Valaris Limited (VAL) Q1 2011 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to Ensco plc's First Quarter 2011 Earnings Conference Call. [Operator Instructions] I will now turn this conference over to Mr. Sean O'Neill, Vice President of Investor Relations, who will moderate the call. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to Ensco's First Quarter 2011 Conference Call. With me today are Dan Rabun, CEO; Bill Chadwick, our Chief Operating Officer; Jay Swent, CFO, as well as other members of our Executive Management team. We issued our earnings release which is available on our website at enscoplc.com. As usual, we will keep our call to one hour. Any comments we make about expectations are forward looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our earnings release and SEC filings on our website that define forward looking statements, and list of risk factors and other events that could impact future results and disclose important additional information regarding the pending Pride International transaction. Also, please note that the company undertakes no duty to update forward looking statements. As a reminder, our most recent fleet status report was issued on April 15. Now let me turn the call over to Dan Rabun, Chairman and CEO.

Thanks, Sean, and good morning, everyone. Before Jay takes us to the financial results, I will discuss first quarter highlights and the state of our markets. Starting with our planned acquisition of Pride, we have received U.S. antitrust regulatory compliance. We've completed $2.5 billion public debt offerings at favorable rates that will finance the cash portion of the acquisition, and integration teams have been formed that are working towards a smooth transition. ENSCO 8503, our newest ultra deepwater rig commenced drilling operations in French Guiana for Telo during the first quarter. ENSCO 7500, our first deepwater rig with over a decade of proven operational experience was awarded a multi-year contract with Petrobras in Brazil. In February, Ensco ordered 2 ultra premium harsh environment jackups with options for 2 more as part of our high grading strategy. Customers have already expressed interest in contracting the rigs that are expected to be delivered in 2013. Our success as a company can only be achieved through high levels of customer satisfaction. In March, Ensco was ranked number 1 among offshore drillers for total customer satisfaction by EnergyPoint Research, an independent firm that measures customer satisfaction through an index of global oilfield suppliers. Ensco earned the number 1 position by taking top honors in 11 out of 16 categories, including total satisfaction; safety, health and environment; job quality and performance and reliability. We are honored that Ensco's employees have received independent acknowledgment for their hard work and dedication. This recognition is a testament to the experience and talent of our workforce. And high cores are especially gratifying given the heightened challenges that we face in terms of more complex drilling assignments and new regulations. This recognition was achieved by performing our daily operations in accordance with our disciplined operating systems, policies and procedures, and in the safe and reliable manner, our customers have come to expect from Ensco. I should also note that Pride received the top score in three separate categories. Now let me discuss the market. Global deepwater markets have many new business opportunities for work in 2011 and beyond. Work scopes range from a few wells to multiple years in West Africa, Brazil, India, Southeast