Noble Corporation Plc (NE) Q2 2015 Earnings Report, Transcript and Summary

Good morning. My name is Erica and I will be your conference operator today. At this time, I would like to welcome everyone to the Noble Corp Second Quarter 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will a question-and-answer period. As a reminder, ladies and gentlemen, this conference is being recorded today, July 30, 2015. Thank you. I would now like to introduce Mr. Jeff Chastain, Vice President of Investor Relations. Mr. Chastain, you may begin your conference. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay. Thank you, Erica, and welcome, everyone, to Noble Corporation's second quarter 2015 earnings call. We 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, and that's noblecorp.com. Before I turn the call over to David Williams, I would like to remind everyone that we may make statements about our operations, opportunities, plans, operational or financial performance, the Drilling business or other matters that are not historical facts and are forward-looking statements that are subject to certain risks and uncertainties. Our filings with the U.S. Securities and Exchange Commission, which are posted on our website, discuss the risks and uncertainties in our business and industry and the various factors that could keep outcomes of any forward-looking statements from being realized, including the price of oil and gas, customer demand, operational and other risks. Our actual results could differ materially from these forward-looking statements and Noble does not assume any obligation to update these statements. Also, we will, as part of our quarterly disclosure practice, post to our website following the conclusion of our call a summary of the financial guidance offered today, which will highlight third quarter and full year 2015 figures. With that, I will 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, everyone, and welcome. We appreciate your participation in our call to review our second quarter of 2015 results. Joining me in Houston, along with Jeff, is Simon Johnson, our Senior Vice President of Marketing and Contracts; and James MacLennan, our Senior Vice President and CFO, is participating today from our offices in London. Noble's second quarter financial performance was another strong result for the company and represents a high-level of reliability across the fleet and further success with cost management initiatives. I am delighted with the way we're managing through the difficult industry environment and, as you saw reported in our press release issued last evening, how the organization is collectively demonstrating a focus and consistency that makes this strong financial performance possible. I'll open this morning with some brief comments on the quarter – our second quarter results, but defer to James for a more detailed explanation on specific areas that were largely possible – responsible for our excellent performance. Also, I want to provide you with an update on the shipyard status of our final newbuild project, the high specification jackup Noble Lloyd Noble. Following James' review of the second quarter financial topics, Simon will offer a few thoughts on the offshore market and the Noble fleet. Then, I'll close with some final thoughts before we open the call up for your questions. Our second quarter financial performance was, once again, driven by excellent operational execution, enhanced reliability, and further reductions in contract drilling costs. Grossly, downtime was about 4% in the quarter and averaged an impressive 4% for the first six months of 2015. As you know, we had pegged our fleet downtime guidance for 2015 at 7%, reflecting the premium-centric nature of the fleet and the complex systems found in our state-of-the-art units. However, our goal is not only to beat guidance, but beat it consistently, as we have done so far this year, leading to a future expectation of improved fleet performance. Achieving this goal is a function of the implementation over time of many internal actions and process improvements with permanent positive implications that I believe are increasingly visible in our quarterly execution. These include the careful analysis of large and small events to produce better outcomes; developing and continually improving crew competencies through the Noble NEXT Center, our state-of-the-art training facility; and, taking a long-term view on improving subsea up time through the development of subsea engineering teams and the acquisition and maintenance of critical subsea spares, a process that's now been in place at Noble for almost five years. Contract drilling costs in the quarter declined 1% from the first quarter and remain below the low end of the guided range provided. Our success through the first half of the year with cost management initiatives has led us to once again lower our full year 2015 cost guidance. James will provide some additional detail on second quarter costs, including factors that specifically contributed to the cost reduction in the quarter, and our revised full year guidance in just a moment. As I mentioned earlier, I could not be happier with the company's execution through the first six months of 2015, especially in light of the difficult business environment. We have always set the bar high for our managers across the organization and we have challenged our teams to work smarter and to suggest process improvements that drive performance as well as safety and operational excellence at the rig level. It is important to note that our successes achieved to-date in cost management are not, as some have suggested, the result of temporary measures with one-time benefits across our enterprise, such as just delaying fleet maintenance. On the contrary, we are engaged in long-term development of better ways to execute and we believe this approach is forming a better Noble. Before I turn the call over to James, I want to provide an update on our high-specification jackup Noble Lloyd Noble. We have reduced our prepared quarterly comments on recent calls regarding newbuild rigs since our construction backlog now includes only one project. However, in an industry where negotiated newbuild project delays covering multiple quarters has become commonplace, I want to reiterate that this project continues to move forward in Singapore with an early second quarter of 2016 expected delivery. The Lloyd Noble is almost 60% complete and is expected to begin its four-year primary term contract with Statoil in the third quarter of 2016. We expect to take delivery of the rig on schedule and position it in the North Sea on Statoil's Mariner field. The Lloyd Noble is another example of well-timed and well-executed newbuild project contracted with strong global customers for multiple years. I'll now turn the call over to James to discuss additional second quarter financial performance and some guidance for the remainder of the year. James A. MacLennan - Chief Financial Officer & Senior Vice President: Thank you, David, and good morning to everyone on the call. Before I refresh our guidance for the remainder of 2015, I want to cover some brief comments on second quarter results. I'll focus on three areas where actual results vary from the guidance provided in April and which we believe warrant explanation in order to gain a better understanding of the strong quarterly performance. The three areas are: fleet downtime, contract drilling costs, and the effective tax rates. I realize there may be certain items regarding our quarterly performance that I've not addressed and which may not be covered in our detailed earnings statement and supporting schedules issued last evening. I'd be happy to discuss such questions during the Q&A segment of the call. To begin, let's discuss the three primary drivers behind