Valaris Limited (VAL) Q1 2013 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to Ensco plc's First Quarter 2013 Conference Call. [Operator Instructions] Please note this event is being recorded. I will now turn the call 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 2013 Conference Call. With me today are Dan Rabun, CEO; Mark Burns, our Chief Operating Officer; Jay Swent, CFO; Kevin Robert, our Senior Vice President of Marketing, as well as other members of our management team. We issued our earnings release, which is available on our website at enscoplc.com. As usual, we will keep our call to 1 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 risk factors and other events that could impact future results. 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. I will start by covering highlights for the first quarter, Kevin will then comment on the state of our markets and Jay will review our financial results and provide a detailed outlook for the second quarter. We had an excellent start to the year. We earned the top customer satisfaction rating for the third consecutive year. We commenced operations on a 2 new ultra-deepwater rigs, contracted 2 newbuilds to be delivered later this year, raised our dividend 33% to $2 per share annually and achieved record revenues. These impressive results were achieved through the hard work and dedication of our offshore and onshore personnel. We were particularly gratified that our customers rated Ensco #1 in terms of total customer satisfaction in the independent EnergyPoint Research survey. We earned the top ranking in 10 of 16 categories in the survey. These ratings reflect the quality of our fleet and our people and our strong track record of job quality and reliability. First quarter results included our 2 newest ultra-deepwater assets, ENSCO 8506 and ENSCO DS-6, which commenced operations during the quarter. ENSCO DS-6 began its 5-year contract with BP and Angola. This is the third Samsung DP3 drillship that BP has contracted from us. ENSCO 8506 commenced its 2.5-year contract with Anadarko, a repeat customer, in the U.S. Gulf of Mexico. Anadarko has had significant discovery and appraisal success with their first two 8500 Series rigs, and we have to have continued success with ENSCO 8506. Repeat customers benefit from our fleet standardization strategy. They know they can expect well-maintained and technologically advanced equipment with crews that consistently apply proven operating and safety management systems. With the commencement of ENSCO 8506, our seventh and final rig in the 8500 Series, we can now assess the merits of this $3 billion investment strategy. If you recall, we designed the rigs to meet the sweet spot of the market at a construction price that was considerably less than our competitors. While many of our customers were early advocates of the concept and design, some market commentators were skeptics and did not think our rigs would earn jobs, perform well or work in certain markets. Commentary today is universally positive. Our 8500 Series rigs have earned the reputation for handling some of the most complex wells for our customers efficiently, safely and cost-effectively. Recently, we set a new drilling record reaching a 30,000-foot drilling dip in record time with one of our 8500 Series rigs. Most importantly, this well was drilled with 0 incidents. Our 8500 Series fleet has shown consistently excellent operating results, most recently achieving a 97% utilization during the first quarter of the 6 rigs that have worked at least 6 months or more. Customers have had great success with our rigs. Over the past 2 years, 5 of the 12 discoveries made in the U.S. Gulf of Mexico and French Guiana were made using 8500 Series rigs. These rigs have also proven successful from an appraisal standpoint. Recently, ENSCO 8505 drilled the Shenandoah appraisal for Anadarko. To date, the return on capital for the 8500 Series rigs has comfortably exceeded our 15% after-tax return target, even considering the impact of Macondo. You may remember the 8500 Series rigs were the first rigs back to work after Macondo. We are now reaping the full benefits of this $3 billion investment, and our standardization strategy has proven to be a major advantage. We expect customer demand to remain strong given the 8500 Series history of reliability, safe and cost-effective operations. We couldn't be happier with the results. We are striving for similar results from our newbuild drillships and high-spec jackups. During the first quarter, we contracted 2 of our newbuild rigs that are scheduled for delivery later this year. ENSCO DS-7, our fifth Samsung DP3 build ship, was awarded a contract by Total for work in Angola. The contract has an average day rate of approximately $648,000 per day over the 3-year contract term, plus mobilization. We expect drilling operations to commence in the fourth quarter this year. ENSCO DS-7 is our third drillship contracted by Total. We signed a 2-year contract for ENSCO 121, our second ultra-premium newbuild jackup, with Wintershall to work in the Danish and Dutch sectors of the North Sea. The contracted day rate is $230,000, plus a mobilization fee, with an estimated commencement in the first quarter of 2014. Earlier this month, in response to strong customer demand, we ordered ENSCO 110 a newbuild premium jackup. ENSCO 110 will be delivered during the first quarter of 2015 and is based on the Keppel FELS' B-class design. This newbuild order is consistent with our standardization strategy as we already have 6 KFELS B-class rigs. Customized enhancements to the rig include dual drilling fluid capability and upgraded accommodation units that customers prefer. With the order of ENSCO 110, we now have 7 newbuild rigs under construction. Our growing active fleet and $12 billion of contracted revenue backlog will drive earnings growth. This earnings growth, coupled with our strong financial position, led us to increase our regular dividend 33% during the first quarter to $2 per share annually. Even with our 7-rig newbuild program, we believe we have the flexibility to make further investments on our business while returning additional capital to shareholders. We have a lot of positive momentum, and we look forward to the remainder of the year. Now I'll turn it over to Kevin to discuss the state of our markets.

