Noble Corporation Plc (NE) Q4 2015 Earnings Report, Transcript and Summary

Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to Noble Corporation Reports Fourth Quarter and Full Year 2015 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Jeff Chastain, Vice President of Investor Relations, you may begin your conference. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay. Thank you, Tiffany, and welcome, everyone, to Noble Corporation's fourth quarter and full year 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 company's 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 our 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 today's call. You will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation as part of our supporting schedules and our press release and 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 provided today, which will cover first quarter and full-year 2016 figures. With that, I'll turn now the call over to David Williams, Chairman, President and Chief Executive of Noble. David W. Williams - Chairman, President & Chief Executive Officer: Thanks, Jeff. Good morning and welcome to our review of Noble's fourth quarter and full-year 2015 results. We appreciate your participation in today's call and your continued interest in Noble, as we enter 2016. We've experienced a volatile beginning to the year as offshore industry fundamentals remain weak as evidenced by reduced customer demand and excess offshore rig capacity. Cyclicality is a well-known dynamic in our industry and something Noble has successfully managed for 95 years and 2016 will be no exception. After I cover some aspects of the fourth quarter and full-year 2015 financial performance, along with a few other timely topics, I'll say more with regard to Noble's strong position in the offshore industry and our ability to successfully navigate this period of fundamental weakness. But first, I want to introduce the management team participating with us on today's call. Jeff and I are in Houston and joining us here today is James MacLennan, our Senior Vice President and Chief Financial Officer, who will cover the details on the fourth quarter performance and our 2016 guidance. Simon Johnson, our Senior Vice President of Marketing and Contracts is participating today from our London office and will offer his thoughts on the offshore market and how Noble is working to sustain contract cover. Each of us will be available to take your questions later on in the call this morning. In addressing 2015, there was a consistent theme to the year, our ability to sustain a high-level of operational execution and let me take a focus on running the business as safely and efficiently as possible. Although fleet downtime in the fourth quarter was elevated relative to the average of 4% downtime through the first nine months of the year, we still maintained a full-year downtime figure of about 5%, coming in under our guidance. This is one of several noteworthy accomplishments in the year, especially when you consider the premium nature of our fleet with the advanced and technically sophisticated systems and components found throughout. The result is a testament to the success of our process development, execution and advanced rig training efforts. We note revenues in the quarter of $713 million, adjusted for the contract cancellation, were modestly lower than some estimates. A portion of the variance was the result of the Noble Discoverer termination, which was effective December 15, and the day rate adjustment on the Noble Sam Turner from $218,000 a day to $197,000 a day effective December 3. Together, the two events lowered our revenues by about $6.5 million. The remainder of the variance was primarily due to higher-than-expected fleet downtime, which included two stacked pools (5:03) that were precipitated by a manufacturer's defect and a BOP component. I also want to comment this morning on the $418 million impairment charge taken in the quarter. This charge resulted largely from our decision to retire the drillship Noble Discoverer following its cancellation – its contract cancellation. And the jackup Noble Charles Copeland, which completed a contract in the Middle East during the second half of 2015, and has since been stacked in the region. In the case of Discoverer, the rig was uniquely suited for shallow water arctic work. But with the current product price environment and the realization of any suitable arctic opportunities is now well off into the future, it made no sense to keep a rig of that age that would – at the age of Discoverer as an option on the future. Copeland was due for a special survey, along with some equipment inspections and some repairs, some hull work and other regulatory requirements that made a retirement decision on this standard rig fairly easy. These retirements reduced our fleet size to 30 units, consisting of 16 floaters and 14 jackups, while reducing the average age of our fleet to under 10 years, among the youngest and most advanced of any tenured participant in the offshore drilling industry. We believe one noteworthy and healthy by-product of the current cyclical trough is the probable retirement of a good number of rigs in the global fleet, both floaters and jackups. Noble has retired five rigs from its fleet since 2014, and we believe rig retirements, such as those I've just mentioned, are among several factors that should lead to an improved marketing environment in the future, and hastening the industry's inevitable recovery. Another significant accomplishment in 2015 was our success in reducing operation cost over the year. Fourth quarter costs relative to third quarter declined 3%, excluding the impact of the contract cancellation and arbitration settlement noted in our earnings report. For the year, operating costs declined 18% from 2014, and the reduction was instrumental in our successful efforts to maintain operating margins approaching 60%. These higher margins produced better than expected cash flow from operations. We have not exhausted our cost reduction measures, and as James will cover in some detail, 2016 contract drilling services costs are expected to decline well below our 2015 total of $1.23 billion. Although the majority of the cost decline was driven by reduction in fleet activity and the removal of the Noble Discoverer and Charles Copeland, other cost reduction measures are under review and should continue to drive our financial performance. Before I turn the call over to James to cover the financial discussion, I want to bring you up-to-date on two important company matters. The first deals with our progress on the Noble Lloyd Noble, our final newbuild project, where it continues to progress through the latter stages of construction in Singapore and is nearly 90% complete. We remain on budget and comfortably inside our delivery window with this technically impressive jackup addition to our fleet. The rig is set to exit the shipyard during the second quarter, probably June 2016, and begin the roughly 12,000 nautical mile journey to the North Sea. We continue to expect the rig's four-year primary term contract with Statoil to commence in the third quarter of this year at the contracted day rate. There has been some media coverage over the past weeks noting a delay in the project for which the rig is being built. However, I want to be