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Edited Transcript of PACD earnings conference call or presentation 6-Nov-19 4:00pm GMT

Q3 2019 Pacific Drilling SA Earnings Call

LUXEMBOURG Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Pacific Drilling SA earnings conference call or presentation Wednesday, November 6, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bernie G. Wolford

Pacific Drilling S.A. - CEO & Director

* James W. Harris

Pacific Drilling S.A. - Senior VP & CFO

* Lisa Manget Buchanan

Pacific Drilling S.A. - Senior VP, General Counsel & Secretary

* Michael D. Acuff

Pacific Drilling S.A. - SVP of Commercial

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Conference Call Participants

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* Fredrik Stene

Clarksons Platou Securities AS, Research Division - VP

* Patrick John Fitzgerald

Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst

* Tobias Eckbo

Clarksons Platou Securities AS, Research Division - Former Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Pacific Drilling Third Quarter 2019 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Lisa Buchanan, Senior Vice President and General Counsel. Please go ahead, ma'am.

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Lisa Manget Buchanan, Pacific Drilling S.A. - Senior VP, General Counsel & Secretary [2]

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Thank you, Dan, and welcome everyone to Pacific Drilling's Third Quarter 2019 Earnings Call. Before I turn the call over to Bernie, I'd like to remind everyone that any statements we make during this call about our plans, expectations, estimates or predictions about the future; including those concerning our future financial and operating performance, our earnings expectations, our beliefs and estimates regarding our relative valuation in the market, our market outlook, including our views of future contract dayrates and our business strategies and plans for future operations are all forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are not guarantees of future performance and our actual results could differ materially from any forward-looking statements made during this call due to a variety of factors, including those described in the Risk Factors sections of our 2018 Form 20-F and other filings with the U.S. Securities and Exchange Commission, which you can find on our website. You should also note that we use certain non-GAAP financial measures during this call. You will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and associated reconciliation in our earnings release, which is available on our website.

I'll now turn the call over to Bernie Wolford, Chief Executive Officer of Pacific Drilling.

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Bernie G. Wolford, Pacific Drilling S.A. - CEO & Director [3]

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Thanks, Lisa, and good morning, everyone. Welcome to our third quarter 2019 earnings call. I sincerely appreciate your participation. Joining me today, in addition to Lisa, are Jim Harris, our Chief Financial Officer; and Michael Acuff, Senior Vice President of Commercial.

We are pleased to announce a number of new commitments. First, firming up our second option with Equinor for work in the Gulf of Mexico with the Pacific Khamsin. The Khamsin is now committed through October 2020. We have also been awarded work for the Bora with ENI Oman for commissioning in February 2020, including a [mobe and demobe] provision. In addition, Chevron has exercised their first option for the Sharav in the Gulf of Mexico, committing the Sharav through February 2020. Michael will provide additional details on these commitments in his commentary. Each of these are important steps in building our backlog, demonstrate the quality of our execution on key strategic objectives and continue to confirm the steady pace of market improvement.

I want to highlight that on the strength of these commitments, Q1 2020 marks the first time in 3 and 1/2 years where we will have 4 rigs contracted, a major milestone on our road to positive free cash flow. Before speaking further on the market, let me provide a brief operational update.

The Pacific Khamsin is undergoing client acceptance testing in the Gulf of Mexico. We anticipate commencing work for Equinor in December. Our crew and operations support team have done an excellent job of preparing the rig, which with MPD is one of the highest specification seventh-gen drillships in the world. It is noteworthy that this is our second smart-stacked rig to return to work after the Pacific Santa Ana, again demonstrating the quality of our competitive fleet.

The Pacific Santa Ana finished a well for Total in Mauritania, earning a performance bonus on its second well after ramping up from smart-stacked mode. The rig then mobilized to Las Palmas for a thruster change-out and installation of integrated services equipment in preparation for our Petronas program in Mauritania, with an anticipated duration of 12 months.

