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Edited Transcript of NE earnings conference call or presentation 21-Feb-19 2:00pm GMT

Q4 2018 Noble Corporation PLC Earnings Call

United Kingdom Feb 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Noble Corporation PLC earnings conference call or presentation Thursday, February 21, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam C. Peakes

Noble Corporation plc - Senior VP & CFO

* Jeffrey L. Chastain

Noble Corporation plc - VP of IR & Corporate Communications

* Julie Johnson Robertson

Noble Corporation plc - Chairman of the Board, President & CEO

* Robert W. Eifler

Noble Corporation plc - VP and GM of Marketing & Contracts

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Conference Call Participants

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* Eduardo B. Royes

Jefferies LLC, Research Division - Equity Analyst

* Gregory Robert Lewis

BTIG, LLC, Research Division - MD

* Ian MacPherson

Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service

* Kurt Kevin Hallead

RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst

* Madhav Sanwal

UBS Investment Bank, Research Division - Director and Equity Research Analyst

* Scott Andrew Gruber

Citigroup Inc, Research Division - Director and Senior Analyst

* Sean Christopher Meakim

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* Taylor Zurcher

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Oil Service Research

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Presentation

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Operator [1]

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Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Noble Corporation Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) I would now like to turn the call over to Jeff Chastain, Noble Corporation Vice President Investor Relations. You may begin.

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Jeffrey L. Chastain, Noble Corporation plc - VP of IR & Corporate Communications [2]

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Thank you, Krista, and welcome, everyone, to Noble Corporation's Fourth Quarter and Full Year 2018 Earnings Conference Call. We appreciate your interest in the company and in case you missed it, a copy of Noble's earnings report issued last evening along with all the supporting statements and schedules can be found on the Noble website, and again, that's noblecorp.com.

Before I turn the call over to Julie, I'd like to remind everyone that we may make statements that are not historical facts and are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. Our filings with the U.S. Securities and Exchange Commission, which are posted on our website, discuss the risks and uncertainties in our business and industry and the various factors that could keep outcomes of any forward-looking statements from being realized. And these include the price of oil and gas, customer demand, operational and other risks. Our actual results could differ materially and Noble does not assume any obligation to update these statements.

Also note, we are referencing non-GAAP financial measures in the call today. You will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and any associated reconciliation on the website.

And finally, consistent with our quarterly disclosure practices, once our call has concluded, we will post to our website a summary of today's guidance, and that will cover both first quarter and full year 2019 figures.

With that, I'll now turn the call over to Julie Robertson, Chairman, President and Chief Executive of Noble.

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Julie Johnson Robertson, Noble Corporation plc - Chairman of the Board, President & CEO [3]

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Thank you, Jeff. Good morning, ladies and gentlemen, and welcome to our review of fourth quarter 2018 results. I appreciate your participation in today's call and your continued interest in Noble. In addition to Jeff, I'm joined today by Adam Peakes, our Senior Vice President and Chief Financial Officer; and Robert Eifler, our Vice President and General Manager of Marketing and Contracts. Adam will cover in detail the financial results for the fourth quarter and our thoughts regarding expectations for 2019, and Robert will follow with review of the Noble fleet and an assessment of global offshore regions and opportunities.

This morning, I want to begin with addressing our operational and fleet enhancement success from this past year, which holds positive implications for 2019. These achievements were a result of the collective effort involving a focused teamwork execution from all organizational disciplines within the company.

In 2018, we achieved record safety performance as the company's Total Recordable Incident Rate, or TRIR, improved 11% from the prior record set in 2017. Our 2018 safety mark remains superior when compared to the average TRIR result for the offshore drilling industry.

Additionally, from an operating perspective, downtime across the Noble fleet was only 2.7% in 2018 or stated inversely, we registered 97.3% of operational uptime. This achievement also represents a record result for the second consecutive year. And it is most impressive that both the safety and fleet downtime results were achieved during a year in which we increased our active rig fleet by 4 rigs following reactivation programs and expanded our offshore headcount by 10%. These results demonstrate Noble's strong culture of excellence as we continue to emphasize strict adherence to best operational practices and maintain our focus on top quartile performance. We are certain that these are the keys to delivering outstanding service across our global operations and the dedication of our worldwide offshore and shore-based employees is what continues to deliver these results.

Also in 2018, we moved decisively to improve the readiness and positioning of our floating and jackup fleets as improving market conditions became increasingly evident. A total of 4 previously warm stacked units were reactivated over the year with a fifth reactivation project, the Noble Sam Croft, expected to be completed next week. And our floating rig fleet, reactivations were finalized on the Noble Clyde Boudreaux, which also includes a significant upgrade to the rig's drilling capability, and the drillships Noble Tom Madden and Noble Globetrotter II. In our jackup fleet, the Noble Sam Hartley completed its reactivation following the relocation of the rig to the North Sea. You will recall that throughout the industry downturn, we elected to warm stack our premium fleet as per our company's stacking protocol, focusing on continuous maintenance and preservation. As a result, our rigs are returning to work at a lower overall reactivation cost and on a faster schedule than those rigs subjected to a less robust stacking methodology. More importantly, 3 of the 5 reactivated rigs are currently executing drilling programs in various regions around the world with the fourth and fifth units, the Globetrotter II and the Noble Sam Croft, expected to commence operations in the Black Sea and Gulf of Mexico, respectively, during March.

Because of these efforts, each is advantageously positioned to compete for follow-on programs as operator needs materialize. Finally, the acquisition of the Noble Johnny Whitstine and the pending purchase of the Noble Joe Knight improved the versatility of our jackup fleet adding 2 modern fit-for-purpose drilling solutions with an aggregate of 6 rig years of contract time in a region of the offshore industry that holds exceptional long term opportunity. The Johnny Whitstine is currently mobilizing to Saudi Arabia for an expected contract to mid -- late March. The Noble Joe Knight is scheduled to arrive at the Sembcorp Marine shipyard in Singapore following the expected completion of the rig purchase at the end of this month. This way we'll complete a similar commissioning program and client-specific upgrades. Our expected contract commencement date also for Saudi Aramco in the kingdom is September 2019.

