Good day, everyone, and welcome to Ensco Plc's Second Quarter 2017 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I will now turn the call over to Mr. Nick Georgas, Director of Investor Relations, who will moderate the call. Please go ahead, sir.

Welcome, everyone, to Ensco's second quarter 2017 conference call. With me today are Carl Trowell, CEO; Carey Lowe, our Chief Operating Officer; Jon Baksht, 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. 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. During this call, we will refer to GAAP and non-GAAP financial measures. Please see the earnings release on our website for additional information. As a reminder, we issued our most recent fleet status report on July 20. An updated investor presentation is also available on our website. Now, let me turn the call over to Carl Trowell, CEO and President.

Thanks, Nick, and good morning, everyone. Before Carey takes us through our recent contract awards and Jon gives an overview of our financial results, I'll discuss some key developments since our last earnings conference call, starting with an update on our planned acquisition of Atwood. We received US antitrust regulatory clearance in June and integration teams continue planning for a smooth transition. As it is customary in these types of transactions, we're working with the SEC to respond to their comments on our merger proxy and following Ensco at Atwood shareholder meeting to approve the transaction, we expect to close later this quarter. While oil prices have declined since the announcement of our planned acquisition, we remain committed to the transaction for several reasons. By acquiring Atwood, we significantly enhance the drilling capabilities of our floaters and refresh our jackups. Atwood has four best in class drillships that we believe will be the type of rigs that go back to work first as market conditions improve. These drillships have features such as dual directs, 2 BOPs that create efficiencies for customers as they complete the growth of project. And we expect future customer demand will be higher for rigs of these capabilities. Additionally, Atwood's versatile semisubmersibles have established themselves by delivering high levels of operation performance to customers. And the jackups are well through for opportunities that are developing during the early stages of the shallow water recovery that is underway. Furthermore, we expect to recognize significant synergies from the transaction. We anticipate run rate expenses of $65 million on an annual basis beginning in 2019 and $45 million of synergies in 2018. After adjusting for approximately $100 million of transaction cost, we calculate these synergies create more than $400 million of present value at a 10% discount rate. As…

Thanks, Carl. Since our first quarter earnings call, our offshore crews and onshore personnel have stayed focused on delivering high levels of operational uptime and safety performance to our customers. Operational utilization was 99% in the second quarter in line with first quarter levels. And our safety metrics are tracking better than last year's record results. We recently secured a new work in several regions, including three drill ship contracts. In total, we have added approximately 19 rig years of backlog year-to-date. Ensco ranks first among all offshore drillers and new contracts during this time period, capturing approximately 20% of total rig years awarded industrywide. Starting in West Africa, ENSCO DS-4 is expected to commence a two-year contract offshore Nigeria in August with an option for one additional year of work. This contract award is highly significant as it marks the first time we have reactivated a drill ship since the start of the downturn, demonstrating our ability to win work for preservation stack rigs ahead of competitors' rigs that are active or warm stacked. The rig is well suited for the customers' needs and is outfitted with dual derricks. In addition to the rig's capabilities, our detail reactivation plans contributed to winning this contract. We activated DS-4 on time and within the previously announced cost guidance for returning a preservation stack floater to the active fleet. Additionally, this process validates our stacking and reactivation procedures. We believe that as we move through the cycle, we will be able to do the same for our remaining preservation stacked rigs. We also secured a one-year contract with five additional one-year options for Ensco DS-10, our final new build drill ship, which is among the most technologically advanced rigs in the global fleet. The rig's delivery will now be accelerated into third…