clear that we're continuing to work closely with our customer to ensure a timely commencement and do not anticipate any modifications to the project's plan or scope that would affect our contract, and we're moving forward with our rig deployment plans. Also, the company disclosed in 2015 that we were in discussions with our client regarding the contracts to the ultra-Deepwater drillships, Noble Sam Croft and Noble Tom Madden. The first point I want to emphasize is that both rigs remain under firm contracts that run into July and November 2017, respectively. We're continuing our discussions that could result in amendments to the contracts. If this happens, a contract amendment could encompass a number of possible outcomes, any of which, we hope will produce beneficial solutions for both parties. Recently, our client publicly confirmed their commitment to honor these contractual obligations, and we continue to work together in order to achieve a mutually beneficial outcome. We very much appreciate their commitment to these two rigs, and we will continue to update you as circumstances warrant. Right now, I'll turn the call over to James. James? James A. MacLennan - Chief Financial Officer & Senior Vice President: Thank you, David. And good morning to everyone on the call. Our fourth quarter press release issued last night include a detailed discussion of our financial results compared to the third quarter of 2015. It was accompanied by several supporting schedules, including a summary of revenue, net income and earnings per share reconciliation, reflecting the impairment charge and contract termination recognized as part of our reported results. Therefore, I plan to move quickly through my comments on fourth quarter results, focusing specifically on the unique developments in the quarter and results that fell outside the provided range of guidance. I'll begin with comments on the impairment charge and contract termination, followed by an explanation on downtime in the fleet, operating costs, and a breakdown of CapEx for the year. Any further explanations can be provided during the Q&A segment of this call. To begin, the fourth quarter reported a loss attributable to Noble of $152 million, or $0.63 per diluted share, and included an impairment charge and a net gain pertaining to the contract termination. The impairment charge of $418 million after tax, or $1.73 per diluted share, related primarily to the two rigs that David discussed. Both rigs are in the process of being retired, resulting in a total of five rigs retired by Noble since the fourth quarter of 2014, four floaters and one jackup. These retirements reduced our fleet to 30 rigs, a figure that includes our last newbuild project, a high specification jackup, Noble Lloyd Noble. The net after tax gain of $140 million, or $0.58 per diluted share, resulted from the customer's decision to terminate the remaining the contract commitment on the Noble Discoverer in accordance with the terms of the contract. The company's cash position of $512 million at December 31 included the lump sum payment resulting from the termination. Excluding the impairment charge and the contract cancellation, net income attributable to Noble in the fourth quarter was $126 million or $0.52 per diluted share. Fleet downtime in the fourth quarter was 8%, running above the average of 4% experienced through the first nine months of the year and our guidance of 6%. The downtime was driven largely by our U.S. Gulf of Mexico fleet including the Noble Bob Douglas, the Amos Runner and the Paul Romano. The Bob Douglas completed repairs and returned to work prior to the close of the fourth quarter. Contract earning services costs total $299 million in the quarter which included $5 million expenses relating to the demobilization of the Noble Discoverer in Singapore, following the cancellation of its contract. With the demobilization cost excluded, operating cost in the fourth quarter were $294 million, compared to a guided range of $310 million to $325 million. The favorable variance was due largely to reductions arising from cost control measures affecting repaired maintenance and labor cost. Before I cover guidance, for 2016, I want to summarize final capital expenditures for 2015 which totaled $423 million. The components of our 2015 CapEx were as follows: $53 million for newbuild Rigs, from early expenditures for enhancements to the technical specifications on the jackup, Noble Sam Hartley and progress payments on the Noble Lloyd Noble. $195 million for major projects. $150 million for sustaining capital and $25 million in capitalized interest. I will now cover our financial guidance for 2016 and the first quarter of this year, noting certain line items in the P&L as well as capital expenditures. First, our 2016 operational downtime assumptions will remain at an average of 6%. This compares to actual operational downtime in 2015 of 5.3%. We believe the 6% rate is a prudent expectation and reflects our high mix of Premium, floating, and jackup rigs. However, our attention to operational excellence, including a focus on process execution and safety performance demonstrate our focus on improving those metrics. Contract drilling services costs in 2016 are expected to be in the range $1.03 billion to $1.13 billion as we expect further cost management efforts to result in what would be a 13% reduction compared to our total costs of $1.23 billion in 2015. To help you understand how the 13% reduction is to be achieved, I'll summarize our cost expectations and identify the major areas of reduction. First, new rig operating costs including startup costs will add $30 million. The increase results from a full year of operations on the jackup Noble Tom Prosser, which began operating offshore Australia in November of last year, along with the commencement of operations with the jackups in Noble Sam Hartley and the Noble Lloyd Noble. The Sam Hartley commenced operations offshore Brunei in January 2016, while the Lloyd Noble is expected to begin operations in the North Sea during the third quarter of 2016. Our direct rig operating expenses measured on the same rig basis are expected to decline $20 million or 4% compared to 2015. This decline reflects the impact of various efficiency and cost reduction measures and follows a 7% decrease in 2015. Much of the 2015 reduction was achieved through labor based savings as we noted through the course of the year. With the 2016 reduction, representing incremental cuts across all aspects of rig operations, the cost inflation factor applied to the purchase of materials and supplies required to operate our fleet is expected to be close to zero. Rig out of service time reduced costs approximately $160 million compared to 2015. This reduction includes the retirement of the drillship Noble Discoverer and the jackup Noble Charles Copeland, as well as reduced costs resulting from our efforts to manage utilization gaps over the year on rigs such as the Noble Jim Day and Noble Danny Adkins. For example, both rigs will be warm stacked in U.S. Gulf of Mexico following the conclusion of their current contracts. Using the Jim Day as an example, the direct daily costs are expected to be reduced by as much as $90,000 to $100,000 per day. Further reductions in shore base and operations support account for the remainder of the cost reduction expected in 