Noble Corporation Plc (NE) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to Noble Corporation’s Fourth Quarter 2019 Earnings Review Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] Thank you. I would now like to hand the conference over to your speaker today, Jeff Chastain, VP of Investor Relations. Please go ahead.

Thank you, Melissa. And welcome, everyone, to Noble Corporation’s fourth quarter and full year 2019 earnings conference 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 statement -- supporting statements and schedules, can be found on the Noble website, and again, that’s noblecorp.com. Before I turn the call over to Julie Robertson, 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 that are forward-looking statements that are subject to certain risks and uncertainties. Our filings with the U.S. Securities and Exchange Commission, which are posted on our website, discuss the risks and uncertainties in our business and industry and the various factors that could keep outcomes of any forward-looking statements from being realized and these include 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 on our website. And finally, consistent with our quarterly disclosure practices, once our call has concluded, we will post our -- on our website a summary of our financial guidance covering today’s discussion, which will result in numbers for first quarter and full year 2020. 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 a review of Noble Corporation’s fourth quarter and full year 2019 results. We appreciate your participation on today’s call and your continued interest in Noble and the offshore drilling industry. In addition to Jeff, I am joined this morning by Robert Eifler, our Senior Vice President of Commercial, and the latest member of our Noble management team, Stephen Butz. Stephen joined the company in December 2019 as Executive Vice President and Chief Financial Officer and brings a wealth of experience following similar assignments in offshore drilling industry over more than 15 years. Stephen’s demonstrated leadership and financial strategy and his broad knowledge of capital markets are important skills that will complement our management processes and we look forward to his valued contributions. I cannot patch it to person who better fits Noble’s legacy of values and principles and I am grateful to serve on this team with Stephen. I will begin this morning with some brief comments on our fourth quarter and full year 2019 operating results, as well as details on some impressive commercial developments. Stephen will follow with a more thorough explanation of fourth quarter financial performance, as well as our 2020 financial guidance. Robert will then provide commentary on the global offshore market. He will offer regional perspective and thoughts on opportunities for the Noble fleet, after which I will provide some closing thoughts and we will all address your questions. We closed another quarter with strong operational performance, extending our record for consistency that remains among the best in our industry. Active fleet utilization in the fourth quarter, excluding our three cold stacked units was 88%, including 93% in our jackup fleet and 80% across our active floaters. Fleet downtime in the quarter was minimal at 2.9% and remained near our lowest quarterly downtime on record. Also, the combination of better than expected revenue and strong cost containment drove fourth quarter EBITDA to its highest quarterly total for 2019. We grew year-over-year fleet operating days by 18% in 2019, due largely to improvement in our jackup fleet following the commencement of operations of our two new jackups, the Noble Johnny Whitstine and the Noble Joe Knight, and additional operating days in our drillship fleet. Total fleet downtime in 2019 was limited to just over 3%. We concluded the year with 95% of our active fleet under contract, which excludes three cold stacked rigs. Also, 60% of the active floating fleet days in 2020 are committed to contracts and 62% of the jackup days, which removes the standard duty jackup Noble Joe Beall after February 2020. More importantly, our days under contract had improved since we began 2020. We continue to benefit from with the defined commercial strategy that focuses on the placement of our premium assets in attractive regions, where interest among customers is on the rise, leading to the prospects of multiple years of exploration and development drilling opportunities. The improvement in contract coverage has been most pronounced in our floating fleet and is linked to our significant presence in the Guyana Suriname Basin. As disclosed last week, we reached a unique commercial agreement with ExxonMobil covering drilling services in the Guyana Suriname Basin where we have been active since March 2018. The agreement which defines contract drilling terms for the services on three Noble’s ultra-deepwater drillships, Noble Bob Douglas, Noble Tom Madden and the Noble Don Taylor, provides for an initial three-and-a-half years of term with potential for six additional years, subject to future development decisions and government approvals. Robert will address other features of the agreement in a moment. Clearly, the multi-year contract visibility and prospects for full utilization across three of our premium drillships is an exceptional result of the agreement and we are honored to play a significant role in this prolific offshore region. Also, the agreement allows for the addition of other Noble rigs as required and I can report this morning that Exxon has awarded a one-year contract to the Noble Sam Croft for drilling services offshore Guyana, increasing Noble’s presence to four rigs in this exploration and development play. The Noble Sam Croft is expected to commence operations in the third quarter of 2020, following the completion of its current assignment offshore Suriname. The one-year contract term increases the number of rig years awarded under the agreement to four-and-a-half years, with six additional years dependent upon future developments and government approvals. Collectively, these contract awards build a solid base of floating fleet days under contract well into the decade with the award of additional contract days increasingly likely. I will now turn the call over to Stephen for a discussion of our financial results.