another successful quarterly result. Contract drilling services revenues were $771 million in the quarter. Although down by approximately $8 million, or 1%, when compared to first quarter revenues of $779 million, second quarter revenues were supported by favorable downtime performance of about 4%. This compared to a guided level of 7%. Also, we earned revenue on a portion of the 4% of actual downtime in accordance with the drilling contracts. The net result was the contribution of approximately $35 million in additional revenues. The positive variance in contract drilling services costs represented another significant reason for the strong results in the quarter. These costs totaled $319 million, which compared favorably to our predicted range of $325 million to $340 million and slightly below the $322 million costs in the first quarter. The primary reasons behind our lower costs as compared to the guided level were the cost control measures we continue to implement along with the lower levels of operational downtime. Cost control measures in the second quarter included the elimination of certain employee retention programs; lower shore-based and operation support costs; and, cost cutting for idle rigs, both newbuilds prior to entering service, such as the Noble Tom Prosser, and stacked rigs. The lower fleet downtime also drove a reduction in repair and maintenance expense. Finally, our effective tax rate for the second quarter was 18% compared to a guided range of 21% to 23%. Better than expected operating performance, which produced higher net income before tax, was the primary driver behind the lower rate. Before I move on to guidance for the remainder of 2015 and the third quarter, I want to comment on second quarter capital expenditures, which were well below the previously guided range. As we have indicated on previous calls, CapEx will be down significantly in 2015 due to the absence of newbuild rig deliveries during this year. CapEx in the second quarter totaled $81 million including capitalized interest, below our guidance of $160 million. The lower spend was due to a combination of cost control measures and the timing of spending across all capital categories. This brought our capital expenditures for 2015 year-to-date to $170 million. The components of CapEx in the first half of the year are, firstly, $23 million for newbuild rigs, primarily expenditures associated with technical enhancements to the jackup Noble Sam Hartley and progress payments on the Noble Lloyd Noble; $82 million for major projects; $53 million for sustaining capital; and $12 million in capitalized interest. I will now focus on guidance for the remainder of 2015 and for the third quarter of the year, covering certain line items on the P&L as well as CapEx. First, we are reducing our operational downtime guidance in the Noble fleet for the next two quarters to an average of 6%. The reduction reflects the operational improvements that have contributed to the strong fleet execution over the first half of 2015 and our growing confidence that this level can be maintained or improved. We believe the 6% rate for the remainder of 2015 is an appropriate expectation and reflects our high mix of premium, complex, floating, and jackup rigs. Contract drilling services costs are now expected to be in the range $1.27 billion to $1.32 billion for the full year 2015. You'll recall we began 2015 assuming full year costs of $1.4 billion at the midpoint of our range. This level was reduced by $50 million following the lower than expected first quarter outcome and is now being reduced a further $50 million, or 7% below our initial assumptions for 2015 and 13% below full year costs in 2014. This reduction in our cost outlook reflects the favorable impact of the cost reduction initiatives I mentioned earlier on. For the third quarter, contract drilling services costs are expected to be in the range $325 million to $340 million, and primarily reflect the additional costs from the commencement of operations on the semisubmersible Noble Paul Romano and the jackup Noble Tom Prosser, as well as the addition to the active fleet of the jackup Noble Sam Hartley following completion of technical enhancements. Costs are expected to remain at about that level in the fourth quarter, too. We expect DD&A for the full year to be in the range $630 million to $645 million. For the third quarter, DD&A is expected to be $160 million to $165 million. We expect depreciation to increase between $2 million and $4 million in the fourth quarter. We continue to expect SG&A to be in the range $85 million to $95 million in the year with approximately $22 million in each of the third and fourth quarters. We continue to expect interest expense net of capitalized interest to total $215 million to $225 million in 2015, based on our existing debt structure. Additionally, guidance is unchanged for capitalized interest in the year at $20 million to $25 million. Net interest expense in the third quarter is expected to be $55 million to $60 million. The minority interest line on our P&L, which is ultimately dependent on the operational performance of the two jointly owned rigs, Bully I and Bully II, is expected to total about $60 million to $65 million in 2015, with approximately $15 million in the third quarter. Our effective tax rate for the year is being lowered from our previous guidance of 21% to 23% to a revised range 18% to 20%. The better than expected first quarter and second quarter tax rates contribute to a lower annualized rate, driving the guidance downward. As I've stated before, the level of pre-tax income changes in geographic mix of sources of revenue, tax assessments, settlements, and movements in certain exchange rates all can affect this line. Finally, we're lowering our expected CapEx for 2015 to $525 million compared to our previous guidance of $585 million. Before I walk through the revised 2015 CapEx breakdown by major category, I want to remind you once again that our cost control efforts extend equally to capital expenditures to the extent pre-existing commitments allow and to discretionary costs. As discussed on the last call, we've reduced major project and sustaining CapEx where we could do so without hindering the safe and efficient execution of our global operation. In addition, the level of capital spending remains under review as we work through the current market conditions. The breakdown by major spending category is as follows. In our newbuild program, we expect to spend $75 million, relating largely 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 CapEx in 2016 for the Noble Lloyd Noble of approximately $460 million. Major projects in 2015 are expected to total approximately $260 million. This amount includes subsea component purchases and newbuild and other capital spares of $160 million, as well as several rig maintenance and regulatory inspection programs, including work on the Noble Paul Romano ahead of the September commencement of its estimated one-year contract in the U.S. Gulf of Mexico and the Bully I, as I mentioned earlier. Sustaining CapEx is expected to total $170 million in 2015. Capitalized interest, as previously mentioned, is expected to be between $20 million and $25 million. Total CapEx for the third quarter is, therefore, expected to be about $180 million. Finally, we should end 2015 with available liquidity in excess of $2.5 billion after repayment of the $350 million of senior notes, which are due in August of this year. The company anticipates using mostly cash on hand to repay the outstanding balance. We continue to expect positive free cash flow in 2015 and we forecast that we'll end the year with the debt to cap ratio below the 40% level, where we began the year. That concludes my comments, and Simon will now provide some comments on the offshore market.