2016. All combined, these components are expected to result in a 9% reduction in cost per operating day. Also, note that we anticipate clients reimbursable cost in 2015 to fall in the range of $55 million to $75 million. Inclusive of these reimbursable costs, total operating cost in 2016 will be in the range $1.10 billion to $1.20 billion. Regarding the first quarter, contract drilling services costs were expected to be in the range $270 million to $285 million. And as we look beyond the first quarter forecast, costs were expected to increase slightly in the second quarter due primarily to an anticipated demobilization expense associated with the Noble Dave Beard's transit out of Brazil, followed by a decrease to between $260 million and $275 million per quarter for each of the third and the fourth quarters. Costs associated with client reimbursables are expected to run between $15 million and $20 million per quarter. DD&A for the year is expected to be in the range, $585 million to $600 million, about $40 million lower than 2015, primarily due to the decision in the fourth quarter to retire two rigs. In the first quarter, DD&A is expected to be between $145 million and $150 million. And we expect depreciation to increase about $5 million per quarter in the second half of the year, driven largely by the commencement of operations of jackup Noble Lloyd Noble and planned capital spending which will continue throughout the year. SG&A costs, which were reduced approximately 28% in 2015 when compared to 2014, are expected to be about flat in 2016 with a range of $70 million to $77 million. In the first quarter, we expect SG&A costs to be approximately $20 million with the remaining costs split evenly over the remaining quarters. Interest expense net of capitalized interest is expected to total $215 million to $225 million based on our existing debt structure. This range is about $5 million above the total for 2015, due primarily to lower capitalized interest in 2016 following the completion of our newbuild program. Capitalized interest is expected to total $17 million in 2016 compared to $25 million in 2015. Net interest in the first quarter is expected to be $55 million to $60 million. The minority interest line on our P&L, which represents the Bully I and Bully II 50/50 joint ventures with Shell, is expected total $70 million to $75 million in 2016 with a run rate of approximately $18 million per quarter through the year. This expense is ultimately dependent on the operational performance of the two jointly-owned rigs. Our effective tax rate in 2016 is expected to increase to a range of 24% to 25% compared to 15.6% in 2015, which reflects an adjustment for the loss on impairment and gains on settlements and contract terminations. It should be noted that our current tax structure is more efficient in the years where we experience higher level of pre-tax profitability and, conversely, lower levels of pre-tax income adversely affect the tax rate. In light of current market fundamentals, we expect a higher effective tax rate to be likely. Of course, changes in the geographic mix, our sources of revenue and tax assessments or settlements or movements in certain exchange rates, all can also affect this line. We expect total capital expenditures for 2016 to be approximately $800 million compared to $423 million in 2015. In 2016, all of the year-over-year increase is related to our newbuild program, which will be completed during the year. We expect reduced capital spending across all other capital categories in the year. The breakdown by major spending category is as follows. In regard to newbuild CapEx, we expect to spend $461 million pertaining entirely to the Noble Lloyd Noble. The amount is due upon delivery of the rig from a shipyard, which is expected to occur during the second quarter. Major projects are expected to total approximately $170 million, down from $195 million in 2015. This figure includes subsea and supply chain component purchases and newbuild and other capital spares of $100 million, as well as certain rig maintenance and regulatory inspection programs. The latter relates primarily to a planned project on the semi-submersible Noble Clyde Boudreaux. Sustaining capital expenditures are expected to total $150 million in 2016, about flat with last year. Total capital spending for the first quarter is expected to be $120 million, while the remaining three quarters should total approximately $85 million each, with the exception of the second quarter, which will include the final payment on the Noble Lloyd Noble. Finally, and before I turn the call over to Simon, I want to address our liquidity position and how we see this position transitioning through the year. As you might expect, liquidity has been, and will remain, a point of focus through this period of reduced customer demand. And I believe Noble has a solid position and a very strong balance sheet to work with. We've been operating with two credit facilities with an aggregate capacity of approximately $2.7 billion. In addition, we closed 2015 with over $500 million in cash, or a liquidity position of $3.2 billion to begin 2016. Note that one of the two credit facilities for $2.445 billion is a five-year facility maturing in 2020, with zero drawn on it as we begin the year. The second facility was a 364-day facility that matured late in January of this year, and was not extended further, as we consider that we have ample available capacity. In addition, our strong contract cover provides clarity regarding future cash flows. We currently expect to end 2016 with significant liquidity. As I close my comments, I'd like to leave you with what I see as a key takeaway regarding the year ahead. As we successfully managed through this period of weak industry fundamentals, Noble will continue to identify ways to improve operational downtime, reduce operating and capital costs, and maximize generation of cash without compromising operational imperatives such as health, safety, and the environment. That concludes my comments, and Simon will now cover the market outlook. Simon W. Johnson - Vice President-Marketing & Contracts: Thank you, James, and good morning, everyone. In response to a further material weakening in the underlying commodity price environment in January, operators have started making additional cuts to previously planned 2016 upstream expenditure programs, which had already experienced serious contraction on a year-on-year basis. This has, in turn, had a negative impact on the already depressed near-term environment for offshore rigs, and we're expecting a tough 2016. Unless something changes, we suspect the first opportunity for recovery in activity will be in 2017, with the capital planning for that calendar year expected to begin by the middle of 2016. While capital expenditure reductions are worldwide, we believe the regions most affected will be Africa and Latin America, with the possible exception of Mexico. Also, North America is likely to see a meaningful reduction in spending, a region where Noble has several units exposed to re-contracting risk in 2016. However, we believe that efficient capital markets, existing production infrastructure, and entrepreneurial operators will mean that this geo market will be among the fastest to react to improving oil price fundamentals, as we have seen in past