Noble Corporation Plc (NE) Q1 2015 Earnings Report, Transcript and Summary

Good morning. My name is Leanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Noble Corp First Quarter 2015 Earnings Call. As a reminder, ladies and gentlemen, this conference is being recorded today, April 30. Thank you. I would now like to introduce Mr. Jeff Chastain, Vice President of Investor Relations. Mr. Chastain, you may begin. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay. Thank you, Leanne, and welcome, everyone, to Noble Corporation's first quarter 2015 earnings call. We appreciate your interest in Noble. A copy of the company's earnings report issued last evening, along with all the supporting statements and schedules, can be found on the Noble website, and that's, noblecorp.com. David Williams will begin our prepared remarks this morning, but before I turn the call over to David, 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 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 obligations to update these statements. Also note that we may use non-GAAP financial measures in the call today. If we do, you will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation on our website. Finally, and 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 second quarter and full-year 2015 figures. So with that, I'll now turn the call over to David Williams, Chairman, President and Chief Executive of Noble. David W. Williams - Chairman, President & Chief Executive Officer: Okay. Thank you, Jeff. Good morning, and welcome, everyone, to our first quarter 2015 call. Noble had an excellent start to 2015, as you've seen from our report, issued late last evening. The key takeaway from our results was our success in addressing certain controllable aspects of our operation, including fleet performance and cost management. As I noted on our last call, we are actively engaged in a process of enhancing operating efficiencies, while aggressively managing costs and limiting margin erosion. Our first quarter results demonstrate our success with these endeavors, but more can be done and we're continuing the effort. Managing costs, while maintaining operational excellence and focusing on safety and the environment, is something that's built into Noble's operating philosophy, and it always will be. But more importantly, I see it as a key driver in our success. Joining me today, in London, is James MacLennan, our Senior Vice President and CFO; Jeff is in Houston today along with Simon Johnson, our Senior Vice President of Marketing and Contracts. I'll start things off this morning with some additional comments on our strong first quarter results and offer some observations about the state of the offshore business. Then James will follow with a more in-depth look at the first quarter and some comments on the remainder of the year. Simon will follow James with some remarks about the offshore market and some opportunities for Noble. And before we begin taking your questions, I'll close with some final thoughts on Noble's solid positioning in the offshore industry and an update on our capital allocation strategy. Our first quarter financial results were driven by strong performance throughout the fleet, with gross downtime of about 3.9%, compared to guidance of around 7%, at an average, in 2014, of about 8.8%. This led to a revenue efficiency mark approaching 98% for the first quarter, fleet wide. We continually strive for operational excellence which is achieved on a consistent basis through effective maintenance and highly skilled and well-trained crews. This quarter offers an example of what success in these efforts can look like. Our guidance suggested a downtime level of approximately 7% across our fleet in 2015, a reasonable expectation given our predominantly premium fleet of highly sophisticated, complex and technically advanced assets. But we always strive for much better and much lower downtime, and we achieved excellent results in this effort during the first quarter. So to what do we attribute that success? I believe a number of systems and procedures that we've been implementing and speaking to you about over the last few years are combining to provide meaningful returns. These include robust operational readiness programs, state-of-the-art training facilities, advanced technical and maintenance support and subsea reliability programs, including effective use of our extensive subsea equipment inventory, and superior training, technical and field support. These programs may have been overshadowed, in recent years, by the attention given to our very successful newbuild program, but I'm no less proud of the effort that's gone into these initiatives. As our results show, they're yielding real bottom-line benefits. We experienced an 18% decline in contract drilling operating costs in the quarter, compared to operating costs in the fourth quarter of last year, a result that fell well below our guided range for these costs. Several factors helped produce this result, including reduction in rig repair and maintenance costs, lower labor cost and reduced cost in the area of shore base and operations support. The combination of reduced fleet downtime and lower operating costs produced a nice improvement in our contract-drilling margin which rose to 59% in the quarter, from 50% just last quarter. Again, James will provide an in-depth review shortly. Although we continue to experience a challenging business environment, Noble's excellent industry position provides us with certain advantages that allow us to manage our business without the large distractions that others in the offshore industry might be faced with. Due primarily to a new, high-specification fleet along with strong contract cover, greatly reduced capital expenditure requirements and positive free cash flow, we've been able to maintain our focus on improving our operating results as we demonstrated in the first quarter. At the same time, we've maintained our focus on placing the company in an optimum strategic position ahead of the eventual cyclical recovery. In regard to the cyclical recovery, predicting the timing is not as important as understanding what's happening to bring it about. We are encouraged by the improved trading pattern for Brent, especially since late January. But we're not in a position to make predictions on macroeconomic and geopolitical forces that could influence pricing. However, two important industry variables which we are monitoring are fleet capacity and cost rationalization. New rig orders have all but stopped with some previously placed orders likely to be canceled and retirements, especially in the floating rig segment, up dramatically. With regard to the floating rig segment, almost 10% of