Thanks, Carey. Today I'll cover second quarter 2017 financial results, our outlook for third quarter and a summary of our financial position, including our capital expenditure outlook for the remainder of the year. Starting with second quarter results versus prior year, a loss of $0.15 per share compared to earnings per share of $2.04 in the year ago period. As detailed in our press release, several items influenced these comparisons, including $10 million related to the settlement of a previously disclosed legal contingency arising from a customer dispute that was included in the second quarter of 2017 contract drilling expense. $6 million of discrete tax expense included in the second quarter 2017 tax provision; $4 million dollars of transaction costs related to the proposed acquisition of Atwood included in second quarter 2017 G&A; $261 million gain included in the second quarter 2016 other income related to the repurchase of senior notes; and $205 million of early contract termination settlements included in second quarter 2016 revenue. Excluding these items and adjusted loss of $0.10 per share compared to adjusted earnings of $0.51 per share a year ago. Total second quarter revenue was $458 million versus $910 million last year. In the Floater segment, revenue was $264 million compared to $636 million in second quarter 2016. Revenue in the year ago period included $205 million of early contract termination settlements for ENSCO DS-9 and ENSCO 8503. Fewer rig operating days led to a decline in our floater utilization to 43% from 57% a year ago. And the sale of ENSCO 6003 and 6004, both of which operated during the second quarter 2016 also contributed to lower year-to-year revenues. Finally, the average day rate for floaters declined to $339,000 dollars from $360,000 dollars in the second quarter 2016. Operational utilization for the floater…

Thanks, Jon. Chad, at this time please open the line for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today will come from Gregory Lewis with Credit Suisse. Please go ahead.

Yes. Thank you and good morning gentlemen.

Good morning, Greg.

Carl, could you talk a little bit about the reactivation of DS-4 and sort of how that opportunity came to happen. Really I'm just trying to understand, I mean, this was a preservation stacked rig. I think one of the big themes in the sector has been the ability of hot rigs to win work as opposed to stacked rigs and I'm just trying to understand what enabled the DS-4 to be reactivated and really win that work, which is a nice solid two-year contract.

Okay, alright. Well, first of all, at the high level, Greg, I think what we should view is the positioning we've done of some of our rigs, DS-4 included and DS-10 has been because we've decided that we want to have the right rigs working in the right places with the right clients and that positions us well for what we expect to be an increasing level of activities we go forward over the next couple of years. And as we said, going back a couple of quarters we will be prepared to invest, to put rigs into key markets, but once we were there we expected them to be cash generative and that is true of the contracts that we announced for the drillships recently. Now, we expect to be at score, I think we also came to the idea that on the balanced portfolio basis we actually would like DS-4 to be out on active because it's a very competitive rig and that we would keep them DS-3 and DS-5 in preservation stat. So, a little bit more on that award, it was a competitive award, it wasn't directly negotiated and DS-4 did win the work against all rigs. And, I think when we decided we would start rigs, it's certainly preservation static agreement. We said at that time that we felt, to be competitive bringing the amount against to the rigs and I think we have proven that. And, part of that was we took up for investments to make sure that the rigs were very well preserved against a series of very carefully planned procedures, that we had already a detailed procedure for bringing them back that we were able to demonstrate to the client. And, that we were able to put the rig back to work as it would be and to the level that it would have been within warm stack within the time duration. So, I think we are very pleased to have that rig back working and as we said once it gets to Nigeria, we expect it to be generating cash for the business once it's there. Now, what we are doing of course is, we are making some additional investments in the rig, but these are enhancements that think will make the rig competitive and make it the most capable rigs in the market going forward over the multiple years.

Okay, great. And then just - you touched on paper remarks about the depending acquisition of Atwood, I noticed in the 10-Q this morning about some potential I guess law suits against Atwood and regarding the merger. Does that have any impact in the timing of the potential closing of the deal? I am just trying to understand, I see these things and I am trying to understand, is that sort of normal course of any acquire, any M&A transaction, or is that - I am just trying to understand. And those are against Atwood not Ensco, correct?

Yes, so Greg these are within the normal scope and expectation of M&A activity. There is nothing unusual there and nothing that we think is going to delay the process. And they are all from a - Atwood primarily, one of them those [indiscernible] was a counter party as part of that deal, partially because the way the deal is structurally done. But, nothing that we expect is going to cause any problems on the closing of the deal.