Thank you, Julie. Good morning, everyone, and thank you for joining us. Many of you on today’s call know that I just recently joined the company, agreeing to serve as Chief Financial Officer. And I was pleased to join this management team and the company that I have long held in high regard. To those of you who know me from my previous service at two other offshore drillers, I look forward to reconnecting with each of you in the coming weeks. I accepted the financial leadership role at Noble with an understanding of the tough, though improving, environment that the industry is experiencing and the challenges we face as a result of our high financial leverage and declining liquidity. While this backdrop is tough, it is not one that is either unfamiliar to me or unique to Noble, rather it is in fact widespread across our industry. I arrived with a clear list of priorities and over these initial 50 days on the job, have worked closely with the rest of the management team to complement the work they have done to identify the best solutions to these challenges. I will have more to say on priorities in a moment. But, first, I would like to provide some observations on the company’s operating results by comparing the sequential quarters. Then I will walk you through our expectations for 2020 operating results and capital expenditures, before concluding with some perspectives on the company’s balance sheet and my priorities. As we announced yesterday, Noble concluded the fourth quarter 2019 with a net loss attributable to the company of $33 million or $0.13 per diluted share on total revenue of $454 million. The result included $167 million of contract drilling services revenue, resulting from the Noble Bully II contract buyout with Royal Dutch Shell. The transaction, which was first disclosed during the third quarter 2019 report, closed in early December. When adjusted for associated costs, taxes, non-controlling interests, the net impact of the buyout was $80 million or $0.32 per diluted share. The buyout with Shell was partly offset by two other items in the quarter. The first item is a non-cash asset impairment charge of $17 million net of tax or $0.07 per diluted share related to one of our rigs and certain capital spares. The second item was a charge, which totaled a net of $13 million or $0.05 per diluted share, related to various non-cash discrete tax items. When combined, these three items contributed $50 million in net income or $0.20 per diluted share to our fourth quarter results. When excluding their effect from reported results, the net loss attributable to the company for the fourth quarter 2019 was $83 million or $0.33 per diluted share on total revenue of $287 million. Now, starting with our topline, contract drilling services revenue in the fourth quarter reached $441 million, inclusive of the $167 million in revenue from the Noble Bully II contract buyout. Excluding this buyout, revenue totaled $274 million and compared favorably to $259 million in the third quarter. The 6% normalized increase was due partly to the company’s jackup fleet, which experienced an 11% increase in operating days. Revenue was further supported by an increase in mobilization fees and higher average dayrates in our floating rig fleet. These events were partially offset by fewer operating days on the Noble Bully II. Fourth quarter adjusted contract drilling services revenue came in 10% ahead of the midpoint of our guided range of $245 million to $255 million. This favorable variance was driven by the Noble Bully II, which generated 63 operating days in the fourth quarter and $14 million of revenue due to the lower than expected close of the transaction with Shell. Additionally, average daily revenue on the Noble Globetrotter II was enhanced by utilization of the rig’s managed pressure drilling system. Contract drilling services expenses in the fourth quarter totaled $182 million, including $7 million of costs from the Noble Bully II transaction related to the acceleration of previously deferred mobilization expense. Excluding this mobilization expense, contract drilling services expenses for the fourth quarter were $175 million, essentially flat when compared to the $176 million in the third quarter. When compared to guidance, adjusted contract drilling services expenses came in below our guided range of $182 million to $188 million. The favorable result was due primarily to lower than expected repair and maintenance expense. The favorable results for both adjusted contract drilling services revenue and expenses drove fourth quarter adjusted EBITDA to $83 million, up from $68 million in the third quarter. For the full year 2019, Noble generated adjusted EBITDA of $29 million. Moving on to capital expenditures and the balance sheet. Capital expenditures for the fourth quarter of $48 million compared favorably to 57 million in the third quarter, but were modestly above our expectation of $45 million, due largely to an increase in reimbursable client requested rig enhancement. Approximately 29 million of the CapEx was related to major projects, which included contract preparation and the purchase of subsea capital spares with the vast majority of the remainder focused on sustaining CapEx. For the full year 2019, capital expenditures totaled 53 million, excluding the 54 million seller financed portion of the Noble Joe Knight purchase price. 2019 CapEx consisted of the following components, $75 million of sustaining capital, $138 million related to major projects, including re-billable capital modifications and the purchase of subsea control spares, $30 million related to the purchase of the Noble Joe Knight, and 10 million of capitalized interest. The company ended 2019 with cash and equivalents of $105 million. In December, we terminated the 2015 credit facility just prior to its maturity, repaying $300 million in borrowings under the facility using borrowings under the 2017 credit facility to do so. At December 31, 2019, borrowings outstanding on the 2017 credit facility totaled $335 million. I would now like to provide some details regarding our expectations for financial performance in the first quarter and full year 2020. Beginning with our fleet, our expectation for downtime is 3.5% or conversely a fleet uptime factor of 96.5%. This represents a 50-basis-point reduction from our guidance for the last few years. Our 2020 active fleet count, which excludes cold stacked units, is expected to total 21 rigs. We expect fleet operating days in 2020, when adjusted for the expected cold stacking or sale of the Noble Joe Beall to decline slightly when compared to 2019. More specifically for the jackup fleet, a full year of operations for the Noble Johnny Whitstine and the Noble Joe Knight are expected to be offset by the loss of days on the Noble Joe Beall and lower operating days for our rigs located in the U.K. North Sea as five jackups complete contract during the year and we anticipate incurring some gaps between certain jobs. In our floating rig fleet, additional operating days on our four ultra-deepwater drillships in Guyana are expected to be largely offset by fewer days for the Noble Bully II. In light of our expectation for relatively flat operating days year-over-year, contract drilling services revenue for 2020 is expected to range between $1 billion and $1.1 billion, essentially flat with 2019 revenue. 