the gross supply has been retired just since 2014. Another 4% of newbuild orders are at risk of cancellation and approximately 7% of the fleet is currently cold stacked. We believe the number of order cancellations, retirements and cold stacked units will increase significantly from current levels as we progress through this cycle, helping to bring the industry back to market equilibrium. However these actions will only move us so far. Other actions will be required to eventually lead us to growth in customer demand for rigs. One initiative that our customers are actively pursuing is project cost rationalization. This effort, which has been underway for some time, involves thorough project reviews, re-engineering of solutions, and application of new technological advances and pricing, all of which should drive project costs lower and improve returns for our customers. We expect this effort to yield positive results for drillers in time, leading to greater clarity on project timing and an increase in offshore rig needs. I've so far mentioned three important variables to our business: crude oil price, the state of rig capacity and operator project cost rationalization. Two of the three variables are controllable and are happily showing signs of progress. Further progress on these actions add to the long-term attractive return opportunity inherent in the offshore sector, and keep me confident in the future of the offshore industry, while keeping the management of Noble focused on solidifying the company's excellent competitive posture. I'll have more to say on this topic in just a moment, but right now I'll turn the call over to James. James A. MacLennan - Chief Financial Officer & Senior Vice President: Thank you, David, and good morning to everyone on the call. I'll focus my initial comments this morning on a review of some of the key developments that contributed to Noble's strong first quarter results. In order to be efficient with our time, I plan to cover only those line items that fell outside of the guided range provided during our fourth quarter call, but I'll be happy to address any questions on items that I do not cover during the Q&A segment of the call. The highlights of the first quarter are as follows. Noble reported net income from continuing operations of $178 million, or $0.72 per diluted share, on total revenues of $804 million. The results compared to a net loss from continuing operations in the fourth quarter of 2014 of $595 million, or $2.38 per share, on revenues of $805 million. You'll recall the fourth quarter results included an after-tax charge of $713 million, or $2.86 per diluted share, related to impairment of three of our semisubmersible rigs, this being the result of our decision to retire these units. Excluding the after-tax impairment charge, net income from continuing operations for the fourth quarter of 2014 would have been $119 million, or $0.47 per diluted share. Let's walk through the drivers of the first quarter performance. Contract Drilling Services revenues was $779 million in the first quarter, declining by approximately $9 million, or 1%, when compared to fourth quarter revenues of $788 million. The modest decline was driven by fewer operating days following the retirement of the three semisubmersibles and the completion of contracts in the fourth quarter jack-up Noble Mick O'Brien and semisubmersible Noble Paul Romano, which had an impact of $72 million combined, and two less calendar days in the quarter, with a $13 million impact. These events were partially offset by a full quarter of operations on the drillship Noble Tom Madden, which contributed $30 million. An increase in operating days on the semisubmersibles Noble Danny Adkins and Noble Amos Runner adding $36 million and, as David noted, an impressive reduction in fleet downtime to under 4% in the first quarter, compared to over 7% in the fourth quarter. This had an impact of $12 million. Average daily revenues in the first quarter improved 3% to $340,000 compared to $330,700 in the fourth quarter, supported by the combination of the rig retirements and a full quarter of operations on the ultra-deepwater drillship Noble Tom Madden, which commenced operations in November 2014. The positive variance in Contract Drilling Services costs represented another significant reason for the strong results in the quarter. These costs were $322 million, which compared very favorably to the guided range of $350 million to $365 million. Driving these lower costs were several items, including lower labor costs, reduced shore-based and operation support costs, lower repair and maintenance costs linked to the reduction of fleet downtime and finally, other reductions, related largely to the timing of mobilization expenses. DD&A was $154 million in the first quarter, while SG&A was $24 million. Both of these results were within our range of guidance. Interest expense, net of amounts capitalized, was $49 million in the first quarter, compared to a guided range of $40 million to $45 million. The higher interest was due primarily to the timing of the issuance of $1.1 billion of senior notes in the first quarter consisting of 3 year, 10 year, and 30 year maturities. The weighted average coupon on the three maturities was 5.9%, which moved our weighted average cost of debt to approximately 5.0%. We capitalized approximately 10% of interest in the first quarter, or $5 million, consistent with guidance. You may have noticed the line item, interest income and other, at $6.6 million for the quarter, was higher than we typically experience. This was due to a payment of interest to Noble by the IRS totaling approximately $5 million. This was the result of interest on a tax refund that covered the years 2006 and 2007. The non-controlling interest line on our P&L, representing the Bully I and Bully II 50/50 joint ventures with Shell, was $20 million in the first quarter, compared to guidance of $15 million. Increase from guidance was primarily due to lower costs and reduced downtime on both rigs. Our effective tax rate for the first quarter was 18%. This compared to a guided range of 24% to 25%. Better than expected first quarter operating performance, coupled with a favorable impact of discrete items in the quarter, were the primary drivers behind the lower rate. As we've indicated previously, capital expenditures will be down significantly in 2015 due to the absence of newbuild rig deliveries this year. In the first quarter, we spent $89 million, including capitalized interest, below our guidance of $125 million. The lower spend was due to the timing of spending across all capital categories. The spending components of CapEx in the first quarter are as follows: $14 million from newbuild