Johnson will now comment on the market outlook.

Thank you, James, and good day to everyone from Singapore. First half of 2014 has been upstream capital expenditure management, a high priority for operators, especially the integrated oil and gas companies. In the floater sector, 2 projects have been canceled but several have been deferred to later quarters, creating uncertainty for the contract drillers. We've seen limited ultra-deepwater tenders, but a slow creep in activity has emerged, and dayrates for this segment of the offshore fleet have adjusted lower as excess capacity seek work. Several rigs are in the process of being repositioned in the regions with rig capabilities and operator requirement to better align. The jackup space is best defined as stable but concerns remain regarding the level of speculative orders. I'll have a little more to say on this point in a moment. In short, no real surprises relative to our own thoughts on the offshore industry at the beginning of the year. Of greater importance, what do we expect going forward and is there a reason for optimism? We believe the answer is yes. But before I address what we believe is the emergence of some early signs of support in the industry. I would first like to cover, briefly, some statistics on our Noble backlog as at June 30. As you would expect in a year characterized by fewer tenders and contract awards, backlog figures are, for now, in decline. However, please remember backlogs are now serving their true purpose, to provide financial stability in the near-term and greater future visibility, both of which are in management, the execution of strategy and operational plans. As we closed the second quarter, Noble reported a contract backlog of $13.4 billion compared to $14.3 billion at the end of the first quarter. An estimated $10.1 billion of the backlog relates to our floating rigs and $3.3 billion is from jackups. Of course, these figures include Paragon Offshore's 42-rig fleet. When stated, after the split of the Paragon fleet, total backlog for Noble at June 30 was $11.1 billion with $9 billion from the floating rig segment and $2.1 billion from the jackup segment. Continuing my discussion of the post-Paragon environment, the company's available rig operating days for the remainder of 2014, which are committed to contracts for both our floating and jackup rig segments, is 79%. Our floaters have 73% of available rig operating days remaining in 2014 committed to contracts, with 62% of the days committed in 2015. The current year reflects uncommitted time, primarily on 4 semisubmersible rigs, the Noble Homer Ferrington, Noble Danny Adkins, Noble Max Smith and Noble Driller. As our jackup rig fleet -- as for our jackup rig fleet, 89% of the available operating days remaining in 2014 are committed, with 77% of the operating days secured in 2015. The available days in 2014 were made primarily to this Noble Mick O'Brien Noble David Tinsley and Noble Tom Prosser. We're evaluating contract opportunities for the Noble Mick O'Brien beyond the rig's current program, which is expected to conclude in September, whilst the Noble David Tinsley should return to work in October and remain under contract through 2015. The Noble Tom Prosser was recently awarded a 18-month program, with Apache, for work offshore in Western Australia, which is expected to commence in January 2015. With such a narrow window of availability on the Prosser to offer clients before the anticipated January startup of the Apache work, we'll keep the rig in Singapore to complete crew familiarization and contract preparation before commencing mobilization to Australia in the fourth quarter. Our fleet of 7 active jackups, of the JU-2000E and JU-3000N designs, have an average of 21 months of backlog per rig. We retained 5 older jackups for strategic reasons rather than placing them into the Paragon fleet. All 5 rigs are located in the Middle East and enjoy contract coverage through 2015, with opportunities for multiyear extensions on some rigs. In short, the contract coverage among our floater and jackup rig fleet is strong, and we expect to make further progress on this front over the balance of 2014. We believe the gradual build in client demand will become evident as we progress through the next 12 months and customers proceed with a new list of project priorities. We have, in fact, already begun to see the first signs of this gradual build. After experiencing only 3 deepwater contract awards in the first quarter of 2014, the second quarter produced 10 awards with durations on 5 of the contracts ranging from 2 to 6 years, totaling an aggregate of 18 rig years. The contracts address customer rig needs in several regions, including Angola, Nigeria, the U.S. Gulf of Mexico, Brazil, the Black Sea and Indonesia. Rigs have begun to secure work and we're beginning -- we are experiencing the early stages of demand recovery, but this must demonstrate sustainability before we can return to a discussion on pricing improvement. It's worth noting that the announced discoveries in deepwater through the first half of 2014 are well off the pace set over the past 3 years, continue to surface in geographies representing a mix of old and new, including Angola, the U.S. Gulf of Mexico, China, Ivory Coast, Mauritania, Mexico and Tanzania. There is current excitement around a big discovery by Eni in relatively shallow waters offshore Gabon. That's good news for Gabon and they extend the prospectivity the pre-salt play offshore in West Africa in general. We'll continue to monitor the outcome of impact wells in key plays in this and other basins around the world. Also, we believe the industry is on the verge of a long-anticipated significant shift from exploration and appraisal to field development, with projects offshore Angola, Nigeria and several other West African countries leading the way. The industry entered the second quarter with approximately 42 rig years of work, defined by numerous tenders and pre-tenders in the region. Several of these projects have experienced seemingly endless delays but they've begun to move forward and we believe more multiyear awards are to come in the near term. We also see promising signs emerging from Brazil. Two contract awards for ultra-deepwater rigs were made in the second quarter and we believe the competitive dayrate environment will be the primary driver for additional contract awards on both existing and incremental rigs. Mexico's energy reform is making substantial progress with the Round Zero licensing allocation expected in September. This round will identify which offshore areas will be kept by PEMEX and what should become available for international oil companies. Clearly, the opportunity offshore Mexico is a significant ultra-deepwater drillship catalyst for future years. It's easy to see in advance of these positive trends in our industry, but it remains difficult to quantify the impact on demand. We know it could be significant and should drive a need for additional rigs beyond those currently under construction. To close, we have seen few surprises in the offshore industry through the first half of 2014. The ultra-deepwater supply imbalance been addressed, albeit slowly for now. But numerous catalysts could consume the available capacity in short order, especially in light of limited uncontracted new ultra-deepwater supply beyond 2015. When you exclude rigs destined for Brazil, only 10 uncontracted newbuild rigs are on order with deliveries beyond 2015, but construction of 5 of these rigs is yet to be confirmed. We believe fleet attrition is set accelerate over the coming years, due in part to heightened capital requirements to sustain rig reliability. The same thing is also seen in the jackup sector but in less pronounced fashion. Concerns around new jackup capacity is somewhat mitigated, by questionable owner project management and poor specifications across the purely speculative rig orders, which by our count totals approximately 30%, 40% of the rigs on order. We suspect many of these rigs will have limited to no value to a significant portion of the customer base. I'll now turn the call back to David?