Turning to the market for our fleet of sixth and seventh-generation drillships, we continue to see a positive trend in terms of new tenders and average durations for tendered programs. To provide some context, in the third quarter we received 14 new tenders or bid opportunities, as compared to the second quarter when we received 8 new tenders. In addition, in Q3 we received 19 requests for information or RFIs for contemplated drilling programs, as compared to 13 RFIs for Q2. We also continued to be engaged in direct negotiations in addition to the tenders and RFIs noted. This improved opportunity rate continues in this early part of the fourth quarter, with 4 new tenders and 5 RFIs received.

In our second quarter call, we noted that approximately 6 deepwater tenders were outstanding for anticipated award in the balance of 2019. All 6 of those, plus 2 additional tenders, have since been awarded. Through the remainder of 2019, we expect at least 4 additional deepwater tenders to be awarded.

Turning to the supply side, of the 11 sixth and seventh-gen drillships warm-stacked and available on a global basis, we see 4 in advanced stages of discussion to be awarded work in Q4, 4 available warm-stacked and 3 that will not compete outside of limited regional niches. Beyond those, we see up to 10 currently contracted rigs with potential availability through the first half of 2020; all of this against a backdrop of near-term demand represented by the current 26 opportunities in the active procurement stage. With the demand picture improving, our high-spec smart-stack rigs, the Pacific Meltem and Pacific Scirocco, have significant contract opportunities as they are among the most technically capable rigs available for these programs. For the market overall, this supports an expectation that the current 86% marketed utilization is headed meaningfully north of 90% in the first half of 2020.

Another key indicator I would draw your attention to is the virtual elimination of sublets or farm-outs of ultra-deepwater drillships by our clients. The current number of drillship sublets is at or near 0, the level last seen in late 2012. This less visible past source of supply is no longer a factor in the market. Options exercised, new contracts, improving rates and a demonstrably tighter supply and demand picture support a view that dayrates for work awarded in 2020 will be firmly in the $200,000 to $250,000 range with the potential for further upside in the second half of 2020.

Turning to liquidity, at the end of the third quarter our unrestricted cash balance was $356 million, which puts us in a liquidity position we are very comfortable with. Making the modest assumption that by mid '21 we have 5 rigs working at rates averaging $250,000 per day, we have sufficient liquidity to see us through to generating positive free cash flow and up to our first lien debt maturity in Q3 2023. Importantly, this does not rely upon the anticipated revolver or the potential significant benefit we would experience in the event of a favorable resolution to the Zonda arbitration.

Turning to relative valuation, the quality of our drillship fleet is as good or better than that of our peers. Despite this, our equity trades at a significant discount to our peers when considered based on enterprise value per rig and adjusted for backlog. Using our end of Q3 numbers that is net debt of $709 million, market cap of $293 million, and a backlog margin of $63 million and the $205 million receivable related to the Zonda arbitration; our remaining $734 million enterprise value calculation implies a steel value of $105 million per rig, which is well below the implied values for the 6 generation equivalents of our U.S. listed peers recently averaging in the range $240 million to $250 million. Although many factors impact equity prices, this valuation gap implies we are trading at a discount of more than 70% to our peers.

Regarding the Zonda arbitration, we remain very confident in the likelihood of a ruling in our favor. The $205 million receivable we carry on our balance sheet is a probability-based arbitration outcome. This against a total claim in excess of $350 million, of which $181 million is for our advanced payments made against delivery, which plus interest are well in excess of our book value receivable, and importantly this portion of our claim is guaranteed by Kexim Bank. The balance of the total claim is for owner-furnished equipment plus interest and damages for our wasted costs. We don't control the timing of a decision, but would be surprised if it goes beyond the end of the year. All in, the company has performed well in the first 9 months of 2019 and remains very well-positioned in terms of cash, assets and capacity to be a key participant in the now evident improvements in the market.

While I have the mic, I want to acknowledge that all we accomplish is made possible by the dedication and performance of our excellent rig crews, their unwavering commitment to safety and the support teams that deliver day in and day out. I thank each and every one of you for delivering on our mission to exceed customer expectations by delivering the safest, most reliable, most efficient and reliable deepwater drilling services in the industry; no small task, but one we routinely achieve.

I will now turn the call over to Jim for a review of our third quarter results.

