Noble Corporation Plc (NE) Q3 2015 Earnings Report, Transcript and Summary

Good morning. My name is Kyle, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Q3 2015 Noble Corp. Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will a question-and-answer session. Thank you. Mr. Chastain, you may begin your conference. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay. Thank you, Kyle, and welcome, everyone, to Noble Corp.'s third quarter 2015 earnings call. Your interest in Noble is appreciated. In case you missed it, a copy of Noble's earnings report issued last evening along with the supporting statements and schedules can be found on the Noble website, and that's noblecorp.com. I'm going to turn the call over to David Williams in a moment, but first I'd like to remind everyone that we may make statements about our operations, opportunities, plans, operational or financial performance, the Drilling business or other matters that are not historical facts and are forward-looking statements that are subject to certain risks and uncertainties. Our filings with the U.S. Securities and Exchange Commission, which are posted on our website, discuss the risks and uncertainties in our business and industry and the various factors that could keep outcomes of any forward-looking statements from being realized, including the price of oil and gas, customer demand, operational and other risks. Our actual results could differ materially from these forward-looking statements, and Noble does not assume any obligation to update these statements. Also note, we are referencing non-GAAP financial measures in the call today. You will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation, on our website. And finally, consistent with our quarterly disclosure practices, once our call has concluded, we will post to our website a summary of the financial guidance covered on today's call, which will provide fourth quarter and full year 2015 figures. 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: Thank you, Jeff. Good morning, everyone, and welcome to our review of Noble's third quarter 2015 results. We very much appreciate your participation in today's call and your continued interest in Noble. I'd like to apologize for the late start this morning. Our conference provider had some challenges, as some of you might have noticed getting in; but I appreciate everybody staying with us. Jeff is joining me today in Houston. James MacLennan, our Senior Vice President and CFO, and Simon Johnson, our Senior Vice President of Marketing and Contracts, are participating this morning from London. And you'll hear from both of them in just a moment. Although the environment remains rough for offshore drilling, Noble continues to execute at a very high level. And the consistency of our operational performance is just one of our strengths that enables us to successfully manage the cyclical trough. I'll elaborate further on this point later in my prepared remarks, but I'll begin today with some comments on a few of the more notable third quarter achievements. I'll also offer some thoughts on our board's decision to reduce the quarterly dividend, which was disclosed on October 23. Once James has completed a discussion on our third quarter financial performance, along with some updated guidance for the last quarter of 2015, and Simon has updated you on our marketing efforts, I'll close with some final thoughts on where Noble stands as we conclude 2015 and approach the start of 2016. After that, we'll open the call up for your questions. I want to begin today with a brief comment on the arbitration involving the semisubmersible Noble Homer Ferrington, which was concluded during the quarter. Needless to say, we believe the arbitration process arrived at the correct conclusion, and the award to Noble of $177 million before taxes is appropriate, well timed and further supplements an already strong 2015 cash flow position. Outside of the arbitration award, impressive fleet execution and lower operating cost have been a consistent quarterly theme for us throughout 2015, and the third quarter was no exception. Total fleet downtime of 4.6% was, again, below our guided level for the quarter of 6% and resulted in total downtime through September 2015 of an impressive 4.3%. When we adjust total fleet downtime for downtime days paid, as some of our contracts provide, the quarterly unpaid downtime result was just above 2.5%. Either way you measure it, we're very pleased with this outcome and believe the systems and processes in place that address crew competencies, safety and rig efficiencies will contribute to an operating environment and culture capable of delivering continued exceptional fleet performance. Also, contract drilling costs continued a favorable trend in the quarter, declining 5% from the second quarter, excluding the impact of the arbitration matter, and were well below the low end of our range of guidance, as we realized further benefits from the ongoing review and implementation of cost control measures. These measures are expected to drive further cost reductions in the fourth quarter and into 2016. The combination of strong fleet performance with its positive impact on revenues and lower trending contract drilling costs have allowed us to maintain an operating margin well above expectations, holding at 59% for third quarter excluding the effect of the arbitration award, unchanged from the second quarter and well beyond the early 2015 expectations that were in the range of 50% to 53%. So I remain very pleased with the outstanding operational execution of the company and the timely adjustments we have made to more effectively manage through this difficult period in the offshore drilling industry. Our recent decision to reduce our quarterly dividend to $0.15 per share from the previous $0.375 per share represents what we believe is another timely decision by the company, which will preserve liquidity in an uncertain market and support future operational and strategic decisions. In spite of our exceptional performance so far this year and as we look to enter 2016, it became apparent that improving our liquidity was a higher priority through the middle and end of the cycle and better supported our long-term strategy. Therefore, our decision, we believe, was fairly clear. We believe the revised dividend appropriately addresses the present uncertainties in our industry, preserves liquidity and maintains what we believe is a meaningful and sustainable allocation of cash to our shareholders. Although we're confident industry fundamentals will improve in time, we must remain true to our management philosophy that has proven successful in building a strong, enduring legacy at Noble that in 2016 will reach 95 years. This philosophy includes a core focus on financial