Thank you, James, and good morning to everyone. I'll begin with some observations on the offshore rig market. In doing so, I hope to provide you with a sense of where we are today regarding industry challenges compared to the update we provided on the April call. Then, I will cover some topics specific to Noble, including our backlog and the prospects for continued work on the limited number of floating and jackup rigs in our fleet which have near-term availability. I said last quarter that discussions with our customers about future work programs were occurring at an increasing pace. This pattern has continued into the middle of the year. Although, we remain a considerable distance from normalization, we have a high degree of confidence in the incremental drilling programs, as we move into the second half of 2015 and beyond. The positive impact of this development has been muted by the growth in rig availability. The number of rigs rolling off assignments with no ongoing work in place or exiting shipyards with no foundation contract is exceeding the appearance of new programs for now. The good news is that the industry participants with un-contracted units are increasingly focused on making difficult decisions about cold stacking sooner rather than later, which may have a positive impact on market utilization. While the return of exploration drilling, which will be most impactful on industry utilization, is still off our clients' agendas for now, field construction costs continue to head in the right direction. This rationalization exercise, which affects technology decisions and regulatory approvals, as well as overall economics, takes time to play out, but we are seeing the same clear signs of progress commented on by some of our ISES (18:27) in recent weeks. There exists a growing number of projects where returns have improved in light of lower service costs. Developments such as these, along with greater conviction on a long-term sustainable crude oil price, should begin to address the demand side of the rig capacity equation. However, as the oil price has wandered downwards in recent weeks, we have also seen some project deferrals. Most of the new activity we are seeing today is focused on production maintenance or projects that passed final investment decision gate some time ago. The supply side of the equation continues to be addressed through rig scrapping and cold stacking decisions as contractors proactively deal with old and inefficient rig technology. As of mid-July 2015, some 42 floating rigs have been selected for retirement with about another 64 rigs, around 22% of the fleet, cold stacked. This movement towards removing older, less competitive units from the global floater fleet is now becoming manifest in the jackup sector. We believe that the process will continue as people seek to preserve capital and, unlike previous industry cycles, a much larger portion of the global fleet are potential candidates for attrition. We've been successful in recent weeks securing some modest contracts for some of our rigs with near-term availability, and I will review these and other aspects of our fleet in a moment. Although the contracts are shorter duration, they are welcome accomplishments in this highly competitive environment. Our strong contract cover remains in place and is a key factor in our ability to manage through the cyclical weakness. We ended the second quarter with a backlog of $8.7 billion, of which $6.8 billion was associated with our floating rigs and $1.9 billion with our jackup fleet. As of June 30, we have some 79% of the available rig operating days committed to contracts. In 2016, 63% of the rig operating days are committed to contracts. We remain somewhat optimistic about the opportunity set for the limited number of rigs in our fleet with availability in 2015. In the floating segment, the ultra-deepwater semisubmersible Noble Danny Adkins was recently awarded a one well program in the U.S. Gulf of Mexico that will keep the rig employed into August. And we're reasonably confident that unit will secure additional work in the region. The Noble Danny Adkins is of a high – very high specification and has proven capability relative to the competition. And most importantly, it is executing our clients' programs extremely efficiently. In fact, the exceptional efforts of our operations team is visible across the entire Noble fleet, as David and James have noted earlier. Needless to say, in this uncertain environment, predictable, consistent and higher quality service delivery is highly valued by existing and prospective customers. The deepwater semisubmersible Noble Amos Runner is expected to complete its contract in the fourth quarter. The rig is conventionally moored and is equipped with a 15,000 PSI subsea control system, representing one of very few floaters in the U.S. Gulf of Mexico that possess those features with near term availability and has not been stacked. Although, this does not guarantee a contract for the rig, it does represent strong positioning given the potential needs of certain customers in the region. Finally, the high specification semisubmersible Noble Clyde Boudreaux is expected to complete a program offshore Australia in November. We believe that the rig remains positioned to compete for opportunities throughout the Asia-Pacific region. The Clyde Boudreaux has been operating strongly, delivering challenging world-class wells to the flagship Prelude floating LNG project. During early 2016, the ultra-deepwater dynamically positioned semisubmersibles Noble Jim Day and Noble Dave Beard are expected to complete contracts offshore the U.S. Gulf and Brazil, respectively. We are evaluating opportunities for both rigs and