Thanks, Dan. This morning, I will recap some of our contract signings that occurred during the quarter and present our outlook for the floater and jackup markets. The first quarter of 2013 saw a continuation of the strong tender and inquiry activity experienced during the fourth quarter of 2012. Worldwide, we received 58 inquiries for our jackups and floaters compared to 60 inquiries during the fourth quarter, marking the sixth consecutive quarter with this level of activity. Many customers are having difficulty locating available rigs, especially from near-term work. Consequently, we were only able to respond to slightly more than half of these requests. Starting in the United States Gulf of Mexico, the jackup market continues to remain tightly balanced. During the first quarter, we signed a 4-well contract for ENSCO 81, a 350-foot independent leg cantilever rig in the high $130,000 per day range. We also executed a 6-month contract for ENSCO 82, a 300-foot independent leg cantilever rig at an average rate of about $130,000 per day. These are leading-edge day rates for these rig classes in the U.S. Gulf of Mexico. And in both cases, the contracts are with repeat customers. We expect the U.S. Gulf jackup market to remain strong into next year given the limited rig supply. Floater demand in the U.S. Gulf also remains robust. As noted in our April fleet status report, we executed an 8-month contract with Stone Energy for ENSCO 8502 at $530,000 per day. This job will commence early in the fourth quarter. We're in discussions with a number of customers interested in using ENSCO 8502 for 1 or 2 wells between the end of the rig's current contract and the beginning of the Stone contract. Looking forward, we expect the U.S. Gulf floater market to remain very active during 2013 and into 2014, as several customers need a drill program starting later this year. However, rig availability in the region is virtually gone in 2013, indicating a continued tight market. Future demand in 2014 and beyond looks promising on the news of recent significant discoveries by several clients, which will require appraisal and development drilling. We believe Ensco is well positioned to participate in this growing market with our fleet of ultra-deepwater drillships and semisubmersibles. ENSCO 8503, available in early 2014, is our next ultra-deepwater floater in the region. In Mexico, we expect the strong jackup markets to continue as Pemex plans to add 5 to 7 incremental jackups to its existing contracted fleet through to process of direct negotiation. We believe our strong operational relationship with Pemex will present us opportunities to add incremental Ensco jackups as part of the Pemex fleet expansion plans. Pemex has long been planning to add to their floater fleet and we do expect them to issue a tender for 1 or 2 midwater floaters for long-term contracts sometime this year. Moving to Brazil. We've extended ENSCO 6001 and ENSCO 6002 for 5 years each with Petrobras in direct continuation of their current contracts. These extensions are at rates in the low $380,000 per day range. We estimate that these contract extensions will add about $1.4 billion in incremental backlog. Petrobras remains an important strategic client for us. We've worked closely with Petrobras over several months on these extensions. ENSCO 6001 and ENSCO 6002 have been working in Brazil since their deliveries in 2001 and will continue to support Petrobras' drilling and work overprograms in the existing post-salt basins. Petrobras and several independents announced discoveries during the fourth quarter which will require additional appraisal drilling in the future. Brazil has also announced plans for at least one lease sale later this year. This sale is scheduled for mid-May and 64 companies have been approved to participate, including many independents. This will mark the first lease sale since the announcement of the pre-salt discoveries, and we believe this lease sale has the potential to elevate the market in Brazil in the years to come, as