Noble Corporation Plc (NE) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Noble Corporation's Third Quarter 2019 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jeff Chastain, Vice President of Investor Relations. Please go ahead.

Okay. Thank you, Kinsey, and welcome everyone to Noble Corporation's third quarter 2019 earnings call. We appreciate your interest in the company and 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. Before I turn the call over to Julie, 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, discussed 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 and this includes 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 will be referencing non-GAAP financial measures in the call today. You will find the required supplemental disclosure for these measures, including the most currently 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 our - to our website a summary of the financial guidance covered on today's call and that will provide guidance on our fourth quarter and full year 2019. With that I will now turn the call over to Julie Robertson, Chairman, President and Chief Executive of Noble.

Thank you, Jeff. Good morning and welcome to review of Noble Corporation's third quarter 2019 results along with our updated view of the offshore drilling industry. We appreciate your participation in today's call and your continued interest in Noble. I'll begin with a few remarks relating to important achievements over the third quarter and an update on some recent developments. Then will review our third quarter financial performance and provide financial guidance for the fourth quarter and full year 2019. And finally, we'll provide a discussion on the global offshore industry and address opportunities for the Noble fleet, after which I'll provide some closing thoughts and then we will be happy to address your questions. Joining me on the call today as we cover these topics is Laura Campbell, our Vice President and Controller, who will provide the financial report. Also participating is Craig Muirhead, our Vice President and Treasurer and both will be available to respond to any questions you might have. Meanwhile, we are continuing our search for Chief Financial Officer and hope to complete that process in the near future. After Laura, Robert Eifler, our Senior Vice President, Commercial will cover the marketing discussion. While activity levels remain encouraging, the upward trajectory since early 2018 in several of our quarterly measures including fleet utilization, revenues and EBITDA slowed a bit in the third quarter as we managed a combination of rig mobilizations, shipyard and contract preparation projects and scheduled regulatory work. These events which involved three floating units and two jackups contributed to a 6% decline in third quarter fleet operating days and revenues. Laura will provide more detail in her financial discussion. More importantly, these rig mobilizations and projects have concluded or will conclude very shortly. The jackup Noble stock marks, which completed a scheduled regulatory program returned to location offshore Saudi Arabia in late September. The Noble Houston Colbert, again it's new assignment in the U.K. North Sea on October 28th. The drillship Noble Globetrotter II returned to its fleet operating day rate in early October following the rig's relocation to the U.S. Gulf of Mexico and a brief shipyard project. The drillship Noble Sam Croft completed the mobilization to Suriname in late September where the rig commenced a project that was recently increased to a three well program up from one well and this increased project scope should in keep the rig employed into March of 2020. And finally, the drillship Noble Don Taylor completed preparations for one-year drilling assignment offshore Guyana and is currently in transit to the location with an expected contract commencement by mid-November. I want to recognize and thank our engineering, technical support, marine and regional operations teams for the safe and successful execution of these numerous projects. Also over the third quarter and since it's closed, we continue to secure additional days under contract as evidenced by several contract extensions and a new contract award for our jackup fleet. Contract extensions were approved for the Noble Tom Prosser operating Australia, the Noble Mick O'Brien in Qatar and the Noble Hans Deul in the U.K. North Sea and we're very pleased this morning to announce that the Noble Regina Allen has just been awarded the contract for operations offshore Trinidad and Tobago which will commence following the completion of the rig's contracts offshore Eastern Canada and the short shipyard program. Collectively, these extensions and the new contract award increased the days under contract across our jackup fleet by a minimum of 650 days giving further support to our industry leading jackup fleet contract coverage. Robert will have more to say on these achievements, including details on the new Noble Regina Allen contract in a moment. With the final comment on the quarter, I want to address developments with our customer shelves as they relate to the Bully II and Shell 50% interest in the 2 joint ventures that only operate the Bully I and Bully II drillship. We have been in discussions with Shell with respect to the drilling contract they have with the Bully II joint venture which runs through April 2000-2022. The discussions, which are at an advanced stage contemplated transactions whereby Shell buy out the remaining term of the drilling contract with the joint venture and Noble would acquire Shell's interest in the Bully II and Bully I joint ventures. Importantly, if we can close the transaction, which we believe is likely, double will receive a payout of its share of the drilling contract and be free to market the Bully II. Given the effect of the advanced stages of the negotiations, we recognized a gross impairment on the Bully II in the third quarter of $596 million or $331 million net of noncontrolling interest. We would expect to receive the lump sum payment in the fourth quarter of this year. As noted, we have not yet quite finalized the definitive documents It will provide an update when discussions conclude. Robert will provide further background on the discussions in his remarks. I am pleased to have found a mutually beneficial path for Noble and Shell in regard to the joint venture, which we have been operating together for almost 10 years. I'll now turn the call over to Laura for the financial review.