2020 revenue from client reimbursable is expected to range from $45 million to $55 million, below the 2019 total of $59 million due largely to fewer client requested rig modifications ahead of new contracts. For the first quarter 2020, contract drilling services revenue is expected to range between $260 million and $270 million, nearly in line with fourth quarter adjusted revenue of $274 million. Fewer operating days on the Noble Bully II and the Noble Joe Beall are expected to be substantially offset by increased activity for the Noble Don Taylor, following its relocation to Guyana during the fourth quarter and the Noble Tom Prosser, which commenced its latest assignment in late January offshore Australia. Contract drilling services expenses for 2020 are expected to range between $680 million and $700 million, also in line with our adjusted expenses for 2019 of $692 million. Contract drilling services expenses associated with our jackup operations will largely reflect the absence of expense associated with the Noble Joe Beall, offset by a full year of operations on the Noble Johnny Whitstine and the Noble Joe Knight. Expenses related to client reimbursables for 2020 are expected to range between $35 million and $45 million. For the first quarter 2020, contract drilling services expenses are expected to range between $170 million and $180 million, in line with adjusted actual results of $175 million in the fourth quarter 2019. We expect a reduction in depreciation and amortization expense in 2020 to the $420 million to $430 million range from $440 million in 2019, due to the asset impairment charges we recorded during the year. Depreciation expense for the first quarter is expected to approximate $105 million, down slightly versus the fourth quarter level of $107 million. SG&A expense for 2020 is expected to range between $65 million and $70 million, compared to adjusted SG&A expense of $69 million in 2019. The 2019 adjusted amount excludes the $100 million provision relating to the Paragon claim. We expect to incur SG&A expense of $15 million to $18 million in the first quarter, down from $19 million in the fourth quarter. Interest expense for 2020 is expected to range from $285 million to $295 million, compared to $279 million in 2019, as the 2019 figure was reduced by $10 million of interest, which was capitalized. First quarter interest expense is expected to range from $71 million to $73 million, in line to slightly higher than fourth quarter level of $71 million. Finally, our effective tax rate for 2020 is expected to range from zero to 3%, driven exclusively by tax expenses in non-U.S. jurisdictions. Our actual outcome will be significantly influenced by the geographic mix of revenue over the year. Cash tax outflows are expected to approximate $20 million. Moving to capital expenditures, we expect full year 2020 capital spending will range between $190 million and $200 million, compared to $253 million in 2019, excluding the seller financed portion of the Noble Joe Knight purchase. The expected capital spending is above our initial guidance provided last quarter of $150 million, with the increase relating entirely to client reimbursable items. Of the expected total, we estimate approximately $115 million is related to our sustaining capital. Capital expenditures for the first quarter are expected to range from $55 million to $65 million. Now, I would like to circle back to priorities. Certainly, the top priority for the company will always be the health and safety of our employees and the environment. Noble has shown strong performance in this area and it will always have the appropriate attention of our management team. Additionally, my top priority as the Chief Financial Officer is to ensure that we have adequate liquidity going forward and to improve our leverage profile. Before walking you through more detail in this area, I will start by affirming that our liquidity today is adequate and we are actively evaluating the options that we believe will provide our shareholders with the best opportunity to participate in the recovery that is underway in our industry. Today, our liquidity primarily consists of our $1.3 billion revolving credit facility, which does not mature until early 2023. As you consider our revolver, however, I would like to remind you of two constraints we have, which have the effect of limiting access under the facility. The first is a test which limits capacity to 15% of Noble Cayman consolidated net tangible assets or CNTA. This test effectively limits the facility to $1.2 billion today. The commitments above that level could become assessable again in the future. However, over the near-term CNTA is more likely to decline, constraining the commitments further. The second covenant in the credit agreement, which has an impact on our access under the facility, is the requirement that we maintain minimum liquidity at all times of $300 million. With approximately $100 million in cash on the balance sheet at year end, this covenant has the effect of restricting our ability to borrow under the revolver by approximately another $200 million. So walking down from the constrained commitments of $1.2 billion, then subtracting the used portion of the revolving credit facility of $344 million, which includes outstanding letters of credit, leaves us with capacity of $860 million prior to considering the minimum liquidity covenant. When taking the covenant into account, our ability to borrow additional funds under the revolving credit facility was reduced to $660 million at year end 2019. As mentioned earlier, this represents adequate liquidity for the company today. However, we must be mindful of our debt to capitalization covenant in our seller notes and the current expectations for negative free cash flow generation, which could lead to meaningful draws under the revolver over the next two years. Therefore, my focus is firmly fixed on determining the best path for protecting and enhancing the liquidity and improving our leverage profile. These, of course, are challenging and complex issues without easy and obvious solutions. So I want to be clear about timing. While this is a key area of focus, you should not expect quick results. All of that said, we have many attractive characteristics we can build on. We have strong and constructive relationships with our lenders, noteholders and shareholders and the company benefits from a legacy investment grade capital structure, which is largely unsecured today, with reasonable flexibility, providing capacity to issued debt at several different ranks and priority. The company has amongst the strongest backlog in the industry, a young and high quality fleet situated in some of the most prolific regions, a world-class workforce and an operating history filled with numerous achievements. We believe these factors will provide us with a number of attractive options moving forward that could reduce our financial risks and we are evaluating those expeditiously. In closing, Noble concluded 2019 with another quarter of excellent operational execution as demonstrated by a near record result for fleet uptime and continued tight control on operating costs. Our fourth quarter adjusted EBITDA of $83 million was our highest quarterly level in 2019, resulting an adjusted EBITDA for the year of $329 million. We began 2020 with a total revenue backlog of $1.5 billion, which has been bolstered by the initial 4.5 rig years awarded under the CEA with our client, which add an estimated $310 million. Of the $108 -- of the $1.8 billion in backlog, approximately $800 million is associated with our current year and this represents a substantial portion of our revenue guidance. As Robert will address, our fleet remains well-positioned to capture additional contract days as the year progresses. Our expanding presence to offshore Guyana advantageously positions half of our ultra-deepwater drillship capacity for multiple rig years of demand in the offshore industry’s most opportunity rich basin, while establishing a growing and increasing -- increasingly visible base of revenue. I will now turn the call over to Robert for a discussion on the offshore drilling environment.