independent oil companies come to the market for rigs to drill their new exploration acreage. Other South American activity continues to emerge with opportunities for midwater rigs in Peru and the Falklands. Turning to the North Sea jackups. The U.K., Danish and Dutch sectors in the North Sea remain tight with limited supply and steady demand, as customers attempt to lock up supply well in advance of the start of their drilling programs. Most of our active 8-rig jackup fleet in this region is contracted into 2014 and beyond. And we have seen multiple tenders for work commencing in late 2014 and mid-2015. As Dan mentioned, we've signed a 2-year contract with Wintershall during the quarter at $230,000 per day plus mobilization for ENSCO 121. Customer interest in our 120 Series rig design continues to be strong and this bodes well for ENSCO 122. Customer demand has also pushed day rates higher for existing rigs in the North Sea. Maersk exercised a 1-year option on ENSCO 71 in the low 140s, a 27% increase in the day rate this rig currently earns. Also, ConocoPhillips contracted ENSCO 92 for a 4-month term in the low 160s with estimated commencement in May 2014. This day rate is a $15,000 a day increase over the current rate for the rig. We continue to see new tenders entering the market, leaving us to expect high activity levels throughout 2014 and beyond. In the U.K. floater market, supply and demand remain in balance, and we expect there will be opportunities for incremental harsh environment floaters in the region over the next few years. Now turning to the West Africa floater market. We consistently see high tender activity for projects commencing in 2015. We contracted ENSCO DS-7 in Angola at an average day rate of approximately $648,000 per day over the 3-year term, plus mobilization. There are several active tenders in Angola, and we believe there is near-term demand for 4 to 6 floaters. Ongoing tenders in other West African countries expect to absorb another 3 to 5 rigs in 2013 and there are indications of further demand into 2014 in the area. In the Middle East, all but 1 of our 9 marketed jackups is under contract into 2014 or beyond. Bid activity during the first quarter of 2013 was high and we expect there will be more tenders issued as the year progresses, with the potential for another 8 to 10 jackup requirements in the Middle East region. In India, we've commenced operations with ENSCO 54 after mobilizing the rig from the Middle East. And we forecast incremental rig requirements of 6 to 10 jackups in India in 2013. In the Asia-Pacific jackup market, the strong jackup market continues to support increases in day rates. Last quarter, we reported new contracts for 5 rigs with significant day rate increases from their prior contracts. We secured an additional 8-month term with ENSCO 104 at a leading-edge rate in the mid-220s in Australia. The Asia-Pacific region has always been an active floater market, and this region is now showing some additional deepwater growth. The multiyear contract with Shell we reported earlier this year for ENSCO 8504 at a day rate increase of approximately $100,000 per day over the previous contract is one indication of the strengthening of this market. We expect the Asia-Pacific market to maintain its strength and grow by 2 to 3 deepwater floaters during 2013, with opportunities in Indonesia, Malaysia and Australia. Regarding the worldwide order book for jackup rigs, we count about 70 new rigs to be delivered before the end of 2014, of which about 44 are uncontracted. Based on our estimates of the number of active and expected tenders, we believe all the newbuild jackups will be absorbed into the market as they are delivered. In summary, we maintain our bullish outlook in terms of customer demand for both deepwater and shallow water offshore markets. Based on visible demand from customers, we expect the market to be fairly balanced for the foreseeable future, even with the additional rig supply from newbuild deliveries. Now let me turn the call over to Jay.