Thank you, Julie, and good morning to everyone. I'm happy to provide a review of our third quarter financial performance. From an operating point of view, a favorable outcome for both revenues and operating costs led to better than expected third quarter EBITDA and loss per share. I'll offer some insight on revenues and costs and review our capital expenditures and liquidity before I provide our thoughts of full year and fourth quarter 2019 guidance. Following yesterday's close of financial markets, Noble reported a net loss attributable to the Company for the third quarter of 2019, a $445 million or $1.79 per diluted share. Included in the results was a non-cash gross charge totaling $596 million resulting from the impairment of the drillship Noble Bully II, which has been idle since April of 2017. As Julie mentioned the impairment decision resulted from discussions with our customer. Excluding the portion of the impairment charge attributable to our partner and captured in the noncontrolling interest line of our P&L, Noble recognized the net charge of $331 million or $1.33 per diluted share. When the charge is excluded from our reported results, Noble would have reported a third quarter net loss attributable to the Company of $114 million or $0.46 per diluted share. Contract drilling services revenues in the third quarter totaled $259 million compared to revenues of $275 million in the second quarter. The 6% decline is due to fewer fleet operating days in the third quarter with planned out of service periods on the Noble Don Taylor and the Noble Houston Colbert as both rigs prepared for the commencement of new contracts. Also the Noble Scott March fall fewer operating days due to the scheduled inspection. Finally, the Noble Globetrotter II experienced lower daily revenues in the quarter following the utilization of our MPD system during the second quarter. These events were partially offset by a full quarter of operations on the Noble Johnny Whitstine. Contract drilling services revenues were slightly better than our guided range of $245 million to $255 million due primarily to the Noble Don Taylor and the Noble Sam Croft remaining under contract for a longer than expected period in the quarter before commencing preparations for the relocation to new regions. Contract drilling costs in the third quarter totaled $176 million compared to cost in the second quarter of $169 million. The 4% increase was due in part to higher operating expenses on the Noble Joe Knight as the rig approached the commencement of its initial contract in Saudi Arabia. The three year contract commenced on October 22nd. Also the Noble Don Taylor and Noble Houston Colbert incurred higher costs as both rigs prepared for new contracts. These events were partially offset by a reduction in operation's support costs. We expected an earlier start up than was realized on the Noble Joe Knight and this outcome, together with a delay in timing of expenditures contributed to our contract drilling services costs finishing the third quarter 7% better than our expectation. Third quarter EBITDA before the non-cash impairment charge, totaled $68 million reflecting the better than expected contract drilling services revenues and cost for the 9-month period adjusted EBITDA totaled $246 million. Net cash used in operating activities increased approximately $25 million from June 30th. This is primarily attributable to a refundable VAT payment made in connection with the importation of the Noble Houston Colbert and we expect to receive a full refund for this amount by the end of the first quarter of 2020. Capital expenditures for the third quarter totaled $57 million, including $22 million of sustaining capital, $33 million related to major projects, which included rig reactivations and the purchase of subsea capital spares and $2 million of capitalized interest. The third quarter result compared to $64 million in the second quarter and was significantly below our guidance of $78 million due to primarily to the timing of project expenditures related to the Noble Joe Knight, Noble Houston Colbert and Noble Don Taylor. Through September 30, 2019, capital expenditures totaled $204 million, excluding the $54 million seller financed portion of the Noble Joe Knight purchase price, and was comprised of the following spending categories $56 million of sustaining capital, $139 million related to major projects including rig reactivations and the purchase of subsea control spares and $9 million of capitalized interest. We concluded the third quarter with cash and cash equivalents of $136 million and total liquidity representing cash of availability under our credit facility of $1.2 billion. I'll now provide updated financial guidance covering both the fourth quarter and full year of 2019, note that my guidance for the fourth quarter and full year 2019 excludes the impact of a potential lump sum settlement resulting from Shell's termination of the drilling contract and does not include any fourth quarter day rate revenue for the Noble Bully II. I will also clarify other assumptions we made regarding the Bully II as I go through guidance. Our 2019 fleet uptime guidance remains at 96% or 4% downtime, fleet uptime through September 2019 of just under 97% continue to outperform our guidance but a reasonable allowance will remain in place to account for our asset mix and the addition of new rig capacity. Contract drilling services revenues for 2019, are now expected to range from $1.05 billion to $1.06 billion compared to our previous range of $1.07 billion to $1.09 billion. The downward adjustment is due largely to the anticipated loss of contract day rate revenues from the Noble Bully II and this guidance does not contemplate any potential lump sum settlement for the Bully II. Revenues in 2019 from client reimbursables are revised higher to a range of $55 to $65 million compared to our previous range of $45 million to $55 million with the adjustment, driven by various client requested modifications and services. In the fourth quarter of 2019 contract