remain cautiously optimistic that follow-on contracts can be secured for these units. In our jackup fleet, Noble Regina Allen was recently awarded a one well contract by our existing client for additional work in the North Sea. The rig is now expected to remain under contract into September and the company is pursuing opportunities for ongoing work. We continue to evaluate contract opportunities for the Noble Mick O'Brien to address an estimated eight-month idle period leading up to early April 2016 when the rig is scheduled to commence a previously disclosed 400-day term contract in the Middle East. Also, the Noble Sam Hartley should complete its enhancement program and join the company's active jackup fleet by September. We remain confident a maiden contract for the rig will be secured in the near term. Finally, during the third quarter, we expect that two of our previously idle rigs will return to operation. We expect the deepwater semisubmersible Noble Paul Romano to commence a four well contract expected to last at least 12 months with Hess in the U.S. Gulf at $300,000 per day, while the jackup Noble Tom Prosser will begin its 18-month contract with Quadrant Energy Australia, previously known as Apache Energy, offshore the North West Shelf, offshore Western Australia, at a day rate of $230,000 per day. Both rigs are expected to commence operations on or around September of this year. With that, I'll now turn the call back to David. David W. Williams - Chairman, President & Chief Executive Officer: All right. Thank you, Simon. We are not spending a lot of your time this morning covering the state of the offshore drilling fundamentals. Like you, we understand that the offshore – the outlook remains uncertain, keeping the industry in the doldrums for now. But we also understand that this is a cyclical business and the current state of our industry will not persist indefinitely. Rig supply will continue to decline as drilling contractors deal with the aging and inefficient portions of their fleets and customers will eventually reengage in the exploitation of the tremendous resource opportunities that are found offshore. Until these fundamentals are once again in place, Noble will continue to rely on its backlog and its industry experience, and remain committed to the operating strategies and management focus that has produced a strong outcome through a very challenging first half of 2015. Let me close by reminding you of some of these important achievements. Our operating cost expectations are now 7% below our initial guidance for 2015 and 13% below our costs reported for 2014. Our progress in 2015 with cost management has contributed to a stronger operating margin, averaging 59% over the first half of the year and well ahead of our plan. Our cash flow from operations through the first half of 2015 is well ahead of just about anyone's expectation for us so far this year and, in fact, is well ahead of our own internal forecast. Our balance sheet remains solid with cash and equivalents at June 30 of just below $250 million. Also, we previously reported that we are in – we are pleased that an arbitration panel has awarded us $136 million plus interest and fees in our contract dispute relating to the Noble Homer Ferrington. The sanctity of our contracts is of paramount importance to us. We honor our contracts throughout market cycles and we expect our clients to do likewise. We fully expect the award to be honored by the counterparties, and we will continue to pursue this matter vigorously. Naturally, once it's collected it would supplement our future cash balances. Also, the company has maintained strong liquidity, which totaled approximately $2.9 billion at June 30. The $350 million of senior notes maturing in August will be repaid utilizing predominantly cash on hand, allowing us to preserve our revolving credit capacity, which remains a priority of the company. Finally, following a hard look at 2015 capital expenditures, we have reduced our capital expenditure forecast for 2015 by $60 million to $525 million, which results from the combination of cost management initiatives and the timing of certain capital expenditures. This reduction will further support our expected free cash flow position for the year. As our free cash flow was supported by a stronger than expected operating results and a lower projection of capital expenditures, we continue to believe that returning cash to our shareholders through a dividend of $0.375 per share per quarter is appropriate and reflects the company's strong industry position. However, given the uncertain business outlook, we will continue to monitor the situation going forward. I am confident in our contract cover, which remains strong and offers a level of visibility through 2016 that is among the best in the offshore industry. This visibility, along with the success for our exceptional operational execution, reinforces Noble's excellent industry standard and ability to tolerate the poor industry environment. Better, our advantageous positioning provides the flexibility needed to improve our competitive position as we move closer to the inevitable cyclical recovery. Because of the improvements we've made to navigate the industry downturn, we believe Noble Corporation will emerge from this difficult period a stronger company than ever before. With that, I'll turn the call back over to Jeff. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay, David. Thank you. And, Erica, we're ready now to begin the question and answer segment of the call. So if you'd go ahead and start assembling the queue, I'll remind everyone to please take one question and one follow-up so that we can get to as many questions as possible. Erica?