rigs, primarily expenditures associated with the enhancements to the technical specifications on the jackup Noble Sam Hartley and progress payments on the Noble Lloyd Noble, $48 million from major projects and other, $22 million for sustaining CapEx, and $5 million in capitalized interest. As for the balance sheet, total debt at March 31 was $4.86 billion, unchanged from the level at December 31, 2014. The debt to total capitalization ratio was 40% at March 31, also about unchanged from December 31. Liquidity measured as the sum of cash and cash equivalents and availability on revolving credit facilities improved to $2.7 billion at March 31, 2015 from approximately $1.8 billion at December 31, 2014. Proceeds from our senior notes issuance which closed in March were used to pay down the outstanding balances on the company's revolving credit facilities and its commercial paper program. I'll now move the discussion to a focus on guidance for the remainder of 2015 and on the second quarter of the year, covering certain line items from the P&L as well as capital expenditures. First, we'll maintain our operational downtime guidance in the Noble fleet for the next three quarters at an average of 7%. As noted earlier, this compares to actual operational downtime in the first quarter of 4%. Our operational improvements are showing results and our expectations are that uptime performance will continue to improve over time. The 7% rate for the remainder of 2015 is a conservative expectation but it reflects our high mix of premium, complex, floating and jackup rigs. Contract Drilling Services costs are expected to be in the range of $1.3 billion to $1.4 billion for the full year, while the operating margin is essentially unchanged or about steady with margins achieved in 2014. Actions intended to manage costs have produced additional savings over the guidance range provided on our last call and represent an expected 10% reduction from levels in 2014. For the second quarter, Contract Drilling Services costs are expected to be in the range, $325 million to $340 million. If we look beyond the second quarter forecast, costs are expected to remain relatively flat with some increase in the fourth quarter due to a higher number of operating days in that quarter. We continue to expect DD&A for the full year to be in the range of $620 million to $635 million, while the second quarter DD&A is expected to be $155 million to $160 million. We expect depreciation to increase about $2 million to $4 million per quarter through the remainder of 2015. We continue to expect SG&A to range from $85 million to $95 million in the year and approximately $23 million in the second quarter, with the remaining costs split about evenly over the remaining quarters of the year. Interest expense net of capitalized interest is expected to total $215 million to $225 million in the year based on our existing debt structure. This level is above our prior guidance because of the senior note offering in the first quarter, along with lower capitalized interest. Capitalized interest in 2015 is expected to total, $20 million to $25 million. Next interest expense in the second quarter is expected to $55 million to $60 million. The minority interest line on our P&L is expected to total, $50 million to $65 million in 2015 with a run rate of approximately $15 million per quarter through the year. This expense is ultimately dependent on the operational performance of these two joint errand rigs. Our effective tax rate in 2015 is being lowered from our previous guidance of 24% to 25% to a revised range of 21% to 23%. The better than expected first quarter tax rate translates into a lower annualized rate, thus driving the guidance downward. Of course, changes in the geographic mix of sources of revenue, tax assessments and settlements or movements in certain exchange rates all can affect this line. Finally, we continue to expect our capital expenditures for 2015 to be approximately $585 million. Before I walk through the CapEx breakdown by major category, I want to remind you once again that our cost control efforts extend also to capital expenditures to the extent allowed by pre-existing commitments and to costs that are discretionary. As discussed on the last call, we have reduced major projects and sustaining capital expenditures where we could do so without hindering the safe and efficient execution of our global operation. And the level of capital spending remains under review as we work through the market conditions currently in place. The breakdown by major spending category is as follows. In our newbuild program, we expect to spend $80 million, largely relating to progress payments on our final newbuild project, the Noble Lloyd Noble, and the additional capital enhancements on the Noble Sam Hartley. The remaining CapEx needed to complete the newbuild program in 2016 and beyond should total approximately $470 million with capital expenditures in 2016 for the Noble Lloyd Noble of approximately $450 million. Major projects in 2015 are expected to total approximately $315 million. The amount includes subsea component purchases and newbuild and other capital spends of $200 million and several rig maintenance and regulatory inspection programs, including but not limited to work on the Paul Romano, ahead of the commencement of its estimated one-year contract in the U.S. Gulf of Mexico, and the Bully I. Sustaining capital expenditures are expected to total, $170 million in 2015. As previously mentioned, capitalized interest is expected to total, $20 million to $25 million in a year. Total capital spending for the second quarter is expected to be about $160 million. I want to close with a summary of our share repurchase activity. In January, we repurchased 6.2 million shares at an average price of $16.10 per share for a total of $100 million, reducing the company's shares outstanding to 242 million even at March 31, 2015. No share repurchases have been made since the January, 2015 activity. Finally, a healthy level of liquidity is important in our business, especially as forward visibility has declined. Noble continues to take steps that place the company in a position to maintain strong liquidity through the cyclical downturn. With the new revolving credit facilities put in place earlier this year and the recent senior notes offering, we should end 2015 with available liquidity in excess of $2 billion after repayment of the $350 million senior notes due in the third quarter. We continue to expect positive free cash flow in 2015 and we forecast that we will end the year with a debt to cap ratio of about 40%, at par with the level at the end of 2014. That concludes my comments and Simon will now cover the market outlook.