drilling services revenues are expected to range from $245 million to $255 million compared to $259 million in the third quarter of 2019. Again, the predicted decline in revenues is driven in part by the expected termination of the Noble Bully II contract with Shell and excludes any potential lump sum settlement and is partially offset by an expected improvement in fleet operating days and a modest rise in average daily revenues. In our jackup fleet, we expect higher operating days for the Noble Houston Colbert following the rig's relocation to the U.K. during the third quarter. The rig is expected to commence its drilling excitement on November 5th, also the Noble Joe Knight is expected to contribute operating days following the commencement of its contract in October. Across our floating fleet we expect improved revenues in the fourth quarter from the Noble Don Taylor and Noble Sam Croft following the commencement of new contracts as well as from the Noble Globetrotter too, which returned to a full day rate in early October following the completion of a shipyard program during the third quarter. Revenues from client reimbursables are expected to be in our range of $14 million to $16 million in the fourth quarter. Contract drilling services costs for 2019 are lower to a range of $700 million to $710 million from our previous range of $710 million to $725 million due in part to lower repair and maintenance expenses, and the timing of certain expenditures. Costs associated with client reimbursables for 2019 are now expected to range from $45 million to $55 million, up from our previous range of $35 million to $45 million. Given the adjustment for reimbursable revenues noted earlier, our margin for this activity remains unchanged. For the fourth quarter of 2019 contract drilling services cost are expected to range between $182 million and $188 million compared to actual results of $176 million in the third quarter of 2019. The higher costs are due to the start up of operations on the Noble Joe Knight, as well as rigs return into service following out of service periods. Costs associated with client reimbursables within the fourth quarter are expected to range from $10 million to $13 million. DD&A guidance for 2019 as being lower to a range of $439 million to $444 million compared to a previous range of $445 million to $460 million.. The reduction follows the third quarter impairment of the Noble Bully II. DD&A for the fourth quarter is expected to range from $106 million to $111 million compared to actual DD&A in the third quarter of $113 million. SG&A expense guidance for 2019, including the $100 million charge recognized in the second quarter and associated with the Paragon litigation is expected to range from $66 million to $69 million with a range of guidance for the fourth quarter of $16 million to $19 million. This compares to actual expense in the third quarter of $18 million. Interest expense net of capitalized interest was 2019 is unchanged with a range of $276 million to $280 million while capitalized interest for the year is expected to total $9 million. Interest expense for the fourth quarter is expected to range from $68 million to $72 million, which is comparable to interest expense in the third quarter of $69 million. After the commencement and of operations on the Noble Joe Knight, there will be no further capitalization of interest, Non-controlling interest on our P&L representing the Bully I and Bully II 50-50 joint ventures with Shell is expected to be in a range of $8 million to $10 million of expense in 2019, excluding any potential lump sum contract settlement related to the Bully II and $265 million, which represents a portion of the Noble Bully II impairment attributable to our joint venture partner. For the fourth quarter we expect income from non-controlling interest of $1 million to $3 million before any impact from the potential contract settlement while the third quarter actual expense was $3 million, excluding the impairment charge. Our guidance for full year 2019 capital expenditures remains unchanged at $250 million and is comprised of the following items. $82 million for sustaining capital, $129 million for major projects including reactivations and subsea spares, $30 million related to the purchase of the Noble Joe Knight and $9 million related to capitalized interest. With our capital programs largely complete on the Noble Johnny Whitstine and the Noble Joe Knight, capital expenditures for the fourth quarter are expected to decline to $45 million compared to $57 million in the third quarter. The fourth quarter estimate consists of $26 million of sustaining capital and $19 million for major projects. Finally, following the impairment charge on the Noble Bully II, our full year 2019 effective tax benefit is now expected to settle in the mid single digits with the eventual outcome highly influenced by the geographical mix of revenues. Estimated cash taxes to be paid in 2019 remain at $20 million and relate entirely to our international operations. In conclusion, the third quarter reflected a period of transition given the temporary loss of operating days due to rig relocation projects and a regulatory inspection. A portion of the operating days lost during these activities should return in the fourth quarter, driving an estimated 7% to 8% improvement in operating days when compared to the third quarter and adjusting for the removal of the Noble Bully II. Also adjusted EBITDA remains on pace to approach $300 million for the year even excluding a potential cash settlement related to the Bully II contract while estimated capital expenditures for the fourth quarter of $45 million represents the lowest quarterly total in 2019. Although our evaluation is ongoing and we plan on providing full-year 2020 guidance in our fourth quarter earnings call, a reduction in capital expenditures is expected to continue with the current expectation of $150 million for the full year of 2020. I will now turn the call over to Robert, for a discussion on the offshore drilling environment.

