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Edited Transcript of RDC earnings conference call or presentation 2-May-17 3:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Rowan Companies PLC Earnings Call

LONDON May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Rowan Companies PLC earnings conference call or presentation Tuesday, May 2, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Pitre

Rowan Companies plc - VP of IR & Corporate Development

* Mark A. Keller

Rowan Companies plc - EVP of Business Development

* Stephen M. Butz

Rowan Companies plc - CFO and EVP

* Thomas P. Burke

Rowan Companies plc - CEO, President and Director

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Conference Call Participants

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* Eduardo B. Royes

Jefferies LLC, Research Division - Equity Analyst

* Ian MacPherson

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

* Ole Henry Slorer

Morgan Stanley, Research Division - Global Head of Energy Research, MD, and Oil Service and Shipping Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to Rowan Companies First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to turn the call over to your host, Chris Pitre, Vice President of Investor Relations. You may begin.

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Christopher Pitre, Rowan Companies plc - VP of IR & Corporate Development [2]

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Thank you, operator, and good morning, everyone. Welcome to Rowan's First Quarter 2017 Earnings Call, and thank you for your interest in Rowan. A copy of the company's earnings report issued earlier this morning can be found on our website at rowan.com.

Joining on the call this morning are Tom Burke, President and Chief Executive Officer; Mark Keller, Executive Vice President, Business Development; and Stephen Butz, Executive Vice President and Chief Financial Officer.

Before I turn the call over to Tom, I'd like to remind you that expectations expressed during this conference call are forward-looking statements and are subject to risks and uncertainties, such as market conditions, commodity prices, offshore drilling activity levels and other risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release and SEC filings on our website, which more fully describe forward-looking statements and risk factors and other events that could impact future results. Please note that information contained herein is as of the date of today's call and may be outdated at the time of any replay of this call.

With that, I would like to turn the call over to Tom Burke, President -- Rowan's President and Chief Executive Officer.

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Thomas P. Burke, Rowan Companies plc - CEO, President and Director [3]

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Thank you, Chris. Good morning, and welcome to our first quarter 2017 earnings call. We appreciate your participation today and your continued interest and investment in Rowan. Following my prepared remarks, Mark will give you an update on the offshore drilling market, and then Steven will walk you through our financial performance and guidance. After that, we will open up the call for your questions.

In the first quarter 2017, we put finishing touches on 2 transactions that we executed in the fourth quarter: our joint venture with Saudi Aramco and our debt refinancing. The first of these transactions will deliver long-term profitable growth for Rowan, and the second significantly improves our debt maturity profile, even though our earnings continued to be pressured by the current challenging market conditions.

I continue to be pleased by our strong operating performance and focus on cost control as our management team works diligently to drive improvements to our return on invested capital.

As an update from last quarter, we'll continue to make solid progress towards the startup of our joint venture with Saudi Aramco and expect the commencement of operations at the end of the second quarter. We have recently agreed our partner to name the new company ARO Drilling, with ARO spelt A-R-O, which is an abbreviation for Aramco-Rowan Offshore. The successful execution of the new company's business plan should provide ARO Drilling with tremendous earnings growth through the next decade. Naturally, we are excited to get started and look forward to the value ARO Drilling will provide to both partners.

During the first quarter, we followed up on the debt capital markets' transaction that we executed in the fourth quarter by retiring the remainder of our 2017 unsecured notes. These transactions have left us with only $208 million of debt due before 2022, though our $1.5 billion revolver remains untapped.

Stephen will walk you through our financial performance in detail, but in summary, we reported earnings of $0.07 per share in the first quarter, up from a loss of $0.19 per share in the previous quarter. Our first quarter EBITDA was $177 million versus consensus estimate of $158 million, driven mainly by increased Deepwater revenue as the Rowan Resolute returns to a higher day rate, following the period where we proactively agreed to reduce the day rate to enable a valued customer to execute key wells in the 2017 drilling program.