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James W. Harris, Pacific Drilling S.A. - Senior VP & CFO [4]

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Thank you, Bernie, and good morning, everyone. I will provide a more detailed look at our third quarter results, give guidance on our outlook for the fourth quarter and add some color regarding our liquidity. The second half of the 2019 is a transitional one for the company for several significant moves which set up our fleet well going into 2020.

The Khamsin was mobilized in the third quarter from smart-stack in Las Palmas to the Gulf of Mexico in preparation to go to work for Equinor in December. The Bora came off contract with ENI in Nigeria mid-July and we have kept the vessel and its crew ready to work as we sought good opportunities, which has proven to be prudent, as we have secured new work with ENI. And in the fourth quarter, the Santa Ana will have spent 2 months in Las Palmas for scheduled major maintenance and off dayrate after completing its work for Total in Mauritania and before going back to work for Petronas, also in Mauritania. As noted, these moves position the fleet for a strong start to next year.

We achieved third quarter revenue of $54.3 million at the high end of our estimates and down $22.1 million from the second quarter. The decrease in revenue came primarily from the Sharav reaching the end of its 5-year legacy Chevron contract at a much higher dayrate, which rolled over in August at today's market rates, and the Bora completing its Nigerian ENI contract.

Our operating expenses in the third quarter of $60.3 million were at the low end of our estimates and up $8.1 million from the second quarter. The sequential increase in expenses was attributable to the ramp-up cost incurred on the Khamsin, partially offset by lower cost for Bora maintenance projects that will now be completed in the fourth quarter. We delivered contract drilling services at an average direct rig operating cost of $117,000 per day, as compared to $109,000 in the second quarter.

Year-to-date, our direct rig operating expenses have averaged $114,000 per day, as we continue to deliver cost efficient performance. Daily idle rig cost averaged about $27,000 in the third quarter for each of the 3 rigs currently smart-stacked and are expected to temporarily increase to between $35,000 and $40,000 per day average with the Meltem now at anchorage at not quayside.

Our shore-based offices and operations support costs were $6.6 million for the third quarter, slightly lower than the second quarter amounts. Total general and administrative costs came in lower than our estimates at $8.9 million and were lower sequentially by $1.2 million. Our adjusted EBITDA for the third quarter was negative $13.8 million, which is about $7 million better than implied by our guidance and represents a decline of $29.4 million from the second quarter as anticipated from the changes outlined in revenue and operating expenses.

Capital expenditures for the third quarter were $9.7 million, including $2.8 million for sustaining items and $6.9 million of rig enhancements. For the first 9 months of the year, capital expenditures totaled $31.1 million, comprised of $7.1 million of sustaining items and $24 million in rig enhancements, a portion of which has or will be paid for by our customers.

We closed the third quarter with $356 million in cash, a significant increase from our June 30, 2019 balance of $305 million. On a year-to-date basis, the company's operating cash flow has turned positive, now an inflow of $6 million. Our operating cash flow included $32.3 million going out for semiannual interest paid in the second quarter, $38.8 million coming in for net collections reducing accounts receivable, and another net $12.6 million coming in for other working capital reductions.

In the third quarter we recovered the $28 million of cash used to collateralize the Nigerian temporary import bond and achieve the release of $8 million of restricted cash pledged to secure our bank ACH line. Our bond indentures permit us to add a $50 million revolving credit facility with super senior repayment priority and a $50 million capital lease facility to potentially further enhance our liquidity position. We have conducted a limited outreach to find the best market to look to for these funds and we are very encouraged by the terms available to us. We are confident that we will be able to close on the new revolver in early 2020,

There has been no change to date in the status of our Zonda arbitration claim against Samsung Heavy Industries, which is in excess of $350 million, including interest. We remain confident in the strength of our claim and continue to await the tribunal's final award. Our bond indentures require that we offer up to $75 million of a positive award to buy back our bonds at par.

Looking forward to the fourth quarter, we have several notable points to highlight. The Sharav will operate the full quarter with Chevron at its newly contracted current market dayrate. The Bora will undergo preparation and initiate mobilization for its ENI Oman contract which starts in February 2020. The Khamsin will commence work for Equinor in the Gulf of Mexico in December and the Santa Ana will go back to work for Petronas in Mauritania in December, after spending the 2 months in Las Palmas for a full thruster exchange and other specialty maintenance work.