discipline, which is another way of saying a solid balance sheet, healthy debt metrics and a robust long-term liquidity are keys to long-term success in our industry. With that, I'll now turn the call over to James to take a look at our third quarter financial performance. James A. MacLennan - Chief Financial Officer & Senior Vice President: Thank you, David, and good morning to everyone on the call. As David already noted, our strong third quarter results were driven by excellent operations execution as well as the continuation of the favorable operating cost trend. I'll open this review with a brief comment on revenues in the quarter, followed by some detailed thoughts on three factors which contributed to the excellent quarterly results, while noting the impact on each from a Noble Homer Ferrington arbitration award. The three factors are fleet performance, contract drilling operating costs and the effective tax rate. Following my comments on these factors, I'll provide updated guidance on several P&L line items and capital expenditures for the final quarter of 2015, and also provide a preliminary look at 2016 capital expenditures. A more complete discussion on 2016 guidance will be provided as part of the conference call commentary in January, 2016, when we review fourth quarter 2015 results. To begin, contract drilling service revenues were $874 million in the third quarter, up $103 million from the second quarter. Revenues included $137 million from the Noble Homer Ferrington arbitration. From an operations point of view, third quarter revenues were supported by the continued favorable downtime performance throughout our fleet, which ran at 4.6% compared to a guided level of 6%. Additionally, we earned revenue on a portion of the operational downtime in accordance with the drilling contracts. The net result was a contribution of approximately $20 million in additional revenues for the third quarter, attributable to lower downtime and contractual obligations of customers to cover a portion of the downtime. The positive variance in contract drilling services costs represented another significant reason for the strong results in the quarter. These costs totaled $293 million, which compared favorably to our guided range of $325 million to $340 million, and below the $319 million of costs in the second quarter. The arbitration matter resulted in $10 million of cost recovery, which reduced our third quarter cost. After adjusting for the cost recovery, our operating costs at $303 million were about $30 million below the guided level, resulting primarily from cost control measures we continue to implement, along with the lower levels of operational downtime. The successful cost control measures include the elimination of certain employee retention and salary obligations, lower shorebase and operations support costs, and cost-cutting for idle rigs and newbuilds prior to entering service, such as the Noble Tom Prosser. We also experienced lower costs for certain stacked rigs. Finally, our effective tax rate for the quarter was 11% compared to a guided range of 18% to 20%. Better than expected operating performance, which produced higher net income before tax along with the favorable bookings of certain discrete items, were the primary drivers behind the lower rate. I'll also add that interest income included $30 million of interest received under the arbitration award. In total, the arbitration award provided $177 million pre-tax in the third quarter. Before I move on to guidance for the fourth quarter, I want to comment on third quarter CapEx, which was $70 million below the previously guided range. As we've indicated on previous calls, capital expenditures will be down significantly in 2015 due to the absence of newbuild rig deliveries this year. Capital expenditures in the third quarter totaled $110 million including capitalized interest, well below our guidance of $180 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 through the first nine months of 2015 to $280 million. The components of our year-to-date CapEx are as follows: $41 million for newbuild rigs, primarily expenditures associated with enhancements to the technical specifications on the jackup Noble Sam Hartley and progress payments on the Noble Lloyd Noble; $128 million for major projects; $93 million for sustaining capital; and $18 million in capitalized interest. I now want to focus on guidance for the fourth quarter of 2015, covering certain line items on the P&L as well as capital expenditures. First, we're maintaining our operational downtime guidance in the Noble fleet for the fourth quarter at an average of 6%, which should result in full year operational downtime of approximately 4.7%. We benefited from operational improvements that have contributed to the strong fleet execution over the first nine months of 2015, and we have a growing confidence that downtime can be maintained at 6% or lower. We believe the 6% rate for the remainder of 2015 is a prudent 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 $1.25 billion to $1.26 billion for the full year 2015. You will recall that we began 2015 assuming full year costs of $1.4 billion at the mid-point of our range. The assumption was lowered by $100 million during the July call and is now being reduced a further $45 million, or 10% below our initial assumptions for 2015 and 16% below full-year costs in 2014. The reduction in our cost outlook reflects the favorable impact of the cost reduction initiatives I mentioned earlier. These initiatives should provide further benefit in 2016, with preliminary contract drilling costs in 2016 expected to fall below the 2015 full-year range of guidance. As is our usual practice, expanded details on 2016 guidance will be provided during our review of fourth quarter results on the conference call to be held in January of next year. Addressing the fourth quarter of 2015, contract drilling services costs are expected to be in the range $310 million to $325 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 ramp up costs for the jackup Noble Sam Hartley as it prepares for its initial contract commencing in January 2016. We expect DD&A for the full year to be in the range $635 million to $640 million, slightly above prior guidance. For the fourth quarter, DD&A is expected to be between $160 million and $165 million. We expect SG&A to range from $80 million to $85 million in the year, with approximately $18 million to $20 million being spent in the fourth quarter. We expect interest expense net of capitalized interest to total $215 million to $220 million in 2015. Additionally, guidance is unchanged for capitalized interest in 2015 at $20 million to $25 million. Net interest expense in the fourth 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 $70 million to $75 million in 2015, with