Valaris Limited (VAL) Q2 2015 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to Ensco plc's Second Quarter 2015 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's 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. Sean Patrick O'Neill - Vice President-Investor Relations & Communications: Welcome, everyone, to Ensco's second quarter 2015 conference call. With me today are Carl Trowell, CEO; Mark Burns, our Chief Operating Officer; Carey Lowe, EVP; Jay Swent, CFO; David Hensel, our Senior Vice President of Marketing; as well as other members of our executive management team. We issued our earnings release which is available on our website at enscoplc.com. 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. Now, let me turn the call over to Carl Trowell, CEO and President. Carl Trowell - President, Chief Executive Officer & Director: Thanks, Sean, and good morning, everyone. Second quarter results were highlighted by good operational, safety and financial performance. As noted in our press release, we had 98% operational utilization for jackups, strong safety performance, and earnings that were driven by disciplined expense management and our efficiency initiatives. Earnings from continuing operations, excluding cost to refinance debt, were $1.18 per share for the second quarter. Our offshore crews capital project teams and onshore personnel are to be recognized for a quarter defined by good execution. Our teams have kept that focus on the things that we can control, operations, safety and efficiency, and not being distracted by the challenges our sector is facing during the current market downturn. Since our last earnings call, there have been some significant developments with respect to our fleet structure. In terms of fleet high-grading, ENSCO 110, our newest premium jackup rig, was successfully delivered on-time and on-budget. And we've had a seamless handoff between capital projects and operations as the rig commenced its initial three-year contract in Abu Dhabi. Well, there have been limited number of new contracts announced so far this year, ENSCO 110, along with ENSCO 104, earned multi-year contracts during the quarter on the strength of our safety, operations and customer satisfaction track record. ENSCO has a particularly strong reputation in the Middle East, the largest region for our jackup rig, and has helped us to win this new business. Our ENSCO DS-8 drillship was delivered from the shipyard and is on track to commence operations later this year. It will be a major contributor to future financial results, given its five-year contract to work offshore Angola. Our capital projects team did an excellent job delivering ENSCO DS-9 as well. This drillship will also be a significant contributor to our floater segment financial results, given strong contract provisions that protect us despite the previously announced cancellation notice from the customer for its convenience. The provisions of the DS-9 contract, which require payments in monthly installments beginning the month after termination notice, mean the cash flows for this rig will begin during the third quarter. Therefore, there will be no negative impact on earnings for 2015, 2016 and the first half of 2017. In a mutually negotiated deal, we extended the contract term for ENSCO DS-7 in Angola to the fourth quarter of 2017, gaining approximately $125 million of revenue backlog on a net basis, since, as part of this agreement, the contract for the DS-1 was terminated early. As a result, we've accelerated our plans to cold stack DS-1 following the completion of its contract since we do not currently view it as part of our go-forward fleet. Recently, we reached an agreement with the shipyard to defer the delivery and a large milestone payment for our final drillship under construction, ENSCO DS-10, by 18 months to the first quarter of 2017. Jay will expand on the financial implications shortly. However, as a consequence of this decision, full year capital expenditures for 2015 have been reduced to approximately $1.7 billion. We have completed cold stacking for ENSCO 8501 and 8502. Due to a very well-planned and executed process, the cost to undertake the stacking has been reduced to approximately $5 million per rig. As previously announced, we intend to bring these rigs back into the active fleet when market conditions improve. We continued to market the remaining 8500 Series rigs and are pursuing several opportunities. We will evaluate whether to stack another 8500 Series rig as we go through the second half of this year. With respect to our rigs held for sale, we recently sold ENSCO 5002 for scarp value. Over the past 12 months, we've taken delivery of four newbuild rigs, we have sold six rigs, and