Good day everyone and welcome to the Transocean Limited Fourth Quarter 2016 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brad Alexander. Please go ahead, sir.

Thank you, Dana. Good day, and welcome to Transocean's fourth quarter 2016 earnings conference call. A copy of the press release covering our financial results, along with supporting statements and schedules including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Company's website at deepwater.com. Joining me on this morning's call are Jeremy Thigpen, President and Chief Executive Officer; Mark Mey, Executive Vice President and Chief Financial Officer; and Terry Bonno, Senior Vice President, Marketing. During the course of this call, participants may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon the current expectations and certain assumptions of management and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Also, please note that the Company undertakes no duty to update or revise forward-looking statements. Finally, to give more participants an opportunity to speak on this call during the question-and-answer session, please limit your questions to one initial question and one follow-up question. Thank you very much. And now, I'll turn the call over to Jeremy.

Thank you, Brad, and a warm welcome to our employees, customers, investors, and analysts participating in today's call. Our performance in the fourth quarter after all of 2016 was exceptional, with adjusted net income of $239 million or $0.63 per diluted per share on $974 million in revenue. For the full year, adjusted net income was $655 million or $1.75 per diluted share on $4.2 billion in revenue. During the quarter, our strong revenue efficiency of 100.3% along with the benefits we continue to see from our streamline cost structure and reduced operational and maintenance expenses, resulted in an adjusted normalized EBITDA margin of approximately 56%. For the full year, the comparable margin was 46% which when considering the sharp year-over-year revenue decline is quite an accomplishment and stands as a testament to the excellence and dedication our people have demonstrated throughout the year. In addition to the strong financial results, we are pleased that our customers continue to recognize us for our operating performance. For the second year in a row Shell recognized one of our rigs as its global floating rig of the year. The newbuild ultra-deepwater drillship, the Deepwater Proteus, which just entered the market in May of 2016, received this year's honor based on its HSC and operational performance. We take great pride of this distinction especially with this being the rigs first year of operation. As you all know, historically, the industry has encountered teasing pain when introducing a new rig to the fleet, but through the close collaboration with our customers and the expert planning and execution of our newbuild project teams, our crews and our shore-based support, I am pleased to say that the three newbuilds the Deepwater Thalassa, the Deepwater Proteus, and the Deepwater Conqueror are all performing at extremely high levels.…

Thank you, Jeremy, and good day to all. During today's call, I will recap the fourth quarter results and provide an update to our 2017 guidance. I also plan to update our liquidity focus through 2018. For the fourth quarter 2016, we reported net income attributable to controlling interest of $226 million or $0.60 per diluted share. These results included royalties disclose and other income of $39 million associated with the settlement reached during the quarter related to our drilling activity technology. As detailed in our press release, fourth quarter results included $13 million or $0.03 per diluted share in net unfavorable items. Excluding these items, adjusted net income was $239 million or $0.63 per diluted share. Contract drilling revenue decreased $93 million sequentially the $793 million due largely to reduce activity and lower dayrates. The fourth quarter had 255 few operating days in the prior quarter into less re-contracting opportunities. As Jeremy mentioned, we achieved another impressive quarter of revenue efficiency of 100.3% with full year 2016 averaging 98%. This was primarily attributable to often execution by operational and technical teams worldwide, but also included a favorable settlement associated with previously disputed revenue. Other revenue increased $161 million sequentially to $181 million due to the previously announced lease termination of the Discoverer India. Fourth quarter operating and maintenance expense decreased $93 million sequentially to $314 million. Fourth quarter's O&M expense benefitted from following four items; recoveries associated with litigation matters, lower cost during the quarter related to the Transocean Winner incident, certain expense credits that would not expect to reoccur in the first quarter 2017, and a timing on the certain maintenance projects. G&A expense for the quarter increased sequentially $4 million to $47 million due primarily to acquisition cost related to Transocean Partners merger and restructuring costs. Our…