Thank you, James, and hello to everyone. This morning I'll make some brief comments regarding the offshore market while expanding on some of David's earlier thoughts. I will also cover some details on the Noble backlog including new awards and the temporary revisions made to the contracts on our five jackups operating offshore Saudi Arabia that were disclosed last night. In addition, I'll speak to the outlook for the rigs in our fleet with comment on their term availability. Incremental offshore activity remained constrained through the first quarter of this year although there have been a few public tenders for rigs and minimal new fixtures. Direct discussions with our customers have been taking place at a steady pace and we believe some of these may lead to contract signings as we progress through the year. The market is still some way from what we consider a steady state activity but we believe momentum is slowly building. On the supply side, our industry continues to make progress on the long overdue exercise of retiring old capacity. Meanwhile other idle rigs in both the floating and jackup segments are being cold stacked. Of the rigs being cold stacked by our competitors, it is likely a number will never work again as a result of capital expenditure requirements for reactivation and uncompetitive technical specification. Also, it is important to keep in mind that as David previously touched upon, the behavior of the Brent crude oil price is improving, with only a 19% difference between the high and low close in the first quarter of 2015, compared to nearly 40% difference in the fourth quarter of 2014. It's been very difficult for our customers to construct upstream capital spending plans when the price of oil is declining on average 1% to 2% a day as we saw in the final quarter of last year. Should we continue to witness the development of a favorable price trend with a better understanding of the full price in place, we believe this should be beneficial to industry confidence as the 2016 budget process commences. We hope to have improved visibility on future activity levels as we move into the second half of 2015. Additionally, a service cost reset, which allows operators to understand their capital expenditure inputs in this new oil price setting, is underway. The turmoil that has been experienced across the entire service sector, both onshore and offshore, has generated a new economic equation, the consequences of which are only beginning to be understood. It is clear that the industry is responding and our clients' commodity price thresholds for projects sanctioned have fallen considerably from the levels one to two years ago. At the end of the first quarter, Noble's contract backlog stood at $9.4 billion. Approximately $7.4 billion of the total relates to our floating rig fleet while $2 billion is attributable to the jackup fleet. Contract cover continues to be one of the many attractive features of Noble's business model and remains strong relative to many other offshore drillers. For the remainder of 2015, 78% of the operating days in our floating fleet are contracted while 77% are contracted in our jackup fleet. For 2016, the percentages currently stand at 58% and 62%, respectively. But we do expect to cover some of the available days in both segments in the near-term with contract awards. We enjoyed success during the first quarter of 2015 in our Jackup segment in securing two-year extensions for both the Noble David Tinsley and the Noble Alan Hay at $85,000 per day, committing the rigs through to the end of 2017. Also, we were awarded an estimated 400-day contract for the high specification jackup Noble Mick O'Brien which should commence in Q2 or Q3 of 2016 at $150,000 per day. The Noble Mick O'Brien which is currently idle in the Middle East continues to be marketed for near-term opportunities and should we secure competing work for the rig, Noble has the option of substituting another available JU-3000N rigs for the 400-day program, if necessary. We've just completed discussions with our customer Saudi Aramco regarding a temporary reduction in the contract dayrates on five jackup rigs operating offshore in the kingdom of Saudi Arabia. As disclosed last evening in our earnings report, we have agreed to lower the rates on the Noble Roger Lewis, the Noble Scott Marks to $169,250 per day; and on the Noble Gene House, Noble Joe Beall, and Noble Charles Copeland, $65,000 per day. The reductions are effective for the 2015 calendar year, and the impact on our backlog is approximately $67 million which is less than 1% as at March 31, 2015. What does this agreement mean for Noble? It demonstrates our recognition of the importance of supporting a strong, long-term mutually beneficial collaboration with this customer. As a result, we envisage keeping five rigs active in the country and maintain a strong position for addressing future opportunities in Saudi Arabia. While the impact of the reduced rates that will apply for 2015 are significant, on a like-for-like basis, the new rates are broadly comparable with those recently announced by some of our trade competitors. Before I close, I want to transition to a quick discussion on our fleet. Despite the strong contract cover described earlier, we do have some near-term exposure on certain assets. I would like to take a moment to review these rigs. Please keep in mind that we remain in an intensely competitive environment, and are reluctant to confer any advantage to our trade rivals. So our comments will remain at a high level. In our floating rig fleet, the ultra-deepwater semisubmersible Noble Danny Adkins continues to operate in the U.S. Gulf of Mexico and is expected to remain on its present contract into June 2015. We are evaluating work options thereafter, and remain reasonably confident that we can secure additional utilization for that rig. The semisubmersible Noble Amos Runner will operate for its present client into November 2015, also in the U.S. Gulf of Mexico. We are pursuing several opportunities for the rig, including some outside the U.S. Gulf. This rig is a strong performer, and can operate at a competitive operating cost point for its specification, and has recently completed a regulatory survey. We believe that it's well-placed to address the prospects we are pursuing, but recognize the current environment imposes some risk of idle time between fixtures. The ultra-deepwater semisubmersible Noble Clyde Boudreaux is engaged offshore Australia on a contract that extends into October 2015. We believe the rig is well-positioned in the Asia Pacific region to address several opportunities there. The semisubmersible Noble Max Smith remains idle in Singapore. Because we continue to bid the rig for work programs in the Eastern hemisphere, we will keep it warm stacked, with a reduced crew, and continue to work towards a placement for the unit in 2015. The ultra-deepwater semisubmersible Noble Jim Day and Noble Dave Beard are contracted into January and April 2016, respectively. Given the 9 to 12 month timeframe before these rigs experience contract rollovers, we expect more meaningful discussions with customers to develop in the near term. Both of these DP semis have excellent operating histories, and we believe they can avoid extended idle time. As for near-term or current jackup rig availability, the Noble Mick O'Brien will return to work in 2016, as noted earlier, possibly as early as April. We are still pursuing opportunities for the rig in the window preceding this fixture. The Noble Regina Allen, operating in the Dutch sector under contract until July 2015, has several prospects under consideration, and we are reasonably confident that it will remain active in the North Sea. The Noble Sam Hartley is scheduled to complete the enhancements that extend its operational window during the second quarter of 2015, and we continue to evaluate several opportunities for the rig. Our expectation remains that the rig will obtain its maiden contract with a commencement date in the second half of 2015. The Noble Tom Prosser continues crew familiarization and training ahead of a revised contract start date of September 2015. The rig is expected to begin mobilizing to Australia early in the third quarter of 2015 and commence its initial contract in the 18 month primary term assignment at a day rate of $230,000 per day. Some of you may have read where our customer recently announced the sale of offshore interests in Australia. This decision is not expected to materially impact on the contract for the Prosser. With that, I'll now turn the call back to David. David W. Williams - Chairman, President & Chief Executive Officer: Okay. Thank you, Simon. Industry positioning is critical in our business, and will perhaps become even more important as we emerge from the cyclical trough. As I mentioned earlier, we believe Noble has established itself in a superior position in the Offshore Industry. Most important is our position and strength in the Ultra-Deepwater and High Specification Jackup sectors. We believe these sectors are the future of our business, and require premium rigs with efficient operations and, in some cases, truly unique features. These rigs, along with our high percentage of operating days under contract for both 2015 and 2016, demonstrated strong operations execution, and the size and composition of our backlog will contribute to our long-term success. Finally, I note the large reduction in capital expenditures in 2015, following a sizable decline in our royaltime (31:21) shipyard program and very limited exposure to uncontracted newbuilds. I'd like to point out that the success of our newbuild program is not based solely on when it started, but just as importantly as when it stopped. In the aggregate, Noble is set to generate positive free cash flow in 2015, providing increased flexibility as we evaluate uses of cash and ways to stimulate value creation. As a final remark, I want to provide a comment on our use of free cash flow. Last quarter, I mentioned that our dividend was a priority, and despite the limited visibility offered our business, we saw no compelling reason to alter that dividend payout. Through the early months of 2015, we still conclude no change is warranted. We will continue to evaluate the prospects for our business and the impact they have on our projection of future cash flows, and we'll act quickly and decisively should conditions warrant. With regard to our share repurchase program, which has removed 13.2 million shares since the second half of 2014, we will continue to proceed with caution. We will maintain a focus on maximizing liquidity, which currently stands at $2.7 billion, with an eye on managing our balance sheet in a conservative fashion while improving the metrics that support our investment grade rating. And with that, I'll now turn the call back over to Jeff, and we can take some questions. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay, David, thank you. Leanne, we're going to go ahead and begin the question and answer segment of the call. We realize this is a busy day, with a number of earning reports out, so each of you will probably have calls that follow ours. So I'd like to ask, once again, that you please limit your questioning to one question, one follow-up, so that we can get to as many questions as possible in the time remaining. Leanne, go ahead with the first question, please.