In the first quarter, our strong operational performance continued with revenue efficiency of around 98%. This strong uptime performance, coupled with solid expense control, resulted in our cash balance at the end of the quarter of around $1.2 billion. We continue to focus on improving operational performance across our fleet, and we are making good progress in this year. As an example, during the first quarter, all 3 of our rigs operating in Trinidad have dramatically outperformed our customers' drilling plans. While this has resulted in contractual end date that was shorter than expected, all of these rigs have been awarded extension to that to their programs.

Since the downturn begin in -- began in the third quarter 2014, floater attrition now stands at 74 rigs. In jack-ups, attrition has quietly accumulated to a total of 34 rigs, with most of those rigs leaving the market in the last year or so. From the population of remaining jack-ups that are over 20 years old, 76 rigs are currently cold stacked, and we believe most of these will be eventually be recycled or repurposed to nondrilling applications. Another 42 rigs from the same age group have been idle for more than a year, with all but 2 of those jack-ups being over 30 years old. Altogether, since the downturn in the market began, 34 jack-ups have permanently left the markets, and another 118 older rigs look prime for retirement.

While there is still an oversupply, the majority of recently-signed contracts have favored modern assets, and we believe this trend will continue. At Rowan, we've made steady progress in divesting our older assets over the last couple of years and have only 2 cold stack legacy rigs in our fleet. We are in active discussions that will likely lead to these 2 rigs being removed from our fleet over the next quarter or so.

Before handing the call over to Mark, I'd like to share a few thoughts on the market. Last quarter, we shared that we expected limited customer spending this year with a focus on activities with lower capital commitment and short cash cycles, such as unconventional land drilling and shallow-water brownfield projects, with muted spending on larger capital-extensive activities, structures, ultra-deepwater exploration and development. We continue to subscribe to this view. Jack-up tendering continues to improve, and based on conversations with operators, we believe demand for jack-up is likely growing higher as the year progresses. While we're cautious to call the bottom in jack-up demands, the number of rigs working has increased since October of last year, although at a gradual pace. Given continued tendering activity, we are optimistic that demand in the jack-up market will earn higher this year than when it started, so long as the commodity price stays supported.

The majority of incremental deepwater demand has pushed into 2018 and 2019, which is likely the same time frame that Mexico and Brazil will then reemerge as stronger regions. Our expectation is that any new awards in the next several quarters will struggle to keep up with the cadence of rigs rolling off contract. However, the floating market appears to be starting to work its way towards bottom. In particular, we are closely monitoring the supply of 7th generation rigs that arrived at currently available or scheduled to roll off contract before the end of 2018 as that has a more direct effect on our contracting prospects.

Winners in this business invest through the cycles, and we believe that first signs of market recovery will drive more players to action. With our healthy cash position and liquidity runway, we are well positioned to act on attractive opportunities and continue to review the distressed assets and other opportunities. Of course, I can't comment more specifically at this time, but I do believe there are good opportunities available that will enhance shareholder return.

Now for the look at the markets where Rowan competes, I'll hand the call over to Mark.

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Mark A. Keller, Rowan Companies plc - EVP of Business Development [4]

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Thanks, Tom, and good morning, everyone.

We continue to be encouraged by strong tendering activity but remain mindful of the long road to recovery that lies ahead of our industry. At this point in the cycle, we are strategically approaching opportunities around the world to best position our company as initial signs of the market improvement begin to take shape. This morning, I will provide an update on our recent contract announcements and discuss our views on the jack-up and ultra-deepwater markets before turning the call over to Stephen.

Our latest fleet status report disclose the extension of work of the Rowan Reliance with Cobalt. Operations continue on North Platte 4, and we anticipate completion of that program in late May, early June of this year. As a reminder, the day rate changed to $262,000 per day on April 1 to supplement the $96 million payment that was made for their right to early terminate the contract. We're in ongoing discussions with Cobalt on the possibility of drilling the North Platte 5 program, though, we anticipated gap between the wells.

In the North Sea, we signed a 90-day extension with Lundin, providing a continuation of work for the Rowan Viking through February 2018.

In the Middle East, the government road contract has been extended with Saudi Aramco to align with the commencement of ARO Drilling. And the EXL III will work for an additional 3 months for Arena Energy in the U.S. Gulf of Mexico through September 2017.