Thank you, Simon. I close my opening comments today with a status update on our newbuild project backlog, a significant component of our fleet transformation. The divestiture of Paragon Offshore is an equally important component of that transformation strategy, and we have almost reached the finish line with this project. Many of you saw our announcement on July 11, reporting the expected August 1 completion of Noble spin-off. Shareholders of record on July 23 will receive, tomorrow, 1 ordinary share of Paragon for every 3 ordinary shares owned of Noble. This is a highly strategic transaction that is more than 2 years in the making. Despite the time it has taken to reach this point, the impact of the transaction is a significant transformative event for Noble. We'll divest 42 standard capability jackups and floaters, with Noble retaining no residual ownership. The transaction, combined with a significant capital spent or committed by Noble since 2007, of approximately $11 billion, will result in the addition of 22 floaters and jackups most by the end of 2014. Simply put, we're in a position to say the strategic implementation of our global fleet transformation is now well advanced. Consider this, in the absence of these transformative measures, our average fleet age would would've increased to 35 years by 2016. Conversely, the actions taken would've allowed us to reduce the average fleet of our -- the average age of our fleet of 13 years by 2016. This 62% reduction in fleet age does not tell a whole story since it includes 5 jackups with an average age, by 2016, of 36 years, which were kept in the Noble fleet for strategic reasons. Absent these 5 checkups, our average age will declined, by 2016, to under 10 years. We remain convinced that the divestiture of Paragon Offshore is a very compelling method for the creation of shareholder value. Post-transaction, there'll be 2 companies with distant management teams and boards, and they will now focus on more tightly defined mission and strategic direction, and operate from a competitive platform that is aligned with the composition of the fleets under management. Tomorrow, Noble will emerge as a very different company, owning one of the industry's most advanced and versatile fleets. In addition, and possibly overshadowed by the Paragon divestiture, our company's made meaningful and lasting changes to improve a number of important aspect of our operation that is translating into a consistency of execution, which we demonstrated since late 2012. We make a well-timed entry into the shipyards, to begin this shift towards a premium fleet mix, and we've executed a program as well as anyone in our industry. As we work through the second half of 2014, the newbuild program will rapidly wind down, with the only single project expected to remain by the time we close the year -- with only 1 single project expected to remain by the time we close the year, setting the company up nicely for 2015 with declining capital expenditure requirements and growing free cash flow. We will continue to evaluate alternatives for further growth of our premium fleet mix, but as I've said in the past, we are not currently interested in fleet growth through speculative ordering of rigs. Our current annual dividend of $1.50 per share, which represents a current yield of just under 5% will be sustained with Noble continuing to pay a dividend of $1.50 per share post-spin. We will continue to evaluate the alternative uses of cash and these possible outcomes will be structured and executed by a management team and a board that has a history of successfully navigating the cyclicality common in our industry. We believe Noble is extremely well-positioned for the next industry upturn, and as Simon noted in his remarks, we continue to see evidence that suggests it could happen sooner than current shareholder valuations imply. These are exciting times in Noble and we look forward to many getting our plans to the financial community in the post-Paragon era. And with that, I'll turn the call back over to Jeff, and we could take some questions.