Thank you, Laura. Good morning, and welcome to everyone on the call. It remains clear that offshore drilling metrics are trending favorably and continue to support the case for steady recovery in the offshore drilling industry. This has been the case throughout 2019 and forward indicators such as FIDs are positive. For example, when comparing the active contracted utilization at the end of September 2019, to the same measure at the close of 2018, the industry's jackup fleet stood at 85% compared to 79% last December, driven by a 10% increase in the contracted rig count. Among the industry's floating fleet, the measure was 80% in September, compared to 75% as the year began, with an 8% increase in the contracted rig count. In addition, contract durations are getting longer, according to IHS data, the average duration tendered for floating rigs has increased to nearly 11 months in September from just over 8 months in January of this year. The progress is more pronounced for the industry's premium rig fleet. The active contracted utilization of premium jackups, which represent 46 units with high specification features has remained 100% over the period. Premium benign floaters representing the 39 most sophisticated ultra-deepwater drillships, or the delivered 7th Generation fleet has improved to 87% compared to 83% at the end of last year. And this improvement has led to a noticeably better commercial environment. Given the clear preference among many customers, a fully committed supply of these high specification drillships is increasingly likely in 2020. Outside of the improvement in various measures of rig activity, we remain encouraged by the actions of a growing base of customers that clearly demonstrate the importance of high quality offshore basins as a meaningful source from which to build reserves and long-term production. A growing list of exploration in production companies are working to gain access to promising deepwater basins or build already prominent positions in these basins. Many of these target areas reside in the Western Hemisphere, and include locations offshore Brazil, Guyana, Suriname, Trinidad and Tobago, and Mexico. And we are witnessing an acceleration of customer activity in each of these regions. Also, during the third quarter, further offshore properties with many representing legacy production and mature basins, were identified for divestment by the current owners, this activity continues a highly favorable trend that eventually places ownership of these properties into the hands of motivated active parties. This trend has consistently led to incremental jackup in floating rig requirements in regions such as the North Sea, Asia and Australia. I also want to comment on rig attrition which remains in the central catalyst in support of long-term industry improvement and is inevitable in our view. Since late 2014, a total of 132 floating rigs have been retired from service including 9 reported retirements thus far in 2019. And this reduction in supply of approximately 40% so far is likely to continue; 40 floaters or 27 stimaz and 13 drillships remain cold stacked with 14 of these units being 20 years older. Given this dynamic and customers' general preference for high specification floaters, we do expect attrition to continue and be a meaningful part of the recovery story. Moving to a discussion on the Noble fleet our jackup and floating rigs with near term availability, continue to experience a healthy level of tendering in customer inquiries with some seasonal sluggishness evident in certain regions. Among our 13 jackups all are currently working in each rig as committed well into the first half of 2020 or beyond. The current contract coverage reflects the recent extensions for three jackups that Julie noted earlier. We currently have contract rollovers during the first half of 2020 on four jackups in the North Sea, one in the Middle East and one in Canada. In the U.K., we are evaluating opportunities for the Noble Sam Turner, Noble Houston Colbert, Noble Sam Hartley and Noble Hans Deul. Opportunities for both long and short-term contract durations are under review. Although the region remains attractive for jackups with 100% utilization of the active premium fleet, some rigs could experience inconsistent utilization in 2020, as we transition between operating assignments. In the Middle East offshore Qatar, we continue to evaluate opportunities for the Noble Mick O'Brien that are expected to follow the recently awarded 6-month extension including several multi-year prospects. The standard duty jackup Noble Joe Beal, which is operating offshore Saudi Arabia is expected to complete its current drilling assignment in December, after which we don't anticipate continuing to operate or market the rig. Lastly, as Julie mentioned previously, the Noble Regina Allen was awarded a contract for operations offshore Trinidad and Tobago with a minimum duration of 160 days and a rate of $120,000 per day. The contract is expected to commence following the completion of the rig's current commitments offshore Eastern Canada in a short shipyard program. Among the seven working floating units, the drillship Noble Sam Croft and semi-submersible Noble Clyde Boudreaux are expected to conclude their current contracts before mid 2020, we believe the Noble Sam Croft has exceptional opportunities including emerging needs in the Guyana Suriname Basin where the rig is currently deployed. A recent two well extension should keep the rig under contract offshore Surname into March 2020. The Noble Clyde Boudreaux which is equipped with an advanced conventional mooring configuration is expected to conclude work offshore Myanmar in May 2020. The rig is evaluating several opportunities in the Asia-Pacific region including Australia. Julie noted that we are in advanced discussions with Shell with respect to the Bully joint ventures. Because we are not quite finished, we cannot go into the economics. However, I would like to provide some color. As disclosed, the transaction would involve Shell buying out the drilling contract with the joint venture in a lump sum and we would receive our 50% share of that amount. The drilling contract day rate with the Bully II joint venture consisted of a $200,000 per day margin on top of already operating costs. And you can assume that a payout would be focused on the present value of that margin. Please keep in mind that our backlog reflected the full day rate as we have explained in our backlog information. The transaction also involves Noble acquiring Shells interest in the joint ventures, which would be for a nominal amount. With this transaction, we will be able to search for work outside the structure of the joint venture and are currently pursuing opportunities for the Bully II, while the Bully I will remain cold stacked. We are pleased to be reaching a mutually beneficial outcome with an important client and consider this another example of the strong relationship between our companies. Finally, the warm stacked semi-submersible Noble Paul Romano remains under consideration for programs with an expected 2020 commencement. The moored market remains relatively tight and we are marketing the rig into several opportunities appropriate for the rig design and capability. I'll now provide some regional observations, beginning with the Western Hemisphere. The U.S. Gulf of Mexico saw an increase in activity over the third quarter and utilization of the active deepwater fleet continued its upward trajectory and now sits at over 96% of the active marketed fleet. Several operators are evaluating the rig needs for 2020 and we anticipate a number of announcements in the upcoming weeks. As this demand is predominantly shorter term in nature, we do not anticipate any major reactivations or an excessive number of rigs entering the region. Day rates have been increasing and are expected to continue as available capacity remains constrained. In Mexico, tendering has improved with both PEMEX and multiple IOC's looking for 2020 rig capacity. While the IOC program terms are relatively short, these programs should reduce the capacity imbalance and support day rates. And, we see the beginning of an important transition into development drilling in the coming years which will drive additional demand. Activity levels in South America are improving driven namely by Petrobras in Brazil significant tendering activity has occurred in the past three months. Petrobras has steadily added rigs under its pool tender and recently released a 3,000 meter tender seemingly poised to quickly increase its fleet size from an historic low of 11 floaters to over 20 floaters. Additionally, numerous IOCs are currently tendering for pre-salt projects in Brazil with several indicating they will add rigs in the near term. The recently completed 16th post-salt bid round had a high level of participation from both Petrobras and IOCs and 13 companies have been qualified to participate in the 6th pre-salt bid round scheduled for November 7th. Continued exploration success in Guyana is driving strong interest in the basin with several IOCs and independents tendering for a combination of jackups and floaters to be deployed for exploration activity in the region. Similarly, additional activity offshore Trinidad and Tobago for both jackups and floating units round out what has become an opportunity-rich region of the Western Hemisphere. In the Eastern Hemisphere, tendering activity in the North Sea has remained healthy throughout the year and was up significantly compared to a year ago. The majority of tenders remained short in duration with this pattern expected to hold into 2020, however, three tenders covering longer terms are pending award while others are expected to be tendered in the near future. The Middle East jackup demand continue to robust pace in the third quarter with more than 39-rig years awarded, up from 24 years awarded the previous quarter. Demand growth in the region is expected to continue through the conclusion of the year and possibly beyond supporting modest day rate appreciation as active utilization crosses 86%. In West Africa jackup and floating rig demand was flat through the third quarter with significant idle jackup and floating rig capacity in the region. We currently expect only a modest improvement in 2020 demand for both jackups and floaters. However, it should be noted that there are several long-term opportunities outstanding and the average duration for floater tenders in the continent has increased by 20% since January of this year. Finally, tender activity in the Far East and Oceana continued to increase through the third quarter. Fleet utilization remains on an upward trend with nearly 8% of jackups in the region now utilized, which should support future day rate improvement. New contract awards were up from the second quarter with 30 fixtures announced in the quarter excluding Chinese awards comprised of 24 jackup in 6 floater fixtures. Program duration associated with new tenders is lengthening, with the award a significant term opportunities pending in Southeast Asia and Australia-New Zealand. To summarize, the steady turn of operators return to the offshore sector continues, driving positive implications for industry activity and day rates. Project sanctioning is on pace to improve for the third year running and a returned offshore exploration is more obvious today than at any time over the past 4 years. An increasing number of offshore basins possessing exceptional resource potential in compelling access are capturing the attention of operators while driving future demand for high-specification rigs. Utilization and day rates are improving, while average contract durations are lengthening and Noble continues to benefit from these encouraging industry trends. Over the next 12 months, ending September 2020, almost 70% of the available days associated with our jackup fleet are contracted with 57% of the floating dates contracted. More importantly, as the pace of recovery accelerates, we expect our forward contract coverage to expand.