Okay, perfect. Thank you very much gentlemen.

Thanks, Greg.

The next question will come from Ian Macpherson with Simmons. Please go ahead.

Hi, thank you. Congratulations on the recent contract wins, I wanted to ask you Carl or Carey if you secured a way in, how you think about generating a return for the DS-10, given that you had to spend close to $200 million, from here forward to complete the rig. And whether the one year plus five year of customer options provide the basis for getting it and accept for return on approximate 200 million bucks, given where rates are today.

Ian, maybe, I'll take it first and see if Carey wants to add anything. First of all, we have to bear in mind that we have very long lived assets and so that sort of return will not load in the return on the first year's contract, quite obviously. We think that the investments we've made there will make a good return for us for the investment and for the shareholders over the duration - over the next two years and over the life of the asset. The options on that contract in the out years of price are tiered envelope and I think that if the options were accept –taken them we would feel relatively pleased on the placement of that rig and the rates that we would get for it. So, we are not loading everything on the first term contract or say a year or two year option extension. [indiscernible]

Sorry go ahead Carey.

Ian, just one thing to add just to clarify the CapEx remaining on the DS-10 is actually 190 million - the 210 million number I mentioned in the prepared remarks, only a portion of that was the DS-10. And of the 190 million, 35 of that is capitalized interest, so really its interest would be paying anyway. So it's not all incremental cash spend, so just wanted to clarify.

And, also additionally a lot of those expenses we would have had whenever we brought the rig out. So, we are going to quickly capitalize - I'm sorry, the customer acceptance testing mobilization is other things too.

Understand thanks. I was really mainly curious if what the mechanisms are of the customer options, if they are variable or an oil price turning at the market conditions or if they are just sort of fixed with some price escalation?

We are not going into the exact details of it. They are not variable on oil, they step up overtime.

Okay, and then, the lastly for me Carl. You mentioned that depending closing of the deal, that's filling up Atwood's fleet would be job one and that you would be examining more retirements within the legacy Ensco fleet, could you describe which rigs that would - could fall into that bucket?

No, we are not going to go into it specifically at this point Ian. One is because we are finding that plan secondly similar to rigs working on contract with clients. But you should expect is as we go forward post closing that will give more insight into that. But broadly speaking, I think you can fully expect us to retire a few more of our older jackups as we have done recently with ENSCO-52. One of the real positives of the Atwood transaction is that we bring in five highly capable younger jackups that fit into real sweet spots that we're seeing for marketing at the moment as the jackup market begins to recover and we will take that opportunity to refresh and renew our jackups lead and probably cast a few more of the older ones. A lot of these rigs are, some of them are most aged ones, very heavily written down or very low NBV anyway, things that we wrote down three years ago, so that becomes a relatively straight forward decision. And we will take a look at accepting some of the plugs as well, once we close and we work through this a little bit more. So, we'll give you more news when we refine the plan.

Understood, thank you.

The next question will come from Blake Hancock with Howard Weil. Please go ahead.

Thank you. Good morning guys. Jon maybe the first one for you here, on the 4Q cost guide, the 275 to 280, can you just quantify how much reactivation is still left in there, incremental cost that isn't standard operating cost.

Yeah, there is a bit in there, just to provide some broad guidance because there is still some variability that could go into it, but in the mid-single digits is probably where I guide you.

Okay. That's perfect. And then the next one, Carey you talked about kind of the growing tenders year-over-year still, do you get this as function of the operators or more or less, having to start moving forward projects to kind of meet production targets, 2019, 2020 or is this more of a function of just the offshore cost structure has come down as much that they might as well move forward with all these assets.

Blake, I think it's a good to follow that offshore costs have come down, the growing cost are being reengineered and brought down. The fact that opportunities are there for infill type work, is creating some demand and the fact that a number of projects had not been sanctioned in the past two years and at some point the oil companies have to start drilling again. This is causing operators to start making plans to drill and coming out with tenders.