cycles. We're experiencing poor demand visibility at present, and there is growing debate regarding the profile the inevitable recovery may take and, specifically, how the sharp contraction in the expenditure we've seen in recent months will influence that recovery. As David commented, we're in discussions with our client regarding the future activities of the Noble Tom Madden and Noble Sam Croft. We will update you when those discussions reach a conclusion. David has guided you on the time and expectations of these deliberations. We're also waiting on the outcome of a running dialogue for certain of our rigs in the Arabian Gulf. I have nothing to report at this time, but we currently expect this to reach conclusion in the coming weeks. We have and we'll continue to work with our customers in its challenging phase of the market. As a company that has been in this industry for almost 95 years, we understand the wisdom of taking a long-term view when our customers need help. Similarly, our customers are rediscovering the value of long-term brands in this business, companies that have consistently delivered value and performance through the cycle. As I mentioned in the last call, concerns about counterparty risk, a growing concern amongst our clients, and Noble's liquidity, balance sheet and debt profile are among the best in the industry space at present, as James has noted. Against a gloomy backdrop, alien to anything experienced since the late 1980s, Noble has been aggressively competing for new work, improving our already industry-leading cost structure, listening to the needs of our customers, and delivering top tier performance onboard our rigs which, today, are among the finest and most capable in the industry. While we are cautious of the large and growing inventory of stacked and idled rigs, which will take a good period of time to work through, and also the impact of potential M&A activity amongst our client base, increasingly, we believe that the prospect of a sharper recovery profile is supported by an ever-tightening tourniquet of capital discipline. Cash conservation is not a long-term strategy for our customers' businesses. Our marketing team, with significant support from across the company, has made great strides in keeping the Noble fleet working, managing contract gaps and enhancing our value proposition to customers. I'm not suggesting that we've won every opportunity, but we've worked hard to close some large contract gaps and generally punched above our weight class in what has been one of the most competitive rig markets in my 20-plus years in the industry. We've been aided in the current environment by our diversified fleet. The decline that we've seen in the Deepwater floater segment has been dramatic while our jackups have fared much better on a relative basis to-date, partly as a function of geology and geography. While the call by industry commentators for so-called pure play contractors reached the crescendo at the peak of the build cycle, we maintain our commitment to developing a high specification fleet that is balanced across the most appealing asset classes. Understanding the different parts of the rig market have different dynamics has helped us in this downturn. For example, our JU-3000 and jackups have continued to win term work in a difficult market, as most recently evidenced by the two-year extension for the Noble Sam Turner because of their superior capabilities. Our jackups reflect the impact of enhanced operational know-how. They weren't designed by shipyards or rig brokers in isolation. And this is being borne out of in their early operational history. As a final thought, we remain cautiously optimistic regarding work programs for a number of our rigs with current or near-term availability. This includes, in our jackup fleet, Noble Regina Allen, Noble Hans Deul, and Noble Houston Colbert. And then our floating fleet, the Noble Danny Adkins, Noble Jim Day, Noble Clyde Boudreaux. Each unit is expected to experience the utilization GAAP of some length. But our strategy, especially as it pertains to our premium rigs, is to manage these periods efficiently with cost management in mind and also strategically, to allow each rig the benefit of a quick response to emerging opportunities. That concludes my remarks. And I'll now turn the call back to David. David W. Williams - Chairman, President & Chief Executive Officer: All right. Thank you, Simon. As I mentioned earlier this morning and as Simon has reinforced, our industry remains in a difficult contract environment. As we take the measure of fundamentals in early 2016, the depressed oil price, expect a decline in our customers' upstream spending, and continuing capacity and balance in the floater and jackup markets, collectively lead to tough times that require tough decisions. Some companies in our business, as we've already seen, will suffer far worse than others. However, opportunities will arise for those companies equipped to weather this storm. I want to close today by explaining why Noble is among the best positioned companies to successfully manage through 2016, and remain positioned to take advantage of the market opportunities when they return. Superior positioning begins with a premium, diverse and technically versatile fleet. As I noted earlier, our average fleet age is just under 10 years, among the youngest in the industry. And we're confident customers will migrate these premium rigs that gain greater clarity around the timing of future offshore expenditures. The fleet is operating at a very high level. Operations execution has been exceptional with total downtime of only about 5% 2015, and with proven processes and safety and training protocols in place, we believe, we are positioned to deliver strong results again 2016. Our fleet contract cover is high and remains a distinguishing factor between Noble and its peers. In 2016, 57% of the available rig operating days are committed to contracts in the floating fleet and 81% in the jack-up fleet. And we've had success for securing additional work in recent months, adding over 1,800 contract of operating days in our jack-up fleet. Our financial discipline remains steadfast, balance sheet is solid with manageable debt maturities in each of the years 2016 and 2017 of $300 million and over $250 million or less each year up to 2020. We expect to repay the $300 million notes maturing in 2016 with cash on hand. We begin 2016 with over $500 million in cash and an undrawn $2.5 billion revolving credit facility or about $3 billion liquidity. We are very confident in our ability to successfully manage this very uncertain year. Hope you understand and appreciate the work that has been done to achieve this strong industry position. Our focus in 2016 is to run our businesses as safely and efficiently as possible, utilizing our talent and committed workforce to deliver the best results in this challenging environment. We are highly focused this year on execution. And now, I'll turn the call back over to Jeff. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay. Thank you, David. Tiffany, let's go ahead and begin the question-and-answer session of the call, and if you'd assemble the queue, I'd remind everyone that we'll allow one question and one follow-up, so we can take as many calls for the remainder of the hour that we have. Tiffany, go ahead.