Your first question comes from the line of Sean Meakim from JPMorgan. Your line is open.

Hey, good morning. David W. Williams - Chairman, President & Chief Executive Officer: Good morning.

Starting off on the CapEx, do we think looking forward here – is there more flexibility available to revise some of the timing on the CapEx? Do we think in this year $525 million is kind of the bottom? Any more flexibility on the outer years, or do we think we've kind of hit the low point? David W. Williams - Chairman, President & Chief Executive Officer: Well, we haven't guided 2016, yet. I mean, I would expect – I think capital is a little more longer lead time than just most of your regular expense items. So I think the guidance we've given you today is appropriate for what we think we're going to do this year. Keep in mind, next year we have a newbuild delivery, which James described. I think we have $460 million due on it.

Sure. David W. Williams - Chairman, President & Chief Executive Officer: This year includes some – this year's capital program includes some carryovers from previous years for some subsea equipment that we would hope not to have that next year. So I would hope that year-on-year normal capital would be lower next year as compared with the $525 million for this year – would be lower next year; although, we have – we'll guide you more clearly on that later, plus the newbuild.

Okay.

Your next question comes from the line of Ian Macpherson from Simmons. Your line is open. Ian Macpherson - Simmons & Company International: (29:37) team on the successes on that front. I had a question on backlog. As we got through the middle part of the year, I think it was a little bit surprising that the blend and extend phenomenon had not gained more traction, yet. And I can't help but think that the past few months of – the 20% pullback in crude hasn't made your customers, especially the majors who have not executed blend and extending arrangements up until that point – I would think they're more hawkish now than they were in Q2. So what is your outlook for how your backlog is positioned vis-à-vis that phenomenon going forward? David W. Williams - Chairman, President & Chief Executive Officer: Well, I think, as I would say, demonstrated by our position in the Homer Ferrington, we think our contracts – we – they have sanctity. We don't believe they're fungible, because oil price changes. So, I mean, we would expect our customers to honor the contacts. Now, the blend and extend everybody expects to come, I think, is actually a good thing if you have a high enough rate to be able to get some more term to carry you longer into the cycle. If there's an opportunity for us to meet with our customers and if they want to lower the rate in exchange for term, we're happy to have that conversation. We think that's a meaningful way, but to-date our operational performance has been very good. Our customers are happy with us. We have certainly been through an exercise with Aramco, like everybody else has, and we're certainly willing to have conversations with customers; but to-date that hasn't been something that has – we've had to deal with. Ian Macpherson - Simmons & Company International: Okay. Thanks. A follow-up question, if I may. Simon, you walked through plausible opportunities for follow-on work for the Adkins, for the Amos Runner and for the Clyde Boudreaux. I'm a little surprised that we haven't seen the Max Smith reclassified as heading towards cold stack, yet. Is that a lagging sort of classification or is that rig still really fully marketed and warm stacked and – what's the strategy for that one?

Yeah. I mean, the rig is warm stacked and ready to go to work. We have active bids for the rig as of today and, until we take the view that we can't compete or the stack cost is too much, we're going to continue to market the rig for the opportunities that are out there. I'm certain that the Asia-Pacific floater market is more challenging today than it was, say, a year ago, but that rig is – it's conventionally moored. It's not burning a great deal of cash. It doesn't require any significant work program to go back under contract. So, we're just going to continually revisit the status of the rig going forward, but it isn't a sweaty hands decision for us like an idle DP drillship would be, where there's a big daily cash burn and serious upfront capital commitment required. So, it's a watch and wait (32:41), but at some point we may change our view and take a different approach for the rig; but that's not where we are today. Ian Macpherson - Simmons & Company International: Okay. Got that. Thanks. I'll pass it over.

Thanks Ian.

Your next question comes from the line of Waqar Syed from Goldman Sachs. Your line is open. Waqar M. Syed - Goldman Sachs & Co.: Thanks for taking my question. My question relates to tenders in India. There seems to be a number of tenders for semis and drillships. Are the tenders still there or they've been – is ONGC looking to revise them, number one? And number two, do you know if these are for existing rigs or there's opportunity to bring rigs from outside into that market?

Yeah. There's a number of active tenders in India, today, certainly one of which is being closely watched is with ONGC. The tender closing date has recently been deferred somewhat, so it's a little bit early to say at the moment what may come out of that. It's certainly closely watched by all market participants. I think it's going to attract a lot of competition from all around the world, not just in the local region there. So I think any rigs that are rolling in India today that might be re-tendered are certainly going to be facing strong competition from elsewhere. I'm not sure if there's much more to say there other than it's a much anticipated and highly watched tender. Waqar M. Syed - Goldman Sachs & Co.: Have they specified the new date for the tender, or not yet?

Look, I don't have that information to hand right now. All I know is that there has been a deferral in closing date, that's all. Waqar M. Syed - Goldman Sachs & Co.: Okay. Thank you very much.

Your next question comes from the line of J.B. Lowe from Cowen & Company. Your line is open. J.B. Lowe - Cowen & Co. LLC: Morning, guys. I just had a – kind of a follow-up on one of Ian's questions about the blend and extend. Is there a maximum term extension if you were to negotiate one of those deals that you would look to do, like – would it be you only wanted to extend, let's say, for one year, get one additional year of backlog, or would you be willing to go longer than that? David W. Williams - Chairman, President & Chief Executive Officer: Well, we'll go – I mean, yeah, we – we're a drilling contractor. We can price anything you got. Obviously, the longer it goes, our price expectation would change, so – but I mean, if an operator wanted to come in and talk about a long-term extension, we can do that. But again, it's a – there's – we've got a contract in place, arguably, under this scenario, so how much you dilute yourself in the near term is a reflection of the current market. We expect the market to get better, so we would expect the rate to reflect that acceleration of the market. So – and we can talk about whatever the operator wants. So I would say, no, there's not a maximum term we'd consider. There may be a maximum term the operator might consider, but not us. J.B. Lowe - Cowen & Co. LLC: Okay. Fair enough. And just kind of a question on potential M&A in this space, are there any – are asset prices getting to a point where Noble would consider going out and putting a bid on maybe a distressed asset? And if so, are there any types of assets that you would be targeting in particular, or is that just not something that you guys are even looking at right now? David W. Williams - Chairman, President & Chief Executive Officer: Well, we're watching that space, I would say, is the way to characterize it. We – that's a – a lot of these rigs that are under construction around the world, specifically the jackups, they're complicated structures the way that they've been contracted to build. We don't like the specifications of a lot of those rigs that are under construction. There haven't been enough transactions to really peg the market. So I would say that our overall view is it's way too early to consider one-off assets. On an M&A front, we worked really hard to get our company to where it is and we are perfectly happy to play these. If an opportunity arises, we'll certainly look at it. I think we have the balance sheet and we certainly have the wherewithal, but nobody knows how long this cycle's going to last. And so, again, I would say we're watching this space, but, again, I would characterize it as too early to be too excited about it. J.B. Lowe - Cowen & Co. LLC: All right. Thanks very much. David W. Williams - Chairman, President & Chief Executive Officer: Certainly.