placed another six rigs into held for sale, removing them from our go-forward fleet. This is part of a deliberate strategy to high-grade our fleet as we navigate the downturn. In addition, we have decided to reduce our near-term marketed fleet by cold stacking another eight rigs, including ENSCO 8501 and 8502. Four newbuild rigs currently under construction will also bolster our fleet restructuring over the next two years as they are delivered. In terms of contracting, our marketing teams have done a good job in a tough market securing additional work, including the two jackup rigs that I just mentioned in the Middle East, which David will elaborate on in a moment. On the expense side, we are achieving the cost saving targets we set out earlier this year in terms of a 9% reduction in unit labor costs for offshore workers, plus $27 million in annual savings from streamlining our onshore workflows. In addition, we are rationalizing office space for shore-based operations in conjunction with our announcement earlier this year to reduce onshore head count by 15%. We also plan to streamline our organizational reporting structure by consolidating our five geographic business units into three, given market conditions in the Asia Pacific region where we currently have only four rigs under contract and the Brazil market where we have just four active floaters. We will provide more information on our next conference call, including savings related to these steps. We've also been working with vendors and suppliers to lower costs and improve equipment reliability. Turning now to capital management. Since our last call, we have completed the tender offer process for our previously announced debt refinancing. As a reminder, we have no significant debt maturities until the second quarter of 2019. We've maintained our investment grade credit rating and we continue to have significant liquidity and capital management flexibility with $1.3 billion of cash and short-term investments on the balance sheet, fully available $2.25 billion revolving credit facility, and revenue backlog of about $7.4 billion. Our capital expenditures will peak in 2015 at approximately $1.7 billion. Beyond 2015, we anticipate total CapEx will be significantly reduced from this level to less than $750 million a year in 2016 and 2017 as we complete our newbuilds under construction. Now let me turn to market conditions and outlook. It is clear that we're in the midst of a significant downturn in offshore drilling and market conditions that would have been supportive of a near-term recovery have not materialized. As a result, we are witnessing a continued pullback in capital expenditure by our customers in the deepwater market. These conditions reinforce our view that weak market conditions for our sector will continue through 2015 and 2016. We anticipate an uptick in contract placements across the sector as we go through the second half of 2015, especially in the jackup market, but these pictures aren't expected to materially change our outlook for the next 18 months. That said, we still believe in the long-term recovery of deepwater drilling. And there are three important factors that will help this market recovery. First is the reduction in rig supply. As older generation rigs are scrapped and removed from the active fleet, idled rigs are stacked and newbuild deliveries are pushed out or canceled. As David will cover in a moment, a meaningful number of rigs older than 30 years will come off contract in the next six months. And we believe most of these will be stacked permanently. Secondly, cost deflation and more standardized engineering solutions have the potential to significantly reduce the breakeven cost of deepwater development. And, third, we believe there are meaningful opportunities to improve the quality management process across the supply chain in offshore drilling, which should ultimately lead to better efficiency across our sector. For shallow water, average commodity price hurdles to support drilling are generally lower than deepwater. As such, we are seeing more customer activity in shallow water, especially as we go into 2016, although competition is still intense for these opportunities. Finally, we recently announced that given Jay's upcoming retirement after more than 12 years with Ensco, we have begun a search for our next CFO. Jay is turning 65 next month, but will remain CFO until we complete the succession process. Jay has been a major contributor to Ensco's many achievements for more than a decade and extremely helpful to me personally over the past year since I joined Ensco. We look forward to his continued contributions as we complete the CFO succession process. Now, I will turn the call over to David.