Thank you, Stephen. Good morning, and welcome to everyone on the call. Steady improvement in offshore industry fundamentals remained evident through 2019. The number of contracted jackups and floating rigs ended the year well ahead of levels at the conclusion of 2018, with meaningful dayrate appreciation resulting from the tighter rig capacity. Importantly, customers continued to signal a growing interest in offshore programs. The purchase of sizable offshore positions over the past three years in a number of emerging regions has led to the commencement of exploration campaigns and further appraisal drilling in several of these prospective areas. As exploration activities increased in deepwater basins, new discoveries were announced, including 20 deepwater discoveries in 2019, representing the second consecutive year of increase. Multiple successes were announced in Guyana, Trinidad and Tobago, the U.S. Gulf of Mexico and Ghana. The incremental rig needs emerging across the jackup and floating segments, our industry is poised for further improvements in both utilization and dayrates in 2020 and the Noble fleet is well-positioned to benefit from this improvement. We began 2020 with all 13 of our jackups in seven of our 12 floating units under contract. Also, across the 25 rig fleet, 52% of the available days in the year were committed to contracts, including 58% of the days associated with our jackup fleet and 45% related to the floating rigs. Excluding three cold stacked rigs, floating days contracted improves to 65%. Eight jackups and four active floating rigs were expected to complete their current contracts over the year and through the first two months of 2020, we have begun to increase the number of contracted days in both the jackup and floating fleets. I want to bring you up to date on our progress thus far in 2020 and provide some insight into near-term prospects for our active fleet, beginning with our jackups. Of the eight jackups with expected availability during 2020, five are located in the U.K. North Sea and four of those are expected to be available before mid 2020. The Noble Sam Turner, Noble Hans Deul, Noble Sam Hartley and Noble Houston Colbert each have a proven record of strong operational performance and we believe they are advantageously positioned for future opportunities in the U.K. North Sea. However, the prevalence of short-term contracts, combined with a lull in fourth quarter regional contracting activity has created a more challenging environment during the first half of 2020 than we had anticipated and the utilization gaps are probable for some or all of the rigs. The good news is we have numerous conversations ongoing with customers covering both short- and long-term opportunities and believe that the second half of the year will be noticeably more active than the first. The fifth jackup with availability is the Noble Lloyd Noble, which is contracted into the fall of 2020. We are currently in discussions with our customer regarding the possible extension of the contract and expect to have a resolution in the intermediate term. The two other jackups with near-term availability, the Noble Mick O’Brien and Noble Joe Beall, are operating in the Middle East. We continued to evaluate opportunities for the Noble Mick O’Brien both in and outside of the region and hope to have some news for you soon. The standard duty jackup Noble Joe Beall is expected to conclude a drilling assignment offshore Saudi Arabia by the end of February at which time we will dispose of the rig. Finally, the Noble Tom Prosser, operating offshore Australia is under contract until August 2020 and remains the most capable jackup in the region. The rig’s current drilling assignment includes nine single well options and we believe an extension beyond August is increasingly probable. Turning to our floating fleet, we closed 2019 with three rigs scheduled to complete contracts at various times over 2020 and two warm stacked rigs. However, the open capacity has recently declined to just one active rig, following last week’s announcements covering our expanded role offshore Guyana. With the signing of the CEA, Noble has expanded its presence in the Guyana Suriname Basin, which represents one of the world’s premier offshore exploration and development opportunities. There are a number of important features to the CEA, including the following. The agreement provides highly visible and near-full utilization into the future and the four drillships included in the CEA will be shielded from the frequent lost revenue and costs caused by contract rollovers and rig mobilization that remain common in today’s short-term contracting environment. The agreement maintains exposure to rising dayrates via an attractive commercial framework that allows dayrates for each rig to reset to a market rate every six months. The rates will track the prevailing spot dayrate for rigs possessing the technical features found on the industry’s Tier 1 benign ultra-deepwater floating rigs. To appropriately align the interests of both Noble and Exxon, the mutually agreed spot dayrate is subject to a scale based discount and performance bonus. The discount is a function of the number of rigs contracted under the CEA and the amount of backlog awarded under the CEA. The performance bonus is based on rig uptime targets in certain safety metrics. In addition, we expect to realize some economies of scale, as well as savings from improved logistical efficiency. Finally, we are particularly pleased to have all of our HHI-built drillships positioned in one of the most prolific offshore plays in the world, 4.5 years of term have already been awarded and the CEA specifies an additional six years of term to be allocated at Exxon’s discretion subject to future development decisions and government approvals. Furthermore, the agreement is designed to allow additional term as needed. With the CEA in place and the Noble Sam Croft contracted into 2021, our remaining open floater capacity in 2020 is on the drillship Noble Bully II and moored semi-submersibles, Noble Clyde Boudreaux and Noble Paul Romano. The Noble Bully II remains warm stacked. The rig is being bid into assorted opportunities, but we believe there is a low likelihood that the rig is active in 2020. Given the advanced equipment configuration, large deck space and conventional mooring capabilities of the Noble Clyde Boudreaux, we believe the rig is advantageously positioned to secure a series of short-term programs in Southeast Asia, such as the estimated 30-day assignment reported in our last fleet status report. The short-term opportunities could lead to longer duration programs over the second half of 2020 and into 2021. Finally, the warm stacked semi-submersible Noble Paul Romano remains under consideration for programs with an expected 2020 commencement. The moored rig market remains relatively tight and we are marketing the rig into