Your next question comes from the line of David Anderson from Barclays. Your line is open.

Thanks. I was just – kind of a follow-up question, that blend and extend. If we think about – one of your competitors had a rig cancellation earlier this quarter. I was just kind of curious, is that a phenomena we should be worried about going forward? Was that a unique issue or do you think you could potentially see more of that going forward? David W. Williams - Chairman, President & Chief Executive Officer: Well, I'm not sure exactly which one you're referring to. If the operator wants to terminate the contract and pay out the rate under the terms of the contract, that's – I guess that's a right most of them would have. We've got several 10-year contracts. I think I'd – I'm not sure we would be disappointed in that. But our contracts don't have features where the operator could come and just cut your contract and walk away. So again, we believe that our contracts are strong. We, frankly, have a history of enforcing our contracts; and actually have a really good track record enforcing our contracts. We have no reason to believe that there is a weakness in our contract structure at all.

Okay. And if we kind of just look at the kind of the broader market, you had talked earlier in the call about the attrition rates, about the number of rigs that are being cold stacked. In order to balance this market, from your viewpoint, is this going fast enough? Do you think the pace of this attrition needs to pick up in the second half of the year? I'm just kind of curious how you're thinking about that, say, over the next 12 months to 24 months in terms of that rate of attrition.

Well, I mean, I think we've seen, as I said in the prepared comments, some 40-odd rigs that have been taken out of the market to-date. I mean, going forward I think that there's certainly space for at least as many, again, to be removed from active supply on a permanent basis, but I think the key thing to understand is that changing the supply equation is not going to change the overall market balance overnight. Really, there's a need for the industry to retool. You're seeing some of that happen now. So I see it as more of a process of increasing the health level of the industry for the recovery when it comes. It's demand that's going to change things for the rig market today, and that's what we're most closely watching. The supply contribution is important, but it's demand that's overwhelmingly more important. James A. MacLennan - Chief Financial Officer & Senior Vice President: David, I would add that it is reasonable to expect that that rate might increase towards the end of the year because the financial year ends and the accounting rules.

Okay. We'll be watching that. Thank you.

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

Thanks. Good morning. Simon, I wanted to follow up. You mentioned the Boudreaux, the Beard, and the Day. All the operators on those rigs have signaled that they'll probably be cutting spending further. And I wanted to know – see if you have – can you say – do you have expectation that the operators that currently operate those rigs will be releasing them? Are you looking for additional – further opportunities or do you think there's a chance that the current operators could extend those rigs, or are you pretty much marketing the rigs elsewhere at this point?

Look, we're not anticipating anything in the current market. We've been marketing all of those rigs since about a year out from the end of their current contracts for opportunities all around the world. So we're not relying on the existing operator to extend the charter. We're looking at opportunities in the region and beyond for each of those rigs.

Okay. And then, it's early looking into 2016, but I'm wondering if any of your customers, as they go through the budget process, are starting to have any dialogue with you about their 2016 plans. And if so, I'm just curious, has the tone or the conversation changed in the last four weeks to five weeks at all with the drop in oil, or has – is it still kind of the same as it was four weeks to six weeks ago?

Yeah, it's difficult to say. We're still very early into the budget season at the moment. Certainly, the recent pullback in oil price has not been helpful. The operator confidence level at the moment I would describe as fragile, so obviously a deterioration in the leading-edge of the crude oil price is not helpful at this point. But more importantly, what I would say is that the level of overall business activity that we're experiencing today is around about three times higher in terms of total inquiries, conversations that are in progress, compared to around about the same time last year. So what we're waiting to see is what this budget season brings in terms of CapEx programs and how many of those discussions, market surveys, tenders, et cetera, translate into real work. And the story of that will be told over the next three months to six months.

All right. Great. Thanks. I'll turn it back.

Thank you.

Your next question comes from the line of Matt Marietta from Stephens. Your line is open.

We've been really focused on the macro and the contracting side, but in the prepared remarks you hit on this some. Can you elaborate on what you've done to lower your operating costs to get us to this point, what future cost savings there could be and, really, how sustainable these wins are on the cost side? James A. MacLennan - Chief Financial Officer & Senior Vice President: Yeah, Matt, we do believe that the initiatives that we've already put in place, and continue to put in place, are sustainable. We always look at costs; we always have. As David mentioned earlier on, we've seen an excellent margin in the first half of the year at 59%, which is reflective of having improved our spending habits. We do believe, as I say, that those programs that have been put in place, and programs that have been taken away, conversely, are sustainable for the time being and will be continued.