Thanks, Kevin. Today, I'm going to cover highlights of our first quarter results, our outlook for second quarter 2013, our financial position and then conclude with some comments on capital management. So let's start with first quarter results versus prior year. As noted in our press release, first quarter earnings per diluted share were $1.36 compared to $1.15 last year. This earnings growth was driven by record revenues during the first quarter, as we grew our fleet and benefited from higher average day rates. Total revenue for the quarter was $1.15 billion compared to $1.02 billion a year ago, a 13% increase year-over-year. Floater revenues increased to $719 million, growing 12% from the prior year due to the addition of ENSCO 8505, ENSCO 8506 and ENSCO DS-6 to our active fleet. These additions to the fleet drove to 9% increase in average day rate to $380,000 per day. Jackup segment revenues increased 14% due to a 17% increase in the average day rate to $117,000. Utilization for the jackup fleet in the first quarter was 88% compared to 91% a year ago. There were more planned shipyard days during the first quarter 2013 versus last year, as we prepared rigs for long-term contracts. Utilization for our marketed jackups, all of which are contracted, was 92% in the first quarter. First quarter contract drilling expense for all segments totaled $561 million, up from $502 million in the first quarter of 2012. This increase is mostly related to the addition of 3 ultra-deepwater rigs to the active fleet and an increase in labor costs, as expected, in line with our prior outlook. As a reminder, many of our long-term contracts have cost escalation provisions for items like labor and insurance. First quarter contract drilling expense was lower than our prior outlook, mostly due to lower than planned repair and maintenance costs. Depreciation expense was $149 million, a $13 million increase compared to first quarter 2012, as we added 3 floaters to the active fleet. General and administrative expense for the quarter was $38 million, unchanged from last year. First quarter other expense includes a $6 million foreign exchange gain on the Venezuelan bolivar. Effective tax rate was 13.9% for the first quarter, an increase from last year due to some discrete tax items, the largest of which is related to the recognition of a tax reserve in one country where we operate. We expect the balance of the year to be in line with our full year tax rate outlook of approximately 12%. Now let's discuss the second quarter outlook. Second quarter revenues are expected to increase approximately 10% from the first quarter. Floater segment revenue is projected to increase by approximately 16%, primarily due to a full quarter of operations for ENSCO DS-6 and ENSCO 8506, as well as higher utilization overall. Jackup segment revenue is projected to be in line with first quarter revenue. More planned shipyard days in the second quarter, as reflected in our recent Fleet Status Report, will approximately offset an anticipated increase in the average day rate for the jackup segment. The low jackup utilization is projected to decline in the second quarter due to more planned shipyard days. We expect jackup utilization to increase in the second half of the year as rigs return to service. And we still anticipate jackup utilization to be in the mid-80% range for the full year. Moving to expenses. We anticipate second quarter 2013 total contract drilling expense will be up approximately 7% from the first quarter due to a full quarter of operations for ENSCO DS-6 and ENSCO 8506 and higher repair and maintenance costs related to planned projects, many of which are carryovers from the first quarter. Depreciation expense should increase approximately 3% as a result of our growing active fleet. We anticipate G&A expense to be on par with first quarter levels. Other expense is anticipated to be approximately $40 million, comprised of $44 million of interest expense, partially offset by interest income. Turning to our financial position. We ended the first quarter with $562 million of cash and $50 million of short-term investments, which were included in other current assets. We added 28% leverage ratio and $12 billion of contracted revenue backlog, which includes $1.4 billion for the ENSCO 6001, 6002 contract extensions with Petrobras that Kevin just mentioned. We maintained a strong financial position and we significantly increased our dividend, raising it another 33% during the first quarter. With respect to capital management, total capital spending for full year 2013 is forecast to be approximately $1.8 billion. This forecast is inclusive of ENSCO 110 ordered earlier this month. The $1.8 billion breaks down as follows: $1.2 billion for newbuild rigs, $320 million for rig enhancement projects and $250 million for sustaining projects. We've already invested $170 million of this amount through March 31, so remaining capital expenditures are estimated to be about $1.6 billion for the balance of this year. With the order of ENSCO 110, we have updated the outlook for remaining newbuild capital spending in 2014 and 2015. Our outlook is $1.1 billion for 2014 and just $220 million in 2015. This is based on the 7 rigs that are currently under construction, 3 of which are delivered this year, 3 next year and 1 in the first quarter of 2015. We remain very optimistic about the future. And with 7 rigs under construction and an established record of delivering our rigs on time and on budget, we plan to continue growing earnings predictably. We remain committed to high grading our fleet and we divested an additional jackup during the first quarter and ordered another premium newbuild jackup as part of this strategy. As Dan mentioned earlier on the call, the 8500 Series program has proven to be a great investment, exceeding our return expectations and positioning us well on the ultra-deepwater market. All of our investments undergo a rigorous return on capital analysis, including our newbuild drillships, the 3 new ENSCO 120 Series jackups under construction and the recently ordered premium jackup rig, ENSCO 110. We have a strong track record of actively managing our asset base and our capital for the benefit of our shareholders. We will continue to seek investment opportunities that exceed our target rate of return, while weighing those options against returning additional capital to shareholders. We are very pleased with our first quarter accomplishments. We had strong operational results. We increased our dividend 33%. We made good progress with our newbuild projects. And we continue to high grade our jackup fleet. With that, I'll turn the call over to Sean.