Yeah Blake, maybe I can take the opportunity to just give a broader picture about the market on the back of that. So, first thing to say is that, despite the swing in the oil price dip down and then a little bit of recovery recently, we haven't actually seen any major interruptions to the tendering activity in Q1 and Q2, now in many cases, that's also a lot of these things already in process, but we just come up with five considering the state in view of all of our opportunities due to the market conditions here. And, I think probably somewhat surprising to know there is actually its normal to withdraw the contract, despite to be sit down like in the old price. Now, it's coming up on old basis, we said in our pre-compared statements, we don't think that this is leading to a sort of hospice recovery, by any means. But, I think truly speaking, we feel now that the Shallow water has bottomed and it is recovers as far as activities concerned. We think that the next area that we expect to see pickup now is in the Deepwater around existing infrastructure. So, this is type of neglects and preventions for new some sea tiebacks. I think that we are feeling courage by what we are seeing in the market is reflected by some of the common treatments by the big major, service companies like [indiscernible]. I will be thinking about the next area that will pick up a bit. And, as far as the deep water is concerned and Floaters segment as a whole, we don't think it will change from a quarter to a go, despite the increase in the tenders. We fixed a number of rigs growing on contract this year, is going to be, when you are going to see further global utilization full off in the tender mark in the third closed segment. As we look '18 and '19, we are seeing a number of new opportunities come and interestingly in the last few months, we have seen some new shore cum work come to the table, that didn't exist and it wasn't on our radar at all, three months ago. A lot of this seems to be price response to our customers, you know, to contact people to re-express all the spread of services at great [ph] and not to be sustainable right on time, and its driving some less extreme demand, and, we are now seeing several new tenders for activity in '18 owing to deep shore programs around existing infrastructure and the in the deep well services. So, that's the general market condition and it's because of that we do feel we are in the forwarding point of cycle, at different basis and different segments, and, it's why we believe that it's time to making some investments in the future.

That's great. Thank you guys, I appreciate it.

The next question will come from Haithum Nokta with Clarksons. Please go ahead.

Hi, good morning. Carl I just wanted to take up on your last point there. Yes, just kind of confirm it sounds like despite the old price sans weakness over the last call three months, it hasn't really been a change in the havoc for opportunities and may be in the pre-tender phase. And, I guess has there been a difference at all between the Jackups customers, Shallow water customers verses the Deep water customers, any reaction to that.

Haithum, not really, no maybe it's a bit early. Especially in the deep water, people might take decision processes quite long time in advance. So you don't see switch on and switch offs so quickly. But, I think completely from what we've seen I don't think we could make a comment that we've seen it full off. I think in the Jackups, Shallowwater segment, we're seeing now, quite a lot of customers start pushing projects through for FID and beginning to look at increased activity level and partially of adapting to the new reality of both oil prices and cost inputs. And we're seeing a lot of simplification of projects, a lot of streamlining and a lot of efficiency build in there. And accordingly, I think that oil prices within the range, they been still support the continued investment in the Shallowwater. In respect to the Deep water, I think a lot more will rest on the sentiment going into the 2018 planning cycle for all of the customers as we get two to three months down the line. Then, the [indiscernible] that we sold over the last quarter, is affecting our outlook for '18 and '19. So, I think that we would probably have more comments; more feel of that within a quarter or so, once we understand, what were the essentials from some of the customers is as far as the planning for '18 is concerned.

Now, if it does. And, in respect with DS-4, in a re-activation and then we can't' deliver it and anyway can you give a reason why the 3 and the 5 were not chosen into the four that kind of went ahead. And, I am curious into the 15 million that is the capitalize, what is the nature of the upgrades were, and whether or not they are a part of, you know many of us who consider that part of the reactivation, but still, so bid on why the four and not the three and five?

Yeah, hi, this is Carey. The tender will require to do the activity rig and DS-4 is still activity worse three and five. So, that is one of the reasons that drove us to DS-4. As for the capital upgrades, some of it is trusted to specific requirements well light connectors, different frames, cloth clipping frames and so on. Step related to the completion process, and then there was some additional tubular's that were required to double contracts specific.