Okay. Thank you, David. Melissa, let's go ahead and begin the question-and-answer segment of the call. [Operator Instructions]

[Operator Instructions] Your first question comes from the line of Gregory Lewis with Crédit Suisse. Gregory Lewis - Crédit Suisse AG, Research Division: David, I know the ink's not dry yet on Paragon but, I mean, clearly we've seen some addition by subtraction here. As we look forward over the next, I don't know, 1 year, especially given the sort of the positive comments you're talking about in terms of a recovery. At what point does it make sense to sort of start to regrow Noble's fleet?

Greg, that's a great question, and I'll say that it's not the ink's not dry on it, I don't think the ink's on it, but it's -- many of us, the transaction is coming. But we're always looking for opportunities. I just don't -- and we have a number of opportunities out there that we could undertake against a firm contract. We're not finished. We have the fleet where we like it. We have a platform that we think provides us a way forward to create a great deal of shareholder value. We've got a tremendous fleet. And so, to the extent those opportunities present ourselves, we'll start looking at them. Right now we're trying to get through this and I think we'll play these for the foreseeable future, just to make sure that we have all of our operating systems in place. We still have a number of deliveries to get out of shipyard but we're looking forward to opportunities and we'll see what the market at present. Gregory Lewis - Crédit Suisse AG, Research Division: Okay, great. And then, James, if I could ask, when we think about the fleet, and clearly you're spinning off a lot of the older assets into Paragon. But as we think about where we are in the cycle today and the potential for asset write-downs, as we think about the RemainCo Noble fleet or the new Noble, I guess, how often are these assets -- is there an asset impairment test on these assets?

Greg, I'll give you a short answer. It's something we can talk about for days. A triggering event will cause any company to look at the need for impairment. And the triggering event could be one of many different things, including for instance the announced intent to sell assets. And that actually changes the formula. Put that aside, we're not in that situation at all. We certainly look at all of our assets from an impairment perspective every single year and sometimes at the end of quarters as well if necessary. We're not concerned about any of our assets from that perspective.

Your next question comes from the line of Ian McPherson with Simmons. Ian Macpherson - Simmons & Company International, Research Division: Simon, I was wondering if you could address your 5 or 6 deepwater rigs that have some exposure in the market in the back half of this year, and just help us frame the threats and opportunities for those in terms of utilization in any potential backing candidate or what contract gap might look like for a certain number of those rigs.

Yes, sure, Ian. Well, let me first discuss the Noble Danny Adkins because that's in a different category to the other rigs we identified in the call. So, I mean, just generally as a backdrop, I mean, the industry's experiencing intense competition for available work. We don't want to give to our competitors with real-time intelligence of immediate opportunities under discussion. But as far as the Danny Adkins is concerned, we are confident that we are well-placed to secure work for the rig. And when we receive a commitment then you'll see that appear in the Fleet Status Report. With respect to the other units, the older typically more deepwater rigs that we talked about earlier, we're considering all of our opportunities for those rigs, including cold stacking. But at this moment, we are continuing to compete where we can and for opportunities all around the world. And there's not really much more I can say other than that at this time. Ian Macpherson - Simmons & Company International, Research Division: Okay, next. Quick follow-up. James, you guided your full year pro forma tax rate, 18% to 20%. Can you just give me the cheat sheet? What does that imply, discreetly, for the stand-alone Noble in the second half of the year for tax rate?