Thanks, Carl. In terms of customer demand, while we are clearly experiencing a very difficult market environment, we have seen an increase in a number of customer discussions for potential opportunities since our last conference call. While this increase is off a low number of tenders and inquiries seen during the first quarter and many of these opportunities are shorter term in nature, we are seeing pockets of customer demand even in a lower oil price environment. For example, as Carl mentioned, we recently contracted two of our premium jackups, ENSCO 110 and ENSCO 104, with a repeat customer, NDC, in the Middle East. Both rigs were awarded three-year contracts. ENSCO 110, our most recent newbuild jackup delivery, commenced its initial contract in May and has had an excellent start for NDC. ENSCO 104 is scheduled to begin its contract in August. The Middle East has been the strongest market in terms of customer demand. And we have 10 jackups contracted in the region. Moving to the North Sea, we were able to extend ENSCO 101 to mid-year 2016 with its current customer. Earlier this month, we signed letters of intent for ENSCO 71 and ENSCO 72, both for three-year terms in Denmark. ENSCO 71 is already on site and ENSCO 72 is expected to continue working once it completes its current contract in September. As a result, both rigs are scheduled to work into 2018. And once these agreements are finalized, our number of contracted jackups will increase to nine in the North Sea, a market where ENSCO has a strong reputation among customers. Moving to our floater fleet, we were able to extend the term for our ultra-deepwater drillship, ENSCO DS-7, for an additional year as part of a blend and extend agreement that will keep the rig working into fourth quarter 2017. In the U.S. Gulf of Mexico, we extended ENSCO 8500 for two months and secured short-term plug and abandon work for ENSCO 8506. While customer CapEx budgets have been reduced significantly this year, we are seeing some situations where customers' regional management is securing corporate level approval to extend certain rigs on certain well programs. In other situations, however, we have experienced some early terminations for convenience. But, here, we are seeing the strength of our contracts. For example, we recently received notification to terminate the ENSCO DS-9 contract for the customer's convenience. Based on the contract terms, they're obligated to pay the operating day rates of approximately $550,000 for two years. So we do not anticipate material negative impact to 2015 or 2016 results as a result of this termination. While some projects have been canceled such as the exploration work, DS-9 was scheduled to begin later this year, the vast majority of projects being influenced by spending cuts are being delayed rather than canceled outright. Looking out longer term, it has been encouraging to see a pickup in the offshore exploration success recently, coupled with lease sales in frontier plays and established basins that have drawn interest from several major customers. Recently, we saw a high profile deepwater program receive FID approval from a major E&P customer, underscoring the compelling reserves that some offshore basins provide, even in a lower oil price environment. Appraisal and development of these reserves will require drilling rigs. And I believe Ensco's strengths, including our number one ranking in overall customer satisfaction and safety, differentiate Ensco from the competition as new contracting opportunities arise. In terms of our newbuild rigs, in addition to DS-9, we accepted delivery of ENSCO DS-8 earlier this month. And the rig is currently mobilizing to Angola for its initial five-year contract. As Carl mentioned, we delayed the delivery of ENSCO DS-10, our only remaining uncontracted newbuild floater, until first quarter 2017. Other drillers with uncontracted newbuild floaters have also postponed rigs initially scheduled for delivery in 2015. As a result, only 10 new floaters are now scheduled for delivery by the end of 2015 and half of these rigs are contracted. The other remaining uncontracted deliveries may also be delayed in anticipation of a better contracting environment in the future. Positive supply development since our last earnings call include the cancellation of four newbuild floaters that were on order. Additionally, reports suggest that the build in Brazil program originally expected to add 29 floaters to the global supply by 2020 faces significant challenges. And that more than half of these rigs may not be delivered. Nine of these floaters are scheduled for delivery in 2016, but may be delayed due to financial, shipyard and other issues. If additional newbuilds were to be delayed or canceled, this would be another incremental positive for global floater supply. Moving to the order book for competitive jackups, there are approximately 45 newbuilds with expected deliveries by year-end 2015, all of which are uncontracted. More than 65% of these uncontracted deliveries are with speculators that have never operated a rig. And it remains to be seen whether these approximately 30 units will be able to compete effectively. We have already seen the cancellation and delays of many newbuild jackups. This will likely continue as companies who ordered these rigs need to put off large milestone CapEx payment, given limited contracting opportunities. This in turn would put more pressure on shipyards that will have to assess continued investment