Yeah, and, that's exactly the way we deal this, there are very much three buckets you can costed for re-activation of a rig. The first one is, how much does it really cost to basically be preserved and actually that's relatively small, it got to be like in one episode in the order about $6 million. Then there is effectively catch up on surveys, maintenance and refurbishment of equipment, which is actually the biggest part. I wish most of those costs would have been incurred if you begin involved, and then the third bucket which, is the one that you are talking to, which is, are there any further enhancements which are not necessarily required to the activated rigs but either enhancements for the rig, for the future or required for the contract all the basins going through. And, I think in this particular case, we are prepared to make those investments, cause additional investments, because, we think it adds value to the rig in the long term and we do believe, one of the reasons, we take these contracts with these clients in that areas, because we have relatively good visibility to ongoing work there beyond the contract. So, we really think that there is a very good chance that we will continue to work, within neither Nigeria that was set with the market on that type of targets.

We are actually declining over the contract, you know in places in the world at a shorter duration, where the client is requesting. What we think is actually completely irrespective, or quite ridiculous upgrades or enhancements to the rig that they expect, the contractor to make for the short and long term contract. And, we don't think that the investments there warranted would be covered over the life of the rig, because they are often very, very specific to that client who's holding that contract. And, in that case we are actually no bidding some of these contracts and we have actually stepped up in a number of low bids we've done over the quarter or two. So, we are being very specific about which contract we will bid into, and will invest for, and which ones we won't.

Alright I appreciate that call, thanks. And this one last quick one is, did I hear correctly that DS-7, there's potential follow on work in the first quarter '18 for that as well.

We are anticipating some worth, yes. And, it's also why, we are actually quite pleased to have the rig go back to work for existing customers, who go from their homes successfully active status.

Got it. Perfect. Thank you.

The next question will come from Praveen Narra with Raymond James. Please go ahead.

Hi, good morning guys. I am just sticking to the DS-4 commentary, in terms of the re-activation cost; you mentioned 6 million for deepwave drilling, if we go on further for say, it's called cold stack for two years and beyond, do you think we would still be able to hold that 35 million as the deep wave drilling goes up, but the reminder stays very calm.

Yeah. Probably - this is Carey. The $25 million to $35 million estimate we gave you is good for a five-year timeframe. There is a point when you don't have to do any more maintenance. You are not consuming hours on equipment or increasing the amount of overhauls you have to do and it kind of flattens out. So, we've estimated those numbers based on a five-year timeframe.

Okay. Perfect. And then in terms of the contract on that, I guess, you guys mentioned that the two-year contract was something that was important to you in terms of the term. I guess what kind of hall weight [ph] on term would have been acceptable to go through the reactivation process?

Do you mean the duration on the term?

Correct. I guess, would you guys have done it for one year term along with the potential for follow-on work behind that?

Yeah. I think the simple answer to that probably is yes if it was the right client right basin with follow-on work, which is sort of what we've said. And I think our view through the likelihood of follow-on work would be it's a major decision in doing this. So, we might do it for one location, one client, but not another.

Okay. Perfect. Thank you, guys.

The next question will come from Colin Davies with Bernstein. Please go ahead.

Hello. I just wanted to come back to the deal. You mentioned that you would run a range of scenarios to test the thesis around the deal and you mentioned the downside scenario of no pricing power emerging in the rig market. Can you give some sense and put that in a more macro context as to what kind of oil price environment would you be running at for that sort of downside scenario to still make sense?