With these 2 rig additions, our jackup fleet remains at 13 units following the retirement of the standard duty jackup, Noble Gene House, in the fourth quarter 2018, after completing 38 years of impeccable service. Approximately 85% of our jackup fleet is located in the Middle East and North Sea, and we see exceptional contract opportunities in 2019 and beyond. I will have more to say about the importance of our global fleet alignment as well as key areas of focus for 2019.

For now, I'll turn the call over to Adam.

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Adam C. Peakes, Noble Corporation plc - Senior VP & CFO [4]

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Thank you, Julie. Good morning, and welcome to everyone. Noble finished 2018 on a strong note with fourth quarter results continuing the steady progress that began earlier in the year. On a quarterly basis, we set high marks for the year in fleet utilization, contract drilling revenues and EBITDA, this despite the persistent challenges our industry faces today. On a reported basis, the fourth quarter net loss attributable to Noble totaled $33 million or $0.13 per diluted share on revenues of $310 million. Included in the reported results was a gain from the retirement of debt and a discrete tax benefit, which together totaled $66 million or $0.27 per diluted share net of tax. With regard to the gain from debt retirement, we spent approximately $20 million in cash to purchase $27 million of principal amount senior notes with maturities in 2040, 2041 and 2042. This debt repurchase was gone through a couple of small opportunistic open market repurchases during the fourth quarter.

These favorable items were partially offset by a $9 million or $0.04 per diluted share asset impairment charge relating to the standard duty jackups, Noble Joe Beall and Noble Gene House. Following the close of the quarter, the Noble Gene House was retired from service, reducing the company's jackup fleet to 13 -- or sorry, to 12 units before the pending addition of the Noble Joe Knight. Excluding the net favorable outcome of all of these items, the net loss attributable to Noble for the fourth quarter would have been $90 million or $0.36 per diluted share. We have included a non-GAAP supporting schedule with our press release and the schedule can also be found on the Noble website at noblecorp.com. That schedule provides a reconciliation of non-GAAP numbers to net loss attributable to Noble Corporation, to income tax provision and to diluted earnings per share for the fourth quarter 2018, fourth quarter 2017 and full years 2018 and 2017.

Contract drilling services revenues increased to $292 million in the fourth quarter, up 9% when compared to the previous quarter. In addition to a meaningful quarter-over-quarter reduction in fleet downtime, the growth in revenues was driven by an 8% rise in operating days across the fleet with the floating rig side of our business experiencing a 23% improvement in activity.

We saw more operating days for the Noble Clyde Boudreaux and Noble Tom Madden following the completion of reactivation projects in the third and fourth quarters, respectively. In addition to the contribution from these rigs, revenues from the Noble Globetrotter II and Noble Don Taylor improved in the quarter with both rigs benefiting from the commencement of contract awards from third parties, while continuing to collect special idle dayrates associated with previously amended legacy contracts. The special idle rate on the Noble Globetrotter II concluded in early January 2019 and the dayrate has transitioned to the previously defined floor dayrate of $275,000 a day. However, for the entire first quarter of 2019, the Globetrotter II will operate at an 80% of the floor dayrate or $220,000 per day while a managed pressure drilling system is installed ahead of commencement of its next drilling program in the Black Sea. The Noble Don Taylor continues to collect an idle dayrate until February 25, 2019, plus the dayrate from a third party contract assignment.

Contract drilling services costs in the fourth quarter totaled $179 million compared to $163 million in the preceding quarter. The 10% increase, which was within our guidance range, was largely due to the additional operating days for the Madden, Boudreaux and for the jackup Noble Sam Hartley, which in mid-October commenced a program in the North Sea following relocation of the rig from Southeast Asia. Also rig reactivations and other steps to improve the overall readiness of our fleet contributed to the rise in costs. Of note, the reactivation of the Noble Sam Croft continued through the fourth quarter with a project responsible for approximately $3 million of incremental costs in the quarter when compared to the previous quarter. This project will be completed later this month with the rig expected to commence a contract in the U.S. Gulf of Mexico in March. Earnings before interest, taxes, depreciation and amortization, or EBITDA, improved to $102 million in the fourth quarter compared to $92 million in the preceding quarter. In addition to the previously mentioned activity uptick seen predominantly in our floating fleet and the concurrent special idle and third-party dayrates for the Noble Don Taylor and Noble Globetrotter II, we continue to collect revenues in excess of the stated floor rate on the Noble Globetrotter I, while operating in the Eastern Mediterranean. Since other line items from the P&L were largely in line with guidance offered in November, I don't think there is a need for further comment here.

Therefore, I will move directly to our fourth quarter capital expenditures. At $61 million, capital expenditures in the fourth quarter compared to $76 million in the previous quarter of the year with capital expenditures for 2018 totaling $221 million, including the following major components: $83 million of sustaining capital; $75 million related to major projects, which include rig reactivations and the upgrade for the Noble Clyde Boudreaux, certain contract-specific requests for various rigs and the installation of our MPD system; $34 million for the upfront purchase price on the Noble Johnny Whitstine; and $29 million for Subsea capital spares and other related projects.

For the year, our net cash provided by operating activities totaled $172 million, and we ended 2018 with unrestricted cash and cash equivalents of $375 million, up from the $326 million at the conclusion of the third quarter. Our revolving credit facilities remained undrawn. We do not have any debt maturities in 2019 and only $315 million of maturities between now and 2024, including the shipyard financing associated with the Noble Johnny Whitstine and the pending finance portion of the Noble Joe Knight purchase.

Next, I will offer some comments regarding financial guidance for the full year and first quarter of 2019. In addition to the usual line items from our P&L, my guidance comments will also include thoughts on contract drilling services revenues.