Turning to an overview of the jack-up market. Worldwide market at utilization is currently at 70%, up from 68% on our last call. As we analyze the approximately 80 jack-up fixtures that have been announced in 2017, 73% of those units are younger than 20 years of age. This supports our thesis that as the market troughs and jack-ups return to work, operators will prefer newer, more capable rigs, leaving many older jack-ups with limited future value to their owners. As Tom mentioned, our strategy remains to divest our legacy jack-ups and focus on marketing our high-spec equipment.

The Middle East continues to be the most active region for anticipated jack-up demand in the next 12 to 18 months. Not only are we looking forward to the commencement of ARO Drilling, but we're optimistic about the potential opportunities for incremental demand in Saudi Arabia, Qatar, the UAE and Kuwait. The EXL I and the EXL IV, which are currently idle in the region, are being actively tendered on multiple projects in the Middle East and around the world.

Though the North Sea remains oversupplied, we are having constructive conversations with our customers regarding programs in the second half of the year and early next year for our in-class and Super Gorilla class units. Rowan Norway and the Rowan Stavanger are best positioned to work in the Norwegian and U.K. sectors in the North Sea, while the Gorilla class jack-ups have more flexibility to take advantages of suitable projects that may arise outside of the region.

In the U.S. Gulf of Mexico and Trinidad, we see potential for all 5 of our jack-ups to remain fully utilized through 2017. Our longtime presence and excellent operating performance support earning additional backlog from our established customers.

Regarding other regions around the world, we are keeping a close eye on the developments in Mexico and the anticipated round 2.1 tender in June. We believe that Latin America will play an increasingly important role in jack-up demand in 2018 and beyond.

Southeast Asia has been a hotbed for tender activity with contract awards are dominated by rigs in the region with low rates and short-term programs. We are hopeful for improving fundamentals in that market next year.

We continue to see West Africa as an opportunity for the longer-term projects for high-spec units. However, anticipating commencements typically range between late 2017 and the first half of 2018.

Now I would like to briefly discuss the ultra-deepwater market. Our views are consistent with the overall industry sentiment that 2018 is projected bottom of the cycle, though, we don't expect a healthy supply and demand balance to return until later in the decade. This scenario is based on a modest increase and commodity price but can be significantly affected by swings in either direction as projects move into and out of attractive returns for our customers.

The current market utilization for ultra-deepwater units is 73%, fairly flat since our call in February. Despite the gray clouds surrounding the broader floater market, the silver lining for Rowan continues to be the quality of our ultra-deepwater assets. Operators prefer the high-spec technical capabilities of these units, but competition will be fierce for upcoming tenders.

We are confident that 7th generation drillships will be the first to secure contracts and reside in the first group of deepwater rigs that will enjoy the a favorable supply balance. Two of our ships are currently contracted in the U.S. Gulf of Mexico into our warm stack but being actively marketed worldwide. We see 68 high potential opportunities for drillships of our caliber with commencement in 2018.

As we emerge from the cycle, we are strategically thinking, creatively tendering and aggressively pursuing opportunities worldwide. Let me assure you that we are focused on securing additional backlog, maintaining high levels of customer satisfaction and delivering value to our shareholders.

This concludes my remarks this morning. I will now turn the call over to Steve.

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Stephen M. Butz, Rowan Companies plc - CFO and EVP [5]

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Thank you, Mark, and good morning, everyone.

Today, I will review our first quarter 2017 financial results and update you on our cost and capital spending guidance before opening the call for questions and answers. But first, I would like to say a few words about ARO Drilling, our JV with Saudi Aramco, as we look forward to its commencement in the near term.

We provided certain details around the economics and the accounting for the joint venture on our last quarterly conference call and have also provided additional detail by filing the shareholders agreement with our form 10-K. This included the initial day rates for the first 5 contributed rigs and the agreed value of each of our contributions to the joint venture, which should be helpful to you in your forecasting for Rowan and the new entity. As a reminder, Rowan will receive a modest cash distribution shortly after commencement from the company, and Saudi Aramco will contribute additional cash to maintain a 50-50 ownership split as we contribute 3 versus better 2 rigs. We expect to receive a more meaningful cash distribution in the fourth quarter of 2018 as we contribute 2 more rigs at that time.