Well, that is a stand-alone guidance number. First of all, just to be clear, I think you got that. What it implies for the remainder of Noble is a tax rate in low 20s in Q3 and Q4. And let me add a little flesh to that, Ian. One of the reasons that we will see a higher tax rate is because of this retroactive U.K. tax change. So we're picking up charges there that go all the way back to April.

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: Just one question for me. As you see these early signs of a deepwater rig market recovery, I just want to get your feel for what you're seeing in terms of tenders, in terms of programs that would be in water depth and for well conditions that could potentially be below the capabilities of the rigs. Which is to say, I'm nervous about ultra-deepwater high-spec rigs potentially moving down-market to pick up work. So, again, as you see these early signs of recovery, I'm just curious as to any color you're seeing in terms of the nature of these programs.

Yes, I mean, how I'd respond to that is by saying that the competition is intense across all sectors. So we are seeing deeper water deepwater DP rigs competing in shallow waters where they wouldn't have considered competing in past markets. Everyone's chasing the work that's available. I mean, I think the key thing to remember is we're talking about the early signs of recovery, it's a trickle, it's not a flood. And it's going to take some time to sustain demand build before that translates into a change in pricing improvements and utilization levels, generally. So, yes. But I mean, are we seeing people competing down? Yes, we are. Are there some parts of the market where some of the older assets still enjoy an ability to operate un-trembled or unchallenged by deeper water units? Yes, those sectors still exist, typically in the shallow markets in the more demanding regulatory regimes around the world.

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

I had a couple of questions that don't have anything to do with each other. The first is on the Paul Wolff. You mentioned that you might spend $50 million on it this year. If you're not going to go ahead and do the whole upgrade, what would be the purpose of doing just kind of a partial upgrade? Do you think you can get work just from that investment?

There are a number of things that are involved. We have a scope of work that we believe the rig needs to be to compete at its highest and best use. It's a DP rig, it's not been out of the water since we first commissioned the rig to work in this configuration 15, 16 years ago. So, from a capital perspective, I mean, the mobilization, some steel work that needs to be done, some other assessment things that would be part of the project but -- so all of that will be part of the capital program. What we may not do is complete the full scope of work because of what we see in the market. We don't want to go out and spend $250 million on a rig that we think may not achieve a reasonable return on that investment in this current climate when we might have better opportunities later or something else we could do with that cash now. So we will undertake a scope of work that we think is appropriate given the current market situation and then if we see market conditions change, we may progress. More than likely that we will stop that scope of work at a point that makes sense and preserve that cash for other uses.

Okay, fair enough. And my other question was on the cost guidance. It seemed to be, on both the SG&A and the OpEx cost, to be a little higher than what I was looking for. Is there anything that's changed, since last quarter, that would make you guys think costs are going to be higher or is that just the range that give in this kind of -- within the range that you thought was going to be last quarter?

It's not significantly different from what we would have said had we been ready to communicate that last quarter. One thing I would point out though, you referenced SG&A, and that line might be a little higher than some people might be anticipating. And the reason there is that we've restructured in operations and our op support or field support is about cut in half compared to where it was. You don't see that number because that's included in total OpEx. SG&A is really corporate. So, as a result, corporate was pretty much flat to where it was before but operations support was halved.

Your next question comes from the line of Ed Muztafago with Societe Generale.

I'm just wondering if you could talk a little bit -- I know the question was asked about expansion plans in the future. Are you starting to see any opportunities yet for asset acquisitions in the market that might be, either for the Paragon spin or for Noble RemainCo, that might be interesting to you?

We've been so busy with spin and newbuilds. That's really what our focus has been. There are a number of newbuild assets around the world that are being constructed. Simon referred to some of those earlier, they're being built in different markets by -- we would call them nonindustry investors or kind of speculative capital that might have some interest there. There's some nuances to a lot of those rigs that make them completely uninteresting to us. But there might be some that have some certain opportunities for us. I mean, beyond that, we're really focused on what we're doing now. We have no interest, right now, of building those back. We really are trying to get our arms around what we've got. We always model opportunities. We're looking at what the market might bring for us in the coming months. But other than those rigs over there that we're watching, there's not a whole lot out there that we would see today.

As to acquisition opportunities for Paragon, that you mentioned as well, you probably have to speak to them as they'll be a different company as of tomorrow.

Yes, thanks. Good point.

And I was just wondering, we clearly have this bifurcation going on in the market. And you've highlighted that it's not just a water depth issue. And I think we all know that. Maybe you could just sort of recap for us what you think the defining parameters or the key parameters might be of what sort of puts the better rigs go a foot forward, and by that, I mean hook load capacity, et cetera, by both the floaters and the jackups.