Beginning with fleet performance. We start the year with an assumed downtime factor of 4%, up from the outstanding actual downtime performance in 2018 of 2.7%. The higher estimate is driven largely by expected changes in our fleet mix given an expected increase in operating days from our floating fleet. Contract drilling services revenues in 2019 are expected to be essentially flat when compared to 2018 results. We're reaching just over an estimated $1 billion. Although fleet operating days in 2019 should increase by 10% to 15% from 2018 levels, driven largely by contracts already in hand, average daily revenues in 2019 are expected to trend lower as the Noble Don Taylor reprices to market rates that continue to reflect a highly competitive industry dynamic.

Revenues from client reimbursables should range from $25 million to $30 million in 2019. For the first quarter of 2019, revenues are expected to range from $255 million to $270 million compared to $292 million in the fourth quarter of 2018. The decline is due primarily to lower average daily revenues in the floating fleet led by the conclusion of a legacy contract on the Noble Don Taylor in late February. Revenues from client reimbursables should range from $5 million to $10 million in the first quarter.

Moving now to contract drilling services costs. We expect a range of $705 million to $725 million in 2019 compared to 2018 actual contract drilling services cost of $630 million. The expected higher fleet activity is the primary driver of the increase. Rigs such as the Noble Tom Madden, Noble Sam Croft and Noble Clyde Boudreaux are expected to drive higher activity on the floating side of our business. In our jackup fleet, higher activities are expected to result from increased operating days on the Noble Johnny Whitstine, the Noble Joe Knight, the Noble Sam Hartley, Noble Mick O'Brien and Noble Hans Deul. Client reimbursables for 2019 are expected to range from $15 million to $20 million.

For the first quarter of 2019, contract drilling services costs are expected to range between $168 million and $183 million compared to actual results of $179 million in the fourth quarter of 2018. The expected flat outcome is due in part to a decline in rig reactivation costs and the retirement of the Noble Gene House. Costs associated with client reimbursables in the first quarter are expected to be in a range of $3 million to $5 million.

DD&A expense for 2019 is expected to range from $445 million to $460 million compared to actual DD&A for 2018 of $487 million. The minor reduction from 2018 is due to the impact of rig impairments recognized in the previous year, which were partially offset by the purchase of 2 jackups, one of which is pending and is expected to close in the next 2 weeks.

In the first quarter of 2019, we expect DD&A to range from $110 million to $115 million compared to actual expense in the fourth quarter of $114 million. SG&A expense for 2019 is expected to fall into a range of $65 million to $75 million compared to actual expense in 2018 of $73 million.

Our SG&A expense for the first quarter is expected to total between $16 million and $20 million compared to actual expense of $15 million in the preceding quarter with higher professional fees the primary driver of the increase. Interest expense in 2019 is expected to range from $295 million to $300 million or basically flat with 2018 expense of $298 million. Although we will experience incremental interest expense in 2019 resulting from the third-party financing from the Noble Johnny Whitstine and the Noble Joe Knight, this expense will be largely offset by an estimated $5 million in capitalized interest associated with projects for the 2 rig additions.

The interest expense for the first quarter is expected to total $72 million to $74 million, net of an expected $2 million in capitalized interest. Noncontrolling interest on our P&L represented a Bully I and Bully II 50-50 joint ventures with Shell are expected to total $5 million to $10 million of expense in 2019 compared to $5 million of expense in 2018, excluding the impairment charge for the Noble Bully I recognized in the third quarter of 2018. We expect $1 million of expense from noncontrolling interest for the first quarter.

Capital expenditures for 2019 are expected to total $250 million and include the following major components: $90 million for sustaining capital; $97 million for major projects, including reactivations; $30 million relating to the purchase of the Noble Joe Knight; and $33 million related to Subsea spares and other related projects. Almost 40% of our expected full year capital spend should occur in the first quarter when capital expenditures are planned to total $96 million, including sustaining capital of $19 million, $30 million for the Noble Joe Knight rig purchase, $47 million for major projects and reactivations including projects associated with the 2 rig purchases.

Finally, we expect the full year 2019 tax benefits to range from 10% to 15%. Cash taxes to be paid in 2019 are expected to total $20 million, and relate entirely to our international operations.

In summary, we enter 2019 in excellent position to extend fleet activity gains from the previous year. Although a decline in average daily revenues across the fleet is likely, 8 out of 9 actively marketed floating rigs are currently under contract along with all 12 of our jackups, actually 13 jackups under contract if you include the pending purchase of the Noble Joe Knight, driving an expected 10% to 15% growth in fleet activity when compared to 2018.

Our recent reactivation of 4 rigs, along with the subsequent contract awards for each supports our fleet activity projections and concludes for now all reactivation programs. Our premium floating and jackup fleets are at a higher state of readiness with excellent alignment in key geographic regions. As a result, we possess a strong competitive posture in what remains a challenging business environment. Finally, steps taken in 2018 to address debt maturities and extend liquidity have proven to be well timed and highly supportive as we direct our operating and growth strategies beyond 2019.

I'll now turn the call over to Robert for further perspective on the offshore market.

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [5]

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Thank you, Adam, and good morning to everyone. I will open today with some observations on the current state of offshore drilling industry, provide an update on the status of the Noble fleet, which continues to show meaningful improvement in activity and finally, close with an overview of regional developments and opportunities.

Beginning in the fourth quarter of 2018, the effect of the drop in oil price has featured prominently in most discussions on the state of the offshore drilling industry. Following this short duration breakdown in price levels, some operators, primarily smaller ones, indicated they would undertake reassessments of their 2019 upstream spending assumptions during the first quarter. As a result, we have seen some cancellations and delays in 2019 well programs, primarily in the floating sector. However, it is our belief that while these changes will have some negative effect, they won't be significant, especially in relation to our own fleet marketing efforts. In fact, jackup contracting activity is continuing at a very strong pace and floater activity remains active as evidenced by the numerous tenders outstanding to fill floating rig needs across the globe. Noble's experience has also been encouraging with contract days added in January for our floating fleet and important opportunities emerging for our jackups. I'll have more to say on our fleet in a moment. We believe our industry remains in early stages of recovery, and any adverse impacts stemming from the late 2018 crude oil price volatility should prove to be short term in nature. We've already witnessed a swift recovery in the price of Brent of its December 2018 low of $51 per barrel. The international benchmark rose to an average price of $60 per barrel in January 2019, and has remained above this average through February.