Great. Thanks. That's all of me. David W. Williams - Chairman, President & Chief Executive Officer: Thank you.

Your next question comes from the line of Mark Brown from Global Hunter Securities. Your line is open.

Hi, gentlemen. Wanted to ask about the Gulf of Mexico floater market. You expressed some level of confidence that you'd be able to keep the Danny Adkins and the Amos Runner and Jim Day working. Was curious what – if you have any color in terms of your conversations and sort of the number of companies that are engaging in bidding for new opportunities or extensions. And if you could, I would be curious to know what your forecast would be for the working Gulf of Mexico rig count on the floater side by the end of 2016?

Yeah, there's a lot of questions there, Mark, but I'll address them as best as I can. I mean, the Gulf of Mexico floater market's probably one of the most elastic markets that we participate in around the globe. The interesting thing about it, in terms of potential for market recovery, is there's a lot of price-focused operators. A lot of those operators are willing to make a decision based on attractive day rates. We're starting to see some interest in some of our units from that class of operator. In terms of individual opportunities, I'm a little reluctant to discuss them with you as you've requested, just simply because there are so many people with so many rigs chasing a relatively discrete number of jobs right now. So I'm not sure if I can give you the color you're seeking there. But we continue to believe that it's one of the better deepwater markets around the globe. We believe it'll be one of the ones that recovers faster than the others. I think the active rig count is going to suffer somewhat. The total rig number is going to be somewhat distorted by stacking decisions. People will be stacking rigs, if not in the Gulf of Mexico, the U.S. Gulf of Mexico, then they'll be doing it in some of the nearby geography in Central America. So I think that'll sort of distort the picture somewhat, and may act as somewhat of a brake to recovery in the region, generally, but we'll just have to see how that plays out.

That's helpful. And then, just as a follow-up, I know you are not disclosing the rate on the Danny Adkins, but do you have any commentary in terms of why you chose not to do that? And should we read anything into that, whether we should expect in the future to see many of the new contracts not with a rate disclosed?

Look, I don't know about what other people might do. I mean, we've agreed with the client not to disclose the rate at this time for competitive reasons. We see no advantage in revisiting that conversation right now. I'm not really willing to be drawn any further than that.

All right. Well, thank you very much.

Thank you.

Your next question comes from the line of Byron Pope from Tudor, Pickering, Holt. Your line is open. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning. I had a quick question on rig uptimes. It seemed as though, David, you made a comment in your prepared remarks about careful analysis as large and small events that produce better outcomes, and I remember a few years ago it seemed as though subsea stacks were maybe a root cause of some of the downtime; and you guys have invested a lot of time and attention there – in that area over the last few years. So I was just wondering if you could speak to some of the tangible things you guys have done to improve that uptime, and has it come in large part from better uptime as it relates to the subsea BOPs? David W. Williams - Chairman, President & Chief Executive Officer: Sure. I appreciate the question. Yeah, it has come largely in association with subsea BOPs or subsea BOP control systems, all the subsea kit. And, Byron, what we mean by that is our offshore group, our engineering group, and our maintenance group have spent a lot of time over the last, really, many years looking at failure of components. I mean, there are innumerable components that go into a subsea control system and the – both subsurface and on the surface, of how you control the – actuate different elements of the BOP. And any one can cause you to have a failure that actually may require you to pull the BOP stack or do further testing or other things. So, over the period of time that we've had these new BOPs – and we have, I think, 14 of the same BOP stack in one case and a few others, but we're primarily centralized on one class of BOP. We've done a lot of work on how many times you'd actuate a certain valve or a solenoid before it becomes reliable, and when they fail – and sometimes you've got to run them a certain number of times before they actually have good operating history. So it just – all different kinds of components – we have teared down into these things, looked at small events and large events, things that shut you down, and things that could shut you down, and tried to take those decisions out of the equation and built a level of rigor into our subsea processes so that they don't manifest themselves. So, over time, we're still guiding to a higher level of downtime than we're experiencing because we think it's prudent. But when you look at our downtime to-date, it's about 4% for the year, which is spectacular when you consider, a) where we've been in the last few years, and b) the fact that a lot of this is paid, so that our revenue efficiency is actually much better than that. So, we're – I'm really pleased with the work that Bernie and his group, and Scott Marks and their groups have done in the main subsea efforts around – and I think this is just – it just accrues to the benefit of our operations for evermore.

And just as a little add, too, I think it's worth mentioning that we have a best-in-class training program and that has also been instrumental in elevating the competence and the technical ability of our subsea guys. It's a hardware and a people issue, both, and we've been working both ends of the problem. David W. Williams - Chairman, President & Chief Executive Officer: Absolutely. Thanks, Simon. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Thanks, David, Simon. I appreciate it.

Your next question comes from the line of David Smith from Heikkinen Energy. Your line is open.

Hi. Thank you, and good morning. I appreciate the comments. I think there was a sweaty hand comment regarding idle DP rigs, and I was hoping to follow that a little bit further. Just thinking about prior downturns, there was always a trend where higher spec rigs could out-compete and displace the lower spec rigs. But year-to-date, there's been more backlog destruction from the high spec DP rigs and most of the new contract term awarded year-to-date has gone to moored floaters. I just wanted to ask your view of whether we could be facing a prolonged oversupply of high spec DP rigs that maybe can't displace the older rigs in harsher environments or below certain water depths.