Well, I think you could look at what we've been building and extrapolate from that what we're interested in. I mean, we worked extremely hard over the last 4 years to position Noble as one of the highest and best, most versatile and capable fleets out there. So whatever we would look at to buy or build, we wouldn't expect would dilute what we've been working on. So not to say that we wouldn't go shallow water, but it's well-known that we've had a harsh environment, shallow water design out there that we would be interested in building against a term contract. We think that goes along with our technical strategic focus. The jackups we've been building, 1 of the reasons that we've achieved somewhere on the order of $100,000 a day better on our jackups, on average, than the other lower-spec jackups is because we've built in a tighter spec in a tighter market. So I think you would continue to see us build on the higher technical range where we think the term is better, the downside risk is better, the upside is better and the niches are more prevalent for us. That's the short answer, but that's where we would be.

Your next question comes from the line of Darren Gacicia with Guggenheim.

I wanted to ask, first, with the -- you've made some comments, say, about the Paul Wolff. I was hoping mainly you can help us frame the logic behind kind of how much you're willing to spend to keep rigs going and especially with regard to what's coming up for surveys. Is there anything in the rigs we should target to say, look, this may be kind of a questionable decision as to whether we're kind of go ahead and kind of put money into that rig or not. Just so we can kind of a sense of where we are with the kind of newco fleet.

We don't have any rigs in the fleet that are not viable. They're all viable assets in certain markets. The issue with the Paul Wolff is -- the Paul Wolff is the rig that drilled the first pre-salt discovery in Brazil when they started the pre-salt thing. It's got capability. The rig has been worked extremely hard over its life in Brazil, and it needs a serious facelift. And so the question on it is, do we want to spend the money now or do we want to hold that rig for some optional opportunities in the future? Everything else we've got in the fleet is operable today and we can work as it's currently configured. So we don't have any rigs -- we've just gone through a huge exercise to split the fleet on a standard spec versus high-spec basis. We don't have any fleet that we're embarrassed about or that we think is problematic. The Paul Wolff, we think is a marketing timing issue. Everything else we got in the fleet is ready to go to work.

Sort of unrelated and more directed towards Simon. You made some comments on the jackup market with regard to some of the newbuilds, I believe, coming in and maybe not meeting client demand and the rest and how that may play out. Can you expand on that a little bit? In terms of how you think the jackup market plays out with some of the newbuilds arriving and maybe kind of your view, just expand those comments.

Yes. I think the key thing to understand is that a large proportion of the uncontracted jackup newbuilds under construction, that are coming to market, a large proportion of -- some, I think, around a bit 30% was the figure we mentioned are controlled by the speculative investors that David also spoke to. And I think one of the key things is that when rigs are ordered by that type of investor, they typically do not benefit from informed independent design and QA/QC that you would expect of an ironer [ph] who has reputation at risk. They're looking to sell their place in a queue, not to take the delivery and to operate that rig. So that impacts significantly on the value of that rig to customers, both in terms of breadth in the market and also the actual type of customer. So I think when people see a newbuild rig at a Tier 2 or Tier 3 yard in the far east, they need to discount the sticker price by its value in the marketplace, more generally, and its value to an experienced ironer [ph].

I mean is it kind of sloppy environment to kind of handle that issue with the kind of number of rigs that are probably fitting that definition or do they get acquired? I mean, how does this sort of solve out, I guess, is what I'm trying to figure out.

You can speculate as to what might happen to some of those yards and some of those ironers [ph]. I mean, I would argue that some of those rigs will never be delivered. Some of them will go into markets that are essentially closed to international competition. But the key thing is that, nonetheless, just the availability of units in yards, regardless of whether their competitive for a given work prospect, nonetheless, they'll have a generally depressive effect of the leading edge of the market and act as a break to demand and pricing recovery. So, generally, it's a bit of a cloud on the future development of the jackup segment for sure.

Melissa, we're going to go ahead and close the call today. For those of you who might be left in the queue or who have additional questions or any clarifications on comments, please feel free to call John Breed or myself over the course of the day. Thank you for your participation on today's call and your interest in the company. Make a note that our third quarter 2014 call is to be held in October. The date is the 29th. For the reported numbers, the call will be the 30th of October. Thanks again for your participation today. Melissa, thank you for coordinating the call. Good day, everyone.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.