The return to a sustained trading range that is above the breakeven price that's associated with many of our customers offshore projects is likely to support greater activity over the near to intermediate term. We also view the actions taken by global exploration and production companies as excellent indicators of future offshore activity. For example, customer interest in emerging basins with low risk and high resource potential is rapidly building, due in part to improving offshore access and successful exploration results. Basins such as Guyana, Suriname, Brazil, and Mexico are good examples of regions where drilling activity in 2019 is expected to be higher when compared to the previous year. Also activity in mature offshore basin, such as the North Sea, is expected to expand due to a combination of changes in the ownership of producing an undeveloped acreage, exploration success and the presence of established offshore infrastructure that provides a quicker path to commercialization.

Finally, customers are using technological advances that drive the cost of doing business offshore lower to improve the exploration results and superior field recovery. And hence, seismic acquisition and expedited image technologies are creating value for our customers. And seismic activity, which is a forward indicator, is showing positive signs.

We believe a prolonged period of underinvestment in offshore basins has contributed to operators' poor production and reserve replacement results in recent years, but that this trend has bottomed, and offshore investment will continue to improve going forward.

Evidence of an increased offshore focus by operators is encouraging. The jackup market has been steadily improving for over a year and we see this trend continuing, especially for the higher-end segment.

The fourth quarter brought an impressive 76 fixtures in the jackup space, which was an 81% improvement over the first quarter of last year. In the floating sector, we expect to see modest improvement in utilization this year, but believe pricing will remain challenged for any work that begins in 2019. Fleet positioning and contractual cover continue to be of paramount importance and I believe Noble is well placed in both areas.

I now want to update you on the status of the Noble fleet beginning with our floating rigs.

Among our 8 drillships, we enter 2019 with a markedly improved competitive position relative to 1 year ago. Utilization in the fourth quarter improved to 72% compared to 60% in the same quarter of 2017. Following the completion of reactivation programs on the Noble Tom Madden and Noble Sam Croft, we were able to meaningfully expand our contract days in 2019. 5 of our 8 drillships are committed through 2019, following the recent 1-year contract award for the Noble Tom Madden that places the rig on assignment offshore Guyana into the first quarter of 2020.

With the Noble Bully I likely to remain cold stacked, the Noble Don Taylor and Noble Sam Croft are the only units with 2019 availability. Both rigs are currently under contract into April and the second half of 2019, respectively. And we're encouraged by an expanding number of follow-on opportunities for each rig.

In our semisubmersible fleet, the Noble Clyde Boudreaux has performed well for our client. And opportunities for follow-on work in the region remain strong, including option wells available to our client.

Also the Noble Paul Romano remains warm stacked in the U.S. Gulf of Mexico, while we evaluate several opportunities for the rig, both in and outside of the region.

All the programs under evaluation would have a commencement date in 2019.

Finally, our 2 remaining semisubmersibles, the Noble Jim Day and Noble Danny Adkins, remain idle as we continue to evaluate suitable contract opportunities.

In our jackup fleet, we entered 2019 in the enviable position of having all of our units under contract with only an estimated 25% of days available for the year.

Fleet utilization ended 2018 at 94% compared to 75% at the end of 2017. We continue to benefit from growing customer demand in the North Sea, the Middle East and offshore Australia, where the Tom -- Noble Tom Prosser recently secured a series of contracts that will employ the rig into the first half of 2020.

These 3 regions are currently or will soon be home to 12 of our 13 units, including our recent impending fleet addition, the Noble Johnny Whitstine and the Noble Joe Knight. Both rigs are expected to commence operations offshore Saudi Arabia in the first and third quarters of 2019, respectively.

The Noble Mick O'Brien is the only jackup with clear availability in 2019 beginning in August, while the Noble Hans Deul and Noble Sam Hartley each have options available to their current clients for the uncontracted remainder of 2019.

We believe all 3 rigs are well placed to capture additional days under contract in their respective regions. I now want to provide a review of regional market developments and opportunities beginning in the Western Hemisphere. In the U.S. Gulf of Mexico, the marketed supply of floating rigs with down 21% over the last year from 33 rigs in January 2018 to 26 at present.

The number of contracted floaters has remained stable, especially over the past 8 months, at approximately 20 rigs, resulting in a current marketed utilization of 77%.

Higher exploration activity could be seen in 2019, leading to tighter utilization. The expected increase in exploration activity is driven in part by drilling success.

Over the past 3 years, announced deepwater discoveries in U.S. gulf totaled 17, including 3 discoveries in 2018. Also the customer base has become more diversified in recent years with representation from majors and large and small independents.

In Mexico, the (inaudible) 2019 capital budget was recently increased 23% with an estimated 45% of the $23 billion total budget earmarked for exploration in production initiatives. The majority of the offshore activity is expected to address shallow and mid-water projects as evidenced by a recent award for up to 16 wells in shallow water depths.

A new administration began in December 2018 and has thus far announced no further licensing rounds until 2021. Although all offshore licenses and contracts already awarded will be honored, allowing operators to proceed with their planned programs.

Operator interest in South America continues to build in response to the continent's exceptional resource potential. In Brazil, Petrobras has tenders outstanding for 6 rigs covering 1 to 2 years each. Once awarded, these contracts are expected to commence in 2019. The rigs are expected to be allocated to new programs and for the replacement of incumbent capacity.

Looking out to 2020 and beyond, an additional source of rig demand is likely to come from a growing list of international oil companies who are poised to commence offshore programs in Brazilian waters following the signing of production sharing agreements. Guyana continues to establish its reputation as the Western Hemisphere's most prolific exploration play with mounting exploration successes driving higher recoverable resource estimates. The exceptional geologic achievement offshore Guyana continues to drive more interest in the region with several operators planning new exploration campaigns offshore Guyana, Suriname, and French Guyana during 2019.