As a result of these changes in our fleet status, we expect fourth quarter revenue to be between $33 million and $38 million. Looking a little further ahead, with 4 vessels working, our first quarter 2020 dayrate revenue should recover to over $80 million based on our now firm contract backlog.

Fourth quarter operating expenses should be between $60 million and $65 million, close to the third quarter levels. Full year 2019 operating expenses should be within the range of $225 million to $230 million, which is down from our previous estimates, as certain rig contract preparation and mobilization costs are now anticipated to be deferred and recognized as expense over the associated contract terms in accordance with U.S. GAAP.

We expect fourth quarter general and administrative expense, depreciation and interest expense to be in line with third quarter results. We expect income tax expense to be between $2 million and $3 million for the fourth quarter. Remaining 2019 sustaining CapEx in the fourth quarter should be between $3 million and $6 million. We have lowered our 2019 enhancement CapEx for the full year to $31 million to $33 million, which reflects our decision to not move forward with a second MPD system at this time.

We have posted our outlook in the Investor Relations section of our website. In closing, the team delivered results in the third quarter at the upper end of our expectations. We remain focused on liquidity preservation, while we strategically put our fleet to work. We are confident that our high-spec fleet will compete well for new work, as demonstrated by the recent awards, including the new Oman contract with ENI for the Bora, Equinor exercising a second option on the Khamsin, extending that work through October 2020 and Chevron's exercise of its first option on the Sharav, extending its work in the Gulf of Mexico through February 2020. These changes position our fleet well for a strong start to 2020.

And with that, I'll turn the call over to Michael.

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Michael D. Acuff, Pacific Drilling S.A. - SVP of Commercial [5]

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Thank you, Jim, and good morning, everyone. The high-specification drillship market continues to show positive signs of recovery with increased tendering activity for 2020 as well as the lengthening of contract durations. This further improvement in demand is particularly evident starting in second quarter 2020 and has become even clearer for the second half of 2020, with customers tendering for several multiyear development programs in various deepwater regions of the world.

As expected in the near term, customers continue to extend currently contracted rigs and exercise options to retain access to the highest specification equipment. For the longer term, we are seeing more programs with durations of 1-year plus come to the market for the second half of 2020 and 2021 starts. Examples of these are in Nigeria where there are 2 potential 4-to-5-year programs, Brazil with a 4-year firm plus 4-year option opportunity and several other 1-year plus programs in Southeast Asia, Africa, Mexico and Brazil.

Turning to the supply for the sixth and seventh generation drillship segment, we see effective utilization of the marketed fleet remaining steady at 86% with 68 high-spec drillships on contract at the end of the third quarter. This number consists of 38 seventh gens and 30 sixth gens with 5 and 6 marketed units available, respectively.

As we look forward into 2020, there remains just 3.75 rig years available in the marketed fleet for the first half of the year. With the predicted increase in demand, we expect to see 80 or more drillships on contract by mid-2020, taking high-spec drillship marketed utilization to over 90%. This expectation is evident in the recent awards above $200,000 per day and current bidding in the market from $210,000 a day to $250,000 a day, depending on the start of the opportunity in 2020. Looking closer at the high-specification market for each of the major deepwater areas, starting in Southeast Asia, particularly Malaysia, we see a balanced market today with only a few units having availability in the first half of next year. We think this region is poised for a step-up in dayrates due to the projected demand increase and the limited high-spec drillship supply in the area.

Moving west, we see that there are 6 marketed high-spec units currently competing for new work in the Mediterranean and African region. We see this market improving, as there is already 7 visible opportunities for starts in the first half of 2020. The demand in this region is expected to significantly increase in the second half of 2020 with several term programs set to kick off in Nigeria, Angola, Mauritania and Ghana.