in the construction partially completed rigs. Turning now to scrapping and cold stacking of floaters and jackups. It's reasonable to assume that offshore drillers will continue to rationalize their fleets. Scrapping older rigs with limited contracting opportunities that may require CapEx to keep them certified to work and cold stacking other rigs that do not have re-contracting opportunities allows drillers to reduce expenses and preserve capital during the downturn. Since September, offshore drillers have announced they will scrap 39 floaters. Over the same period, an additional 22 floaters have been cold stacked. We believe that the majority of these rigs will also be scrapped. In total, these 61 rigs represent approximately 19% of competitive global supply. Additionally, 17 floaters older than 30 years of age are currently idle without follow-on work. And another approximately 20 floaters greater than 30 years old will see their contracts expire before this year-end. All will be likely candidates for scrapping and/or cold stacking and, as a group, they're more than three times the number of floaters currently scheduled to enter the market by year-end. And, as I mentioned earlier, some of these may also be deferred. We anticipate the scrapping and stacking trend will continue, which will help to improve the supply and demand balance. Similarly, on the jackup side, we expect stacking to accelerate. Here's the picture for competitive jackups defined as independent leg cantilever rigs: roughly 55 are stacked or idle without follow-on work and older than 30 years of age. Another approximately 45 working rigs that are 30 years of age or older have contracts expiring before year-end. Major regulatory surveys to recertify these older rigs, which must take place every five years, can involve significant capital investment. In a tight cash flow environment and faced with uncertain re-contracting prospects for less capable jackups, drillers may choose to cold stack or even scrap these older units rather than spend tens of millions of dollars in upgrades. Additional information on the global supply of rigs is provided in our investor presentation on our website. In closing, our operational and safety performance differentiate Ensco in the market as evidenced by several new contract awards since our last call. While the market remains challenging in the near-term, we expect to win business by continuing to leverage our operational and safety track record, our differentiated technology, and our highly capable offshore and onshore personnel. Now, let me turn the call over to Jay. Jay W. Swent III - Chief Financial Officer & Executive Vice President: Thanks, David. Today, I will cover our second quarter financial results, our third quarter 2015 outlook, and then I'll wrap up with a discussion of our financial position and some closing comments. As noted in our press release, earnings from continuing operations adjusted for the previously announced debt retirement and loss on impairment a year ago were $1.18 compared to $1.49 last year. Total second quarter revenue was $1.06 billion versus $1.14 billion a year ago as lower utilization across the fleet, including several floaters that have been contracted at above average day rates a year ago, were partially offset by the reactivation of three upgraded floaters, ENSCO 5004, 5005 and 5006, and the addition of three newbuild jackups to the active fleet. Floater segment revenue was $634 million compared to $680 million a year ago, primarily due to lower utilization for several floaters in the U.S. Gulf of Mexico that contributed to a decline in the average day rate to $417,000 from $481,000 a year ago. Reported floater utilization was 76%, unchanged from a year ago. Operational utilization for the floater segment, which adjusts for uncontracted days and planned downtime, was 92%, also unchanged from a year ago. Jackup segment revenue was $384 million compared to $441 million a year ago, as utilization declined to 77% from 88% last year. This decline was partially offset by a slight increase in the average day rate to $140,000. The addition of high specification jackups to the active fleet contributed to this increase in average day rates. Operational utilization for the total jackup fleet was 98%, reflecting the continued focus of our offshore crews on delivering high levels of uptime to our customers, regardless of market conditions. We reduced total contract drilling expense to $503 million from $543 million a year ago. Proactive expense management, including lower compensation and repair and maintenance costs, more than offset the following items: the reactivation of three floaters, the addition of three newbuild jackups to the fleet, and approximately $10 million in upfront stacking costs. Depreciation expense increased $8 million to $141 million, in line with our expectations, due to the reactivation of the three floaters and the addition of the three newbuild jackups that I just mentioned. Disciplined expense management, including lower personnel costs, reduced general and administrative expense to $30 million, which was $6 million less than a year ago. As detailed in our press release, other expense increased to $55 million from $31 million a year ago for two key reasons. Cost to retire our 2016 senior notes and other smaller debt maturities increased other net by $7 million and interest expense was $15 million higher year-to-year, mostly due to our $1.25 billion debt offering during the third