several opportunities. However, the rig’s age, design and capability limit the number of appropriate prospects and we are cautious on the outlook for 2020. I will now provide my thoughts on the status of opportunities across our operating regions focusing first on the Western Hemisphere and the Gulf of Mexico. The U.S. Gulf of Mexico experienced noticeably higher activity over the fourth quarter, continuing the steady trend of improvement in 2019. Active premium drillships in the region, totaling 21 units, entered 2020 at full utilization, with publicly announced premium asset fixtures averaging around $225,000 per day. The average contract term is continuing to trend longer as offshore operators increase spending and rig supply tightens, ending 2019 with average contract around eight months, compared to around six months in 2018. Given operators’ demonstrated preference for high specification rigs, we expect to see contract extensions for much of the open premium drillship capacity over the near-term. Also, a range of new deepwater projects and tie-back opportunities should provide additional opportunities in late 2020 and into 2021. Offshore Mexico, 2019 saw an increased focus on opportunities in the shallow water basins that drove a 46% increase in the number of jackups under contract compared to a year ago. Shallow water activity, as well as some mid-water opportunities should maintain the steady pace in 2020, while deepwater exploration activities are expected to increase as some IOCs begin drilling campaigns on recently acquired acreage. Deepwater rig needs are expected to be sourced from the U.S. side of the Gulf, with short contract durations likely until the region transitions into a development phase. South America is home to several regions of offshore expansion, with few basins currently displaying more growth potential than the Guyana Suriname Basin. Exploration in this area continues to impress and the list of oil and gas participants is expanding. Exxon announced first oil offshore Guyana from their Liza Destiny FPSO in mid-December 2019 and further project sanctioning in the region is likely as the resource base is better understood. With respect to Guyana, exploration plans have been filed covering 31 wells, including wells located in blocks adjacent to the prolific Stabroek block where, as Julie mentioned earlier, three Noble drillships are currently deployed with the fourth on the way later this year. The region is also in need of premium jackups for exploration in the blocks located in shallow water. Offshore Trinidad and Tobago, where later this year we will relocate the premium jackup Noble Regina Allen, demand for floating and jackup rigs is improving and we believe the rig will be well-positioned to leverage its superior technical capabilities and proximity to the surrounding offshore growth markets to gain incremental work in the region. Finally, in Brazil, a steady recovery has been led by Petrobras who ended 2019 with 15 rigs working and commitments outstanding for three more. The increase follows the working rig count of only 11 units during the third quarter of 2019. In addition to Petrobras needs, demand from IOCs and independent oil and gas companies is increasingly apparent, with three floating units currently employed among these companies and further needs are outstanding. Turning to the Eastern Hemisphere, the North Sea jackup fleet maintained a marketed utilization of around 92% from the beginning of 2019 to the beginning of 2020, with both the marketed supply and marketed contracted count increasing by one rig each, a robust level of infill drilling programs were accompanied by a rise in exploration campaigns resulting in five announced discoveries in the Basin over the year. Utilization of the premium jackup fleet was essentially 100% throughout 2019, supporting a meaningful move in dayrates. During early 2020, we expect a period of seasonal weakness to produce some availability in the active jackup fleet, with opportunities in the second half of the year likely to support higher utilization. In the Middle East, another 65 rig years were awarded to jackups during the fourth quarter, with an estimated 48 rig years awarded by Saudi Aramco. Active utilization of jackups across the region, which excludes cold stacked units, improved to 88% at the conclusion of 2019, resulting in gradual dayrate improvement for both premium and standard units. Tenders totaling an estimated 26 rig years of demand remain outstanding, with approximately half of this time representing rig needs in Qatar. West Africa is rebounding and the number of visible offshore prospects is improving, especially for floating rig demand. Following a number of successful exploration campaigns in 2019, coupled with the planned near-term commencement of large development programs, the floating rig count could improve by up to 5 units in 2020. At the same time, idle floater capacity in the region is expected to decline as several rigs are expected to fulfill contract commitments and relocate to other regions. With the exception of development programs planned offshore Nigeria and Angola, which involve multiple years of term, much of the anticipated floating rig demand remain short. Jackup rig demand in the region concluded 2019 with 17 of 25 jackups under contract, a modest uptick in demand is possible during 2020, with visible needs offshore Angola, Nigeria and Congo. Finally, prospects for the Far East and Oceania region remain encouraging. Current expectations are for steady to higher floating rig needs in Southeast Asia and in the Far East where we witnessed strong demand in 2019 from China. Also, numerous floating and jackup rig needs are visible for the Australian market, with an expected timing of late 2020, extending contract durations well into 2021. To summarize, actions by our customers continued to demonstrate an expanding focus on shallow and deepwater drilling programs, situated in both mature and emerging basins around the world. The number of contracted jackup and floating rigs continues to trend favorably, and dayrates are responding positively to the tighter capacity among the industry’s active fleet. As I noted in my regional discussion, there are numerous opportunities outstanding throughout our regions of operation and we are actively engaged in contract discussions addressing rigs with near-term availability. Our expanding role in Guyana positions four of our drillships in a region with multiyear exploration and development needs, providing highly visible utilization, an excellent commercial model and improving revenue potential. Our 2020 contract coverage continues to expand with six of our eight drillships now committed into long-term contracts, while our premium and highly versatile jackup fleet is well-positioned to capture emerging customer demand across their regions of operation. I will now turn the call back over to Julie.