Your first question comes from the line of Dave Wilson with Howard Weil. Your line is open.

Good morning, gentlemen. Thanks for taking my questions. I noted that you commented on the Croft and Madden and talks are ongoing. But could you put some bookends around the possible outcomes, for example, best case both rigs were moved to some type of idle day rate for a while then resumed or worst case, cancellation or something along those lines. Can you kind of frame kind of the worst and best case scenarios? David W. Williams - Chairman, President & Chief Executive Officer: Dave, I think I said what I can say except that we have firm contracts. And so – I mean, I'm not quite sure how you had come to – what you believe is best and worst. But I would say that the fallback solution is the rigs were made under contract, under their current contracts. I mean, that's the fallback.

Okay. David W. Williams - Chairman, President & Chief Executive Officer: That's not a bad outcome.

Right. Right. Okay. And then, also David, you mentioned the fourth quarter downtime was elevated in relation to the three prior quarters. And it looks like, from some of the fleet updates, that it was due to some OEM recommended component replacements. Can I get a little more detail on that and will that component replacement be kind of an ongoing matter, say, every three years, these components got to be replaced or something like that, or are there other rigs in the fleet that still need to get this replacement done? David W. Williams - Chairman, President & Chief Executive Officer: Dave, I appreciate the question. We had a little bit of heavier downtime on a number of rigs, but on the specific component failure, it was a manufacturing process failure on some components on some of the older rigs, actually the two EVAs, the stacked pools for the Romano and the Runner. And, no, it's not an ongoing issue and it's not a broader issue. It was a failure and a potential failure on a component that led us to, basically, immediately secure the well and pull the stacks and change these components out in order to – out of an abundance of caution. So, no, it's not recurring, it's over. It was unfortunate to have them both hit during the quarter with some other things. But, that's life in this business and it's over and it's behind us.

Great. Appreciate the comments there. And thanks for the clarification. I'll turn the call back over. David W. Williams - Chairman, President & Chief Executive Officer: You bet. Thank you.

Your next question comes from the line of Ian Macpherson with Simmons. Your line is open. Ian Macpherson - Simmons & Company International: Right. Thanks. Good morning. David, I'm sorry to just pepper away with the Madden and Croft questions, but, here it goes. One thing we do know is the rigs aren't going to be drilling right. So, presumably one alternative is that you and your customer could share in the cost savings of taking them down to stack, but what are your limitations or your preferences for keeping those rigs in some state of readiness along the spectrum of fully ready versus completely cold stacked given how high-tech and complicated and brand new they are. David W. Williams - Chairman, President & Chief Executive Officer: Well, Rob – I mean, Ian. I'm sorry. I can't get too granular in this. I mean, I would just say that the construct to these contracts is very tight. And so, we have a revenue stream and we have a contract that's firm. We also have a customer who is wanting some help. And of course, we need our customers to do well. And so, we're certainly willing to accommodate that customer to the extent that we can, but we don't intend to diminish our overall position unless there's something in it for us. So, could we – are there scenarios where we may lay the rigs up, I mean, you said they'll be stacked. I didn't say that. So, we're working with our customers to see what his capability is, what his requirements are, what his opportunities might be for further extension. All of that is on the table for discussion. But I would say that, again, the fallback for us is we have firm contracts and they're enforceable. Our customer has publicly stated that they intend to honor that contract. And so, as the worst case scenario or the end game if nothing else works out, we'll continue under our current contract. Ian Macpherson - Simmons & Company International: Okay. I understand you're limited here given that it's in negotiation, but I'll move on. The other question I had is whether you could give us – you or Simon could give us any guidance on what we should be thinking for your Saudi day rates for 2016, I presume they're going to be lower than 2015, but I guess we need to wait and see the outcome. But can you give us any directional guidance there? David W. Williams - Chairman, President & Chief Executive Officer: Not really. I mean that is an ongoing dialogue that has been ongoing for a while. So, no, I really can't. I mean, I think we need to honor our commitment with our customer. We've got an ongoing dialogue. We'll let you know as soon as we know or as soon as we can confirm it. So, I would say that that particular customer has a pretty heavy thirst for hydrocarbon development production. I think that we all believe that they don't really want to reduce the number of rigs that they have. They have – and our relationship with them is very good. And our uptime and our – execution with those guys is very good. So, I think that we do have a negotiating platform that has some strength to it. But to get very granular in the rate, I don't think it's prudent for us at this time. Sorry, Ian Ian Macpherson - Simmons & Company International: No problem. Thanks. David W. Williams - Chairman, President & Chief Executive Officer: You bet. Thank you.