Thank you, Robert. As we approach the end of 2019, It is hard to dispute the fundamental progress achieved to date in offshore drilling industry. The utilization metrics presented by Robert and numerous other indicators in support of our customers growing offshore exploration and development priorities bode well for future activity. With 95% of the active fleet under contract, Noble fleet utilization has remained above industry-wide utilization measures. Strong operations execution and a commitment to outstanding safety performance across our fleet of largely premium designed rigs is a significant contributor to our success. Also, we have advantageously positioned our fleet in regions where we can readily match the technical sophistication of our fleet with our customers increasingly complicated well structure programs. At the same time, we remain focused on identifying regions with emerging customer interest and long-term visibility. On the latter point, there is currently no better example than the Guyana Suriname Basin where Noble has been providing drilling services early 2018 initially with the Noble Bob Douglas. With the recent relocation of the Noble Sam Croft and the Noble Don Taylor, we now have 4 ultra-deepwater drillships assigned to the region, which is arguably the most prolific offshore opportunity in our industry with prospects for multiple years of exploration and developmental activity. As a region's resource estimates increase following the confirmation of numerous successful exploration efforts, customer interest continues to build an incremental rig needs covering both shallow and ultra deepwater requirements are increasingly likely. We continue to evaluate ways in which Noble can grow its presence in this attractive offshore basin. From a financial standpoint, we have improved our position under our credit facility following a well-timed amendment and we continue to possess attractive flexibility as we evaluate alternative to further manage debt maturities. In regard to operations, we have maintained exceptional performance, our fleet uptime to September at just under 97% and we added 2 new jackups to the fleet each with multiyear contracts, putting us on track to grow fleet operating days for full year 2019 by 18% over the prior year. By taking the steps necessary to fortify our already strong global fleet position, we have improved our prospects for additional growth in the future. All of these financial and operational accomplishments leave Noble better positioned as we prepare for 2020. As we approach the end of 2019. I am proud of what we have achieved during the year and is always somewhat to recognize and thank the employees of Nobel to continue to provide superior service to our customers and unwavering dedication to our company. With that I will turn it over to Jeff.