quarter of 2014. Our effective tax rate was 18% compared to an adjusted tax rate of 10% a year ago due to the mix of earnings from various tax jurisdiction and tax legislation enacted by the UK government. Our third quarter tax rate is expected to be approximately 12%. Now, let's turn to our outlook for the third quarter. Total revenues are expected to decline from second quarter results of $1.06 billion due to lower reported utilization and average day rates across the fleet. For our entire fleet in continuing operations, we expect reported utilization to be in the mid 60% range compared to 76% in the second quarter. Average day rates are projected to decline by approximately 3% from second quarter levels of $237,000. As Carl mentioned, the contract terms for the DS-9 termination fee are expected to bring cash flows forward into the third quarter. As previously reported, the quarter will also benefit from a lump sum payment for the DS-4 early termination. We anticipate third quarter contract drilling expense will decline by approximately 8% from $503 million in the second quarter as we continue to actively manage our cost base. We expect third quarter G&A expense to be in line with the second quarter. Depreciation expense is expected to increase approximately $3 million from second quarter levels to $144 million, as ENSCO 110 operates for a full quarter. In total, other expense is estimated to be approximately $54 million in the third quarter, as interest expense is partially offset by interest income. Now, I will provide an update on the cost reduction plans announced earlier this year. With the cold stacking process for ENSCO 8501 and 8502 now complete, cash costs for these rigs will be less than $10,000 per day. So, cash savings will be approximately $120,000 per day until we reactivate the rigs. We have cold stacked four jackups, three in the U.S. Gulf of Mexico and one in the Middle East. We're in the process of cold stacking another jackup in Asia. Cash costs for these rigs are expected to be less than $5,000 per day, with cash savings of approximately $40,000 per day. We remain on track to achieve a 9% reduction in average offshore unit labor costs from 2014 levels, which translates into meaningful cost savings since roughly half of contract drilling expense is offshore compensation. Second quarter results include a full quarter's impact of the 15% reduction in offshore personnel that was implemented earlier this year and is expected to generate annualized savings of $27 million. We continue to negotiate cost reductions with vendors and suppliers. And we expect to reduce expense and capital expenditures going forward. So now, let's wrap up with a review of our financial position. We have $7.4 billion in revenue backlog based on contracts in place. At June 30, we had a net debt to capital ratio of 32% and $1.3 billion of cash and short-term investments. By virtue of our recent debt refinancing, we currently have no remaining debt maturities until 2019, plus we have a fully available $2.25 billion revolving credit facility giving us significant liquidity and capital management flexibility. The delivery delay of DS-10 has changed our contractual commitments. Based on our agreement with the shipyard, the total commitments for our newbuild drillships has increased by approximately $14 million. This delay has also pushed the expected final milestone payment for DS-10 out until 2017 and has reduced our outlook for 2015 capital expenditures by approximately $300 million. Through June 30, capital investments in the fleet totaled roughly $900 million. For the remainder of the year, we anticipate CapEx to be approximately $800 million. This breaks down as follows: $600 million in newbuild CapEx, including ENSCO DS-8, that was delivered earlier this month; $100 million for rig enhancement projects; and $100 million for sustaining projects. Beyond 2015, newbuild CapEx is estimated to be approximately $800 million with $450 million expected to occur in 2016 and the remaining $350 million in 2017 as the final milestone payment is made for ENSCO DS-10. As Carl just mentioned, we now project total CapEx for 2016 and 2017 to be less than $750 million per year. So, in closing, the current market calls for aggressive management of costs. We began our cost reduction efforts more than a year ago by identifying several rigs that were not part of our go-forward fleet and would be sold. And we then quickly reduced costs for these rigs. Earlier this year, we reduced offshore compensation costs and onshore head count, generating additional savings. Since then, we have continued to proactively stack rigs, rolling off contracts that did not have near-term contracting opportunities to further reduce expenses. As Carl outlined earlier, we're taking steps to streamline our organization structure which will benefit expenses in the future. We remain diligent on expense management, evaluating opportunities within the company, both offshore and onshore, and working with vendors and suppliers to drive additional costs out of the system. Cyclical downturns like the one that the offshore industry is currently facing require solid financial positioning. Over the past year, our actions in the capital markets have further strengthened our liquidity and capital position, giving us greater flexibility to navigate the downturn. We have maintained strong investment grade credit ratings and remain among the highest rated companies in our sector. This will allow us to