approximately $15 million in the fourth quarter. Our effective tax rate in 2015 is being lowered from our previous guidance of 18% to 20% to a revised range 14% to 16%. Discrete items in the quarter, along with the better than expected year-to-date tax rate, contribute to a lower annualized rate, driving the guidance downward. As I've stated before, the level of pre-tax income, changes in the geographic mix of sources of revenue, tax assessments, settlements, and movements in certain exchange rates all can affect this line. With regard to our liquidity position, and considering our recently announced reduction in our quarterly dividend to $0.15 per share, we should end 2015 with available liquidity exceeding $3 billion, including a cash balance of more than $300 million. We will be free cash flow positive in 2015, and we forecast that we will end the year with a debt to capitalization ratio of approximately 37%, compared to where we began the year at 40%. We are again lowering our expected CapEx for 2015 to $450 million, or $75 million below our previously revised guidance of $525 million. Before I walk through the revised 2015 capital expenditure breakdown by major category, I want to remind you once again that our cost control efforts extend equally to capital expenditures to the extent preexisting commitments allow. As discussed on the last two calls, we've reduced major project and sustaining capital expenditures where we could do so without hindering the safe and efficient execution of our global operations. The breakdown by major spending category is as follows: in our newbuild program, we expect to spend $60 million relating largely to progress spend on our final newbuild delivery, 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 $460 million. Major projects in 2015 are expected to total approximately $215 million. This amount includes subsea component purchases and newbuild and other capital spares of $140 million, as well as several rig maintenance and regulatory inspection programs, including the recently completed shipyard program on the Noble Paul Romano, which in September began a four-well contract in the U.S. Gulf of Mexico. Sustaining CapEx is expected to total $150 million in 2015. Total capital spending for the fourth quarter is, therefore, expected to be at about $170 million. Finally, our capital expenditure plan for 2016 is in the final stages of review and approval, and I would like to provide an early comment on the plan in an effort to assist you with your 2016 cash flow projections for Noble. We expect our capital expenditures for 2016 to be approximately $800 million, up from an estimated $450 million this year. The year-over-year increase is solely related to the second quarter 2016 shipyard delivery of the high specification jackup Noble Lloyd Noble. All other categories of capital spending, including major projects and sustaining capital, have been reduced as compared to estimated 2015 expenditures. Stated another way, when the expenditure for the Noble Lloyd Noble is excluded from 2016 totals, the residual amount is $340 million, and that compares to our revised guidance of $450 million in 2015, or $390 million excluding newbuild capital. As I mentioned earlier, expanded guidance related to 2016 capital expenditures will be provided during our review of the fourth quarter results on the conference call that will be held in January 2016. With that, I conclude my prepared comments and will now turn the call over to Simon for a review of the offshore market. Simon W. Johnson - Vice President-Marketing & Contracts: Thank you, James, and good morning to everyone. My prepared remarks will be brief today to allow more time to answer your questions. I'll speak to the recent progress we have made regarding new contract awards and extensions for certain rigs in the Noble fleet, provide an update on the company's backlog and address the handful of rigs with near-term availability. Although the challenges surrounding the marketing of rigs did not diminish in the third quarter, our efforts were rewarded with several new contracts and extensions. The newbuild jackup Noble Sam Hartley secured its inaugural contract following the rig's exit from the shipyard in September, receiving a six-well contract of three years anticipated duration from Total for high-pressure, high-temperature work offshore Brunei. The contract is expected to commence in January 2016, adding an estimated $122 million to the company's backlog, which is an exceptional achievement in the prevailing market conditions. The high-specification jackup Noble Regina Allen received a one-well extension of approximately 65 days duration at a day rate at $155,000, pushing the rig's contract term out to mid-November 2015. In Argentina, Total exercised a two-month option on another of our JU3000N jackups, the Noble Houston Colbert, at $175,000 per day. The rig is now contracted into early June 2016. For the floaters, the semisubmersible Noble Danny Adkins was awarded an estimated 80-day contract for work in the U.S. Gulf of Mexico with Talus. The contract should commence in early November at $206,000 per day. Given the well understood challenges of the cyclical trough the industry is in, we're delighted with capture of additional contract days for these rigs. Noble's ability to successfully compete for the thin work programs available today is a testament to the capability of our assets and the crews that operate them. We believe that our customers are firmly focused on performance and quality, and these recent extensions reflect how they rate Noble's value proposition relative to other players in the market. Interestingly, we also see oil companies paying closer attention to the financial health of their counterparties. Our customers are taking a far greater interest in their vendors' balance sheets and their ability to support liabilities indemnities under the contract. Following these contract awards and extensions, Noble's revenue backlog at September 30, 2015 totaled $8.1 billion, with $6.2 billion in the floating rig segment and $1.9 billion for the jackups. Approximately, 63% of the backlog is associated with integrated oil companies, 18% with national oil companies and 19% with the independents. For the final quarter of 2015, 78% of our available days are covered by contract, including 80% of our floating rig days and 74% of our jackup rig days. In 2016, 67% of our available days are under contract, with 58% and 76% of the floating and jackup rigs committed to contracts, respectively. As a final backlog statistic and on a rolling 12-month basis, the available days contracted stands currently at 72% with a related backlog of $2.6 billion for that time period. I now would offer some comments on those rigs in the Noble fleet that are rolling in the near term. Please