Okay, thank you, Julie. Kinsey we're going to go ahead and begin the Q&A segment of the call. So if you please identify the initial person in the queue. Thank you.

Our first question comes from the line of Kurt Hallead with RBC. Your line is open.

Sorry bad sound. Battle a little bit of cold here. Thanks for that. Thanks for that update. Appreciate the color. So, Julie, I just want to get a, see if you guys get a general sense, had some recent discussions with some other companies have already reported that kind of peaked kind of future day rates or up to deepwater rigs somewhere in the vicinity of $170, 000 to $250,000 a day for contracts that we are starting in 2020. I just want to get your perspective around that range and see if there is potential for that to be at the upper end or so we're in the middle

We don't disagree with that at all. Kurt. We think that we think obviously day rates are moving up, two of us are now disclosing right. So we hope it's putting pressures on others to maintain discipline and we think the upper end of that is readily achievable in that time period.

Now when you going through the process here of the, the acquisition of the Bully joint venture. I was wondering if you can just give us some idea of when you think the Bully II might get back on day rate?

We don't have any estimate right now, but as Robert noted, we all know. I think in our script, so this does give us flexibility to market, the rig more widely, we think we definitely think that there are opportunities for the units. So Robert, his team are focused on actively marketing it as we speak and we'll see what comes up. But we don't have anything right now. But we are very hopeful.

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

Julie, really the transaction with Shell makes sense. And I think you take cash now and I suppose this gives you optionality on the Bully II so hard to see the downside to take any steps from your perspective, assuming you may hold in the contract as you laid out, can you talk about your confidence in getting work for the Bully II next year? And if you're unsuccessful could we maybe just talk about the impact to cash flow and as it relates to your desire to get to free cash flow neutrality by the end of 2020?

Sean, we just said the prospects we believe are getting a good job for the Bully II obviously increase because we're able to market it more broadly. We don't have anything yet, but we remain optimistic. So we're just now being able to market it more broadly. So give us a little time to see what's out there and see where the applicability for that unit will be, but it's a good unit with a lot of operating efficiency, capabilities and we think that has a lot of opportunity ahead for it. In regard to free cash flow positive by the year 2020, obviously with this being removed from EBITDA estimates, we don't know what will be replaced but that is going to be a lofty goal at this point, we think that will probably be pushed out. We, I think what we said, we would hopefully reach that point by the end of 2020 moving into 2021, going forward obviously it's still our goal that tightens but we remain in focusing on that as our goal going forward obviously as free cash flow positive. We agree the deal with Shell was a good deal. We were glad that we could reach a deal that was good for both sides and one that they're satisfied with that we're satisfied with because they are an important customer going forward and so we're anxious to get that completed and more details out about it.

And then the CapEx budget for next year of $150 million can you maybe walk through the big buckets inside that. And then just maybe the flex points depending on what the market gives you next year from an activity perspective?

The CapEx budget for next year is about $150 which would be about $120 for sustaining and $30 for projects.

Is there any possibility or how do you think the flex points around depending on what the market gives you next year? Are there levers that could drive that number up or down?