Yeah. I think some of the rankings that people have used to characterize different sectors of the floating market, in particular, have changed. There certainly is a greater inventory of rigs that are able to work in a much broader range of water depths and different types of wells, et cetera. I think as far as the moored rigs go, there's always going to be up to around about 1,000 feet – 1,500 feet of water that represents the lower effective operating limit of a modern dynamically positioned rig. So some of the older moored rigs, they still have an area that they can compete in. I think generally speaking, though, the newer rigs will continue to compete downwards, and most particularly the rigs that have been constructed in the last five years to six years. They do have certain operational advantages over the fifth generation dynamically positioned rigs. You'll see the fifth generation rigs, I think, will come under some additional pressure with another strata of technology above them. We're seeing the first signs of that. I think some rigs that were built in the previous cycle, one of which, at least, has been scrapped here recently – it's a dynamic process that's still evolving, but I think the supply inventory is going to be with us for some time for sure.

And completely appreciate your comments on the fifth gen rigs, but just regarding the high spec DP rigs, as long as the new supply being added over the next couple of years is heavily weighted towards those DP-only rigs, I'm just wondering, how do we balance that market? And whether it's – do we need to stack the – does the market – does the industry need to stack the DP-only semis? Do we need to add mooring systems to the semis? Just hoping to get your thoughts on how that plays out.

Well, I think the semis are easier to stack than the ships, generally, but we're in the early stages of grappling with that as an industry. There are lots of people who have been advancing certain approaches to that. We certainly have been – are trying to understand what we would do if forced to make such a decision. But what I would say is that we – mainly, we're not one of the players in the market who's faced with dealing with that today. So I think that going forward that the people have dramatically underestimated the cost of stacking these DP rigs and, more particularly, the cost of reactivating them. I think the key will be utilization, keeping the working rigs working, and it'll be increasingly challenging for newbuilds coming out of the yard that don't have foundation contracts to compete simply because of the risk associated with a new rig. So I think the rigs that will be stacked is not necessarily going to be a function purely of specification. It's also going to be a function of who owns them and how well that individual unit is placed to compete for the opportunities at a point in time.

Very much appreciated. Thank you.

Thank you.

Your next question comes from the line of Gregory Lewis from Credit Suisse. Your line is open. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Thank you and good morning. Simon, I know you've touched on the Marks (53:57) a little bit and I don't know how much you can say regarding this, but it seemed like three months ago, maybe four months ago, the Saudi's were in the market for potentially three higher spec jackups. I mean, is that something that is still being – in the process of happening or has that been something where, just given the market, maybe that's not a 2015 event, anymore; it's potentially a 2016 or 2017 event?

As far as Saudi Arabia goes, I mean, their tenders are widely circulated. They don't generally engage in direct discussions. So I mean, when that work comes to market, I think everyone will be aware of it. And in terms of their activity level, generally, what I'd say is that I think they were operating one rig in 2000 and today they are up around close to the 50 mark. So they've seen a dramatic increase in their rig count. I think Aramco is in the early stages of understanding what their long-term rig demand pattern looks like. Could they need incremental rigs? Yes, certainly, I think they could, but the pace at which they come to market and the number of rigs that they'd add to their existing inventory remains to be seen. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Okay, great. And then, just, I guess, shifting gears – I mean, I guess we'll talk a little bit about the dividend. As you set the dividend, I mean, clearly the board thought about this long and hard – with – the stock is kind of yielding 11% right now. Do we think this is – I mean, is this a through cycle dividend? I mean, when you run the cash flows, the backlog, it looks like it has the potential to be. Are we comfortable with it being a through cycle dividend? David W. Williams - Chairman, President & Chief Executive Officer: Greg, I guess the only way I could answer that is know when the cycle ends, which I don't know. So I think what we can do is look at what we know about now and what we can do at any given time. Given our performance this year to-date against what our plans was – and, of course, we anticipated paying $0.375 per quarter in our initial plan, and we've outperformed our budget. We've outperformed the Street expectation. It's all – it's been on the top line and the bottom line. So it's – we've had very clean operations this year. We're actually fairly well contracted for next year. We've got, I think $2.5 billion – $2.4 billion to $2.5 billion or so, I think is what we've said is under contract for next year; but good contract coverage. Given the cash flow of the company and if we cut the dividend – if we, say, cut it in half in one quarter, you're talking about $45 million per quarter. That's not going to change the overall dynamic, cutting it. So we spent a lot of shareholders' money over the last several years repositioning the fleet. We think returning cash to shareholders is a priority. And as long as we think it's prudent and appropriate, we have continued to do it. We'll continue to look at it going forward in the context of what we see in the market, but so far we felt like it's appropriate. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Okay, guys. Hey, perfect. And I know it's a tough market, but congrats on a pretty solid quarter. David W. Williams - Chairman, President & Chief Executive Officer: Thank you very much.

Thanks, Greg. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Erica, we're going to go ahead and conclude the call with that question. 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 third quarter 2015 results are scheduled for reporting on the 28th of October, with a call to follow on the morning of the 29th. We'll confirm those dates as we get closer. Erica, thank you for coordinating the call, and good day, everyone.

This concludes today's conference call. You may now disconnect.