Thanks, Mark, and good day to everyone. Here we go again another cycle trough and we are beginning to see positive indicators of customers picking up their pencils and putting them to paper, conversations are becoming more genuine and actionable. We are engaged in multiple discussions regarding consortium, our rig sharing clubs to facilitate one-off programs with smaller players. During our recent travels, we became aware of new supplies tendering opportunities for about to hit the market. While IOCs our funding dividends, preparing balance sheet and our investing in easy barrels, we are beginning to see some investors suggest reserve replacement and production growth should become a priority, and these large reserves are only available off-shore with a big company participate. Finally, customers are now asking what the real rig supply is and how many of the rigs are ready to go. We believe customers strategy will soon return for locking in contracts to take advantage of the low pricing environment and rebuild their reserve base, all of this as you know will take time. And 2017 will be a bit limited and providing meaningful opportunities for the global deepwater floater fleet. The ramp up will be catchable but steady as energy demand continues to improve. Looking back at '16 even when opportunities were scarce, Transocean's worldwide teams developed multiple contracts totaling of $0.5 billion of contract backlog. As Jeremy mentioned, our extensive customer relationships proven operational performance and flexible commercial model helped us capture approximately one-third of the 16 market share. Our backlog continues to be in industry leading $11.3 billion. Looking in a few of the successful opportunities, the KG2 commence operation last week on the three appraisal wells that were ordered by Woodside in the fourth quarter. The program duration could be approximately one year, if the…

Thank you, Terry. Dana, we are ready now to take questions.

Thank you. [Operator Instruction] And we will go first to Blake Hancock with Howard Weil.

Terry, this one is going to go to you, but I will let Jeremy answer to save your voice here. You discussed some tendering activities that were surprising that are out there, and then you talked about some that you are in negotiations with, that you hopefully announce sooner than later. Can we maybe talk about both of those categories, and what regions of the world and duration? And obviously they're competitive, but are we still above cash break even? Any color you can provide on that commentary?

Yes, we actually have been spending as we would guess a lot of time with our customers, and we did come up with the few surprising opportunity to come in the market. I really don’t want to talk about some of the specific opportunities because we don’t believe others are aware of that, which should give us a little bit of an advantage. So that’s -- sorry that I can't share those particular ones with you. But the one that I've just come out recently and I think it sticks to the back at Brazil has become so interesting, is that in the last couple of weeks you will see three opportunities, tendering opportunities and that has been Chevron and has been Statoil and it's also been Total and Total came in yesterday. So, again, we know that Total was interested in awarding the North blocks to Brazil, but now this is a new RFI for another opportunity in Brazil. So, they're very encouraging to see that we are seeing on back to back opportunities from the customers hitting and getting the market. We think that we’re also being seeing more opportunities in Trinidad, it's become very interesting to our customer, and right now there is interest from Shell and BHP in that area. We already talked about Mexico. We’re going to see the first well drilled by Vitalis in Mexico. And then we also believe with the rounds that have just in awarded that we -- as I said, we are going to see the 2018 opportunities there. We’re waiting on certainly India has become very active. We’re waiting on announcements from the Reliance tender, which is currently being negotiated with a few of the remaining people that are in that tender. So, from our perspective, the conversations have become more real. Our teams are working on tenders around the clock. They are very focused, so that what's changed for me in the last month, I would say is that fact that everything has become a bit more crystallized and the conversations have been very enriching.

And then, Jeremy, one for you. You talked about acquisitions, and you talked about the bottom is nearing here. When you are thinking about timing and funding, are you indifferent between cash to a shipyard or equity for what would be some public player, or how are you thinking about what's the best plan of attack here as we approach the bottom?

Yes. I think all options are on the table, I'll pick it have to be either or and so as I said in my prepared remarks and Mark did as well, we’re pursuing all opportunities out there that we think to enhance the quality of our fleet. Obviously we are looking at the rigs that have been standard and shipyard, we’re also looking at possibilities and equity for complete couple of transactions as well. So, I think everything is on the board at this point in time and it just it’s a function of timing that ask together and getting the right deal.

And we’ll go next to Greg Lewis with Credit Suisse.

Mark, in your prepared remarks, you laid out the guidance around liquidity. Clearly the mid $4.2 billion to $4.6 billion in liquidity looks good. You had a busy end of back half of 2016. As you look ahead to 2017 and how are you thinking about maybe bolstering liquidity? How are you thinking about maybe potentially secured financings? I know you have a revolver that still has a little bit of time left on it. If you could just talk a little bit about how you are thinking about Transocean's current liquidity position, and maybe how you are thinking about it, what you want to do this year for it?