ARO Drilling will bolster our already strong liquidity in the short term, which is very positive in this environment. But we are also extremely pleased with a highly-visible long-term growth of this entity, which should be substantial and unprecedented in our industry.

Now I'll walk you through our quarterly results. This morning, we reported net income of $10.3 million or $0.07 per diluted share, essentially in line with our fourth quarter EPS at $0.08, excluding the loss on early retirement of debt.

However, first quarter results include income tax expense of $30 million versus nearly a $10 million benefit in the fourth quarter. While the income tax provisions for the first quarter was higher than our guidance, we still expect our provision to total approximately $50 million for 2017. It is just now more heavily weighted towards the first quarter than previously expected.

While normalized EPS was essentially flat, our adjusted EBITDA increased by $34 million versus the sequential quarter to $177 million, and our EBITDA margin of 47% represents a 6% increase from our 41% fourth quarter margin. The improvement was driven by a 6% increase in revenue and a 6% reduction in both operating cost and G&A. $29 million of the $34 million increase in EBITDA was driven by higher deepwater revenues as a result of the Rowan Resolute day rate, reverting back to its original $615,000 rate on January 23. However, it is still noteworthy that we were able to increase EBITDA, albeit modestly, on the rest of our operations.

Our quarterly jack-up utilization improved by 12 percentage points, although average day rates declined by approximately 20,000. Deepwater utilization remains flat, but average day rates increased by almost 130,000 on the aforementioned rate increase on the Resolute. Our out-of-service time declined to 6% for the jack-ups, and there was no out-of-service time for the drillships. Our total operational downtime increased slightly to 2% fleet-wide but was primarily driven by downtime on the Rowan Middletown, one of our lowest rate rigs.

Once again, our Deepwater segment has phenomenal operating performance. For the third consecutive quarter, our drillships did not incur any on unbillable downtime. And since the beginning of 2016 or over the last nearly 450 days, unbillable downtime for our drillships has only totaled 17 hours.

Finally, our idle time across the fleet declined to 19% of available days from 29% in the prior quarter, due primarily to increased operating days on the EXL III in the U.S. Gulf of Mexico and the Gorilla VII in the North Sea.

Moving on to expenses. Operating costs for the first quarter were $166 million net of rebillable items, slightly below our guidance. Operating expenses were approximately $9 million lower than the previous quarter, due in part to cost reductions related to the warm stacking of the Renaissance in the fourth quarter and the timing of repair and maintenance expenses in the jack-up fleet. For the second quarter, we expect operating costs to approximate $165 million, and we are reducing our range on full year guidance to $625 million to $650 million. This guidance excludes certain potential joint venture costs that may be grossed up on our income statement and offset by equal revenue.

First quarter SG&A expenses totaled $24 million, approximately $2 million less than the previous quarter and below our guidance. Although as most of the reduction was driven by mark-to-market accounting for certain share-based and performance awards, which may certainly reverse, we are still maintaining our second quarter guidance of $26 million, with full year SG&A expense expected to range from $95 million to $100 million.

Depreciation expense for the first quarter totaled $99 million, and we maintained our full year guidance of $385 million to $395 million.

First quarter interest expense was approximately $40 million, and our 2017 estimate of $155 million to $160 million remains unchanged.

As I mentioned in our last quarterly call, in 2017, we will guide to our expected income tax expense as opposed to projecting an estimated rate going forward. While our first quarter income tax expense of $30 million was higher than our $10 million to $15 million guidance, it was driven by timing differences on the expense recognition versus our previous expectation, and much of the expected income tax expense for the year shifted to the first quarter. Our full year 2017 guidance is unchanged at approximately $50 million. Income tax expense will likely remain volatile at the current levels of income, and each quarter can be impacted significantly not only by actual results but also by changes in our forecast, changes in valuation allowance on deferred tax assets and various other factors. We continue to expect our cash tax payments for 2017 will remain in the $40 million range, excluding the impact of audits or settlements related to previous years.