Please open the line up for questions. Thank you.

[Operator Instructions] Our first question comes from Dave Wilson, Howard Weil.

Dan, with regard to the recent newbuild jackup announcement and the fact that it was not a 130 Series-type design, what should we read into that as far as the demand for that type of rig meeting the 130? Is there not enough demand for those types of rigs? Is the market already saturated with those, or is it just going to be too costly of an endeavor? I'm just wondering how we should read the tea leaves on that one.

Yes, I don't think you should read too much into it. ENSCO 110 was a rig already being built by KFELS on speculation and they had offered to us and it seemed like it was a real good price, good terms and so we just acted opportunistically with respect to that. So I wouldn't read too much into it. On ENSCO 130, I think we've been pretty consistent about -- we're going to try to get a customer lined up for that. And we continue to actively market that and as soon as we can find a customer, we'll probably make an investment decision.

Okay, great. And then just an unrelated follow-up. On the $2 billion share repurchase program, it seems like maybe you guys had been leaning more to the dividend side of returning cash to shareholders, but now there's this program that you hope to get in place. Does this mean that you're more or less inclined on future dividend increases or just you wanted some flexibility with the share buyback?

Yes, under U.K. law, we have a to have an authorization. It's not like under U.S. law. So we want to have the flexibility to consider all our alternatives. So without having an authorization, you got to have the flexibility to consider your options.

Okay, so just in case you need it. Got it. Great.

Our next question comes from Collin Gerry, Raymond James. Collin Gerry - Raymond James & Associates, Inc., Research Division: I just a -- I had a quick one. You opened up with your market commentary regarding the Gulf of Mexico and I mean, strong rates at 130,000 a day, that market just caught fire -- well, no pun or not to use a bad phrase, but could we see upside to that number? I mean, just given where international rates are, do you still see that moving up and what it's going to take to keep it moving a little bit higher?

This is Kevin. It's a very limited rig supply. We don't see really that changing and customer demand continues to be strong. Terms, I think we'll see increase and, yes, it will continue to be a tight market. Collin Gerry - Raymond James & Associates, Inc., Research Division: Excellent. That's kind of the outlook we see. And you mentioned a tight market. There's some competitive or there's a new competitor that got some rigs from an existing contractor. And obviously, there's been one of your competitors that's maybe looking to part with some of its legacy jackup fleets. I guess, I wonder, have you seen any change in the competitive landscape as -- from those 2 guys? How are they bidding? How are they competing with you guys? Are they moving their rigs? Are some of those coming to the Gulf of Mexico, or is it pretty much status quo?

I can't comment on other competitors but I can say that the demand for our rigs is increasing. We've got multiple clients asking for every rig, as a result. That's why my comments said that we see strong demand for our rigs in a favorable environment well into 2014 on the jackup market.

One thing to remember on the jackup market, you cannot readily get insurance, windstorm insurance. And certain drilling contractors have loan covenants that prohibit them from not having insurance on their rigs. So it really creates a real limitation to how many rigs can come into the market to address that market. So we don't see the rig supply changing much, if not going the other direction, quite frankly.