bear in mind the highly competitive nature of the offshore market, and that necessitates that I keep my comments brief. Among our floating rig fleet, the Noble Danny Adkins is expected to be available during the first quarter of 2016, following completion of the (23:18) program I mentioned earlier. The rig has consistently demonstrated strong operational performance for our clients and is well positioned to compete for deepwater opportunities in the Gulf of Mexico. We remain reasonably confident in our ability to keep the rig operating into 2016 with short, but manageable, periods of idle time. The Noble Amos Runner and the Noble Jim Day in the U.S. Gulf of Mexico, and the Noble Dave Beard in Brazil, are expected to complete their current contracts over a range of time beginning November 2015 to April of 2016. Each of these rigs is currently being considered for follow-on work. However, if we are successful, we believe there may well be gaps of a short to intermediate duration of the programs that we hope to string together. The Noble Clyde Boudreaux operating offshore Australia is expected to complete its current contract in December 2015. The rig is well placed to compete for a number of opportunities in the Asia Pacific region, and we remain relatively positive about securing work in direct continuation. Finally, following the conclusion of our 2015 drilling season, the Arctic drillship Noble Discoverer is demobilizing from Alaska. The unit remains under contract with Shell through the end of 2016. Following award of a long-term contract for the Noble Sam Hartley, our jackup fleet enjoys relatively strong contract cover through the first half 2016. The Noble Mick O'Brien will commence its fixture in the UAE in March 2016, leaving the Noble Regina Allen as the only other unit expected to have near-term availability. The rig, which could be available in December 2015 in the North Sea, is under consideration for follow-on work in and outside of the region, and we believe that any non-operational period will be of limited duration. A final thought to leave you with, despite the noticeable decline in offshore exploration drilling, we have seen worldwide exploration success in greater than 4,000 feet quietly build to 23 discoveries since the beginning of this year. This compares to just 14 discoveries in 2014 and 39 discoveries in 2013. The 23 announced deepwater discoveries were made offshore 11 countries around the globe. The breakdown shows 10 were operated by NOCs, 7 by IOCs and 6 by independents. While this will not translate into immediate rig demand, it does underline the prospectivity of the deepwater resource space. According to industry authority IHS, approximately 31% of global hydrocarbon production is derived from offshore reservoirs, and our belief is that its relative share will become more important and significant through time. Looking forward, the absence of near-term exploration plans, a cloudy seismic outlook and poor participation in recent licensing rounds remain a concern. Recovery and exploration activity is fundamental to restoring balance in the rig market, and each year of underinvestment by the operator community in replacing reserves holds both risks and opportunities for our sector. With that, I'll now turn the call back to David. David W. Williams - Chairman, President & Chief Executive Officer: All right. Thank you, Simon. I want to close my remarks this morning by offering you some facts to consider about Noble. I realize that it's easy to become distracted by constant reminders of adverse industry conditions, many of which are simply evolutionary stages of the cyclical trough that will ultimately lead to the inevitable recovery. However, in spite of the generally negative view of our industry by many observers, I'd like to highlight some interesting observations about Noble that are decidedly positive, given the current state of the industry. Noble continues to manage the cyclical weakness with strong contract cover provided largely by a young, modern and versatile offshore fleet. In 2016, we expect our current $8.1 billion backlog to provide potential revenues of about $2.5 billion with another $1.6 billion expected in – excuse me, in 2017. We also expect to supplement our backlog with additional contracts, as you've seen in recent weeks with the Noble Danny Adkins and the Noble Sam Hartley. As mentioned earlier, operational execution is running at a very high level, with fleet downtime below our revised lower expectations and contract drilling costs still in decline. In fact, with the guidance provided this morning, our expected contract drilling costs are now $150 million below guidance offered earlier in the year. We're achieving excellent performance for our customers and are very comfortable with the mix of our backlog amongst integrated, national, and independent customers. Further, revised 2015 capital expenditures of $450 million are now expected to be $135 million below expectations at the start of the year. And our preliminary guidance for 2016 suggests that capital expenditures of approximately $340 million before inclusion of the final payment of approximately $460 million upon delivery of the newbuild high specification jackup Noble Lloyd Noble. Cash flow from operations is running better than $400 million ahead of plan through September 2015, due largely to the strong operations execution and success with managing costs. And liquidity in 2016 will be enhanced by an estimated $220 million at the current quarterly dividend level. Finally, debt metrics have improved with a debt to total capital ratio of 37% at the end of the third quarter compared to slightly more than 40% at the start of the year, and liquidity sits at a robust $2.8 billion with nothing drawn against the available credit lines. We believe most of the facts that I've just run through were key considerations of the rating agencies during the recent industry-wide review and were instrumental in maintaining Noble's investment grade rating. Collectively, these facts strengthen an already strong industry position, and offer greater strategic flexibility as we close out 2015 and begin the new year. Noble remains committed to maintaining our strong industry position through the current downturn while pursuing opportunities that will strengthen our company for the future. And with that, I'll turn the call over to Jeff. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay, David. Thank you. And, Kyle, we're ready to begin the question-and-answer segment of the call. So while you start to build the queue, we'll – I'll remind everyone that we'll take as many calls as possible up to the top of the hour. And we would appreciate everyone limiting themselves to one question and a follow-up. Kyle, go ahead with the first question, please.