Thank you, Robert. Before we close and begin addressing your questions, I want to expand on Robert’s thoughts with regards to the status of our industry. It has been a while since a discussion about the offshore drilling industry was not accompanied by a cautionary tone and although industry challenges over the past five years have been immense, encouraging signs of a steady pace of fundamental recovery are now evident. As we enter 2020, we are not blind to the early concerns for crude oil demand caused largely by the Coronavirus, which has led to a decline in oil prices. However, we currently have no reason to believe this price decline will alter the spending plans of our customers. Therefore, we remain encouraged by the prospects for further industry improvement. In the floating rig sector, evidence continues to mount in support of a heightened interest in oil and gas resources among the industry’s exploration and production companies, with an anticipated focus in regions such as Guyana, Suriname, Brazil and the Gulf of Mexico. These regions, as well as others in the Eastern Hemisphere, including West Africa, the Eastern Mediterranean and the Asia-Pacific region continue to demonstrate strong oil and gas resource potential, which we expect to result in incremental rig needs as exploration and development drilling campaigns commence. I believe the Noble fleet of premium floating and jackup rigs possess an optimal geographic alignment that improves our prospects for securing contract awards and extensions as demand for premium efficient rigs accelerates. Our industry leading presence in the Guyana Suriname Basin where four of our premium ultra-deepwater drillships operate represents a unique position in an area that could provide the Western Hemisphere most rewarding opportunities. Our jackup fleet located predominantly in the Middle East and the U.K. North Sea is well-positioned in two of the industry’s premier jackup regions. In addition, the premium nature and high versatility of our fleet creates ample optionality as we consider new locations with emerging needs, such as offshore Trinidad and Tobago, where later this year, the Noble Regina Allen will relocate. We approach 2020 with growing confidence due predominantly to our premium fleet, ability to consistently deliver operational excellence, our dedicated intelligent workforce, strong regional alignment of our fleet and exceptional customer relationships. These factors, combined with our knowledge and understanding of our markets, favorably positions Noble for the opportunities that lie before us. Speaking of the future of our company, yesterday we announced a leadership transition plan that will direct our achievements well into the future. I believe this plan is well timed and assures a smooth transition of leadership at Noble. At the upcoming Annual General Meeting in May, I will resign as President and Chief Executive Officer of Noble and assume the new role of Executive Chairman and Robert Eifler will become Noble’s President and CEO. Over Robert’s 15 years at Noble, he has demonstrated outstanding leadership qualities, while possessing strong institutional knowledge and financial acumen. Robert has played an influential role in building exemplary customer relations that will contribute to our successful performance for years to come and I am very excited for him to have the privilege of leading this incredible company. I look forward to continue to work with him as he begins the next chapter of Noble’s history, while witnessing his excellent future contributions to our company. Before turning the call back to Jeff, as always, I want to thank the men and women who make up Team Noble for their continued dedication and commitment to our company, as we work tirelessly every day to ensure that we continue our long history of excellence in all areas of our business, including safety, superior operational capability, customer service and organizational efficiency. In April, we will begin our 100th year of continuous business operations and it has always been simple at this company who sets us apart. That is never more true to today and I deeply value each member of our Noble family. Jeff?