Asia, Australia, Mexico and the Mediterranean. In the U.S. Gulf of Mexico, we are encouraged that permits are being issued and several operators are now discussing new requirements for additional rigs commencing in 2011 and 2012. Should permitting continue to pick up pace in U.S. Gulf of Mexico and all planned work around the world is awarded in a timely manner, the ultra deepwater floater market should absorb new supply and be near full utilization. On the jackups side, in the U.S. Gulf of Mexico, premium jackup utilization marketwide is in the mid 70% range. Ensco now has eight marketed jackups in the region, all of which are under contract. As noted in our last week status report, Chevron recently extended terms for two of our jackups for another six months each at higher day rates. Conversations with our customers indicate that utilization for our premium jackup fleets will continue to be very high and day rates may continue to inch higher. In Mexico, our 4 rigs are contracted to PEMEX with terms into 2012. PEMEX has opened tenders to call for 13 jackups and 1 semi and 8 of these are incremental. The contract terms vary from less than a year to just under 4 years. This demand is positive for the overall market. In the Middle East, market commentary indicates that the demand outlook is potentially improving for Saudi Aramco, as well as in the neutral zone in Abu Dhabi. If the market commentary proves to be accurate, it could represent one of the more meaningful increases in incremental demand worldwide. Other regional operators have outstanding requirements that may be awarded to stacked rigs in the region and high fit rigs that are outside the region. In the Mediterranean, we recently contracted ENSCO 85 in Tunisia, which has been a challenging market due to an oversupply rigs in the region. The Southeast Asia market, however, continues to be active and bidding activity has increased from the fourth quarter last year. It is encouraging that a number of inquiries and tenders were for standard duty jackups while at the same time, new build rigs have a been absorbed into the region. We expect bid activity will continue to escalate as tenders are issued for work in Indonesia and Malaysia for short and long term programs commencing this year. In the North Sea, first quarter contract awards increased 90% from the fourth quarter, and there were 21 new rigs fixtures. If all visible demand is filled, almost all idle jackups in the region are expected to return to work. As discussed on our last call, although Ensco has some gaps between contracts in the first half of this year, we are almost fully contracted for the back half of 2011. Now before I hand it over to Jay, let me make a few summary comments. The deepwater permitting situation in the U.S. Gulf has improved significantly, and global deepwater market demand is quite strong as evidenced by our ENSCO 7500 multiyear contract in Brazil and the ENSCO 8503 sublet in French Guiana. Jackups tender activity in the North Sea in Mexico has ramped up nicely, and our U.S. Gulf of Mexico jackups continue to add backlog. We continue to believe jackup utilization for Ensco will improve substantially throughout the year from first quarter levels, based largely on backlog already in place. If we see oil prices trade in the recent range, we believe that it will be very positive for rig utilization around world. We are on track for our planned acquisition of Pride, integration planning is going well and we continue to expect the significant benefits we previously have discussed in terms of cost savings, synergies and accretion. Now, I'll turn it over to Jay.