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.

I was hoping we could talk a little bit about Shell, given the mutual agreement with Transocean that was recently announced. Any discussions in terms of 2017 drilling plans or anything else incrementally you can add to that, what's obviously a very important relationship? David W. Williams - Chairman, President & Chief Executive Officer: 2017 drilling plans? Our relationship with Shell is, I would say, not much short of spectacular. We have a very close working relationship with them. We have very high-level meetings multiple times a year. We continue to work to support them in their strategic endeavors, and they, frankly, have been very good supporters of ours. So I don't know that the discussions and the conclusion of their negotiations with Transocean to push rigs to the right, frankly, has anything to do with us. We continue to work vigorously to support them, and we have a great relationship. So we – and we expect that relationship to continue well into the future.

Okay. Well, that's certainly fair. And then, just thinking about the semis that are going to roll off here in the next couple of quarters, is that – from your commentary, you sound pretty optimistic about your ability to kind of just string together enough work to get through at least 2016. Is that a fair characterization? Is that driven by confidence in how the rigs are performing or kind of what you see on the horizon in terms of tendering, or just some combination? David W. Williams - Chairman, President & Chief Executive Officer: Well, I think what Simon said – and I'll let him comment in just a second. I think what he said is all the rigs that we have time on are in areas where we have opportunities. And I would say we have, generally speaking, multiple and specific opportunities for those rigs. That doesn't necessarily mean that we'll be successful, but it means that we've got our eye on something that fits. Our operational performance is, I think, fairly well known to our customers. And so, I think that is a good thing for us. And so, I think what he said is there may be some gaps, but we have some specific opportunities that we're chasing. And Simon, do you have anything to add to that? Simon W. Johnson - Vice President-Marketing & Contracts: No, I don't think. I think that covers it.

Okay. Well, fair enough. Thanks a lot. I appreciate it. David W. Williams - Chairman, President & Chief Executive Officer: Thank you.

Your next question comes from Dave Wilson from Howard Weil. Your line is open.

Good morning, good afternoon, gentlemen. Thanks for taking my questions. Simon, one for you, we're all aware that – the dearth of demand and I know there have been previous mentions of project deferral. So I'm wondering, with new operator CapEx budgets for 2016, even though they're down year-over-year, that there might be an expectation of some increased contracting activity early next year. I'm not suggesting a flurry of activity by any stretch or anything approaching normal, but with new budget is it possible to see some activity early in 2016? Simon W. Johnson - Vice President-Marketing & Contracts: Yeah, I think so. I mean, as you point out, Dave, it has been another contractioning year in terms of global E&P spend and that's been disappointing. And it has probably hurt the margin, seeing further decline in work programs in the near-term, but it hasn't completely evaporated them. So as you say, we expect a further year-on-year contraction, which is only the first time we've seen that since the oil price collapsed in the mid- to late 1980s, of course. So most concern for us is, as I pointed out, that we see very little exploration activity. Most people are focusing on work programs with rigs that they already committed to. We are seeing some of the smaller clients look – attracted by the pricing points in the market right now, and I think accelerating some programs that they've had in their inventory for some time. But that really – it is at the margin. I think, overall, the result of this capital budget period is going to be a slightly negative one.

Got it, got it. Thank you. And as far as the follow-up, I think most have been impressed by the offshore rig industry's move to quickly reduce costs, and in a convoluted way it might be to its own detriment in terms of lower costs for idling rigs, rather than removing them from the market. But I wanted to see where Noble stood in terms of operating costs, wondering if there was more cost that could come out of the daily OpEx without jeopardizing safety or efficient operations. And if so, what type of costs, and perhaps in broad percentage terms how much lower those costs could go? David W. Williams - Chairman, President & Chief Executive Officer: Well, first of all, we won't jeopardize safety and we won't jeopardize maintaining our equipment. So the decisions we're making about cost preservation are largely things that we think that we can do given where we are in just kind of the state of the industry that our – in a better market you might make a different decision. It has to do with accelerating maintenance, whether or not you want to repair a piece of equipment or go ahead and replace it, and those kinds of things. Largely, the savings that we've had to date, I would say the biggest part of it has been in eliminating elements of labor, retention devices and other things like that, and then streamlining our supply chain and doing a better job of our inventory management. So we push on everything, David, and we'll continue to push on everything. There are certain things that are sacred, and, again, it's safety and environmental compliance, and managing our business in a safe and compliant and reliable manner is key. Also, managing uptime is key. I mean, we don't want to cut anything that would affect our ability to keep the rigs on the payroll. And I think that we've demonstrated that we're not doing that, and we'll continue to not do that. So it's not infinite. We certainly continue to push on our suppliers. There's enough pain in this exercise to go around for all of us. But we would expect to continue to see our cost improve. But again, I think there's a limit to how far it can go.

Got it, got it. Thank you for that additional info, David. I'll turn it back. David W. Williams - Chairman, President & Chief Executive Officer: Thank you.

Your next question comes from the line of Robin Shoemaker from KeyBanc Capital. Your line is open.

Thank you. So I wanted to ask Simon, I mean, on the ultra-deepwater market globally, it seems like the Gulf of Mexico is the one that offers the most in terms of at least short-term opportunities. But I wonder if you could comment on the prospects for the Dave Beard in Brazil remaining there, and any kind of tendering activity that you may anticipate in West Africa that might in some – might be relevant to Noble. Simon W. Johnson - Vice President-Marketing & Contracts: Okay. Look, as we said, Robin, in our prepared remarks, we're reluctant to sort of give you too much color, given what we're facing out there. I mean, what I would say is the Dave Beard is being bid to customers worldwide. We're not relying on follow-on work in Brazil. And I think what's played out there over recent months would suggest that's a pretty appropriate response from us. So we're not planning on having an extension discussion with Petrobras immediately, but we'll see what eventuates. Looking to West Africa that, of all the ultradeep water markets, is possibly, I believe, the most challenged. The operating costs there are very high. The capital investment required from operators is extremely high. And I think, particularly for the petro-economy countries, such as Angola and Nigeria, that's got a long way to go to play out before we see substantial demand re-emerge for those units that are currently in those markets. They have somewhat of an advantage because there are considerable barriers to entry. So for a rig like the Dave Beard, most of the opportunities we're chasing for that rig are actually not in West Africa.