Our first question comes from the line of Ian Macpherson from Simmons. Your line is open. Ian Macpherson - Simmons & Co. International: Hey, thank you. Great quarter. A quick clarification question, please, on the Aramco deal. I would guess with your Q1 revenue strength that those repricings were not reflected in the revenues you reported. Is that correct? And if not, how will we account for the retroactive portion of that to January going forward? James A. MacLennan - Chief Financial Officer & Senior Vice President: Ian, thanks for the question. The answer is the first quarter does reflect a portion of it. The accounting is not necessarily intuitive, but following the guidelines. We are spreading the impact over the terms of the respective contracts. And the last thing that I should mention there is to quantify it, it's between $4 million and $5 million per quarter. Ian Macpherson - Simmons & Co. International: Okay. So in other words, your new day rate that you put in your earnings release we can simply plug those in from April 1 forward, and that's the correct method? James A. MacLennan - Chief Financial Officer & Senior Vice President: Not really. You'll have to calculate a blended rate that's based on the delta that I just gave you in dollars. Ian Macpherson - Simmons & Co. International: Okay. All right. Gotcha. The follow-up, thanks, James. The follow-up, Simon, my sense is that the pricing reset for rigs is probably two steps. First, we get all the renegotiations and repricings out of the way and that probably sets the table for fresh contracting later in the year. Is that how you see it? And if so, when do you hope and expect to get step one completed across your portfolio?