continue our focus on further improving operational, safety and financial performance, better positioning Ensco in the near-term and for the inevitable up-cycle. So, with that, I'll turn the call back over to Sean. Sean Patrick O'Neill - Vice President-Investor Relations & Communications: Thanks, Jay. And I'll turn it back to Carl for some final comments before we open it up for Q&A. Carl Trowell - President, Chief Executive Officer & Director: Thanks, Sean. Before we open up for questions, please note that we filed our 10-Q this morning, which includes an update regarding developments in Brazil. Since our last earnings call, there has been media coverage regarding an internal audit report released by our customer, Petrobras. It discusses events dating back to 2007 and 2008 in Brazil, before we acquired Pride International. The report makes inferences that former Pride employees may have been involved in improper activities, something that we take very seriously. The customer provided a copy of their internal audit report to Brazil's government authorities that have since requested a copy of the DS-5 drilling services contract from Petrobras. While the audit report became public more than two months ago, to-date we have not been contacted by Brazil authorities. And none of our current or former employees have been accused of any wrongdoing by any legal authority. As our 10-Q states, we've conducted compliance reviews, audits and independent investigations over an extended period of time, including more recent investigations in light of developments in Brazil. After investigation and benchmarking, we respectfully disagree with our customer's internal audit report with respect to comments regarding overpayments under the DS-5 drilling services contract. Publicly available data shows that the terms of the contract were comparable to others signed at the time. We've shared this information with our customer. And should Brazil authorities contact us regarding these matters, we would, of course, fully cooperate. To-date, our internal and independent investigations have found no evidence of improper activities by current or former employees regarding this matter. Our investigations continue. And we'll look at all aspects relating to the award of the DS-5 contract, including the activities of third-party concern. As I mentioned, this is described in more detail within our 10-Q disclosure. Now, operator, can we open up the lines for questions?

Yes, sir. Thank you. We will now begin the question-and-answer session. Our first question comes from Praveen Narra of Raymond James. Please go ahead. Praveen Narra - Raymond James & Associates, Inc.: Hey. Good morning, guys. You guys have done a good job controlling costs so far. Can you give us a sense if you found most of what you want to do in the future or are you continuing to turn over rocks and finding more costs removed from the system? Carl Trowell - President, Chief Executive Officer & Director: So, we've not finished yet. We think there is more we can do. As we've announced, we've just in the process of planning the reorganization of our five geographic business units into three. And that will bring some additional cost savings. We'll announce the exact figures when we get to Q3, because we're enacting the plans now. That will have some effect into Q4 and it will certainly have full effect as from Q1 next year. There are some other actions, which are a little bit longer term that we're working on, which will start to affect costs in 2016 as well. So, we're not done. And I think there's more we can do for refining the business and, more importantly, bringing in efficiencies and new structures and new ways of working, which will actually be sustainable once, we come out of the other side of the downturn as well. Praveen Narra - Raymond James & Associates, Inc.: Okay. That's helpful. And then, I guess, in terms of the jackups you have under construction, do you have any desire to potentially delay those as well as you did with DS-10 or do you see enough opportunity potential on those rigs? Carl Trowell - President, Chief Executive Officer & Director: I didn't quite hear it exactly, but I think the question was about the jackups that we have under construction. So we have three left under construction. If I deal with the 140 and 141 series, which has been built in the Middle East, at this stage, we don't have any intention to defer those. Those rigs have been very specifically built to a technology and a specification that we know is required by customers in the Middle East and Africa region. And we think that we will find good placement with them by the time they come out. We also have the opportunity if that doesn't happen to actually use them to high-grade the fleet that we have and replace some of the older rigs that are there. So, they continue on track at this point. The other jackup rig, ENSCO 123, that has been built in Singapore, this is the final one of a series that has been tremendously successful in the North Sea. We're going to evaluate whether we have immediate work for that rig to go to in the next few quarters and we'll make a decision. But we may still take delivery of the rig on time, even if we don't have an immediate job for it, because it's a very different prospect taking delivery and stacking ourselves a jackup than it is a drillship. So, yeah, we'll look at this as we go through it. Praveen Narra - Raymond James & Associates, Inc.: Perfect. Thank you very much, guys.