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

Thank you. So, David, I think James mentioned the decline in the Adkins and Day rate will be $90,000 to $100,000 a day. So, I guess that's the first as operating rate. So, does that mean you're warm stacking cost is in the 50-ish-type number? And what does – how would you define warm stacking and can that number – where it starts, can it be gradually lowered if, for example, those rigs didn't find work this year? David W. Williams - Chairman, President & Chief Executive Officer: Robin, I love you, guys. If we'd wanted to tell you what the number was, we would have told you what the number was. The different rigs – the reason we cast it the way we did is different rigs have different operating costs. And I would say that the Day and the Adkins, well, they have similar capabilities of some of the – I mean very similar capabilities with some of the other later delivered rigs. We actually operate those rigs a little cheaper, a little more efficiently than we do some of the HHI ships or what some of our competitors like some of the other similar class of rigs. So, we count it this way. I don't know what your model has for operating cost on those rigs. But the handrail, our handrail cost for those rigs, what we actually use to run those rigs in a daily operating mode whether it's these rigs and we use the Jim Day as an example, whether it's these rigs or if we are to lay up one of a more higher spec rig, warm stack, we think that daily savings at the handrail would be somewhere in the $90,000 to $100,000 range. So, for instance, if you presume the operating cost in your model is $125,000 then you can calculate what the daily cost is. If you presume that operating cost for that rig in the region is $140,000 or $150,000, then you can again calculate what you think it is. So, different rigs have different costs. We, as a rule, have not gotten very granular, and try not to get granular on the specifics of operating cost of specific rigs, and that's why we couched it that way. In terms of your second part of the question, this is a base level of maintenance that we'll do. Some of the equipment on the rig will be regularly maintained. Some of the rig equipment will be put up and kind of isolated, so it doesn't need regular maintenance, but we'll be able to maintain it to some degree. The rigs will be in the Gulf of Mexico. And in the event there's a hurricane or something, we will be able to motor out of the way. And so, if that happens, our costs will be a little bit higher. But I would expect this to be a good run rate for normal operations, and our ability to maintain that rig in a near-ready capability to go back to work. And when I say near-ready, I mean, crew it up, start-up equipment, do whatever regulatory and maintenance issues that had expired, get that stuff up and ready, up to go and be ready to go to work. So this is a, I would say, a fairly high level of warm stack; I'm not saying it's hot, but it's closer to hot than cold.

Okay. Thank you. And in – going back to the Saudi question, is your contract negotiation running concurrently with other contractors? Is this part of a – is this an ongoing like resetting of rates across a lot of rigs, and maybe other service companies that the Saudis are engaged here at the start of the year? David W. Williams - Chairman, President & Chief Executive Officer: Well, I don't think they've singled us out. I think that this is something that's going on with all contractors, just like they did last year. Simon, do you want to comment on the broader...? Simon W. Johnson - Vice President-Marketing & Contracts: Yeah look, we have no insight in terms of what they might be speaking about with the other contractors. But, I mean, every operator in every basin around the world right now is engaged in seeking to improve terms. So, I can't say any more than that. David W. Williams - Chairman, President & Chief Executive Officer: I think this is the same process they went through last year. I don't see any targeted efforts or anything. I think it's the same process they went through last year.