Our next question comes from Ian Macpherson at Simmons. Ian Macpherson - Simmons & Company International, Research Division: Kevin, what did you say the term was on your renewals on the 6001 and 6002?

Five years each and they'll start from the middle of this year when the current contracts end. Ian Macpherson - Simmons & Company International, Research Division: Super, congratulations. Did you update on the status of the DS-2 with Total, as well or is that one still in negotiation?

Yes, we can't comment on ongoing negotiations on that one. But we do expect it to stay right where it's at. Ian Macpherson - Simmons & Company International, Research Division: Location-wise?

Yes. Ian Macpherson - Simmons & Company International, Research Division: Okay. And then, just finally, Jay, you updated us with your guidance for the quarter. Would you mind also refreshing or maybe reaffirming otherwise your full year expectations for your net interest expense based on Q1 and your guidance for Q2?

Yes, I think on the last call, we said guidance would be about $160 million for net interest and we see that staying the same. We really see the full year outlook remaining very much the same as what we talked about on last quarter's conference call.

Our next question comes from Robin Shoemaker at Citi.

Yes, I'd like to add my congratulations on the 6001 and 6002 contracts, very good term and also rate. It makes me ask the question of some other rigs that are coming up in Brazil slightly lower, lesser capable rigs. But the 5000, 502, 504, in your view, are these -- does Petrobras want to keep these rigs? Are they likely to stay in Brazil based on your current negotiations?

Yes, Robin, the 3 rigs you mentioned, 2 of them are employed by OGX. Only the 5000 is employed by Petrobras. And it ends its current contract midyear so we're marketing that rig, both inside and outside the country. One commentary to remember in Brazil, Petrobras has got a tremendous geologic basin in both the post-salt, which is the traditional basins and the pre-salt, and they have a strategic imperative to continue the production in the post-salt area, which, I think, is evidence to exactly why they wanted to keep the 6001 and 6002. And while they're doing that, they've got to gear up and get this pre-salt work going. So they've got a big challenge and they need to keep their drilling program going. At the same time, they're going to rationalize. And as you would expect, they're going to put more effort in the most valuable prospects. So this lease sale coming up is really good because it may pick up a number of new clients in the country that will step in and actually, we see the rig demand increasing overtime, but it may not all be from Petrobras.

Yes. So in terms of the OGX, rigs currently working for OGX, the 502 and 4, is there a high probability they stay with that client or with another? What are you...

OGX has worked for those rigs. We're in discussions with them right now. But we also have opportunities for those rigs outside the country. So stay tuned.

I see. Okay. So then I just wanted to ask you on the DS-8, 9, it's with some other rigs with 14 delivery being contracted here lately. It would seem that you got really good position here for second half '14 delivery of these 2 rigs in availability. And so, is that correct? I mean, are you -- the rigs that are available for that timeframe shrinking in number and put you in a stronger bargaining position. I think that's correct but I just wanted to ask you.

Yes, Robin, we feel really good about our position with DS-8, DS-9, 8503, we've got an excellent ultra-deepwater and deepwater fleet. And the market seems to be in a good position relative to our availability. At the same time, it's very interesting because as we sit here this year looking forward to the end of '14, there are exactly the same number of deep and ultra-deepwater rigs available worldwide that there were this time 1 year ago. So the perception that there's a lot of extra rigs, we don't see that. And it's interesting, we had a very strong market last year, a lot of contracts happened. I think we had 34 ultra-deepwater contracts over the last 12 months in this business. And so I think from that standpoint, that's why we're remaining bullish and we like our position a lot.

Yes, Robin, and just one point in addition to what Kevin said. We reiterated from time to time, one of the great things about the scale that we've achieved is that we can address every opportunity in the world and we're somewhat indifferent to where these rigs end up. So we're being very, very selective about where we position these rigs.