Thanks, Dan. My comments today will cover details of our first quarter results, key points regarding our future outlook and a brief discussion of the pending Pride acquisition. Let's start with first quarter results versus prior year. Earnings from continuing operations were $0.45 per share, down from $1.12 a year ago. Total revenues for the quarter was $362 million, a 19% decrease from last year. Deepwater revenues declined 25% to $98 million, driven by ENSCO 7500, which is currently undergoing upgrades in a shipyard, but was earning a very high day rate in Australia in the first quarter of last year. The revenue declined from ENSCO 7500 was partially offset by ENSCO 8502 and ENSCO 8503, which were added to the active fleet. Jackup segment revenues decreased by approximately 17%. Average jackup day rates were down $15,000 year over year to $97,000 as shown in our earnings release. Jackup utilization in the first quarter was 72%, a decline from 79% a year ago. Total contract drilling expense increased 5% year to year. Jackup segment contract drilling expense increased 10% versus a year ago, mostly due to acquiring ENSCO 109 in July of last year and capital enhancements for Ensco 92 that we mentioned on our last call. Deepwater segment contract drilling expense, however, was down $4 million, due to lower expenses for ENSCO 7500 that is now in a shipyard, partially offset by ENSCO 8502 and ENSCO 8503 commencing operations. Now let's discuss quarterly trends by comparing first quarter 2011 sequentially to fourth quarter 2010. Earnings from continuing operations were $0.45 per share, down from $0.90 last quarter. Total revenue for the quarter was $362 million, an 11% decrease from the fourth quarter. Deepwater revenues declined $15 million, driven by ENSCO 7500 that had a $26 million demote fee in the fourth quarter. Fourth quarter results also included revenue for ENSCO 8502 that was deferred during the third quarter of last year. These factors were partially offset by ENSCO 8503 that was added to the active fleet. Jackup segment revenues decreased by approximately 11%. Average jackup day rates were down $5,000 quarter to quarter as shown in our earnings release. Jackup utilization declined 3 percentage points from 75% last quarter. Total contract drilling expense increased 3% quarter to quarter. Deepwater segment contract drilling expense was up $4 million, with the addition of ENSCO 8503. Jackup segment contract drilling expense increased $2 million. G&A expense grew to $30 million, mostly due to higher professional fees related to the planned acquisition of Pride. This is slightly higher than we've anticipated for the quarter and our outlook for the full year is unchanged for Ensco on a stand alone basis. As Dan mentioned, we successfully completed our public bond offering in mid March related to the Pride acquisition. Interest expense for the first quarter included a $9 million bridge loan structuring fee and approximately $4 million of incremental interest from the $2.5 billion of debt that was added for 14 days in the quarter for the planned acquisition of Pride. Net of the amounts capitalize which resulted in interest expense of $4 million for the first quarter. Normally, I would now put or provide details regarding our next quarter outlook. However, given the pending acquisition, I will instead cover some of the high points for Ensco on the full year basis. My comments here are for Ensco only on a stand alone basis, not the combined company. The full year outlook is as follows: Deepwater revenues are estimated to be at the higher end of the range we provided on our last call of approximately $575 million to $625 million, which is a significant increase from $475 million in 2010. The permitting situation in the U.S. Gulf of Mexico and market conditions in general have improved, and we now expect ENSCO 8504 will commence operations even sooner than previously anticipated. Turning now to jackups. We continue to expect jackup utilization in the second half of the year to increase substantially to the mid 80% range, based on backlog in place and anticipated customer demand. With respect to contract drilling expense, we expect a significant increase in the number of operating days for our semi fleet and Deepwater segment contract drilling expense was forecasted to increase approximately $55 million. Contract drilling expense for the jackups fleet will increase approximately 5%, due in part to the anticipated rise in utilization. Depreciation is projected to increase to approximately $255 million with the addition of our new ultra deepwater rigs. G&A expense is still anticipated to be approximately $90 million reflecting higher professional fees associated with the acquisition of Pride. However, this does not include professional fees for contention upon the closing of the acquisition. The first quarter effective tax rate was higher than the guidance we provided on our last call, mostly due to an adjustment on uncertain tax filing position in one country where we operate. But the effective tax rate is expected to come down significantly for the remaining three quarters of 2011. Effective tax rate for the full year for Ensco on a stand alone basis is projected to be approximately 15%. The 2011 capital spending outlook is now forecasted to be $605 million. This breakdown as follows: $315 million is committed to new rigs construction, $190 million is for rig enhancements and $100 million is for sustaining projects. For 2012, we believe that potential earnings power for Ensco on a stand alone basis is substantially higher than the outlook in 2011 as permits begin to be issued in the Gulf of Mexico and our new semi for contractors. Assuming that our jackup fleets achieve utilization in the mid 80% range, which is the run rate we expect to see by the fourth quarter of this year and our effective tax rate remains in the mid teens or below as anticipated, Ensco stand alone EPS is expected to be in the range of $5 per share. Our estimated EPS for 2012 on a combined basis with Pride is more than 10% accretive to our stand alone assets. We believe that contemplated acquisition would be very favorable for customers and employees of both companies and for our shareholders since this is expected to be accretive to both earnings and cash flow. We have already completed a $2.5 billion public debt issuance in advance of the acquisition close. Given the favorable interest rates we were able to secure and a more efficient balance sheet, we will benefit from an estimated 200 points basis point improvement in our overall cost of capital while maintaining our investment grade rating. The capital will be invested wisely in one of the most capable fleets in our sector, which will have an estimated total backlog of approximately $10 billion for the combined company. We believe this combination of more customers and more markets with one of the youngest fleets will give us a major advantage versus competitors. Now I will turn the call back over to Sean.