Yes. Thanks, Greg. Appreciate the question. Yes, you are right. We are certainly washing cash right now. We have over $3 billion of cash. I’d like to take you back 12 months so the last year this time when oil was trading at $26 a barrel, capital markets were firmly struck for off-shore drillers, that’s what the change. So, we have a full capital market option available to us whether it's secured, unsecure or any other type of instrument that we’re going to put in the balance sheet. So, I don’t feel that we’re under pressure at the moment to enhance liquidity. We will take opportunities as they provide themselves to us. We believe all across they're going to be constructive, but as we know they're going to up in the straight line. As, that’s would be the opportunities for us to go back half and do some liability management and we’ll do that. And we’re opportunistically raise additional funds as the opportunities out there. And really relates to the revolver that is something we do intend to address in the first half of 2017. So, you can expect us getting to negotiation with our banks so looking through an extension on that revolver. As you know with unsecure at $2 million and to date it still unused.

Okay. Great. And then my next question is regarding the Discoverer India. The decision to upgrade that, it seems like that's where the bulk of the maintenance CapEx, or upgrade CapEx, that you alluded to. I'm just wondering, is it something specific about that rig? You have a couple other -- or is it timing? You have a couple other that vintage drillship that you haven't made the decision to upgrade, and what I'm wondering is, as we think about that capital outlay in this market, is there a line of sight on that specific type of upgrade that is driving the decision to spend that additional capital at this point in the cycle?

First of all the India came in contract not too long ago and we have several near term opportunities of customers that are interested in. So that’s one element, but the other element of it is as you rightly said as we go through our post rating of our rig and we have evaluate our assets vis-to-vis our competitors assets. We have a few assets where with somewhat minor upgrades. We can move that toward the top gear of all the deepwater assets in the industry. The India is one of the -- you are right in saying there are few other that have similar characteristics that we think could be upgraded similarly. And just to put in a perspective, we are talking a $25 million to $30 million investment here, and so it's not the bulk of the maintenance CapEx, it's less than half. And so we think there is great opportunity to upgrade our -- it's in several assets in our fleet to make them competitive if the market turns around.

We will go next to Haithum Nokta with Clarksons Platou Securities.

Congrats on a nice quarter of solid operations. I wanted to ask, you mentioned firmer inquiries, and sounding more genuine, and things like that, but you also mentioned how there's more noise about reserve replacement from the investor base for the IOCs. I'm curious if you think, if it takes longer to get to $60 oil than maybe the market expects, could you see more sanctioning of projects, based on the IOCs looking at their internal production outlooks, and noticing this rather significant drop off that could happen by 2020, 2021?

I think you are absolutely good. And if you can find already get those that was just already further even more. But yes, I think it's the first time it's been in just over the last month or two where you have seen itself by the analyst, you have seen investors actively questioning the lack of investment by some of the IOCs in terms of reverse pricing. And so I think that will continue as the year unfolds. My guess is that actually going great, we are going to see an increase in oil price as well, but even if we don’t, I think that as we get into '18 and certainly as you get into '19, the pressure to replace reserves is going to heighten.

Very good. Maybe on the jack up market, you haven't been as a enthusiastic as some of your peers there, and obviously it's a smaller slice of your overall business. But can you maybe just talk about your position in that market and how you feel about it going forward?

Well, we did one expansion on one of our jack up for Chevron in Thailand, so we were certainly pleased with that. But there is no doubt, there is a lot of interest in jack ups at this point in time, activity is starting to pick up. And we need jack up would pick up before ultra deepwater, the challenge that the entire jack up market base this year supply and demand. There is just an overwhelming supply out there and although demand is picking up they are more than assets out there to fulfill that demand. And for the challenge, really is moving pricing forward. And so, I think it's going to be little while before we’re able to get meaningful pricing increase across the industry until we start to see that supply demand gap narrow.

We’ll go next to Ian Macpherson with Simmons.

I had a question about the pricing dynamic. It is, you made the comment that you haven't necessarily had to bid below cash break even. There have been sporadic instances where others have, not dramatically lower, but we're also seeing so many dayrates that aren't published. Your margins and the industry's margins today are still so high, surprisingly high and you have done so much with insulating your margins with cost improvements. But these dynamics, when you put them all together, tell us that pricing and margins are just troughing at a much more benign level than we all would have guessed? Or should we be girding ourselves for lower dayrates from here, and maybe even lower for longer, given how much more economic trend there is to give, and the fact that the market is still going to be loose probably for another couple years? Or maybe it won't be loose for another couple of years, if you have a different thinking on that.