Our next question comes from Greg Lewis at Credit Suisse. Gregory Lewis - Crédit Suisse AG, Research Division: Kevin, it looks like you guys are in the market, in a tender process in India and yet you mentioned earlier on the call that you see potentially 6 to 10 incremental jackup rigs being needed in India. As we think about the fleet, I mean, it looks like currently there's one rig in India that's rolling off contract in the third quarter, fourth quarter. Could we see Ensco start to reposition additional rigs into India to take advantage of that opportunities?

Well, just to echo what Dan said, our scale has us involved in every market. And as we sit today, we see more than 40 incremental jackup requirements over the next year around the world, of which India has a number of them. Now as Dan said, we try to be selective about where we place the rigs. India has not been a big market for us in the past and right now, the rigs that we have in our other regions have plenty of work right there. So we continue to monitor that market but it's probably not something I would expect to move a lot of rigs into. Gregory Lewis - Crédit Suisse AG, Research Division: Okay, perfect. And then just one bigger -- one general question for Dan. When you think about the cash flow that Ensco is kicking off over the next, let's call it, 3 years, I mean, you just -- we saw the new building jackup announcement. At this point where we are, I mean, should we be expecting Ensco to enter in the market for additional deepwater floater newbuilds over the next, call it, 12 to 18 months?

Well, I think -- this is Jay, we -- I think you're going to see us continue to do what we've been doing. We've continued to high-grade the jackup fleet, add to the floater fleet and return capital to shareholder most recently through dividends. And we intend to continue to grow the business and so I think you should anticipate we'll continue to acquire rigs as we -- as market conditions are appropriate for that. Gregory Lewis - Crédit Suisse AG, Research Division: And just a follow-up on that. So when we think about potentially ordering additional ultra-deepwater tonnage, we could see those being, at this point, still being ordered on a speculative basis?

Yes.

One other just comment about India, when we've taken our rigs into India, it's generally been to work for one specific customer, BG.

Our next question comes from JB Lowe at Cowen Securities.

Just kind of a follow-up to Greg's question on how you're looking at allocating capital to newbuilds. Are you seeing better return on capital from floater newbuilds or from jackup newbuilds, or do you kind of look at it instead on what you see customers needing when those rigs would become available, should you choose to order them?

Well, I think, that varies from time to time based on what's going on in the shipyards and where day rates are and that type of thing. So I don't think there is any one long-term answer to that question. For the last couple of years, we've seen it switch between the 2 asset classes in terms of which one was a slightly more preferable. But they're both very attractive asset classes from where we sit. And so I think you will -- as I said earlier, you will see us continue to high grade the jackup fleet, which means you'll probably see us sell the odd rig now and then and you'll see us continue to order rigs to replace those and maybe build that lead a little bit, and you'll continue to see us invest in deepwater rigs. In the last several years, there's been an awful lot of drillships ordered because the shipyard costs have been very, very competitive. And right now, it's looking like the day rates are pretty consistent between the 2 asset classes of drillships and semis. And I think you'll continue to see drillships and you'll see some semis ordered here in the next year or so. So stay tuned.

Okay. And we've kind of seen kind of a wave of jackup orders so far this year. Does that give you any pause or any cause for concern for when those rigs come online starting 2015?

This is Dan. As Kevin said, we -- we've been at this over a while and this question keeps coming up and every rig keeps continuing to be absorbed into the marketplace. I think this is one of the more bullish parts of the cycle I've seen in the last few years in terms of being able to -- the number of jobs that are out there to address the rigs coming off. So we fully expect that everything under construction will be easily absorbed into the marketplace.

Okay, fair enough. And just one last one on the 8503, does that have -- does Cobalt have options on that? And if so, are you negotiating with them first or is that not the case?

No, Cobalt does not have any options. That rig is open to anybody [indiscernible]. But we've had a very good track record with Cobalt. So that's a pretty good customer to have.

Our next question comes from Ed Muztafago at Societe Generale.

I was wondering if you could talk just a little bit about Angola. I think you mentioned a potential for maybe 4 to 7 more floaters there. And one of your competitors recently mentioned that they thought that, that region might command a $700,000 a day day rate. Are you guys kind of consistent on that outlook and can you give any color as to maybe where fixtures made that out there in the next 12 months?