It's difficult to anticipate what other discussions may lie ahead of us. But yeah, I generally agree with your proposition. I do think that there's still some ways to go with the discussions at various contractors have on the table until those discussions are concluded. And then I think more importantly once we get into the second half of the year and we start to approach the 2016 operator budget process, then I think we'll start to see what the industry price reset does in terms of stimulating what we refer to, as steady state demand. As you know, over the last six, nine months we've seen probably the quietest time in the market, certainly in my time in the industry which is some 20 years. So I agree with what you're saying. I think that people are clearing the decks and then everyone's waiting to see what the second half of this year holds. Ian Macpherson - Simmons & Co. International: Okay. Good luck with it. Thanks.

Thank you.

Our next question comes from the line of Jud Bailey from Wells Fargo. Your line is open.

Thanks. Good morning. Question. David W. Williams - Chairman, President & Chief Executive Officer: Good morning, Jud.

Question maybe for James just circling back on the dividend. It sounds like for this year you seem pretty comfortable with your liquidity and contracted cash flow. I was wondering if you could comment as we look into 2015, you have a lot of floaters that are rolling off contract. You have a lot of liquidity through your revolver, cash, et cetera. But can you comment that if you – are you comfortable taking on more debt next year to maintain the dividend if contracts roll off – if rigs roll off contract and market conditions stay depressed? Would you be comfortable continuing to lever up the balance sheet to continue paying the dividend? David W. Williams - Chairman, President & Chief Executive Officer: Jud, this is David. You're getting way ahead of what we've guided to or what we've talked about, I think. I think what we've said is and what we continue to see is we're comfortable with the dividend where it is, and we're comfortable where we are this year. We do have some exposure next year. I wouldn't characterize it as a lot of floaters rolling off for 2016. We do have some additional exposure. I think we've got about $2.5 billion already in the contract for next year. And that compares to about $2.9 billion we had in the contract when we started, about $3 billion when we started this year. We're good this year, and we're good next year. With the liquidity we've got both in cash and the revolver, I don't know that it would be necessary to go back to the market to meet our additional demands with or without the dividend for several years. So if we were to decide to do something, it would be strategic in nature and not necessity. I think we have plenty of liquidity as far as you look at the debt maturities we've got and the other requirements we've got. As far out as I can see, we're in pretty good shape.

Okay. Thank you for that. And then my second question is, I'd just be curious as we get farther into the budget year, has the dialogue with customers changed? And obviously you're probably trying to renegotiate a lot of contracts. But I'm curious as rates have really come down, operators are trying to get their costs down. Has the scale of the dialogue changed at all to give any sense of optimism? Or is it still the same in terms of releasing rigs and just trying to renegotiate contracts?

I think different operators have different perspectives based on what their contracted position looks like. I do think that even those operators who had cash flow constrained budgets for this year, the absence of decision making in terms of near-term activity persisted for some time until they got a read on where the oil price was going. I think the reduction in the amplitude of the volatility of the oil price, as we commented in that prepared section of this conference call, that is on an improving trend. So we do believe that some of the money that should have been spent in the first half of this year may break loose in the second half. But that's at the margin, we still have a long ways to go, I think, before we can start talking about demand recovery.

All right. I appreciate it. I'll turn it back. Thank you.

Our next question comes from the line of Praveen Narra from Raymond James. Your line is open. Praveen Narra - Raymond James & Associates, Inc.: Hey. Good morning, guys. Very strong quarter. I think you guys mentioned lower labor costs. Could you give us a sense for how much savings you were able to get from this this quarter? David W. Williams - Chairman, President & Chief Executive Officer: This is David. I'm not sure I heard exactly what you said. You were asking about lower labor costs. We have not gone through and cut salaries for our guys offshore. I mean it's taken, they went years and years without any salary adjustments, they did get some accelerated adjustments for the two years. But we have cut out any retention devices we had and ceased salary adjustments that we had in place. We've also had some reductions in force in places around the company where we were able to. So that's the way we've been working labor. We have not cut our labor costs to date. I think James mentioned in his discussion about $13 million. Praveen Narra - Raymond James & Associates, Inc.: Okay. That's helpful. And then in terms of looking forward for M&A and kind of the leverage metrics. If there was attractive M&A out there, would you be willing to lever up further in order to do that? Or are you kind of comfortable with that 40% level and don't really want to move too much higher? David W. Williams - Chairman, President & Chief Executive Officer: I guess it goes to how you define attractive. We're very comfortable where we are. We're sitting on almost $9.5 billion of backlog, we were able to add – Simon and the marketing guys were able to add over, almost five, well over five years of commitments in jackups this year. On the commitments on the three rigs in the Middle East, we are having some positive conversations with other people. So our comfort with debt would depend on what the deal looked like and our view of the forward market at the time. We are within our kind of guided range of what we're comfortable with from a debt perspective. Given the state of the market we are watching our investment grade and that's important to us. But strategy and opportunity are where you find them, and we'll continue to monitor the market and see what's out there. Praveen Narra - Raymond James & Associates, Inc.: That's very helpful. Thanks a lot, guys. David W. Williams - Chairman, President & Chief Executive Officer: Thank you.

And our next question comes from the line of Gregory Lewis from Credit Suisse. Your line is open. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Yes. Thank you and good morning. David W. Williams - Chairman, President & Chief Executive Officer: Good morning. James A. MacLennan - Chief Financial Officer & Senior Vice President: Good morning.