Your next question comes from the line of Gregory Lewis with Credit Suisse. Your line is open. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Yes. Thank you and good morning, and I guess, good afternoon. And I guess my question is either going to be, James and David, I don't know, I'll just figure out which one of you would like to answer. But really, David, you've done a great job of putting the company in a good financial position. You have – James mentioned the revolver which is undrawn, you have $500 million of cash, and it seems like the focus wants to be on capital efficiency. And so, when we look at – if I were to look at Noble's medium-term bonds, whether they're the 2017s or 2018s, those yields are in the teens. So, at a certain point, does it make sense, given the backlog, given the balance sheet, to potentially buy back some of those bonds and really just capture that – you're reducing your interest expense, strengthening your balance sheet? It seems like a real win-win. David W. Williams - Chairman, President & Chief Executive Officer: Greg, I would say that that's a manifestation that's fairly new in the marketplace, and it's certainly something that we're aware of and have been watching. I'm not going to say yes or no. But certainly your logic is not lost on us. And so, I would say that the discount on these bonds is something that's been manifesting itself over the last few weeks, I don't know, five or six weeks or however long it has been, where it has really made some sense, and it's something that we're monitoring. And certainly, your logic is not lost on us. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Okay. Great. Perfect. And then just want one other for me. Simon, I mean, this rig's kind of have been kicking around Southeast Asia for a while, but at this point, I mean, especially following the retirement of the Discoverer rig, is there any opportunities or tenders that the Max Smith is bidding into? Simon W. Johnson - Vice President-Marketing & Contracts: There are. We have the Max Smith bid on a number of opportunities right now. We don't know where they're going to go in that region in particular, given the large stack inventory, sitting off Lob 1 (44:56) and in the Straits of Johor. Obviously, those opportunities are fiercely contested. So, I mean, as we have said previously, we're going to stay in the game where we think we have a chance. The rig is being bid in terms of the range, the temperature range of stack that the rig is currently in. It's at the colder end rather than the warmer end. So, in that sense, we – if you like, we're handicapping the prospects in the market, but we're going to continue to market the rig while we think there are opportunities for it, and today there are.

Your next question comes from the line of Jeffrey Campbell with Tuohy Brothers. Your line is open.

Good morning, or afternoon. I might get a little lost on the locations. David W. Williams - Chairman, President & Chief Executive Officer: As do we.

The first question I wanted to ask was with regard to the Jim Day and the Danny Adkins. So, I'm just wondering if the decision to warm-stack those rigs reflects any optimism regarding potential near-term contracting? David W. Williams - Chairman, President & Chief Executive Officer: I would say yes. Our view of those rigs is that they are very high-spec'd, some of the highest spec'd semis operating the world, the operating capabilities of those rigs is from a semi-submersible perspective, I would say, of second to that in the mid markets, U.S. Deepwater, Gulf of Mexico, West Africa and South America. So, we do have, I believe, some opportunities for those rigs that we think are suitable. We think that we're waiting on the dust to clear up whenever there is turmoil in the oil price as our customers go through a budget cycle, it always creates more concern, but as the year starts out, there's sometimes some clarity and some opportunity and we believe there are some opportunities and some customers that might want to do some work later this year if there is some support in the oil price. But the alternative really for those rigs is to move them to another venue and cold-stack them and the economic reality is, for us, we believe this is a better solution. And so, we've done a fairly exhaustive study. We think we could maintain the rigs better this way. And we think that we can keep them closer to hot and closer to work with those opportunities. This is a cycle. It won't last forever. It will roll out and it could easily roll out almost as aggressively as it rolled in. And so, we want to be prepared if we can to do that. And economically speaking, this was the most efficient way to meet those parameters. So, that's how we came to the conclusion. It's – we don't make these decisions lightly. We do a lot of study and a lot of market evaluation and rig evaluation. This made the most sense for these two. Simon W. Johnson - Vice President-Marketing & Contracts: And just I could, just to add there.

Go ahead. I'm sorry. Simon W. Johnson - Vice President-Marketing & Contracts: I'd just like to add to David.... David W. Williams - Chairman, President & Chief Executive Officer: Go ahead, Simon. Simon W. Johnson - Vice President-Marketing & Contracts: I'd just like to add on David's comments that I mean, one feature that the Adkins and the Day enjoy, they've got very big open deck spaces which is particularly conducive to development drilling. And right now, a lot of near-term demand is focused on production maintenance in the Deepwater Gulf of Mexico. And our success in the past at keeping those rigs contracted over the past 12 plus months, in part, informs our response as we look forward, we've been able to compete preferentially and we believe that'll continue.

The only thing I was going to add was because sometimes different contractors say different things. But it sounds like from what you just said, that the current warm stacking regime that you're going to put these Rigs on is going to allow them to be – to maintain a suitable condition, at least through 2016 and maybe into early 2017 if oil prices settle out a little bit. Is that correct? David W. Williams - Chairman, President & Chief Executive Officer: I would say that even beyond that.

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

Thanks. Just I was hoping we could get an update on the Clyde Boudreaux. It's in the yard I think, for a few more months. So, obviously, it was obviously a good rig for you when it was working for Shell. And you're doing some capital work while it's in the yard. Just curious what the opportunity set looks like for a rig like that and how those upgrades could help at marketing it? David W. Williams - Chairman, President & Chief Executive Officer: Let me make a couple comments and I'll pass over to Simon since we're in different venues. We'll just manage this. We believe that's one of the best rigs in that part of the world. As board rigs go, it's got a good bit of capabilities. It's got a great track record with a project that just executed in Australia. It's got some, I would say, capital upgrades that have been pending for some time, things that we learned – actually, very early out at the shipyard, we delivered a rig a few years ago that needed to be upgraded and changed. We've been working without those. So, the rig has been out long enough that we've got five-year survey works to do on the (50:06) equipment. We will recertify the BOPs and some other structural things. So, we're planning to go ahead and execute that work. We're doing a more detailed analysis right now of pricing the work and trying to pin down exactly what we want to do and where the real value is. We don't right now – we don't like spending money that we can't get paid for. And so, we are trying to tighten the spec on that, but we think it's one of the better rigs in that region, and we'll have an opportunity to work. So, Simon, do you have anything to add to that? Simon W. Johnson - Vice President-Marketing & Contracts: No. Just to – I guess to echo your thoughts and so a bigger rig than most of the rigs in the Southeast Asia region. It's shown excellent drilling performance in the last while, here working for Shell on Prelude. It isn't self-propelled, and it has a safety case, both critical ingredients to take advantage of work that comes up in Australia. And whilst the work prospects in Australia and New Zealand are slimmer today than they were yesterday, it still remains one of the brightest spots in the Southeast Asian rig market.