Okay. Then on the near term issues with the Adkins and the Day, I guess it looks like the short-term things that you're pursuing would lead to a year, perhaps in 2016, where you're working with gaps in between. So with those kind of economics, does it really – does the day rate really matter that much versus the alternative of stacking the rig? In other words, we can see from the Adkins contract kind of where the market is for that type of rig, but with gaps in between is that an acceptable proposition for 2016 if it works, say, eight months out of the year, or something like that, at that rate? Simon W. Johnson - Vice President-Marketing & Contracts: We want to keep the rig working; there's no question about that. In this current market dynamic, going to stacks, that's a pivotal moment in a rig's immediate future. So we're looking to keep the rig working. We spoke earlier to one of the questions about – that we've been improving our cost base. As margins contract on the day rate front, we're also getting some relief on the operating cost front. So really for that utilization, we're not overly focused on the price. We're going to get what price the market delivers. So really, we're focused on keeping those two rigs working, and we're tremendously assisted by the operational record of those rigs. So we're going to continue to fight for the work that's out there.

Okay. Thank you.

Your next question comes from the line of Praveen Narra with Raymond James. Your line is open. Praveen Narra - Raymond James & Associates, Inc.: Hey, good morning, guys. If I could go back to the costs, and can ask it a little bit different way, on the cost saving opportunities you've identified through the downturn, you guys have obviously done a good job. But could you help us understand how much, kind of as a percentage, has been realized to this point and kind of how much is still on the horizon? David W. Williams - Chairman, President & Chief Executive Officer: I would say that – I'm going to say what I remember from a presentation we made that our current costs are about 14% below what they were third quarter of last year. Is that... Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: 16%. David W. Williams - Chairman, President & Chief Executive Officer: 16%. So I think that's a broad statement. As we move into the end of the year with the Prosser going to work and the Hartley going to work, as a percentage of our total days we're going to have more jackup days. That's going to bring our overall average cost down. But I would say it's a cost savings that we reported as 16% over third quarter last year. And again, we're still seeing benefits of those efforts come through, and we'll continue to push on it. James, do you have anything to add to that? James A. MacLennan - Chief Financial Officer & Senior Vice President: Nothing to add to that. Thank you. Praveen Narra - Raymond James & Associates, Inc.: Okay. And then, I guess in terms of your discussions with your customers and their actions whenever they do see an improvement, there's been some discussions there may be a delayed lag effect on – after seeing the oil price improvement, whether they see an activity improvement. What sense do you get from your customers in terms of where they will be, whether they direct it more to their balance sheets or there's pent-up demand for additional activity? Simon W. Johnson - Vice President-Marketing & Contracts: Okay. Well, look, as I mentioned in my prepared remarks, the immediate outlook is quite troubled in terms of what they're looking at in terms of exploration activity, et cetera. It has been disappointing that drilling contractors and other parts of the service company supply chain have taken a lot of pain in the form of pricing collapse and that has, as of yet, not generated a great deal of activity. The operators for the – what's immediately visible is they tend to be keeping the savings to themselves. And we haven't seen that much incremental activity come to market. At some point, that's going to change. That's clearly not going to be in Q1 2016. That's going to be further out. But at this stage, we're still developing a feel for this. Everyone's walking through the mist. Praveen Narra - Raymond James & Associates, Inc.: Okay, thank you very much.

Your next question comes from the line of Waqar Syed from Goldman Sachs. Your line is open. Waqar Mustafa Syed - Goldman Sachs & Co.: Thanks. David, you have three rigs, Bully I, Bully II, and Globetrotter I, that were built back in 2011. So they may be due for their 5-year service in 2016. And I see for Bully I you've said in the fleet status that you could do the 5-year service without any downtime. Could you provide any guidance for the other two rigs for 2016 5-year service? David W. Williams - Chairman, President & Chief Executive Officer: Waqar, I can't say much more than other than what we've put in the fleet status so far. We're working on our plans for next year and that largely depends on the well scope, the timing and other things. I will say that all of those rigs have retractable thrusters. And so, being able to do some of the marine survey work that's required as far as the special survey package, we can fit into the normal course of work without having to, say, dry-dock the rig or stop the rig or other things. So as you said, this is the first special survey for these rigs. There's a learning curve that goes with that. There are some other bits of work that go with our 5-year survey on those things that we'll try to do as much of that offline as we can and work with our customer to make sure that we don't impact their operation. But we'll guide you – give you better guidance on that as we move through the budget and develop our plan a little bit more succinctly. Waqar Mustafa Syed - Goldman Sachs & Co.: Could you provide any color on maybe a broad range of costs outcome for each of these service? David W. Williams - Chairman, President & Chief Executive Officer: Waqar, I'd love to, but not at this point. I mean, we're still working on our budget. And again, doing this kind of work on location while you're under contract, you don't necessarily have to stop one day and do a survey. There's a whole lot of work you can do on lots of rigs leading up to the survey point before you actually do your classification survey or whatever surveys you might have. So – if it's a moored rig and you've got – and its – the chain is a certain age year old, you've got to flush out all that chain and have it inspected. That's not something you have to do on a DP rig. You can pull the thrusters and get them in right environment. Given what's going on, you might be able to pull them while you're operating. So, again – so it will take a little time to get all that. We'll try to give you as much data as we can as we continue to work on our budget cycle. Waqar Mustafa Syed - Goldman Sachs & Co.: Thank you. Thank you very much.