Okay. Thank you, Julie. Melissa, we are ready to begin the question-and-answer segment of the call, please.

Thank you. [Operator Instructions] Your first question comes from the line of Greg Lewis from BTIG. Your line is open.

Thank you and good morning. I guess, first, Julie, thanks for the help over the years. Robert congratulations and Stephen, welcome back. I guess, Stephen, first, just since you walked through it a little bit in your prepared remarks around the tangible asset value on the credit facility. As we think about that in 2020, I guess, I am kind of curious what would trigger a potential write-down in those assets and is that something that is annual or how can we think about that as we think about your access to that liquidity?

Sure. Yeah. We are always mindful of triggering events for impairments and that’s something we are required to do under the accounting rules when there is a triggering event to test an asset’s recoverability, the cash flows that it would generate over the life versus the book value of the rig. And in this environment with weaker oil prices, you would logically expect that we are doing that frequently and so that was of course part of our year end procedures as well. We did have the $17 million in impairment, as I mentioned. But there is no way to know what the future will hold because it depends on our assumptions as far as the earnings power of the rigs. It’s highly dependent on our forecast, our reactivation plans and it’s a fluid environment. So we are always monitoring those things and it’s hard to really...

It’s more triggered -- sure. But it’s more triggered by sort of rate expectations and with rates, I guess, on the slow move higher, that definitely would trump sort of asset transactions in the second-hand market, is that a fair way to think about it?

Yeah. That’s right. It’s driven by our expectation of future cash flows.

Okay. Perfect. And then, just one more from me on the marketing side, Robert, as we look at the Lloyd Noble and the FSR, you kind of highlighted that maybe that rig could end a couple of months early. Just kind of curious, how we should be thinking about that rig, I imagine discussions are ongoing, you probably can’t talk much about those. But as, I guess, as we think about it and you talked about potential downtime between contracts, is there -- is that one of the rigs that we should be thinking about potentially seeing some downtime before it resets to a new contract?

Yeah. Sure. So, you guessed it right in the beginning. We are in the middle of some sensitive discussions. So I am afraid I can’t say a whole lot. We have offered previously that that rig was built specifically for the Mariner platform and the amount of time that it spends on that platform is up to the customer and their partners and they are evaluating what that looks like right now. At present, we have disclosed a November estimated end. We have also mentioned, as you said, that the contract could end as early as September and we are discussing extensions on that. So, at this date, we wish we had some more information for you, but we don’t and we will, of course, update everyone as those discussions continue. I would say that rig when it was built to Norwegian standards. The Norwegian Continental Shelf is thriving right now and I would anticipate that all CJ70s will be operating in the Norwegian sector. So, at some point, this being, we believe, the most competitive all of all the CJ70s. I would anticipate that that rig does end up in the Norwegian sector at some point. There would be some gap in between to mobilize over there and I wish I had more guidance for you right now, but without a conclusion on what’s going to happen with the Mariner platform, we really can’t give accurate guidance on when that transition into Norway may happen.

Okay. Perfect, guys. Thank you, everybody, for the time.

Thank you, Greg.

Thanks.

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

Thank you. Good morning.

Good morning.

Good morning.

So, Robert, congrats on the promotion, Stephen, welcome. Good to speak with you again.

Thank you.

Thank you.

So, I thought we could start with the two of you, it would be great if we could just talk about how this revamped management team intends to put a stamp on the company over time in terms of capital allocation. So in other words, it would be great just to get a little bit of insight into the pitch that won over the Board in terms of bring you in -- bringing you both into these new seats.

Well, I will touch on it briefly and then hand it over to Robert. But, of course, as I mentioned, near-term, in terms of capital allocation, we are really focused on balance sheet repair. The whole industry has too much debt. Of course, we have our share and as we touched on, and so that’s really the priority as far as capital allocation. Now, that said, of course, we have customer specific requirements against contracts that are attractive. We want to continue to reposition the fleet in the right areas and with the right customers, and so that could be part of our -- certainly, part of our capital allocation strategy. But, certainly, again, a key part is trying to reduce those levels of indebtedness. Robert?

Yeah. I’d just add, I think, what’s gotten us here today has been our operational execution. We have had incredible results out of operations, our safety results have been great and we have had a very strong customer focus here that’s enabled a lot of what we have today. So, certainly, focus will continue there. Stephen mentioned the priority to address the balance sheet and improve our liabilities. That persists without question and we have announced some targeted growth opportunities last year. We will continue to look at what’s out there within constraints, and obviously, we have a great deal of constraints right now. So we are trying to be creative and be mindful to what could be out there to help move us forward.

And, Julie, could we get your thoughts on the same questions just in terms of -- as you are shifting towards the Executive Chairman role, just how you see those pieces fitting in from that slightly altered vantage point?

Sure, Sean. Thanks for your support as always. We are looking forward to this next chapter in Noble’s history. Having Stephen come on the team is a tremendous add to this company and I am very grateful for him being here. Robert -- our Board spends a lot of time on succession planning and they do a mindful and dutiful job of that and this was the -- we think this is the right time for this and Robert is certainly up to the challenge and ready to go. What a privilege it will be for him to have this opportunity that I have had for so long to be involved with this company. We have been working on a number of the things that the two of them just mentioned and talked about and we will continue moving that ahead. Noble has a long history in this business and we continue that we expect to have a continued long history and with these two at the top of the ticket, I can’t imagine two people more capable of taking us into the next century of our operation. So we are looking forward to the future, Sean. Thanks.

Thanks. I appreciate those comments. Just the other topic I’d like to touch on is just thinking about the addressable market, call it, in Guyana and Suriname over time. Could you maybe just talk about just at a high level given you have highlighted this big contract, this big agreement with Exxon. Just how you think about balancing securing volume versus price, given the uncertainty of what the dayrate environment could look like especially the further out we go? And as we think about the introduction of potentially some shallow water opportunities, just that addressable market over time, it would be great to hear more detail how you think about that?

Sure. So, first of all, we are extremely pleased to be there, as I mentioned in the prepared comments. I think the reserve estimate went from 6 billion to 8 billion here just a few weeks ago. There is 31 exploration wells approved right now. So we think that momentum will continue there and we are really pleased to be right at the center of all of that. The shallow water side, I would say, it’s probably more on the periphery and -- but we do see a few wells that are going to be drilled that would require some discoveries to better understand what the demand there might look like. On the rate, we spent a lot of time with our client negotiating this agreement and we are -- believe very firmly that this is a win-win for both sides. One of the things that was extremely important to us was that we do maintain some sort of exposure to changes in rates. Now, of course, we have the same exposure to downside, but right now we see an improving market and as we see what we have contracted right now, we are very pleased to have been able to reach an agreement that does provide some upside and is a win-win with the structure we have negotiated. So we are just extremely pleased and honored to have been given this opportunity by Exxon.