We don't see that going up, Sean, we feel very comfortable with that number right now. If anything, we think that's on the high end. So if that's what you're talking about in terms of flexibility that's what we're anticipating. As you know, the CapEx for this year was higher because of the projects we had built into that. The two [indiscernible] so we're getting back down to a much more normal running rate in 2020.

Your next question comes from the line of Taylor Zurcher with Tudor, Pickering, Holt. Your line is open.

I don't want to be a dead horse in the ground. But for the Bully II now that your marketing it to other operators besides Shell, obviously you don't have work forward today but could you maybe talk about what sort of rig programs or regions that rig might be ideally suited for. I know it's technically 6 trend type floater but the technical specifications on that are a little bit different than some of the other Tier 1 assets out there, so just curious what sort of work programs that rig might be ideally suited for moving forward?

Sure. Taylor. I'll take that one. We've said in the past the Bully II is not as you mentioned, not necessarily a Tier 1. It does not have 2 BOPs, but it has an excellent performance history and it's currently located in Southeast Asia where there is a bit of a tightness in the dynamically positioned market at present. So we have a few different options there. I think generally speaking, and we said we're marketing it worldwide. I think generally speaking will be focused on kind of moderate term projects, we probably will not chase well to well projects with that rig today. But as I mentioned in my script, there are a number of projects out there that would be suitable for the rig today and we're going to, we're going to see if we can't find anything, we see the market tightening significantly in the middle of next year. We see a very definite path to all of the Tier 1 rigs becoming fully utilized. And I think that puts rigs like the Bully II and other 6th generation rigs, very much in play towards the middle of next year.

For 2020, I know that rig has been warm stacked for quite a while now in the CapEx guidance. Is there anything embedded in there for the Bully II or I guess the real question is, is there any CapEx needed to bring that rig back to active status on a contract next year.

Is not anything in the CapEx budget for 2020 for the rig. And we're looking at looking at what it would take, but it's basically recertification issues that would be included in that primarily to BLP, so let's say around $30 million.

Your next question comes from the line of Greg Lewis with BTIG. Your line is open. Robert, just had a couple of fleet questions for you. I guess the first one is you mentioned potential opportunities in Australia, just looking at the Australian market. Do you see-- the potential demand is more of an incremental, rig demand into that region or is it more just kind of getting in there against maybe some of these existing contracts that are rolling off work?

I think that, it is more incrementally, there could be another jack-up and there could be a replacement opportunity on the floating side. Incremental floating demand is more of 2021 type event there.

And then just on the, on Guyana. I mean clearly you guys have done a great job, you have four rigs down there and just trying to understand a little bit more about that base and I guess if you throw in that other competitor rig that will have five rigs in that region. Robert just kind of curious, as you think about 2020 and will even think I guess maybe 2021 also. Any thoughts around, what that market could look like in terms of rig availability - of rig demand? And then just, I mean you're down there, but you do have some rigs rolling off maybe what that could mean around without getting specific on day rates maybe incremental percentage increases to rates in that base?

Sure. So there have been, I think 13 discoveries in the Stabroek Block two discoveries outside of that and there are multiple exploration wells being drilled, as we speak, as well as a few other on the program for 2020 there. So it is early days to determine, what development drilling might. What demand might be driven by development drilling? But with the number of discoveries, we do expect incremental rig demand. We'll have to wait and see what that looks like kind of going into next year, as oil companies evaluate their discoveries and start to start to shape up more firmly there additional exploration and development needs. On the rate side, I expect the rigs that have been used down there, largely seventh generation rigs and I expect the rates there to track with the seventh generation rigs elsewhere worldwide. The operating expense there is roughly similar to the U.S. Gulf of Mexico. Maybe just a tick higher, but I think they'll track very closely with the broader market of the Tier 1 rigs.

Your next question comes from the line of Ian MacPherson with Simmons. Your line is open.

I missed the - term duration on the new Regina Allen contracts. Sorry.

160 days.

Would you characterize that as incremental work or displacing a competitor in Trinidad?

I characterize that is incremental.

So I was just taken aback really over the course of this year. We had observed you've been fully utilizing your jackups. But the rest of the high-end market has been playing catch up and it seems like the entire high-spec jackup market, is definitively tight today and so given that backdrop, I wanted to ask about your appetite as you described various opportunities for contracting this year on the jackup's growing over some shorter duration and in some longer duration, does the recent sort of more comprehensive tightening make you a little more averse to contracting long term, at this point going into 2020 or do you think you still have to have a, an equal balance?

We've always strove for a balance. I think we've been somewhat averse to longer-term contracting now for almost 18 months. Today, we would be fine, I think taking a year contract and I think beyond that kind of term we - and a number of others are likely to look for some sort of day rate escalation of protection going out past that. There aren't a - there are some ton of projects that are well over a year, today although there are a few in the Middle East and a few others elsewhere. So we look for a balance and I think I think getting out past 2 years is where we start to think a little bit about how to structure that.