In South America, the Guyana Surinam region continues to be strong with a predicted demand for 5 rigs on a continuous basis later next year. Additionally, the largest market, Brazil, is starting to move forward with its recovery from a challenging past 4 years. Petrobras is returning to the market for replacement rigs of higher specification and an expected 4 to 6 incremental rigs over the next 12 months, which is a promising development. Additionally, we are seeing demand from the international oil companies in Brazil who are preparing for their exploration and development programs with starts in late 2020 and 2021. As well in early October, the 16th licensing round was held where ANP sold exploration rights for a third of the 36 blocks on offer, raising $2.2 billion in signature bonuses, which is a record for concession regime rounds. As part of the commitment, oil companies have pledged to drill at least 6 exploration wells per concession. For the sixth pre-salt round to be held in Rio later today, a record 17 companies have registered and been approved to bid on leases, all very positive news for the future of deepwater demand in Brazil.

On the supply side, we see the Brazilian market is now in balance and the new opportunities mentioned previously will be fulfilled by international contractors mobilizing rigs into Brazil. To make this market attractive and economically viable, we expect you will see dayrate levels move up well above the recent fixtures.

Lastly, the U.S. Gulf of Mexico has quietly become the tightest deepwater basin with effectively 100% marketed utilization. When we match the existing requirements with the marketed fleet in the area, we forecast that there is potentially 1 rig that would have availability in the first half of 2020. With the demand we see in the U.S. and Mexico next year, we believe rates will continue to strengthen, as they have already beaten last quarter's prediction of surpassing the $200,000 per day mark with the announcement of the $202,000 per day contract in the third quarter earlier this year. In a moment, I will walk you through our fleet update, where I will further discuss rates.

Looking at the visible demand this past quarter, we received 14 new tenders, representing 7.1 rigs years of firm work, with 9.9 years of associated options; as compared to the second quarter, when we received 8 new tenders, representing 9.3 rigs years of firm work and 4.5 years of associated options. In addition, as Bernie stated, in Q3 we received 19 requests for information for contemplated drilling programs compared to 13 RFIs for Q2. We also continue to be engaged in direct negotiations in addition to the tenders and RFIs I've noted.

We currently have in house more than 26 high-spec drillship opportunities in the active procurement stage with 24 scheduled to start in 2020. This demand visibility, along with the discipline seen amongst the contractors regarding additional supply entering the market, gives us confidence that the high-specification drillship segment of the market will see meaningfully higher dayrates for the best equipment in the second half of next year.

Turning to our working fleet, the Pacific Khamsin is finalizing the customer acceptance testing and loadout in the U.S. Gulf of Mexico, and is expected to commence its 3 firm well plus 1 well option contract with Equinor in December. I would like to remind you that Total will be utilizing the Khamsin for the first option well. We are excited to begin work with these 2 performance-driven customers that are returning to the U.S. Gulf of Mexico after several years outside the basin. We are truly honored that they have chosen Pacific to partner in delivering key exploration wells in 2020 for what we hope is the beginning of a long and mutually beneficial partnership with each.

Equinor has recently exercised a second option well of the contract at a base rate of $215,000 per day, which excludes additional compensation for NPD and integrated services, with the potential for the base rate to rise to $235,000 per day if the well is spud after August 15 next year. With this announcement, we expect the rig to be occupied until at least October 2020 with one additional option remaining on the current contract.

The Pacific Sharav is currently completing the first well of the new contract extension with Chevron in the U.S. Gulf of Mexico. Yesterday Chevron exercised the first option at $185,000 per day, firming up the rig until at least the end of February 2020 with 2 options remaining. The Pacific Santa Ana recently completed Total's Senegal and Mauritania exploration program, followed by the successful execution of the planned change-out of the rig's thrusters in Las Palmas. She has now left the quayside and is preparing to start Phase 2 of the Petronas permanent abandonment program in the Chinguetti Field. This 1-year program is expected to start in December and there are 2 additional option wells with Total following this Petronas program.

The Pacific Bora which is hot-stacked off Ivory Coast, is currently preparing for her mobilization to Oman for a 1 firm well plus 1 well option contract with ENI at $190,000 per day. The contract includes a $5 million paid mobilization of the rig, which is expected to take 30 days, with the well planned for an additional 30 days in Oman. After that, the plan for the rig has not been determined by the customer. But as part of the contract, we have a $5 million paid demobilization that allows us to return the rig to either West Africa or another strategic location.