That's very helpful. Thank you. And then just thinking about what the environment looks like going forward for blend and extend opportunities. Are you – are operators to a point where when you're trying to have those types of discussions, are there already multiple contractors kind of competing for other types of outcomes for longer data well programs, how does that competitive environment look like as you're trying to term out some of this revenue and EBITDA? Simon W. Johnson - Vice President-Marketing & Contracts: Well, I would say that with blend and extend is that there's probably reduced potential going forward. Operators are increasingly reluctant to commit term in an uncertain environment. There has been a sharp contraction in January. I think the people are very nervous of committing traditional CapEx right now whilst the supply chain costs are still resetting to some extent. It's not the rig market that's holding it back but there are other costs that I consider and factor into their plan. So I think all of that suggests that there's probably going to be reduced potential going forward just because of the – what in the near term has been a worsening environment in terms of wanting us to commit to work programs.

That all make sense. Thanks for your detail. David W. Williams - Chairman, President & Chief Executive Officer: Thanks, Sean.

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

Good morning or good afternoon depending on where you are. It seems like operators have always been lip service to the idea that they care about the credit quality of their contractors. It was hard to see evidence of that when demand exceeded supply, but I'm wondering in this environment if you're seeing any indications or can you give any color that operators might actually get back to and then the contractors balance sheet during the rigs election process? David W. Williams - Chairman, President & Chief Executive Officer: It's an interesting observation and I don't disagree with you that they pay lip service to it. I would say that in a market like this that seemed really more of a collapse in there, they're intimately aware of it because it's impacting their revenue stream faster than it is ours. They're becoming, I think, more focused on the credit worthiness of their large vendors. Happily, we're in much better shape than most of them, and I think that's an opportunity for us I hope.

That's why I asked you and not one of the other guys. David W. Williams - Chairman, President & Chief Executive Officer: Thank you.

Regarding some recent news flow that the BSEE highlighted some recent problems with faulty connectors and bolts and subsidy components in BOPs. I think I saw some news on this yesterday. It sounds similar to the issue with GE products that caused a bunch of headaches in 2012, but this time, it looks like two different manufacturers involved. Just wondering if you have – I know it's early, but maybe if you have any thoughts of visibility on how this issue might be framed compared with the impact of the 2012 bolt issues? David W. Williams - Chairman, President & Chief Executive Officer: Well, I can't specify – that's a very good, I would say, connecting-the-dots exercise you've just gone through. I would say that we've already been through the impact of that particular product notice. And so, we don't have any impact going forward. I can't speak to other contractors, but we've already lived through that. So, nothing going forward. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay, David, any final thoughts? David W. Williams - Chairman, President & Chief Executive Officer: Sure, Jeff. Thanks. As we bring the call to a close, I'd like you to keep these important points in mind. First, the industry in 2015 presented a number of challenges, but Noble maintained its focus on operational execution, demonstrating a high level of efficiency and safety throughout the year. We kept downtime in the fleet below our forecast and recognized a year-over-year reduction in contract drilling services cost of 18%. 2016 should be a year of even greater challenges for the offshore industry, but we believe that Noble by remaining focused on running the business at a very high level will continue to demonstrate resilience. We expect to limit margin erosion by meeting our fleet downtime forecast or beating it once again and reducing operating cost, another 13% to 2015 levels. Second, we continue to benefit from excellent contract cover with 68% of our operating days under contract in 2016 including 57% for floaters and an impressive 81% of jackup days. Third, the balance sheet is solid with manageable maturities out to 2020 while liquidity remains robust at approximately $3 billion as we start the year. More importantly, we expect in 2016 to execute our capital expenditure program which includes the delivery of our final newbuild and reduce debt further by retiring in March $300 million of senior notes, all while maintaining a strong liquidity position. And lastly, Noble is very well-positioned to take advantage of market conditions and strategic opportunities when they arise. It's hard to find the recent research in our institute that does not address the topic of survival, but this 95-year old survivor of cycles in the energy sector will continue to run its business with a focus on excellent operational execution, strong financial results and financial discipline. Jeffrey L. Chastain - Vice President-Investor Relations & Corporate Communications: Okay. With that, I'll bring the call to a close and thank everyone for their participation today. Now, please make a note that we expect to report our first quarter 2016 results on April 27 with the call to follow on the morning of April 28, and we will confirm those dates as we get closer. Tiffany, we appreciate your time in coordinating today's call and good day, everyone.

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