Noble has emerged as a leading service provider in the region with the drillships Noble Bob Douglas and Noble Tom Madden providing development and exploration drilling services offshore Guyana, while the Noble Sam Croft is due to arrive in mid-2019 to commence an exploration campaign in the region.

Turning to the Eastern Hemisphere. Premium jackup capacity in the U.K. North Sea is expected to experience further tightening in 2019, following some seasonal weakness during the fourth quarter of 2018. Dayrates experienced meaningful appreciation in 2018 and are expected to move higher in 2019. Utilization of the region's premium jackup fleet is approaching 100%. Also asset transactions among operators continue at a healthy pace as existing larger IOCs exit the region and smaller more nimble operators enter, creating a more diversified ownership base.

The Middle East remains a significant source of incremental demanding for both standard and high-specification jackups. More than 50 rig years of work have been awarded since the beginning of the fourth quarter of 2018 with Noble securing over 6 years.

In 2019, an additional 50-plus rig years remain under evaluation, including jackup needs in Saudi Arabia, Kuwait and Qatar and more will emerge as the year progresses.

In West Africa, we expect a modestly better environment in 2019. The marketed jackups plan in the region currently stands at just under 80%, while floating rigs remain oversupplied with marketed utilization currently at 41%. The majority of visible programs are short term in nature, although a few notable longer term opportunities have emerged along with some welcome exploration success. The Mediterranean region could address a portion of the idle floating capacity in Africa region. Several tenders are outstanding from multiple operators for programs primarily offshore Egypt and in the Black Sea. Finally, floating and jackup opportunities in the Far East and Oceania are on the rise. With regard to floating rigs, the supply of available semisubmersibles is declining following the award of several mid-water programs for work offshore Myanmar, Indonesia, Vietnam and Australia. In addition to incremental customer needs, program extensions are increasingly likely and we could see an improving dayrate environment as the year progresses. In the jackup segment, customer inquiries are healthy and tenders are numerous across Southeast Asia, and we expect the contracted jackup count to show improvement throughout 2019.

In summary, despite the negative effects of short-term uncertainty regarding the price of crude, actions by our customers suggest a focus on offshore programs is intensifying. Jackup activity in pricing has steadily improved and floater utilization is improving as well. Importantly, Noble's fleet has excellent contract coverage in 2019 and is strategically positioned in the right markets. I believe our premium and versatile fleet, strong operational execution and excellent geographic presence position Noble for success as offshore activity expands.

I'll now turn the call back over to Julie.

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Julie Johnson Robertson, Noble Corporation plc - Chairman of the Board, President & CEO [6]

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Thank you, Robert and Adam, for your insights. As we work through the early days of 2019, I am encouraged by what Noble can accomplish in this new year. I agree with Robert's conclusion that in '19, we will continue to see a competitive environment. But as I noted earlier, I believe actions taken by Noble in 2018 place us in a truly favorable position to compete in 2019 and beyond.

Our rig reactivation projects have gone well with each of the 5 reactivated units currently contracted. Even better, new contract opportunities are becoming increasingly visible keeping a number of these rigs contractually engaged well into or beyond 2019 as evidenced by the recent contract award for the Noble Tom Madden in Guyana and expected contract extension for the Noble Clyde Boudreaux offshore Myanmar. I also believe our global rig fleet distribution advantageously positions us for a growing number of contract opportunities in key regional pockets of strength. As we noted earlier, our jackup fleet is highly consolidated into the North Sea and Middle East regions, where 11 of the 12 units will operate following the deployment of the Noble Johnny Whitstine and the Noble Joe Knight. Both regions have numerous customer needs outstanding that define the prospects for visible work into 2019 and beyond.

Availability in our marketed premium floating fleet is concentrated in the Western Hemisphere where enormous resource potential is driving heightened exploration interest and multi-year development opportunities. We have already established a leading presence in some regions, such as Guyana, with prompt access to other attractive locations, including Mexico, Brazil, and Suriname.

We began this year with a higher percentage of operating days under contract. On January 1 of this year, 75% of our jackup days and 49% of our floating rig days were under contract as compared to 53% for jackups and 36% for floaters at the same time in 2018.

More importantly, for all the reasons noted previously, we are increasingly confident of improving these figures as we progress throughout the year.

Finally, success in 2019 will be driven in part by our ability to improve total fleet utilization, and we are focused on identifying and securing the best contracting opportunities and matching our rigs' technical capabilities with our customers' needs. This focus pertains especially to our recently reactivated rigs where we look to assemble a continuum of visible work. Also we will continue to position an appropriate number of our premium rigs in regions that present attractive long-term opportunities allowing us to maximize value creation.

Another way to create value is by growing our fleet as we've recently demonstrated. We believe attractive premium rig acquisition candidates remain available and we're committed to a thorough evaluation process as we look to opportunistically grow.

As always, I would like to recognize and thank the entire Noble team for your dedication and service to our company. The strong culture that sets Noble apart from others is based upon the commitment of all team members to delivering superior performance for our shareholders and our customers each and every day. With our continued focus on safety, the environment, operational excellence and steadfast customer service, we are well positioned as we enter into our 99th year of business. Thank you, again, for your interest in Noble.

I'll turn the call back over to Jeff.

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Jeffrey L. Chastain, Noble Corporation plc - VP of IR & Corporate Communications [7]

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Okay. Thank you, Julie. Krista, we're ready to go ahead and begin the Q&A session of the call. So if you would assemble the queue and identify the first caller, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Kurt Hallead from RBC.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [2]

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So I'm going to -- my question's going to focus on the floater market here. So when you look out into '19 and even beyond 2019, and you assess the new demand that's out there in terms of potential contracts, can you give us some general sense on what the mix is between exploration and development?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [3]

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Yes, sure, Kurt. This is Robert. So we are seeing most -- of course, most of the longer-term demand that's out there which people are pretty focused on is development work. There have been a few fairly notable exploration successes here last year, especially in the last part of last year. I don't have a percentage breakdown in front of me. I think that the important trend is that exploration focus has steadily improved over the 1.5 years or so on the floating side.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [4]

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Okay. I appreciate that color. Second -- the follow-up question I had then for you was, given the backdrop with respect to improving demand, can you give us some general sense on how you're thinking about the rigs that -- the rigs that you have that are idle. In terms of -- do you think -- how many of those rigs do you think that could be activated in 2019? And what the potential costs are to activate those rigs?