I can't comment on day rates. But there's active tenders there that, that is a very tight market as well. It's a difficult place to operate. When you go in there, you need to have the infrastructure, the local content. So it's hard to speculate on where day rates can go, but at this moment, the activity level is high.

That having been said, the OpEx differential between the U.S. Gulf of Mexico and Angola is not that significant.

Okay. That's an interesting nuance. I'll ask this a little bit more directly as it relates to the deepwater market and as we get a little bit further into the contracting window for rigs that are coming out of the shipyard in '14, do you all see the -- another inflection in deepwater day rates, or do you think that we're kind of range bound? Essentially, is there enough demand or pent-up demand for day rates to move up from here?

The only you can do to try to look forward is look at the activity level, the geologic success, the commodity environment, all those things are positive. If you get to the absolute rig count, like I said earlier, as we sat here a year ago, and we sit here today, there is exactly the same number of rigs available in deep and ultra-deepwater looking to the end of '14 as we did last year when we look to the end of '13. And we all know how good a market we had last year. So that's as far as you can go to speculate. We're optimistic about it because we see client success. We see the need to replace reserves. We see a positive GNP worldwide situation. So that's the environment that we're in.

But presumably if you're and the industry is willing to build more deepwater rigs, there obviously has to be some level of pent-up demand out there?

There always is. All the visible demand, it doesn't appear on paper. So what we see in terms of visible demand, we would speculate there will be more demand that you don't see today that will come into the market just like it always does.

[Operator Instructions] And our next question comes from Ryan Fitzgibbon, Global Hunter.

Kevin, can you clarify whether there's a bonus opportunity for the 6001 and 6002.

That particular contract does not have a bonus opportunity.

The next question comes from Ian Macpherson at Simmons. Ian Macpherson - Simmons & Company International, Research Division: I was just curious, as a follow-up, about your comment on capital having sold you a jackup they had started on spec. Is that a growing phenomenon at Keppel and/or other yards in Singapore or China, where we'll likely to see companies like Ensco purchasing spec rigs that have been commenced by the yards? Or is that a one-off or was it the cancellation from another buyer?

Actually, I don't know the answer to the question. I don't see it as a trend. And these shipyards, they -- what's the pacing, Ian, for them are managing their dry dock space and they probably -- I don't know if they had some availability in the dry dock space and decided to build on spec or if it was somebody else who ordered that, I candidly don't know.

Our next question comes from David Smith of Johnson Rice. David C. Smith - Johnson Rice & Company, L.L.C., Research Division: I wanted to ask about the proposal for a $2 billion repurchase authorization, but if you don't mind, I'd just like to frame the question. We know your philosophy on newbuilds, you guys might have the best returns on newbuilds in the past 10 years. And we have a sense of your philosophy on M&A, the acquisition of Pride was highly successful, you raised the dividend 33%, you got the best free cash flow profile in the peer group over the next 3 years. So my question is, can you give us any insight on your process for how you would evaluate the repurchase opportunity?

Well, I agree with everything you said, David. Thank you. I think unfortunately, that proposal is in our proxy, it's Resolution 11, if you want to vote for it and I think we're somewhat limited in what we can say by the proxy solicitation rules. So there isn't a lot more I can say other than we will evaluate the situation from time to time and do what we think is in the best interest of shareholders. I think at the moment, as we discussed in the past, the majority of shareholders that we talked to at the moment expressed a very strong preference for dividends. And that's what led us to look at a meaningful increase in the dividend. But we'll have to monitor the situation going forward and see what looks like is in the best interest of shareholders from time to time. David C. Smith - Johnson Rice & Company, L.L.C., Research Division: So for now, we'll just think about it as one more tool in the toolkit?

Well, absolutely.

We have a history, as you might recall, we bought over $1 billion of stock a few years ago. So we do have the history of selecting all of the methodologies, growing the business, returning capital through dividends and buying back stock.

Okay, it appears we have no more questions. So we just want to thank everybody for their interest in Ensco and their participation, and we look forward to talking to you on our next earnings call. Thanks.

The conference has concluded. Thank you for attending. You may now disconnect.