Your next question comes from the line of J.B. Lowe, from Cowen & Co. Your line is open. J.B. Lowe - Cowen & Co. LLC: Hey, good morning, guys. I just had a follow-up to one of Dave's questions earlier regarding – the fact that you've been able to reduce costs so much, particularly on stacked and idle rigs, do you think that that is going to make it so some of these rigs stick around longer than they previously would have, which could kind of – it won't reduce the supply as much as we would have thought in a downturn such as this? And kind of a follow-up to that, what would it take for you to move an idle rig into a stacked position or – I think you only have one rig stacked right now, but what would it take for you to actually go ahead and make the decision to retire a rig? David W. Williams - Chairman, President & Chief Executive Officer: There are different levels of stack. We have a number of rigs that are, what I call, stacked. You can understand when it's somebody else's payroll, as far as I'm concerned it's stacked. But we have one rig that's cold stacked, and that's Noble Homer Ferrington. We have a number of other rigs that are idle between contracts. The differentiator between what you – the decision that you make depends on what your forward opportunities are for that rig and how much – what your burn rate is. We've got the burn rate down on the Max Smith to a very, very low level. Some places in the world you actually can't pull everybody off. Some places, you're better to pull it up to the docks. So almost every geography has its own challenges. If we have a rig in a place where there's little or no hope, or we have more than one rig chasing multiple opportunities, then we need to make a decision on those rigs. Right now, as Simon says, we have the Homer Ferrington cold stack, but everything else that we've got either idle or headed off on a contract, we've got our eye on something that we think we can keep it working. So we're not bashful about making decisions. We're certainly, as you know, not afraid. We retired three rigs at the end of last year because they were due capital – had capital requirements that we thought weren't worth spending the money on those particular assets given the state of play. If we had these rigs that are idle for a period of time and they come up and they have a survey coming or some other significant capital requirements that make them not viable for the future, then we'll make that call when it's time. At this point, they're all effective, ready to go to work. A large part of the question on the viability of the rig long-term is the condition that it's in when it's laid up. The rigs that we have kept have been maintained. They're in good shape. Their survey cycles are up and, with the exception of the Ferrington, they're ready to go to work. So when that situation changes we'll make a different decision. J.B. Lowe - Cowen & Co. LLC: Okay, great, thanks. And just a quick follow-up, do you think that there is a chance that, given your internal projections right now, that you guys could be free cash flow positive even after the payment on the Noble Lloyd Noble next year? David W. Williams - Chairman, President & Chief Executive Officer: Well, we haven't finished our budget, yet. I would say that, without getting too far over our skis – you've got a model. Our revenue performance this year and our operating cost performance this year has been extremely good. Cutting the dividend improves our liquidity position, and lowering our capital requirements to the $340 million kind of year-on-year, compared to capital, puts us in a pretty good spot. We've got about $2.5 billion or so under contract – firm contract for next year. We think we have a high degree of likelihood that, of the rigs that are either idle or about to go idle, we'll put some of those to work. So I'll let you do the math, but we feel very good about where we are this year and we feel very good about where we are next year and, frankly, the following year. J.B. Lowe - Cowen & Co. LLC: All right. Thanks so much. I'll have to do some math, then. I'll turn it back over. David W. Williams - Chairman, President & Chief Executive Officer: Thanks.

Our next question comes from the line of James West from Evercore. Your line is open.

Hey, guys. This is Samantha Hoh filling in for James. We've seen some of the smaller players having more difficult time managing through this cycle. And I was just wondering, David, if you could comment on how you think consolidation will play out within the industry. Do you think the small players will consolidate to form a new competitor, or is it a case of the strong getting stronger, such as yourself? And also, can you clarify for us what sort of liabilities, if any, you may face from a potential Paragon bankruptcy filing. David W. Williams - Chairman, President & Chief Executive Officer: Sure, Samantha. I'll take the – well, I'll take the Paragon piece, first, because I remember that piece. We put Paragon out in a market with good liquidity and good backlog, and we certainly put them in a position where we believe they could succeed and we expect them to succeed. So, beyond that, we have a good working relationship. We certainly have some shared services agreements that continue to work. And we're monitoring their progress, but I think that we put them out with good liquidity in a position where they could thrive, and we expect them to thrive. On the other question, consolidation, we're watching the market. Whether or not the smaller pool up or whether they get swallowed by larger players, I think smaller – not to broad-brush smaller contractors, but smaller players who, as you put it, I think are having more difficulty than we – two companies that are both in trouble just makes one bigger company that's in trouble. So, I don't know that it's so much a function of size, but strength. I will say that right now, we're watching, but we're really not watching hard. We're focused right now on running our company as efficiently as we can. We believe that we've made over the last number of years some very good decisions on when we started our newbuild program, how we have shaped our fleet, how we've contracted our services, and how we're executing the processes and the procedures that give our operational capability the flare that it's got and the performance that it's got. So, we're focusing on those core things. If there are some opportunities because some people have made different decisions or are in a weaker position, I believe Noble is going to be one of those companies that has an opportunity to take advantage of that if there's an advantage to be had. But right now we're focused on running our company.