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Julie Johnson Robertson, Noble Corporation plc - Chairman of the Board, President & CEO [5]

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Kurt, we'll shortlist -- the floaters, just we'll pick those first. We would love to reactivate, obviously, the Day and the Adkins are very capable units, lot of hook load capacity, lot of deck space. Those are unique drilling assets, which the customers have always loved to work. Reactivation cost for those would be somewhere between $50 million and $100 million. We could easily add more. As you know, those are DP3 units, but we could easily add more into those units to make them attractive in certain regions. But we think that those have a great potential to get back to work in the right markets. The Paul Romano is currently warm stacked. It came off contract not long ago at all. We think that rig has a lot of potential of going back to work soon. We're bidding that on a lot of opportunities also.

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [6]

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I'd add to Bully I. We're in probably -- well, certainly not a 2019 event for that rig, but we are focused with Shell on discussing what sort of long term opportunities may exist putting that rig into either a different region or into slightly different usage, and so we're in a lot of communication with them.

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Adam C. Peakes, Noble Corporation plc - Senior VP & CFO [7]

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Yes. Kurt, this is Adam. In addition to Julie and Robert's comments, I think it's important to point out that the guidance that we provided for 2019 does not contemplate any reactivation around the Day or the Adkins or the Bully. As Julie said, we continue to think those are strategic assets that are going to have a nice future. But we're going to be really disciplined in how we think about bringing those out of stack, and I think as Julie outlined, the cost profile to bring those back. As we sit here today, that's not contemplated for 2019. I think, we continue the need to see an improving market to feel compelled to do that. And specifically, anticipating a follow-on question, I think, to make that decision to reactivate any of those rigs, we would need to have a contract with a substantial payback on that reactivation capital. And so we're a ways away from doing that. It'll be a high-class problem when we get there, but that's not contemplated for 2019.

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Operator [8]

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Your next question comes from the line of Ian MacPherson from Simmons.

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Ian MacPherson, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [9]

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My phone cut out.

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Jeffrey L. Chastain, Noble Corporation plc - VP of IR & Corporate Communications [10]

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Hello, can you hear?

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Ian MacPherson, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [11]

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Yes. I'm sorry my phone cut out, and I couldn't hear you call my name. And I apologize, my attention has been divided during your call, so I apologize if any of this is repetitive. But I wanted to ask you, Robert, if you addressed the outlook for the Boudreaux's rollover and what the prospects are there for next work and how we should think about any gaps that may ensue after next month? And then I separately wanted to ask if the Joe Knight contract broadly resembles what you got for the Whitstine? I assume that it does, I just wanted to confirm that or maybe you can comment if there's anything materially different about the economics on that deal? And then just if there's any scalability or capability of those 2 jackup bolt-ons that you're looking at that we should think about. That's it for me.

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [12]

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Sure. Thanks, Ian. So on the Boudreaux first. We -- the customer does have options on that rig, and it's little too early to talk about the outcome there, but we do anticipate that, that rig stays active throughout 2019 and without any gaps in the region. On the Joe Knight, the contract construct and the economics are very similar as they were with the Johnny Whitstine. And in terms of scalability, I would say, we think about market share in the Kingdom and we made those purchases to maintain scale and market share in the Kingdom. I would not say that we're interested in expanding through similar purchases at this time. But we're very happy with the 2 we've made and that we're able to put those into long-term contracts with an extremely important customer of ours.

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Operator [13]

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Your next question comes from the line of Scott Gruber from Citigroup.

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Scott Andrew Gruber, Citigroup Inc, Research Division - Director and Senior Analyst [14]

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Adam, you quoted about $100 million of spend for projects this year, about 30% Sea spares, no reactivation CapEx, how should we generally think about spending on projects and spares beyond 2019. I realize the projects' spend can be lumpy and there's a good portion that hits reimbursables, but just assuming the current fleet composition, assuming no reactivation, kind of what's a reasonable figure for these buckets beyond 2019?

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Adam C. Peakes, Noble Corporation plc - Senior VP & CFO [15]

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Yes, Scott. Thanks for the question. I think it's important to frame that. As we think about our needs and what that means from a CapEx budget standpoint, for a fleet our size, regular sustaining capital plus the inevitable projects you have year in, year out would be about $150 million for us annually. So I would think about that as a starting point for capital budget. So absent doing anything, reactivations or spend around, repurchase -- or purchases of rigs, et cetera, would be kind of right at $150 million. And so the increase you see this year is driven, of course, by the rig purchases and the ready-to-drill spend associated with that as well as reactivations. So I would think about us going forward in a regular year about $150 million.

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Scott Andrew Gruber, Citigroup Inc, Research Division - Director and Senior Analyst [16]

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Got it. Appreciate it. And then the North Sea market has been tightening for a bit of time now. Are you starting to see any inflation on your North Sea cost? Is there inflation protection in the contracts?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [17]

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We do not have inflation protection in any of our current contracts, but we have also not seen any meaningful inflation in the region either on the labor side or on the equipment side.

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Scott Andrew Gruber, Citigroup Inc, Research Division - Director and Senior Analyst [18]

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Is that a risk you see going forward? Are you starting to push for cost inflation protection in places like the North Sea?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [19]

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So I would say, when we're thinking about longer term contracts, yes, that's on our list. In the North Sea, I think, we're less concerned about inflation there right now. We really haven't seen it. In fact -- I think prices there have surprised -- excuse me, costs there have surprised on the low side. And I just point out, of course, we're operating in essentially the non-Norway sectors there. So I'm not at all speaking to the Norwegian sector, but in [that] sector, Denmark and U.K., we're pretty comfortable with our cost structure there.