Right, I'll try to answer that. I think to try to back into what margins are going to do. You really have to look at the overall backlog. I mean we’re very fortunate in that we have the full 10-year contracts with Shell that well above the market dayrates today. And of course, the five year contract with Chevron. So, we have the good fortune of having that higher margin business already baked into our backlog and you coupled that with the fact that we’ve been able to drive so much cost throughout the business. That goes well from a margin story. Having said that, then you have to look at all of the new contracts that are being added and assume that there is somewhere around cash breakeven for us so far we’ve been above cash breakeven. But then you just kind of factor that two together. The good news for us again is the bulk of our backlog long-term contracts, high margin and what we’re bringing in today are relatively short duration even there are much lower margins the short duration and don’t have an big impact on a total financing results that may on others.

Yes. And for us, and if you think about it, we probably peaked margin wise in 2016 because as Jeremy indicated and as Terry suspects, we’re going to see on lot more activity in 2017 and 2018 and that’s going to be a much lower EBITDA margins. So, I would expect that the trend is going to be down for the next couple of years in margins, as we start to net rate improvement, which is now timeframe is sometime in 2018.

I think that's really helpful. I appreciate both of your answers there. I think the kernel of my question is, there's cash break even dayrates, and then there's stacking avoidance dayrates, which are presumably much lower, right? And the latter has not been commonplace, at least we haven't observed it as being commonplace, but is that a realistic risk as we go through the late innings of the trough, that rates aren't at $150,000 they're at $75,000 a day for good rigs? That type of thing?

Yes. It's always a risky as you know today we’ve had fairly decent discipline around the dayrates, because everybody knows its operating and safety and efficiently takes on money. So, it has to be a certain amount of a dayrate to support that level of performance. But also I think that some of the modest stress drillers are being full to dark because customer recognized the potential associated with using a rig with maybe cash stock. So they are being very careful around that, as we have heard this from many of our customers to date. So I’ll not say we won't see contracts to lower case breakeven, but as you mentioned in the last 18 months. I can think about small handful that actually occurred.

Yes, just to add one more thing, Ian. There is obviously but not all of the fixtures have that been announced, but we do know opportunities that others have one. And as Mark suggested we are being very disciplined, we don’t want to lock in of five contracts at a very, very low rate. It doesn’t make any sense for us. So and we see the dynamics improving, we can obviously -- we are following our strategy and our competitors will follow their strategies. I talking in long for anything when we see them improving outside of Chicago we are going to do.

We will go next to Colin Davies with Bernstein.

I would like to delve a little bit more into the scrapping decisions. You have a lot of rigs still on stack, and some rigs coming off contract. You made a few remarks in the prepared remarks. I would just like to get a little bit more color, if I can, as you look at the fleet, how many more candidates are out there, because Transocean has been one of the leaders in terms of the scrapping pace so far?

Yes, in fact just correct you little bit. We have been by far the later unfortunately scrapping. We take in what we believe to be a very pragmatic approach there has been. And we have described before in terms of first ranking our rigs based on technical capability. These will be rest of the worldwide fleets. And then we have take in a position in terms of being more normalize environment, whatever normalizes in the industry and more normalize environment, how many floaters in the near to midterm that we think the industry may actually need. And so then slot our rigs in accordingly kind of drill the line. And anything that fell below the line for us, we then asked ourselves, okay, is there a customer specific or regionally specific application for this particular asset where we think we got a real near-term feature, as the market success. And of course you've maintained those rigs and you stack them. Those that didn’t meet that or you couldn’t answer yes to those questions, we immediately scrapped them. And that’s the kind of our mind set behind that. Now that changes, as factors around have changed, as customer sentiment changes, as market sentiment changes. As a rig stake for a longer period of time, it looks like the reactivation may cause more than we initially said. That all factors then into the calculus and so just because of rig is stacked today, we think there is going to be market, we made that decision and maybe decision to invest in the preservation of that rig. But every month, we constantly revisit, as we get new data points. And so, there could potentially be some rigs that are stack today. That have three months from now, six months from now, nine months from now, we say, what the parameters have changed. And now, we think it's time to recycle that rig. So, how many are there? I couldn’t give you that answer today. It's just constantly evolving.

Okay. That's very helpful. Thank you. And just one follow-up, which is somewhat related. As you start to look at transaction opportunities to further enhance the portfolio, it's a difficult question to answer, but how confident do you have to be at that market trajectory that you have been describing today, to be comfortable taking on assets that may be technically attractive, but are still effectively without work, and could be without work for an extended period?