Thanks a lot. David W. Williams - Chairman, President & Chief Executive Officer: 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): Yes, thank you for taking my question. David, I guess Noble is in an interesting position with the view of the market, just given the fact that you have some floaters with some rolling off contract in the short-term, medium term and long-term. As you're having conversations with customers, I think some of us are surprised we haven't seen more blending and extending of contracts in 2015. I guess if you could just provide some color, are those conversations still ongoing? And is that something where they're looking at more, you know – rigs that are rolling off? Are the conversations around rigs rolling off in 2016 or 2017, or not really having any conversations? David W. Williams - Chairman, President & Chief Executive Officer: Well, I don't want to get too granular about the conversations we're having with our specific customers. But I would comment that, just like contractors, all operating companies have different philosophies and they have different circumstances. Many operators don't want to commit firm term for work that they don't have. If they've already got work sanctioned and their partners have already agreed, in some cases they're willing to stay the course and run the gamut with what they've got; and they don't want to get out any further than what they can see. Other operators have a much longer term view, and they know that they're going to have continuing work and near-term relief has value to them. So I would say that we've certainly entertained some of those conversations. We're certainly willing to have those conversations. We'll be a 95-year-old company next year. You don't get to be 95 years old if your customers are having trouble all the time. So we're certainly here to support our customers. We do have different shareholders and, in some cases, there are different drivers. We think our contracts are firm. But to the extent there's common ground that serves both our customers and our shareholders, we're certainly willing to explore that. So I don't know that I'm surprised by the level of blend and extend. I look at the universe of operating companies, and there are a lot of them that really don't want to get too far ahead of what they have that's already approved. Even though we all know they're going to have work in 2017 and 2018, they're very hesitant to commit out that far. So I think the fact that we're seeing a level of stability in product prices – we've seen a lot of volatility going up to this point. I think the fact that we're going into this budget cycle, even though it's lower than we'd like to see, it has a level of stability. It has a level of comfort to it in that it's not crazy volatile. I think that's a good thing. I agree with Simon that next year is going to be challenged just because of the circumstance with our customers. But as we move through this more stable environment, that's going to give our operator customers clarity. And that's going to give them a platform to drive this thing out of the backside of the cycle, I think, within the framework of what we can see now. So I actually feel pretty good about where we are. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Okay, thank you very much for your time. David W. Williams - Chairman, President & Chief Executive Officer: Sure.

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

Thanks, good morning. David, I wanted to get your thoughts on some of these drillships and newbuild semis. We've had three, now, that have been canceled. They'll be sitting at the yard and presumably up for sale. You're one of the few companies with a balance sheet and cash flow profile that can, I would assume, have that opportunity to maybe bid on those types of assets. I'd just be curious to get your thoughts on how you would think about addressing a newbuild with no contract, and how you think about the economics and if you have interest in some of the assets that have become available, and presumably others that will come available over the next year or so? David W. Williams - Chairman, President & Chief Executive Officer: I appreciate the question. I appreciate you pointing out that we're one of the ones. But I think not only are we one of the ones that have the wherewithal to look at those things, we're one of the ones that haven't added to that problem. We undertook a plan to build rigs to our board in 2010. We've built everything we wanted to build. We've contracted everything we wanted to build, and we're going to take delivery of everything we wanted to build. It puzzles me the way people applaud contractors who are, as we call it, pushing it to the right when that doesn't really solve the problem and it adds to the cost. But be that as it may, we certainly have an eye on what's out there. There's some good assets out there that we think have good long-term utility. I would say, at this point, most of the people who are holding those assets want to be rescued, and we're not in the rescue business. So to the extent that prices come to a point where it looks interesting to us, we might take a look at it. I would say we're a long way from there at this point. And I would reiterate what I said earlier, and that is that we're focused on running our company. And when the opportunities come up, we will look at those opportunities. But right now, we're focused on basics and extracting as much value out of this as we can for our shareholders and for our customers. And when those opportunities are appropriately priced, we'll take a look at them; but that's not here, yet.

All right. Thanks for that. And then, my follow-up is for James. You mentioned in your prepared comments a lot of your cost initiatives, and I think you mentioned some shorebased items in there as well. I'd just be curious, have you exhausted all of the kind of the shorebased cost cuts that you can? Do you see more room to maybe cut shorebase further or consolidate in different regions, or is there more to go there or do you feel like you've pretty much done everything you can at this point? James A. MacLennan - Chief Financial Officer & Senior Vice President: Judson, the answer is almost all of the above. We continue to look in every area of the company in every way that we spend money. There are initiatives that are ongoing. There are groups of people who are constantly looking at further ways to reduce costs. It's a case of never say never when it comes to finding ways to reduce costs.

All right. Great. Thanks. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Kyle, since we're past the top of the hour, let's make that our last question this morning. I'm going to echo David's comments and apologize for our call provider's technical challenges that delayed many of you connecting this morning. I want to remind you that in our press release there is a replay number provided so that you can catch up with some of the comments that may have been missed early on this morning. 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. Again, thank you for your participation on today's call and your continued interest in Noble. Good day, everyone.