And our next question comes from Gregory Lewis of Credit Suisse. Please go ahead. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Yes. Thank you and good morning. Carl Trowell - President, Chief Executive Officer & Director: Good morning, Greg. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Carl, as we think about the idle or available fleet, I mean, clearly it sounds like not only Ensco, but other people in the market think or believe that we need to see maybe another, let's just call it for argument's sake, 50 rigs being removed from the fleet. Whether that's stacked or scrapped it doesn't really matter. But just as we look at the idle floater fleet for Ensco, it looks like everything is kind of positioned where – in a down market, you probably want an idle or available rig in the Gulf of Mexico. You probably want one or two of those in the Asia region. So, just as we think about that – and I know you can't talk to other companies, but as you think about if that impacts Ensco, does it make sense to have that available, ready-to-go, hot stacked floater spread out geographically for those one-off jobs that potentially can show up? Carl Trowell - President, Chief Executive Officer & Director: Yeah. So let me take first the big macro picture. If there is any good news at the moment and with the recent further downturn in the commodity price, I think, it's going to lead to the realization that we are in an extended period of downturn and will force more stacking at a more accelerated rate. I think if things had started to pick up a little bit as we went into the second half of the year or people felt there was a few green shoots, it may have caused people to delay or not take some harsh decisions. I think now what we're going to see is it's going to lead to a more aggressive stacking and probably scrapping plan as we go forward. We're already seeing about 19% of the floater fleet already scrapped or permanently stacked. With the aged floaters coming off, a lot of these are going to really struggle to find any continuing work, given that they're competing against much younger rigs. And so, I think, we're going to move towards 25%, 30% of the current marketed fleet being stacked and removed from the market and probably struggle to come back. And I think this is one of the positive stories that probably hasn't been picked up as much on by the market commentators, is the rate with which we could see additional stacking over the next two quarters to three quarters. And for ourselves, we took the decision to stack out a lot of our aged semis last year and put them in held for sale. And we have taken the decision that DS-2 and DS-1 are not part of our go-forward fleet at the moment. Now, with respect to having rigs available for picking up short-term work or things that may come available in the near-term, from our point of view, we do intend to do that. We intend to have a balance, which is why, for example, we have stacked some of the 85 (sic) [8500] (39:49) Series with the intention of bringing them back. But we don't intend to market that entire fleet. But we will keep some of those rigs available for work coming up. And we're in negotiations and chasing some leads at the moment for opportunities for those rigs. So keeping a geographic spread of floaters available to pick up the work is certainly something we will do. But we will balance it by taking some of the other rigs and stacking them if we don't think there is enough market opportunities. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Okay. Great. And then, you mentioned in the prepared remarks the ongoing issues or issue in Brazil. As we look at that that is more of a rig specific issue than – I mean you clearly have other rigs in Brazil? Or is it – was that still unclear? Carl Trowell - President, Chief Executive Officer & Director: No. As of today, we have – all of our rigs are still working, are under contract – still working in the contract with Petrobras. As we said, we found no evidence despite some detailed work of any wrongdoing by Pride or by Ensco. So, I don't think it's – I'm not going to speculate about what may be the alternative. I think that we covered it in the statements we've already made. Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker): Okay, guys. Thank you very much for the time and nice job on controlling costs. Carl Trowell - President, Chief Executive Officer & Director: Thank you.