With respect to the smart-stacked rigs, we continue to look for the right opportunities to employ the Meltem, the Scirocco and the Mistral. The Meltem, which is our highest spec unit and one of the latest-generation drillships in the world, will give us a great opportunity to leverage the expected demand and higher pricing predicted in the second half of 2020 for a unit of its superior capability.

As we look forward, our analysis shows only 8 units of seventh-generation specification like the Pacific Meltem will have availability in 2020. Considering the significant number of visible opportunities in process that we mentioned earlier, coupled with the proven ability to reactivate our smart-stacked rigs, we believe that she will be a very attractive alternative for customers who need the highest technical capabilities that only come with a top-20 rated drillship like the Meltem. For the Scirocco, we see several longer-term opportunities for which she would be a great fit and we'll strategically bid her accordingly where it makes sense economically.

In summary, we are excited by the developments we're seeing the market and expect steady improvement through 2020. With 3 high-spec smart-stacked rigs available, we are well-positioned to take advantage of these improving market conditions.

And with that, I will now turn the call back over to Bernie.

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Bernie G. Wolford, Pacific Drilling S.A. - CEO & Director [6]

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Thanks, Michael. In summary, the market is improving. We are executing well operationally. We are building backlog and we are very well-positioned to compete for current opportunities with the Pacific Meltem and Scirocco. To a person, we are committed to delivering the value that Pacific Drilling uniquely represents. I thank you for your attention today and will now hand the call back to the operator and open the call for any Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Fredrik Stene, Clarksons Platou Securities.

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Fredrik Stene, Clarksons Platou Securities AS, Research Division - VP [2]

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Congratulations with the new work. I'm really interested in hearing how the dynamics between you and your customers have kind of changed over the last year. And I guess kind of dayrates to some extent speak for themselves. But I'm also wondering if there is kind of different -- or are you in a position where you're getting properly rewarded for the risk you take? Are you allowed kind of more downtime in the contracts? Like, I guess I'm asking, is there other aspects to the contract and work and tenders you're working at now versus, let's say, 12 months ago, that kind of shows additional strength and improvement in the market?

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Michael D. Acuff, Pacific Drilling S.A. - SVP of Commercial [3]

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This is Michael. I'll try to answer that for you. I think clearly the dayrates show the transition we're seeing with the market tightening up. And I think we've seen that in our discussions with the customers and kind of their perception of where things are headed. As you mentioned, we are starting to see things such as paid mobilizations, downtime banks; things like that start to be considered and reinserted back into the contract. The liabilities, I don't think changed significantly. But really on the commercial side, that's where we're starting to see some movement back towards the contractor side.

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Operator [4]

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(Operator Instructions) Our last question in the queue comes from Patrick Fitzgerald with Baird.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [5]

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So I'm sorry if I missed this, because I know you talked about it twice. Did you give a rate on the Bora contract and does the rate take into account the mobilization, or is that paid separately?

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Michael D. Acuff, Pacific Drilling S.A. - SVP of Commercial [6]

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Yes, no. Let me recap. The base dayrate is $190,000 per day, does not include the $5 million mobilization payment as well as the $5 million demobilization payment. Those are separate.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [7]

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Okay. And you guys kind of talked about this last quarter, but I just wanted to get an answer. Does it cost $30,000 a day to run MPD and integrated services contract? Is that what you said?

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Bernie G. Wolford, Pacific Drilling S.A. - CEO & Director [8]

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No, Patrick. Let me clarify that one for you. Our anticipated cost to actually run the MPD portion is on the order of $10,000 to $12,000 per day to actually run that. For the balance of the integrated services package if you're referring to Equinor, I'll hand off to Michael on that one. But the actual cost of running the MPD package which is primarily additional technical crew on board, it's roughly $10,000 to $12,000 per day. Michael, with regard to the casing services we provide and cuttings and others?