Sure. I'll take a stab at that. In just generally speaking, when we evaluate all investment opportunities and not just Atwood, we do screen things against many scenarios. And so, some more rapidly recovering and some lower for longer if you will. And so, the ones that were in the merger proxy were the two that we relied on for there, but internally we look at other various scenarios that we evaluate just from a management standpoint. And I can tell you from a lower for longer scenario, we do test fairly various scenarios. And so, I don't pin an exact oil price on there. I think as the lower oil price would translate into recovery, yeah, I think the way we would look at it is lower utilization for longer and lower day rates for longer and that could be loosely coupled to oil price. But you can call it more bearish and the forward strip is today and the recovery that - if you look in the proxy the case we showed was recovery, various recovery scenarios for jack-ups and floaters, so we also screen it against scenarios that the recovery is further up than those presented.

I think the thing is it's probably a good point to make a broader statement, which is in some ways it lessens the specific oil price in the sense that what we are seeing now is our clients in the general market is adapting to the new reality offshore of lower oil price and we've touched on this before about how costs would come down for a lot of offshore developments. And what we're seeing is a lot of developments that are coming to the table, ones which at the top of the queue and they are optimized to the current oil prices. The issue today, the thing - so we do feel we're in a broad market. We actually think activity is coming up in several areas, area that constrains us and maybe drives more of a down case is that we see a structural overhang for longer on the rigs and we see suppressed pricing and we don't see the return of pricing power for longer.

Yeah, yeah, that makes sense. But just to try and clarify that a little bit more, I mean, if that downside scenario still assuming that we sort of continue where we are, but, for example, deep water economics are able to proceed at a sustained lower cost base.

Sure. And again it's a bit loosely coupled. I think obviously we have some fairly detailed models that we use basin by basin and from an activity level standpoint and that activity level turns on and turns off based on oil prices. And then we use that to extrapolate rig demand and then we look at global rig demand supply against that. And ultimately then we have some judgments on what that environment would look like from a utilization standpoint and how that translates into day rates. And so, to broadly answer, yes, we do look at that. I can't tell you it's as precise as you might - I think you might be characterizing because there are some judgments involved in the process, but we do look at it and we do look at scenarios where it translates into more downside than our current day rates reflecting more downside than current utilization that we're experiencing today.

And I'll use the opportunity to make a little bullet point, which is that we've looked at more aggressive recoveries and slower recoveries than we currently estimate at the moment. But we're not naive in expecting that to be a rapid recovery here to make the Atwood acquisition a success. Our belief is that the market will gradually recover overtime. We think that the level of investment now three years and possibly going into four years of quite material pullback investment outside of OPEC and onshore US is going to lead to a supply issue and the longer that goes on the more - the great the chance for dislocation on the supply side. And thus there will be over time recovering investment in offshore and the offshore is going to be viable and especially because the cost base - breakeven cost structure is coming down. But the future is not going to look like it did in the past and we don't assume that all of the companies that exist in our sector today are going to exist and all the rigs that are working today have been working over the past few years. They are going to work in the future. And therefore - and there is going to be a new reality and we're going to be asked by clients to play a greater role in helping the drilling efficiencies and bringing down costs and we're going to be asked to be - to probably take on some new contracting models, including potentially the integration of other services around our rigs. And what we need to do as a management is prepare ourselves for that and make investments at this point in the cycle to be ready for it and that means having the highest quality fleet. It means investing in technology and innovation and it means investing in the ability to take different contract models and that's what we're doing at the moment. And we work within a cyclical asset intensive business and you can argue that the drilling sector has tended to make investments at the wrong point in cycle peaks. If you're in that type of business, we need to be looking to make investments that counter cyclical into the bottom of the cycle and that takes some bravery and it takes some foresight because that's exactly when uncertainties and the greatest market sentiments that is lowest. So, that's where we need to called in honors [ph] as the management team to make some decisions and make some investments. And it's in that context that you should view the acquisition of Atwood and our investment in our fleet. The continued investment we're making in technology and innovation that we're going to be rolling out and putting on some of our rigs later this year and beginning of next year.

That's great. Really helpful context. Thank you very much. I'll hand it back.

All right. Thanks.

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Nick Georgas for any closing remarks.

Okay. Thank you, Chad. And thank you to everyone for your participation on today's call. We look forward to speaking with you again when we report our third quarter 2017 results. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.