Our next question comes from Andrew Carmichael of Simmons & Company. Please go ahead. Ian Macpherson - Simmons & Company International: Hey. Good morning. It's Ian Macpherson here. First, Jay, congratulations on retirement. It's been a pleasure. Jay W. Swent III - Chief Financial Officer & Executive Vice President: Thanks very much. Ian Macpherson - Simmons & Company International: Yeah. Carl, you mentioned that you expect an uptick in jackup fixtures in the second half. And it just seems a little counterintuitive given the recent downward volatility with crude. But I'm curious if you have more color on that. Where are you seeing that? Where it might emerge? And if really shallow water is looking as – there could be some normalization of demand. Even with $50 crude if jackup rates are cut in half, if you think there's some viability of normalized demand at these levels going forward or if this is just kind of fits and starts of backlog? Carl Trowell - President, Chief Executive Officer & Director: Okay. So let me take the jackup question and maybe I'll expand it a little bit into a broader discussion of the market outlook. Ian Macpherson - Simmons & Company International: Okay. Carl Trowell - President, Chief Executive Officer & Director: So the first thing to remember is that a lot of the jackup shallow water basins and environments are still economic at the current oil prices. And, accordingly, we are seeing still ongoing activity and we are seeing some new tendering opportunities. Now, clearly, it's not the same level it was a year or two years ago, but we are seeing ongoing activity. Now the Asia Pacific region and the Gulf of Mexico are extremely challenged. I mean they are very difficult markets, because of a falloff in activity. Middle East and Africa, largely driven by NOCs but also some IOCs and independents, is actually still quite robust and in a few countries or few smaller areas is actually growing. And the North Sea, outside of Norway, is holding up actually quite well, given the circumstances, especially because some customers are using the opportunity of the market pricing and conditions to do intervention work to bring on more production or to do P&A work, plug and abandonment. So, that's a quick walk around. We do see an uptick coming in some jackup tenders across the world over the next couple of quarters. But, as I said in the prepared statements, these are not going to materially change the outlook. In general, if I go to a broader discussion on the outlook, all evidence that people were looking for that we may see a pickup in activity as we go into 2016, that's clearly not transpired as we go into the second half of the year. We will exit the year as an industry with increased idle capacity. And I don't believe that we will see any increase in our customers' offshore budgets next year. And so, accordingly, we're going to see utilization and day rates still under pressure through 2016. Now that said, when we talk to customers, we do see a number of projects that have been pushed out that seemed to be scheduled for 2017 and we're tendering in the latter half of 2016. And we do see a little bit of evidence of customers coming and trying to take current pricing now for 2017 activity which maybe indicates where they feel things might go. And so, I think, it's going to be weak throughout the remainder of 2015 and 2016. And then, for a pickup in 2017, we need to see some key things happen on the macro environment. But certainly that's where a lot of the delayed work seems to be getting pushed out here. Ian Macpherson - Simmons & Company International: Yeah. That makes perfect sense. Thanks. Given that though we have had a big further leg down in the sector, do you think that this recent leg down has brought us within an arm's length in M&A window or do you still think that's some ways off given that the fundamentals are probably not going to trough for some time, at least for next year? Carl Trowell - President, Chief Executive Officer & Director: Well, I think, we're seeing some M&A type activity happening on the periphery, small type of things, and that may happen in the near-term. The bid and ask price is probably still a little bit far apart. And people are just getting comfortable with what the new norm looks like. So, I think, we're not at the immediate door of M&A activity. But I think you could maybe anticipate it as you go through into next year. I do think that it would do the industry good to see some of that M&A activity. You have some rigs and assets that are probably in the hands of the wrong people and not going to reach market in their current ownership. And if the M&A drives some consolidation and drives some efficiency and drives some hard decisions to be made around the retirement of some rigs, I think, it could be beneficial. Ian Macpherson - Simmons & Company International: Indeed. All right. Thanks.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. O'Neill for any closing remarks. Sean Patrick O'Neill - Vice President-Investor Relations & Communications: I just want to thank everyone for your interest in Ensco and have a great day.