It's a delicate balance business because if you wait too long and everybody feels secured in the recovery of the market than they asked, it starts to get a little bit higher. And so, certainly, we like to have more certainties unless, but that we’re actively looking now. So, we’re feeling is though we have the trough or sooner approaching the trough. But who knows, I mean this market is unpredictable. Mark, can you add anything to that.

No. there is sort of same thing, because you cannot wait too long because the opportunity may not be there for you. So, we have to a pretty good strike. And I think Transocean given our marketing presence and marketing intelligence, we probably the best information out there and probably get as you look for most people do. So, I think when we do decide the guidance, strike you can read that as a sign and we think the market is certainly trough and improving from there.

We'll go next to David Smith with Heikkinen Energy Advisors.

Just following up on the upgrade question, regarding the 25 million to 30 million level upgrades, does that benefit from cost deflation at the yard, or the OEMs, and then maybe wondering if you have a sense of how much the India upgrade would have cost in 2014?

Yes. That’s a great question, David. We haven’t run that analysis, but you can assume just looking at margins in some of the OEMs that have come down quite dramatically that we’ve taken advantage of that. That certainly was not the motivation to go out and do this, we’ve had opportunities if we look at for our rig fleet that the few upgrades that we’re making to the India would position that rig very well for those opportunities. So, recognize the point, but there wasn’t a motivational.

Can I ask, if you expect to earn a payback on the upgrade and kind of the two to three year timeframe or how you think about the return on that?

Two to three years, absolutely, yes.

We’ll go next to Vebs Vaishnav with Cowen.

Good morning. And thanks for taking my question. A question for Mark, you spoke about fuel factor driving lower than guided OpEx for fourth quarter. Can you help us quantify the bigger buckets that drilled OpEx from like almost 405 to like 345?

As I mentioned there was really four areas and we have some recoveries with litigation that we’re going to that $13 million area. We have some cost on the Transocean Winner incident and that's in the mid teens. We had some one-off credits in the quarter, also in the low teens and the rest of it is associated with the timing of maintenance projects would you know happens every quarter.

That’s very helpful. And as we speak about the 360 million to 375 million OpEx for the first quarter, did you say you have like balance reactivation cost included in there, and if so how much?

The balance reactivation costs are not that much. I would say that it’s a probably in the $20 million area. There will be capitalized at about $40 million that will be expense.

And we’ll take our final question today from Sean Meakim with JPMorgan.

Just thinking about the upgrades to the Discoverer India, managed pressure drilling seems like a pretty nice way to differentiate a deepwater rig. Can you give us an update on your broader MPD exposure, and how you think about optionality from the fleet to maybe add more, if demand warrants it?

Hi, Sean this is Terry. I think you nailed it, but we’re seeing a lot of opportunities out there. Certainly in Brazil and in West Africa and in Asia where the customer wants that, that type of capability on the rigs and it's something that we have the opportunity to do now on the India. And we will certainly take a look at that on some of our other fleet because again the markets going to support that upgrade and it's going to be a requirement, so that’s another reason to do it.

And it's pretty inexpensive on a relative scale, I imagine, right?

Yes, it's not terribly expensive, no.

Thank you. And I guess one other thing. In Jeremy's prepared remarks, he talked about conditions based monitoring, and adding incremental critical suppliers and components this year. Maybe you don't want to call anyone out, I can understand that. But just thinking about what are some of the areas that you focus on next as we go through the year?

Well, so far we have addressed pressure control equipment with two large suppliers. There is certainly another out there that we would like to negotiate similar agreements with. But then also as you look across, the drilling equipment package and especially these critical components where downtime just absolutely devastating and cost to maintain is high. And so, you are talking top drives and iron roughnecks and racking systems and draw works and so. Across the spectrum, we would like to engage in the partnerships with our suppliers whereby we're lined around the same objectives, which is reducing the total cost to maintain the asset, but a likely a asset and improving that time for our customers. And so, I feel confident we will get there and look forward to the ultimate results there.

And at this time, I would like to turn the call back over to Mr. Alexander for any additional closing remarks.

Thank you to everyone for your participation and questions today. If you have further questions, please feel free contact me. We will look forward to talking with you again when we report our first quarter 2017 results. Have a good day.

Again, that does conclude today's presentation. We thank you for your participation.