Before we open it up for questions, I'd like to acknowledge the one year anniversary of the tragic Macondo incident in the U.S. Gulf of Mexico. We continue to pray for the crew members who died and were injured that day as well as their families. The best thing we can do to honor their memory is to be devoted to working safely each and every day, and safety remains our most important core value. Our industry will learn from this tragedy, and Ensco has worked closely with others in our sector to enhance the safety of offshore drilling. Now let me turn it over to Carey Lowe for a minute to briefly talk about our ENSCO 8504 press release that we issued this morning.

Thanks, Dan. Today, we announced that we've contacted ENSCO 8504 with Total in Brunei. We have mentioned on previous calls that we expect Asia to be a growing deepwater market. And we appreciate the opportunity to establish what we hope is a very long deepwater relationship with Total. Operating expenses in Brunei are one of the lowest in terms of deepwater markets, and we will also benefit from a very favorable tax rate. These factors along with the 423,500 day rates will generate a good return. Only few Ensco's deepwater rigs which are still under construction in Singapore remain uncontracted. They are scheduled for delivery next year, and we feel very good about contracting these rigs before they are delivered. Operator, please open it up for questions.

Thanks, Carey. And just as a reminder to everyone before we open it up for questions, Ensco and Pride will be operating as two independent companies until the closing of the acquisition, so we will not be taking any questions regarding the acquisition. And now, operator, please do open it up for questions. Thank you.

[Operator Instructions] And your first question is from Collin Gerry.

I guess I'll start with the contract on the 8504. You mentioned the cost in Brunei are extremely competitive. Could you give us just kind of a daily operating costs guess? And the other question I had is for maybe some of the other 8500 series, is that a good range to be thinking about, kind of, low 400s? It was higher than what I think I was expecting, so just maybe some color on what that means for the other 8500 series?

Let's talk about the operating cost, first, in Brunei, the daily operating cost is in the 110s range. And as far as using this one data point as an indication of the market, every bidding opportunity and contract is different. It really depends on what the costs are in the area you're working, what your strategy is, the term of the contract, the amount of upgrades that have to be done. So I wouldn't use one data point as a market indicator.

Fair enough. Switching gears. . .

Collin, the only other point I'll add is on the tax rate on that contract is fairly optimal as well. And there again, how do you bid depends on what the tax rate is in different countries as well.

Okay, perfect. Switching gears a little bit to the jackup side, one of your competitors kind of shared an optimism that I'm getting a sense out of you on a jackups front. I guess if we think about that two questions there, number one, how do you think about additional capacity additions and new builds for the Ensco fleet? And then number two, I feel like for the last year, we've all been talking about bifurcation where as the high end is very good and the standard jackups are kind of bouncing along the bottom. As we go forward, how do you think it evolves? Do think that the standard jackups can catch up a little bit? Does that need to happen for rates on the high end to improve or just kind of give us a little bit more color on the dynamic there?

Yes. This is Mark Burns. On the bifurcation question, we have seen that take place. Operators have requested newer equipment if available, but I guess with the tightening jackup market and the improved utilization rate, we are seeing some of the older low end jackups go back to work in certain operating areas. So although new build equipment is preferred by operators, I think it's fair to say that the older jackups can also perform some of the same work they've always done. In terms of the supply, there is, I think, a total of 55 new build jackups due to be delivered. We're still seeing strong tendering activity in certain parts of the world, the North Sea for example, southeast Asia. So we still feel very good about the jackup market.

And maybe how does that relate to potential new capacity?

Well, I think there's been a number of new builds announcements in the past few weeks, certainly as you're aware of. I don't think we're still finished yet. I think shipyards are still offering fairly attractive terms in terms of financing and construction. I think there's still some slots available to be had. So I'm not certain that we've reached the end of the new build jackup announcements. But it is our the view today that the new jackups under construction can be absorbed into the market.

Right. And I guess part of that is do you think Ensco is going to be involved in building additional jackups above what you've already announced? I guess that was the question I'm getting at.

Well, obviously, we continue to evaluate those opportunities. We do have options for 2 more rigs most recently announced. So we'll be evaluating those.

Your next question comes from Ian Macpherson from Simmons. Ian Macpherson - Simmons & Company: Question for Jay or Dan. I don't know if I'm being too particular but, Jay, I think you said that you said in your the last call that you could project $5 in standalone earnings power next year and 10% accretion from Pride. And this morning you said more than 10%. Are you upsizing your accretion or am I sort of splitting hairs here?

You might be splitting hairs a little bit, Ian. I think we're very comfortable with the estimates is the way I would describe it. Ian Macpherson - Simmons & Company: Okay. But the part two of the question is I think most of us have arrived to conclusion that maybe as a sanction by your public comments that the cost synergies are going to be a little bit bigger than the $50 million that you outlined preliminarily from sort of a corporate overhead standpoint. And I just want to sort of understand where we're pegging the 10% relative to in terms of costs. That 10% only includes the $50 million that you outlined, correct?

Yes, that's correct, Ian. Everything ties back to what was in our S 4 and what we've said. The 10% is based just on the $50 million in synergies. And the only commentary we've really given on the synergies is that, that is for the G&A areas. That does not cover shore base or rigs at this point. We're still evaluating the shore base and the rigs, but frankly, I'm not sure we're going to find a whole lot of synergies there. I think the major synergies are going to be at the corporate G&A level. Ian Macpherson - Simmons & Company: Okay. Just a quick question on the markets. Where do you think that we might see higher day rates unfold for standard jackups as soon as I got the impression from a noble call certainly exclusively that North Sea's standard jackups are going to be moving higher sooner. Where are you seeing relative pricing strength?