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Operator [20]

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Your next question comes from the line of Sasha Sanwal from UBS Securities.

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Madhav Sanwal, UBS Investment Bank, Research Division - Director and Equity Research Analyst [21]

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Yes, maybe for the first one you kind of touched on this in the commentary, but just wanted to see if we can get some of your thoughts on leading-edge pricing for floaters for programs starting in 2020? And then Adam, just for the Danny Adkins, you kind of preempted this question, but would it kind of be fair to say that we really need a dayrate north of kind of $250,000 for you guys to really seriously think about bringing those rigs back?

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Julie Johnson Robertson, Noble Corporation plc - Chairman of the Board, President & CEO [22]

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Robert?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [23]

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Sure. So on the first piece of that. There isn't a clean fixture for anything that starts in 2020, just doesn't exist right now. So we're watching that closely as is everyone that follows the industry. Certainly, in our bidding strategy, we are looking for higher prices for anything that starts out in that time period and at the same time, we're analyzing potential for some sort of indexing type mechanism that would help bridge the gap to get us there because there exist wide range of opinions on where rates might be a year or more out right now. So the market doesn't exist today on just a clean top-tier drillship fixture, in my opinion, and so we're -- I think everyone is still wait and see.

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Adam C. Peakes, Noble Corporation plc - Senior VP & CFO [24]

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Yes, with regard to the Day and the Adkins and what kind of environment we need to reactivate those, I wouldn't want to peg it to a specific dayrate other than to say it needs to be substantially above where rates are today. I wouldn't have an issue with the $250,000 that you threw out as good a number as any. I think more than anything else, we're just trying to make clear that our appetite to take risk there is not there today and we would, whether it's in rate on a shorter term or a longer-term contract, we would need substantial payback and visibility to recovering all that ultimately in a fairly short period of time before we'd undertake that kind of spend.

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Madhav Sanwal, UBS Investment Bank, Research Division - Director and Equity Research Analyst [25]

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Great. That's helpful. And just as a follow-up, I guess, kind of following the purchase of the Joe Knight, I just wanted to get your thought on just what -- on what further optionality might be out there for similar acquisitions and just how that might fit into the capital allocation priorities for 2019?

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Julie Johnson Robertson, Noble Corporation plc - Chairman of the Board, President & CEO [26]

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Sasha, as we said earlier, we will continue to look at every opportunity that's out there. As Robert noted in his comments or his response to a question earlier, we're probably not going to look to duplicate exactly what we've done, at least certainly not in this budget for this year. We'll continue to look at every opportunity out there and if there's something that fits an opportunity that a customer's bringing us or an opportunity that's out there that we can match up to a contract, we will certainly look earnestly at it and find a way to get it done.

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Operator [27]

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Your next question comes from the line of Sean Meakim from JPMorgan.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [28]

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So maybe we can just talk on the drillships. Have you been engaging more in direct negotiations versus open tendering? Just curious kind of how that mix is looking in terms of your discussions with your customers. And are you getting any more progress in terms of customer willingness to reimburse for mob fees. I'm just curious if kind of at the margin how those conversations are evolving in the last few months?

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Julie Johnson Robertson, Noble Corporation plc - Chairman of the Board, President & CEO [29]

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Sean, we've been lucky to be able to deal with some operators, obviously, directly on direct negotiations. Obviously, that stems from the performance that we're giving to them. But certainly, there are other tender opportunities. I'll let Robert add color to that.

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [30]

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Sure. I think the mix of tendering versus direct negotiations is definitely increased, especially if you look back over the past, let's call it, 18 months, and that's encouraging. On the mob side, a number of our recent discussions have included some sort of mob. And it's an indicator -- I think that's probably today something closer to cost reimbursement than it is to some sort of recognition of loss revenue like it had been at the market high. But certainly, it's encouraging to see that operators are now willing to contribute to get the right rigs to -- into the regions where they want. So...

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [31]

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I appreciate that. And then just the follow on then would be thinking about rigs like the Romano, as that -- as the market evolves and those opportunities shift a bit, does that begin to change your thinking or do you cast a wider net in terms of where you're willing to potentially send that rig or bid it out for projects or the Gulf of Mexico is sufficient or is there an opportunity set that seems unlikely you'd be willing to take those types of -- you'd be searching for those types of opportunities further away?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [32]

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Sure. So I mentioned in the comment, the Romano is bid outside of the region, but not -- I would say not far outside the region. That rig has had an incredible history. One downside on the Eva designs is that they don't tow very quickly and there are not a lot of heavy lifts to move them around. So it's a long way of saying that we think certainly that the most likely future of that rig is in the U.S. or in the Caribbean. I'd note there are not very many more rigs in the region right now. And in fact moored-only rigs, I believe we're the only available unit in the region right now, and so in that mid-water sector, there is some demand and we are watching it closely and hopeful that something could produce itself here during the year.

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Operator [33]

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Your next question comes from the line of Taylor Zurcher from Tudor, Pickering and Holt.

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Taylor Zurcher, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Oil Service Research [34]

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On the jackup side, your -- most of your jackups are positioned in the Middle East, in the North Sea, which coincidentally are 2 of the healthiest markets in the world. And so question is, can you compare and contrast for us the different pricing dynamics you're seeing in both of those markets, at least as it pertains to 2020-type start dates?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [35]

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Yes, sure Taylor. So North Sea has been ahead of the Middle East on pricing in our opinion. And we saw and we're able to start moving prices there earlier. The Middle East is a more diverse environment for rigs because you have a lot more demand for standard spec units in the region than you do in the North Sea right now. And so pricing, I think, is wider in the Middle East. I will say that for a number of reasons, there have been a bunch of high specification jobs that have come up during the past year and specifically now as we're looking at it, there are a number of options for some HPHT work in a lot of the gas drilling in several different countries there. So we have tried really hard to position, especially our JU-3000 class rig into work that requires a higher level rig and we're extremely pleased that in the Middle East those opportunities seem to be coming forward in great numbers. So in those instances, there is a pricing disparity, and we are getting some -- and hopeful to get some higher pricing on some of those more difficult jobs. It remains though, especially with the tightening we're expecting in the North Sea in 2019, that pricing is a little bit ahead in that region still today.