Got it. Great. Thank you very much.

Thank you, Sean.

Thanks, Sean.

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

Thanks. Good morning. I’d like to also echo the sentiments of congratulations and welcome back to Robert and Stephen. And staying on that ECA with Exxon, Robert, I know that that was probably an index structure that was -- not to put words in your mouth, but I am sure that that was a preference for the customer. And your deepwater business that’s so much over the past few years that there is really a handful of active bidders and pricers and you and your team have been among those who have been heavy lifting and bringing rates higher. Do you have more confidence in the pricing discipline of your peers, your more consolidated peer group today than you would have a year or two ago to put yourself -- to put this much of your fleet into a passive pricing mechanism?

Yeah. So I don’t -- I actually don’t believe discipline is going to pull us through it, I believe supply and demand is going to pull us through it and we see improving demand here. And I think that, right now, we have 20 legacy contracts from pre-2014 that will roll over the coming years, and some of those are with great rigs, some of those are with lesser quality rigs. So I think you will see high grading that will contribute to effective demand in the market. And I don’t think we have yet seen customers price in the efficiency that these top tier rigs provided. The way we look at the market, we kind of divide between Tier 1, Tier 3, Tier 3. If you look at how we define Tier 1, Tier 2, the pricing -- there is no difference in pricing today. So we believe the Tier 1 rigs, which are essentially the two BOP rigs, we will still have room to price away from Tier 2 and all of that’s just driven by efficiencies in the value that the customer sees in the rigs. That’s before you ever get to the discipline question, all of that. On discipline, I think, every driller on earth needs rates to improve and we all need the market to improve. So I don’t want to rely on discipline for this to get better and I don’t think we have to. But you do have the slightly added bonus that we are all positive on the future. So, we have worked hard to market at fair rates and keep the market moving forward and if -- as we see demand during 2020 and 2021 in the floating benign segment, we see room for improvement.

Got it. Thanks. I am sorry, I have been split between a couple of different calls and I didn’t get all of your remarks. I don’t know -- when you were talking about the near-term patchiness in the North Sea jackup market, do you expect rates to hold firm through this patchy period of utilization or do you see any risk to some softness in rates this year as well?

Okay. So, I think, rates are generally holding firm when rigs are at their highest and best use in the Central North Sea. You will see some softer dayrates potentially where we try and on short-term work where you are trying to bridge a gap and I also think -- I think there’s two remaining standard specification jackups in the Southern North Sea today. With some of the softness, you may see some of the more premium assets compete down into the Southern North Sea gas plays, gas prices are a little bit weak, and so those customers are pretty price sensitive right now. So, I think you could see some weak pricing there. But as it relates to the highest and best use, which is the majority of the work in the North Sea, I think, rates are pretty strong and have remained strong.

Understood. Thanks, Robert. I will pass it over.

Melissa, let’s take one more question, please.

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

Hey. Good morning. Thanks and let me echo the prior comments with respect to the management changes for you, Julie, Robert and Stephen. A couple of housekeeping ones for me, as it relates to the CEA, in the press release you put an illustrative $200,000 example. I am just curious if you could give us any more kind of detail on how that prevailing market rate is calculated, clearly, it’s a sort of leading edge spot rate. But is it an average of a handful of rates that are out there in the market or is it the sort of the highest, most leading edge rate that you see out there, any color there would be helpful.

Sure. So it’s an average of what we call and I just earlier mentioned tier one benign rigs. So, that’s essentially all the rigs out there with the super drill [ph] activity, et cetera. So it’s an average of that. It’s intended to represent spot dayrates at the time they are negotiated and it resets twice a year on a set date, March 1 and September 1 for all of the rigs. And keep in mind, the rigs are staggered as they roll into this pricing structure and we disclosed that in the original press release there. But once everything is operating under the agreement, everything will reset March 1 and September 1 each year.

Okay. Great. And then, as it relates to the sluggishness you called out in the North Sea potentially over the first half, you have four rigs rolling I think in the first half, relative to the full-year revenue guidance you gave today, what does that imply for the utilization for those rigs in the back half, should we assume -- or does it assume that all four of those rigs find work in 2020 or could potentially one or more of those rigs have to wait till 2021 to resume work following the current firm periods of their contracts?

Yeah. So it seems all four rigs are going to find work, and we -- as I mentioned, we have conversations on all four of the rigs. I think third quarter starts as an average would be -- on all four of them would be a fair thing to assume right now. There’s a couple of opportunities that start earlier than that, couple of opportunities that start kind of at the end of the third quarter, but on average we see some potential for white space till about the third quarter.

All right. Thanks.

Thanks, Taylor.

Okay. Melissa, with that, we are going to go ahead and close the call today. I want to thank everyone for their participation today and your continued interest in Noble. Melissa, we appreciate your time in coordinating today’s call. Good day, everyone.

Thank you, ladies and gentlemen. This concludes today’s conference call. Thank you for participating. You may now disconnect.