Ian, you're exactly right. In the North Sea, effectively all the standard jackups our utilized and many have been booked out for the remainder of 2011 and into 2012. So any additional request for drilling activity in the North Sea could bode well for day rates. I think also in the U.S. Gulf of Mexico, in the premium standard or in the premium independent leg jackup areas, as you know, there's probably 20 or less premium independent leg jackups in the U.S. Gulf of Mexico. So I think further strengthening in that market as we start to see transparency in the permitting process, we're seeing operators feel more confident about longer term programs. So I think the U.S. Gulf of Mexico certainly has some pricing power left. Ian Macpherson - Simmons & Company: Great, thanks, Mark.

And, Ian, just to add on to that, especially if you do see some of these tenders come out from PEMEX, for this incremental demand, that will definitely have a direct effect on the U.S. Gulf of Mexico, the supply side of the U.S. Gulf of Mexico market.

Your next question comes from Dave Wilson from Howard Weil.

Late last year and early in the first quarter, the industry was talking about the increasing in queries for Deepwater availability. Have those inquiries or the rate of those inquiries heated up? I mean, when you guys seeing the pen being put to paper in terms of contract actually being signed, is that something you see as the second half event? I mean, yes, we've got the 8504 signed today, which is a good indication. But do you think we see more of those here accelerate or is that going to be more a second half event?

I would say, the general trend, we're seeing a pickup in contract award. There's a number of tenders that are under evaluation right now or should be awarded in the near future, but we're seeing and I would say that there's a general positive sentiment and a number of tenders are coming out that will be respondent to in the near future, so those have to be awarded some time.

Sure. And specifically on the 8504 or Total, does Total have other opportunities that they're looking at in Brunei that might be available for the other 2, the 8505, 8506 rigs?

I don't think we could speculate on that right now, but certainly Brunei is turning out to be a very interesting number of operators, Southeast Asia in general as well.

Okay. Thanks, that's it for me. Thank you very much.

Your next question is from Roger Read with Morgan Keegan.

May be to look at your outlook for the Gulf of Mexico, specifically on the permitting side, I understand we did file to get the deepwater permits rolling year, but we haven't really seen anything in terms of a truly new permit, all green and everything like that from before the Macondo incident. So I was wondering if your outlook takes into account a potential lull as we go from the sort of existing 16 or so to transition to new ones or if you think at this point from what you're seeing and hearing, if it's a relatively seamless transition from the 2?

Roger, this is Carey Lowe. The permitting of completely new drilled wells, I think is coming. There is quite a number of wells that were suspended that of course were being the initial focus. Those wells will take months, multiple days, 60, 90 days, to drill that on average. And we'll see a pickup, I believe, as time goes on. And I believe that it started to be an established process to permit different categories of wells, and we're starting with category one wells. And now we're into the category two and as time goes on, we'll move into the completely new exploration and development wells.

Thanks. So again, you think that's going to be a relatively seamless process? I mean, we're not going to end up with a three or six month gap where we're waiting for that to happen, at least for now, what you can see today?

I would say in general, it will be a relatively seamless process.

Okay.

Your next question comes from Rob Mackenzie from FBR Capital Markets. Robert MacKenzie - FBR Capital Markets & Co.: On new tenders out there, obviously, there's been some movements out of Saudi Aramco in the Arabian Gulf. Can you give us a commentary perhaps and if you mentioned earlier, I apologize, I had to step off. But can you give some commentary perhaps on what you see potentially coming up next on top of what's already been announced there? Is that something where we could see some material increase in tenders over the next couple of months?

Rob, this is Mark Burns. I think, as you probably know, there's still a number of outstanding jackup tenders outstanding with Aramco that have not been awarded yet. And we hope that some of those will be awarded at some point in the future. The majority of those opened jackup contracts are for workovers and for oil drilling requirements they have. As you know, Saudi Aramco has a requirement to increase domestic gas production for use internally in the kingdom. So I think going forward, I think, there's a very good possibility that we'll see Aramco increase the number of bigger, heavier duty jackups that are able to drill these deeper gas wells. So I think Aramco are still considering that. And we may, in fact, see some further tender activity for rigs of that type. Robert MacKenzie - FBR Capital Markets & Co.: Okay, thank you. Is that where you think you have the greatest potential upside surprise over the next several quarters or is there another region or operator where you think we might see a surprise out of in terms of what they're planning to do?