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Taylor Zurcher, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Oil Service Research [36]

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Okay, that's helpful. And on the floater side, I would assume the full year '19 revenue and cost guidance would bake in some healthy utilization for the Don Taylor, which rolls off its existing contract, I think, in a couple of months here. So curious if you could just frame for us how you're thinking about follow-on work prospects for that rig and how we should think about potential gaps beyond April for that rig?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [37]

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Yes. So we're chasing a number of different opportunities in the region. If you look at when that rig rolls, there really aren't -- I'm not sure that there are any comparable rigs in the region available at that time. And so we're pretty bullish about the prospects for the rig throughout the rest of this year. Now there could be certain revenue gaps if we need to change customers, but those we're hopeful would be just transition gaps and that we'll be successful in securing some good utilization through the remainder of the year. You didn't about the Sam Croft, Taylor, but I'd just add, that rig has had some options available to the client afterwards and we're hopeful that we're successful -- that the operator is successful in extending that contract. So -- but that's yet to be seen.

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Operator [38]

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Your next question comes from the line of Greg Lewis from BTIG.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD [39]

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I guess, this question is for Robert. And Robert, I apologize if you've already elaborated on this earlier in the call. But I believe you mentioned that clearly some of the volatility in oil prices has kind of shifted around some potential opportunities that you were seeing. But I -- so I guess, my question is as you look at the landscape of opportunities out there today, could you sort of segment them out between like what -- how much of that work do you think is -- that you're seeing is out there for 2019 versus how much of the work that is out there you're seeing for like 2020 and beyond?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [40]

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Sure. The majority of what we -- part of this is driven by our tracking status on our fleet, but the majority of what -- of the discussions we're having right now are 2019 starts. There are a number of 2020 start opportunities out there. Some of them have existed for a bit of time right now, not aware of really conclusion to a lot of that, but certainly what we're chasing right now due to our availability is primarily 2019.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD [41]

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And that's equal for both jackups and floaters?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [42]

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Well, so jackup side is a little bit different, and again, this includes our contracting dynamics. But we do have a number of 2020 opportunities on the jackup side right now, which I find pretty bullish considering the lead time for jackup contract is normally significantly stronger than on the floater side. But we don't have a lot of availability, excuse me, during 2019. So we're passing up a number of jobs that we've seen -- or the tenders I should say that we've seen. I'd note that kind of through the fourth quarter in 2019 so far on the jackup side, there does -- there seems to be a great deal of tendering activity and unfortunately, we're having to pass on a number of those just due to availability.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD [43]

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Okay. Great. And then just one more on potential opportunities that are out there. At this point, I mean, clearly you guys are very successful in buying those 2 jackups from the shipyard. Looks like there were a couple of other jackups that were sold this week from shipyards. As you look at the potential opportunities out there, at this point, are they primarily only coming from shipyards? And I guess, what I would ask on follow-up to that is, as you think about a plot potentially doing some of these acquisitions, would Noble be willing to use its stock as currency in potentially acquiring some rigs?

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Julie Johnson Robertson, Noble Corporation plc - Chairman of the Board, President & CEO [44]

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We're willing, Greg, to look at all options. And yes, certainly if it makes sense for shareholders, we would certainly look at using stock for the right opportunities. To your first question, most of the opportunities are coming from shipyards right now. But we're open to look at everything, and we're looking -- we're willing to look at things that match up with contracts and looking at various options to be able to pay for those.

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Operator [45]

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Your next question comes from the line of Eduardo Royes from Jefferies.

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [46]

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Just a quick question, as we see more and more of these kind of very short-term deepwater contracts, maybe it's one well with multiple well -- wells on the back of that, I'm just curious versus 10, 12, a year 18 months ago, if you are able to start negotiating from a pricing increases, at least on those option bit? I know it's not a whole lot, I'm not talking about rates doubling or anything, but some more willingness from the customers to say, "yes, okay, if we do that next well, we have no problem paying ex percent more." Or if that hasn't really changed versus the trough?

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Robert W. Eifler, Noble Corporation plc - VP and GM of Marketing & Contracts [47]

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Sure. So it's (inaudible) but I'd say at least one of our current contracts includes pricing increases in the option structure and that was signed quite some time ago now. I think the market's improved since then and our willingness today to consider price options have diminished significantly. And generally speaking, I think, it's -- we're less willing to give any sort of option on the floating space that would take us out into the kind of 2020, especially mid-2020 time frame right now as we see and are hopeful that this market firms up.

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [48]

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Great. And just one quick follow-up from me. I know we're at the hour. Does the OpEx guidance for this year, Adam, include any sort of -- is this an above-average year, I guess, from an SPS perspective or any small-scale stuff that maybe elevates that a lot. Obviously, there's a lot of rigs coming up on 5 years old. I know those aren't huge buckets, but we've seen some of your peers have slightly higher guidance, and then I think a lot of it is you add up a bunch of small things, whether it's small projects or just SPS things that are not necessarily capitalized. Just wondering if that's at all the case for you guys?

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Adam C. Peakes, Noble Corporation plc - Senior VP & CFO [49]

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No, it's really -- Eduardo, in this case nothing significant to call out there. It's not driven by that. It's frankly, driven by we've got a whole lot more assets working. So we're going to be up in terms of rig operating days, about 800 days year-over-year. So it's really that, not some SPS or other funky stuff that might enter into the equation.

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Jeffrey L. Chastain, Noble Corporation plc - VP of IR & Corporate Communications [50]

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Krista, with that, we're going to go ahead and close today's call. We appreciate everyone's participation today and your continued interest in Noble. Krista, thank you, again, for coordinating the call. Good day, everyone.

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Operator [51]

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This concludes today's conference call. And you may now disconnect. Have a great day.