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Michael D. Acuff, Pacific Drilling S.A. - SVP of Commercial [9]

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Yes. No, you know those have varying costs, depending on the service. You can see that we've indicated in the past anywhere from $52,000 to $67,000 per day with MPD and integrated services. On our typical view of where the market is on MPD is anywhere from $30,000 to $50,000 per day from a dayrate standpoint. And then depending on what integrated services are involved, you would make up the balance. Obviously I don't want to break down exactly what they are, but to really kind of let you try to back into things, we see the market for MPD in the $30,000 to $50,000 day range and we would find it surprising if people can provide that service with the risk associated much less than that, because then it becomes uneconomic.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [10]

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Great. That's super helpful. Yes, can you provide any help -- thanks for providing what -- over $80 million of first quarter 2020 revenue? Would your OpEx be about the same as it has been or as it's expected to be in the fourth quarter? Or would that be a little bit higher? How should we think about that?

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James W. Harris, Pacific Drilling S.A. - Senior VP & CFO [11]

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So you can look at these daily OpEx numbers that we gave you. And based on having 4 rigs working, come up with a good estimate. We will be providing guidance on the first quarter as we finish -- further guidance. We just wanted to give a highlight on where we were going on revenue. But I think with what we've given you on daily OpEx, you can get what you need.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [12]

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Okay. And what portion did you say of your claim is guaranteed by Kexim Bank?

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Bernie G. Wolford, Pacific Drilling S.A. - CEO & Director [13]

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So the portion guaranteed by Kexim Bank are the payments we made against the delivery of the vessel as well as interest associated with that. Those payments total $181 million. And if you add interest, it is well in excess of the $205 million receivable we have on our balance sheet.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [14]

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Okay. And that's guaranteed by Kexim if you get a favorable arbitration ruling or just regardless, once it's done?

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Bernie G. Wolford, Pacific Drilling S.A. - CEO & Director [15]

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No, it's subject to the arbitration ruling.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [16]

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Okay. And then any color on why you'd think it will be done by the end of the year or they will rule by the end of the year?

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Bernie G. Wolford, Pacific Drilling S.A. - CEO & Director [17]

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No. We are not in the business of forecasting. But we would simply be very surprised if it wasn't. Patrick, I'm going to have to ask you to limit it to one more follow-up question, as we have several other callers on the line.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [18]

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Oh, sorry about that. Yes, I was just -- why are pursuing the revolver, given your view on kind of the arbitration and also the fact that you think you're going to have 5 rigs working in 2012?

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James W. Harris, Pacific Drilling S.A. - Senior VP & CFO [19]

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So Patrick, I guess first, it's just good hygiene for a company to have a revolver in place and it was always expected with the way our bond indentures have been put in for the revolver to be there. While we wouldn't intend to draw on the revolver certainly with the liquidity that we have, it just makes sense for a company the size of Pacific to have that for daily operating cost.

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Operator [20]

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(Operator Instructions) We'll take our next question from [Devin Xiu], Wells Fargo.

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Unidentified Analyst, [21]

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Could you just give a little color on negotiations for the Bora and if a longer term was on the table or how those conversations went?

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Michael D. Acuff, Pacific Drilling S.A. - SVP of Commercial [22]

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So this is Michael. For this specific opportunity, it was a 1 well plus 1 well option opportunity. Of course we've been working with ENI in Nigeria for some time now. But this was a specific program targeted for Oman. There's not been really any deepwater drilling in Oman. So this will be a first entrance in there. There are other programs down the road with ENI and others that are longer in term. But this one in particular was a targeted 1 well plus 1 well option.

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Operator [23]

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Our next question comes from Tobias Eckbo with Clarksons.

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Tobias Eckbo, Clarksons Platou Securities AS, Research Division - Former Research Analyst [24]

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I was just wondering on the general activity, you mentioned the ever-increasing duration and you also gave some specific examples. Could you provide a number on average contract length in the current pipeline and how does that compare to, say, a year ago?

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Michael D. Acuff, Pacific Drilling S.A. - SVP of Commercial [25]

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Yes, of course, that changes daily, as you get some longer wins in. But I would say as we sit here today, it's roughly around 11 months is the average contract duration. Again, we've seen that move up from the 1 to 2 well or 3 to 6 months, up to now about averaging 11 months.

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Operator [26]

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(Operator Instructions) And speakers, there's no more questions in the queue.

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Bernie G. Wolford, Pacific Drilling S.A. - CEO & Director [27]

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We appreciate everybody's participation today and look forward to talking to anybody who has any follow-up questions after the call. Thank you and good day.

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Operator [28]

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Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.