Well, I think overall, jackup activity in the Middle East, absent of Saudi Aramco, still remains relatively weak. So I don't expect to see great upside in the Middle East. Again, as we discussed in the U.S. Gulf of Mexico, we see room for upside. PEMEX obviously out for a number of tenders at the moment, most of those have rate caps on them. So that could also be an area of great improvement. Robert MacKenzie - FBR Capital Markets & Co.: Okay. Thanks very much.

Your next question is from Joseph Triepke with Guggenheim Securities.

Dan, maybe 1 for you first. Some of your peers have talked about strategic initiatives around fleet reviews to identify non core assets and we previously seen you guys move to rationalize your fleet over the last year or so. With understanding that addressing anything on the combined company is premature, could you just give us an idea of how you're thinking about your fleet in terms of your strategic purpose now and maybe the opportunities to continue streamline?

Yes, I think we've been very consistent over the last 15 of over the history of our company in terms of high grading our assets, and we sold 4 jackups last year. So after the acquisition, we'll take a review of the fleet, and there'll be some opportunities to dispose of some of the assets that aren't core to the company. But again, I would describe it as something evolutionary, not revolutionary. We pretty will call that at the Ensco fleet. But or you just invested in 2 more jackups and we continue to look for some opportunities to call some assets at the low end. So it's not going to be anything dramatic.

Thanks. And maybe 1 kind of related follow up for Mark. You guys have spoken to the fact that there are operators who are looking to push jackup operations into more challenging environment recently. I was wondering maybe if you could speak specifically to some of those challenges that your customers are facing and maybe what rig features outside of water that your customers are talking to you on most of these days.

Joseph, you asked, I think, 1 of the main areas we can talk about is in the central North Sea, obviously, a very environmentally difficult area to work. Operators are talking about significant multi well development programs in that area. North Sea platforms, by their nature, are very large. The well centers can be further from each other which makes it more difficult to access with your cantilever and just the nature of the harsh environment. So to access those multi well, long term development platforms, you need a jackup, obviously, that can work in the central North Sea, year round and year round is the key and as you get into the winter months and the environmental criteria gets difficult. It's critical that you have the stability and the leg link to handle those conditions. The cantilever must be of sufficient length to get out and access all of the wells on the platform in order that you don't have to move the rig, jack the rig down and move it, which cost time and money. Obviously, you want to be able to remain on location through the entire winter season. Most operators in the North Sea, they really watch waiting on the weather, costs and that type of thing. And wells are getting deeper. hook loads are getting greater, casing sizes are getting greater. So now that the 2 new build jackups that we announced as you know have 2.5 million pounds. Derricks are able to pull four singles as a quad derrick, so the capable of HPHT drilling, so many of the features that are required for long term developments in harsh environment areas need to be addressed by jackup owners and we think we have in our jackups that we've recently announced. We're also seeing quite a bit of increase in activity for some very complex HPHT wells that require extremely large hook loads.

Any particular new areas there where you're seeing that demand?

It's pretty much just about in every market, you see these inquiries, quite a few, popping up in Southeast Asia.

Great, thanks. I'll turn it back.

[Operator Instructions] Your next question is from Arun Jayaram from Credit Suisse. Arun Jayaram - Crédit Suisse AG: A quick question regarding the Central North Sea. Mark, you were talking about that. Can your standard rigs get up into that area or are you talking about some of the bigger rigs moving there and perhaps getting some opportunities for pricing for your standard rigs in the southern part?

Arun, the Southern North Sea is relatively shallow water depths and it's all natural gas drilling, which has been done now for the last 25 years. The equipment is relatively pretty benign, if you will. So in order as I said, as you get up into the central North Sea, you get into the much greater water depths, you get up near the Apache field and those, the Brent field, those operating areas, you need a greater leg length and you need more environmental criteria. So for those southern North Sea rigs, which we've seen some pricing increase recently, we've seen utilization increase, those units, Arun, cannot move in work in that central North Sea area.