Good morning. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): David, I realize it's still kind of early innings with the BSEE [Bureau of Safety and Environmental Enforcement] announcements and new potential regulations coming out. But as Noble looks at these potential regulation changes, would you, how is the industry positioned? Is this something that is going to be easily absorbed or are there going to be actual step changes that we think needs to happen on an operational and even on a beefing up equipment and actually having to deploy more equipment to meet these regulations. David W. Williams - Chairman, President & Chief Executive Officer: Greg, the answer is we don't know yet. Obviously we're deeply involved in the – they've issued guidelines for comment. We are commenting on those. We are working closely with the API, the IADC, the Well Control Institute, other groups that we're involved in – all those groups we're involved in and other interest groups we're involved in. These prospective rules are getting a lot of attention. And so it's too early really to say where BSEE takes it. If they wake up and say everything's got to be compliant Tuesday, the industry is not prepared, it's not in a position to deal with that. And particularly now since we don't know what the rules are going to be. So this is a process, not a point in time. And so I can tell you that in my conversations with government officials, they recognize that the industry has done a much better job and they're much more comfortable with the science and technology in a post-Macondo world. I don't think they want to shut the industry down. They don't want to burden the industry too much. So my expectation is there will be a collaborative approach that the industry, that whatever government comes up with, they will give industry time to deal with it. That's what we expect is reasonable, and that's what we expect to come. So we're trying to collaborate with industry now, and we expect to be collaborative with government and have rules that accommodate their needs and our capability. So that's all we can read into it at this point. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Okay. Great. And then just one other one for me. On the Danny Adkins in the fleet status, it looks like that rig's scheduled to come off next – in early June. Do we have any sense for where that rig is currently in the process of drilling at its current well? Or maybe when that rig was spudded?

Yeah. As much as I'd like to, we're really not in a position to talk in any detail about our operator's work programs. It's a matter of great sensitivity. So all I can point you to is the indicated expiration date in the contract status. And we'll issue an update when we're able to. I'm sorry I can't provide any more detail than that. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Okay, guys. Thanks. David W. Williams - Chairman, President & Chief Executive Officer: Thank you, Greg.

Our next question comes from the line of Dave Wilson from Howard Weil. Your line is open. David Thomas Wilson - Scotia Capital (USA), Inc.: Good morning, gentlemen. Thanks for taking my questions. Just following up on the Danny Adkins. Simon, I know you've expressed confidence on a follow-on contract. But as we get closer to that, can you share the timing as far as that follow-on work. Will it be in direct continuation? Or will there be a period of transition time or something like that?

Well we haven't secured the work yet. I think I was expressing a degree of confidence. We'll see if that's misplaced here in the near term. But yeah. There's a possibility of gaps. There's a paucity of opportunities in the deepwater Gulf of Mexico right now. We believe that we're particularly well-positioned. That rig is performing in an excellent manner right now, particularly relative to the rigs that we believe we're competing with. Other accounts are more than that unfortunately, Dave, the competition's quite intense. But we believe that the good work our crews are doing out there on that rig, the specification of the rig, and the total value proposition that Noble provides to our clients will see us through. Well certainly that's our expectation at this time. David Thomas Wilson - Scotia Capital (USA), Inc.: Great. Thanks for that, Simon. And then, as an unrelated follow-up on the cost front, I wanted to circle back on that. As you guys mentioned, Noble's had several initiatives in place for quite a while now, and we're obviously seeing the results of that in higher revenue efficiency and lower costs. But something in the release that stood out to me, in that rig repairs were minimized, and I apologize, but my immediate reaction was kind of an oh no, is this just like the pre-Macondo era, where maintenance was foregone by some rig owners? And not only – they really had to pay for it later on. Can you clarify that? I think James might have touched on that, but can you clarify what you meant by, those costs were being minimized? David W. Williams - Chairman, President & Chief Executive Officer: Absolutely. Absolutely not are we skipping on maintenance that needs to be done. We're running an efficient operation, and when something doesn't break, you don't need to send a bunch of people out there to fix it. So, we're very well-spared up. We have a lot of rigor built in to our maintenance programs. So no, we are not deferring maintenance that needs to be done. We're not cutting corners. Quite the contrary. The level of rigor in our program right now is probably stronger it's ever been. And the reason the rigor is in there is to prevent future failures. So I think what we're doing is, reaping the benefits of forced compliance to our programs, and the crews are getting it. And the long-term strategy of doing it right the first time is paying off for us. But absolutely not. We are not skipping things need to be done. David Thomas Wilson - Scotia Capital (USA), Inc.: Great, glad to hear that. I'll turn the call back over. Thanks, Dave. David W. Williams - Chairman, President & Chief Executive Officer: You bet. Thank you.

Our next question comes from the line of Dan Boyd from BMO Capital. Your line is open.

Yeah. Thanks. Just following up on that one, in a little more detail maybe. The OpEx came in 10% lower than your guidance. So can you maybe just help us understand where the surprise was, from your end, in the quarter? And also, just on R&M, recognizing you're not cutting any corners, do you have an opportunity to save money by taking spares off of rigs that are either being cold stacked or scrapped, that's going to save you money over the next couple years? David W. Williams - Chairman, President & Chief Executive Officer: Dan, without getting, in your second question, inventory management supply chain issues, the answer is yes. That's one of the things that we've been working on pretty vigorously for the last several years, is a better tracking policy, a better tracking protocol. There are contractors out there that talk about how consistently they use the same piece of equipment, how standardized they are. If you look at our deepwater rigs going back to the Beard, Day, Adkins, Boudreaux, both Globetrotters and all four HHI ships, all have essentially the same BOP stack. The Bullys, our Cameron stacks, they're a little bit different. But – and then the rigs before that, the EVAs and the (49:18) they all have the same BOP stack. So we have a very standardized fleet. We train very hard on that. We have spares that are consistent from one theater of operations to the other, and from one rig to the other. So, it's all about risk management and having the critical spares in the area to support any given operation in that place that you can. Otherwise, you pull it from inventory and replace it as you go. So yes, we're getting better at that. Yes, we've done a lot of that over the last few years. And that's certainly one of the things that we can work on. In terms of the other savings that we talked about. It runs the gamut of operating efficiency, in terms of how many extra people we work in the fleet. And it goes to every facet of the company. The class of air travel we use, the amount of air travel we fly, the number of meetings that we can conduct via video conference versus being in person. How many people we hire. We've had a hiring freeze now on for months, if not longer. So everything we can push on to drive efficiency, without affecting the safety and the efficiency and the environmental stewardship that we operate within, we'll push on. So, without getting any more granular than that, if you can think of it, we've tried it, and are continuing to.