And then I just wanted to ask a follow-up on the Paul Romano that reactivation opportunities in and out and it sounds like it's back in play now. And I just wonder if the reactivation parameters for that rig have swelled at all or if you still think it, fairly quick and inexpensive to bring the Romano out and what type of contract structure would trigger that for you?

So nothing has changed on the reactivation there. I think we've guided to $8 to $10 million. If anything, it would be on the high end of that range. And just a few months of required reactivation time. That said, we're not marketing that rig into short-term opportunities. I think given its capabilities in age and the presence of a number of longer-term opportunities out there that right now, we're focused on opportunities that are more like a year and over. And as I just mentioned, there are several. In the moor market, as you probably know moor market is a bit tight and I mentioned it in my comments. So there isn't a lot of availability out there and so far, we're just, we're just trying to match it up with the right job.

Your next question comes from the line of Mike Savella with Bank of America. Your line is open.

I was hoping maybe we could talk a little bit about the outlook on the Lloyd Noble. Could you guys give us an update on what you're hearing from the customer on the options that are on that rig and talk about how we should be thinking about that rig as its approaches the end of the existing contract?

Yes. So I think we've mentioned earlier the option has expired on that rig and it's unfortunately, Mike, a little too early to speak definitively about the rig, we are in discussions with the customer. And as we've mentioned before that rig is the only jackup in the world that can get on the Mariner platform, we do believe that they have continuing work on the platform, but we don't have anything secured for the rig today. So like I mentioned, we're in discussions and we'll give you guys an update. And just as soon as there is something to talk about there

And then kind of with respect to the capital structure, can you just walk us through what the next steps are. You will see in terms of managing the balance sheet and maybe comment on kind of what you see as current market conditions for priority guarantees or what whatever comes next?

Sure, Mike. We basically think we have a very solid one way right now was 1.2 billion of liquidity at the end of this quarter, the third quarter and as you know we have minimal debt service due until 2023. Our CapEx requirements remain low. We have considerable exposure to increasing day rates. So we feel good about where we are on the business side of things, but as you know with the amendment to the revolver a few months ago, we have a great deal of flexibility in our current balance sheet and we're looking at a number of opportunities, but we don't really feel any urgency do anything right now. We will continue to evaluate everything that's available to us out there and due to the flexibility we have, we think there's a lot of opportunities, but we don't have really have anything to discuss definitively at this time.

Your next question comes from the line of JB Lowe with Citi. Your line is open.

Sorry, I'm sorry if I missed this before. I hopped on the call a little bit late, but the payment that you guys paid to Shell for their 50% interest in the Bully II, it being a nominal amount. I'm just wondering, given that it gives them the ability rigs and implied rig value that's pretty low. I'm just wondering what was the kind of the puts and takes around that transaction?

Well, I mean the puts and takes, that I mean we just basically reach a mutual agreement of the contract, what the contract term was, what the payout would be and the rig values were between us and the client and I'm not sure what [indiscernible], obviously we can't, we're not able yet. We haven't finalized the discussions, so therefore we're not able yet to provide a lot of additional information, other than what's in the press release and what was talked about earlier on the call.

So Shell has kind of - they've historically been a pretty big client of yours, there may be just a couple of rigs and imagine I already know the answer to this, but the 2 Globetrotter rigs, they are working, that are actually actively drilling, has there been any discussions around the longer term outlook for those rigs?

Yes, sure. So we're in constant discussion with Shell, it's a little too early to talk about extending those contracts today. We are out till 2022. We've just installed our Noble owned MPD system on one of the rigs, which is operating offshore for them right now and we've got a long list of wells to drill for them for both of those rigs. They're operating beautifully and very efficient rigs both of them. So in that conversation we will start at the appropriate time, that's realistically the year and a half, probably two years away before we get deep into that sort of discussion with them.

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

I just wanted to make sure I understood guidance correctly. The Q4 revenue guidance assumes no revenue from the Bully II?

Correct.

So is it fair to assume the contract buyout, then would kind of be for the period starting on October 1, 2019 lasting through April 2022?

That is correct.

Awesome. And did I hear correctly that guidance for the JV interest line in Q4 is an expense of $1 million to $3 million despite no revenue?

That is correct, because we will have some expenses that continue through that first month.

And if I could ask one quick follow-up. Thank you for sharing the rate for the Regina Allen contract off Trinidad. It seems like a strong rate. Could you say if that includes consideration to ask that mobilization costs?

It is not. That's a clean rate.

Okay. Kinsey, we're going to go ahead and close the call today. I'd like to thank everyone for your participation today and your continued interest in Noble. And Kinsey we appreciate your time in coordinating today's call. Good day, everyone,

This concludes today's conference call. Thank you for your participation. You may now disconnect.