So we got our ENSCO 101 and 102 work in that area right now. Arun Jayaram - Crédit Suisse AG: Right, and in terms of trigging, you guys have a lot of operating leverage to the southern North Sea and central, but I just try to sense of where you think some of the leading edge bid rates, so we're hearing about maybe rates moving eclipsing 100,000 with everything large contracted for '11, outside of some stacked transition rigs, but I'm just wondering if you can see what your crystal ball look like for '12 in terms of pricing?

Yes, Arun, I don't have a crystal ball, but I think I see this on every conference call. This cycle's just like the last one. Arun Jayaram - Crédit Suisse AG: Okay. Well, obviously, Saudi Arabia is a market band that we personally talked to that as a you'd like to perhaps add a little bit more market share in that region. Can you talk about Ensco's participation in the tender today?

Well, their tender is outstanding, and we're very actively involved in marketing our rigs. There's quite a nice uptick in activity there. Arun Jayaram - Crédit Suisse AG: Okay. And, Jay, I just wanted to clarify your commentary. Can you give us a sense of what the professional fee cost related to Pride were in the first quarter? And I just want to make sure the go forward tax rates for Ensco standalone is 15% for Q2, Q3 and Q4, is that correct?

Well, the rate for the full year we said is 15%. The rates in those quarters is probably going to be more in the 14% range. So it evens out the 15% overall for the year. The fees during the first quarter really just what was incurred for legal fees and things that are not related, that are not contingent on closing of the transaction. So any legal fees that we have, accountant fees, that type of thing must be included in there, investment banking fees that are contingent on closing the transaction are not involved in that number. Arun Jayaram - Crédit Suisse AG: Right. Can you give us the exact dollar amount that hit the G&A line item?

Yes, it's about $9 million, Arun, for the quarter, for first quarter. Arun Jayaram - Crédit Suisse AG: Okay, and that's very helpful. Thanks, guys.

Your next question is from Doug Becker with Bank of America Merrill Lynch.

As alluded to a little bit earlier, Ensco has a successful track record of disposing some of the older assets. With others talking about a similar strategy, just trying to get a sense about how broad this market, who are the logical buyers? And, I guess, my concern is that as more and more people are trying to sell these older assets, do we start seeing some of the asset values decline?

Doug, I think that we've sold our rigs over the past year due to what I would describe as buyers of opportunity. There is no established market out there that I know of that's available on a consistent basis. Those circumstances arise from time to time when people both have the funds to acquire these rigs and we sell ours for cash, and they have some opportunity or prospects for putting these rigs to work and that creates the environment in which you can realize some reasonable value for these rigs, which is another one of our criteria. We haven't sold anything at fire sale prices. So I think we just have to be alert to those opportunities as they come along. There's no established market we could go to at any given time just to dispose of these assets.

This is Dan. Just 1 quick comment on that and I don't want I can't really comment about market speculation about what you're referring to because we're not involved in it. But what we have heard, which is probably consistent with what you've heard, these are working assets. These are not old assets that are not working. These are assets that had contracts and if they do get consolidated under a common umbrella, it's just going to be another competitor that already is running the assets and wants to achieve the same thing that we're achieving, which is getting highest day rate you can get in the marketplace. So we don't see it has much affect on asset prices or on pricing jackups.

Fair enough. And then just some general thoughts on the Brazilian market, and maybe just a little color why the 8504 wasn't bid into the 1500 meter tender that Petrobras has had and I understand the answer may just be as simple as you had other things cooking given the contract that was announced today?

Yes, I mean, we view the ENSCO 8504 contract in Brunei to achieve the best economics that we can achieve in the marketplace, given the tax rates and operating rates. So it's a very, very attractive. We viewed it as an extremely attractive economic contract.

And that was the reason why it wasn't bid into Brazil?

That is correct.

Fair enough, thank you.

I show no further questions at this time.

Okay. Thanks again to everyone.

1 other thing is we could get to work a lot quicker in Malaysia or in Brunei than we could in Brazil as well.

Okay, thank you again, everyone, for participating on our call today. We certainly appreciate your interest in Ensco. Have a great day.

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