Okay. And then just a follow-up, more of a clarification from some comments earlier. Looking at contract renegotiations, typically we see them more from national oil companies than from IOCs. Is your expectation that that remains the same? Or is it constant? Or do you think IOCs, just given the dramatic change in the market, might look to renegotiate contracts over the next few months?

I think those conversations have already started with the IOCs. I think an interesting development of the market in recent years is, the state oil companies have become far more important, in terms of the amount of demand that they generate. So there's been somewhat of a change in the pecking order, in terms of the influence of the respective market participants. So I think the IOCs are conducting those discussions across the peer group. I think that the state oil companies have just been an early mover in that process. David W. Williams - Chairman, President & Chief Executive Officer: I'll add to that, Dan, that you've got to keep in mind that the NOCs often will build some of these opportunities into their contract structure, where the IOCs don't necessarily have that. And so it's a function of what we have to do as a contractor to satisfy the needs and the demands of our customer. Some of our customers don't have that right. And we're happy to negotiate rates if there's something in it for us with those people that don't have the right. The people that have the right, every contract has an implied right to perform. And if we don't perform, we're handing the customer a stick to beat us with. But some of the operators, some of the NOCs have that right, and some of the IOCs do not. So because an operator calls and says we want to lower the rate, does not necessarily mean that we have to comply. It means that we're certainly willing to comply if there's something in it for our shareholders.

Okay. So you wouldn't want to do it without something such as extended term or picking up other rigs? David W. Williams - Chairman, President & Chief Executive Officer: I wouldn't want to do it unless I had to. So unless there were something in for me. If you, and when I say if we have to, if you're working for certain operators and it's pretty well-known who they are, NOCs, largely, they have those rights. Certain other downtime provisions will, can lead to those rights. So there are things that precipitate the conversation. If the operator doesn't have the right, it doesn't mean we won't entertain the conversation. It just means there needs to be something in it for us. We're a public company giving away money because we don't have is not part of our normal process. So if David William's oil company calls up Simon and says I'm paying a high rate and I want to cut it, Simon may or may not be willing to undertake that conversation unless I'm willing to give him more term or give him something that has value to him. So it's a negotiation. It's not a gun to the head.

Yeah. And I think just as a final thought, I think that operators gain, stand to gain so much more by focusing on improving their efficiency and performance i.e. the value proposition rather than price. And some of the more enlightened clients, I'm pleased to say, are taking that approach. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay. Leanne, we're going to take one final question, please.

And our last question comes from the line of J.B. Lowe from Cowen & Company. Your line is open. J.B. Lowe - Cowen & Co. LLC: Hey. Good morning, guys. Thanks for sneaking me in at the end. I just had a question on some of your previous comments when you said that, I think David it was you in your prepared remarks, when you said that 4% of the floater fleet was at risk of cancellation. Is that, are those things that have already been announced? Or can you provide some color on that? David W. Williams - Chairman, President & Chief Executive Officer: I'll let Simon comment on that. I think what we're doing is taking assessment of the floater fleet that we think that's out there under construction that's been announced. It probably includes some Petrobras stuff. But I'll let Simon comment on that. It was in my prepared remarks, but I'll let Simon comment.

Yeah. I believe we're talking to the early 30s number of terminations that have taken place thus far, and also the impact of what we anticipate coming out of the Seshay (55:14) issue down in Brazil right now. J.B. Lowe - Cowen & Co. LLC: Okay. Gotcha. And my follow-up question is on the $350 million major projects that you guys are guiding for in 2015, is that pretty much locked in no matter what occurs in the market environment? Or if some of your rigs don't get follow-on work that you may be anticipating, could that number end up coming down? David W. Williams - Chairman, President & Chief Executive Officer: I would say there's probably not a lot of flex in that number. A good bit of that number is pre-ordered stuff that's still to be delivered. So it's already committed, long lead-time items. So it might could flex a few percentage points one way or the other. But given our level of utilization and what our contract status, we can't fit too many programs in. They might could slip, so it could probably come down some. I doubt, it couldn't go up. J.B. Lowe - Cowen & Co. LLC: All right. Thanks so much. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay. We're just before 10:00 Eastern, so we're going to go ahead and conclude the call. For those of you left in the queue, John Breed and I will be contacting you over the course of the day to address your questions. Thank you for your participation on today's call and your interest in Noble. Make a note, please, that our second quarter 2015 results are scheduled for reporting on the 29th of July with a call to follow on the morning of the 30th. And we'll confirm those dates as we get closer. Leanne, thank you for coordinating the call, and good day, everyone.