Moving on to our cash flow and balance sheet. In the first quarter, our capital expenditures totaled $31 million. We are increasing our full year guidance to $120 million to $130 million, due primarily to the anticipation of capital projects, which prepares certain jack-ups for visible demand in late 2017 and early 2018. Our current cash balance is $1.2 billion, and our $1.5 billion revolving credit facility remains undrawn.

Overall, we are pleased with our strong financial performance during the first quarter in spite of the challenging market conditions.

Though our results will weaken as we work through some of our higher-priced backlog, we will continue to focus on safe and reliable operations and solid drilling performance so that our backlog will be realized. As Tom and Mark both discussed, after more than 2 years of declining backlog, we are somewhat encouraged as we move into the next phase of the cycle and are beginning to see more opportunities, although at lower pricing, to put certain of our idle rigs back to work.

We are now prepared to open the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Ian MacPherson from Simmons.

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Ian MacPherson, Simmons & Company International, Research Division - MD and Senior Research Analyst, Oil Service [2]

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Tom, you mentioned, I think it was last quarter, that you were interested in some of the jack-up M&A that had been unfolding. Of course, you've been very busy organizing your ARO negotiations, which probably consumed a lot of your time and attention. But it seems like there's continuing movement on that front, and I wonder if you could comment on how you see the opportunity set for Rowan on the jack-up M&A side.

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Thomas P. Burke, Rowan Companies plc - CEO, President and Director [3]

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Yes, Ian, so I do think we're all interested in the jack-up, expanding our jack-up fleet to a stable replacing some of the assets that we are retiring. So I would say that we have a strong interest. I would also say that we are focused on behind the jack-up markets. So definitely, we're looking for new assets, we're looking for very capable assets, assets which we believe will be competitive for some time. And there's a lot of assets out there, which we not as interested in, frankly. We did look at the different transactions. But up to now, we haven't been able to get there either on the quality of the assets or on the valuation. I would say that the rigs that sold at the end of the last year, the 2 Hercules Super A that went to more drilling, I think that was more of a timing issue. We had a very strong interest in those, and we thought the value was good. But yes, no, we are interested, and we'll continue to look at them, definitely focused on the high end of the asset. Not necessarily full of Super Gorilla CJ70 that high because there aren't very many of those available, but certainly looking for quality assets.

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Ian MacPherson, Simmons & Company International, Research Division - MD and Senior Research Analyst, Oil Service [4]

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Okay. Stephen, are you -- are we fully collective now on that $96 million settlement from Cobalt, and that would be reflected on your first quarter cash balances? And going forward, is it the regular $262,000 day rate that you're collecting on a cash basis?

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Stephen M. Butz, Rowan Companies plc - CFO and EVP [5]

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That's right, Ian.

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Ian MacPherson, Simmons & Company International, Research Division - MD and Senior Research Analyst, Oil Service [6]

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Okay. And -- but the deferred revenue, which is noncash from the settlement, will still be going through the P&L?

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Stephen M. Butz, Rowan Companies plc - CFO and EVP [7]

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That's right. That will -- that piece will continue until the end of the original contract, which was end of January of 2018, so the difference between that original rate and the $262,000 which we're collecting in cash today.

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Ian MacPherson, Simmons & Company International, Research Division - MD and Senior Research Analyst, Oil Service [8]

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Got it. And then if I could just ask one more. Mark, you touched on several rigs that are jack-ups that have some prospects for work, the EXLs in Middle East and elsewhere, the in-class rigs. Of those, which would you ascribe higher probabilities to in terms of getting work in the second half of 2017?

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Mark A. Keller, Rowan Companies plc - EVP of Business Development [9]

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Ian, that's hard to say. I can tell you that they're all actively tendered. And as you know, the companies have their own schedule when to work things, so it's real hard to say. But I would tell you that there -- we're starting to see an increase, certainly, in tenders worldwide. We're seeing activity in the U.S. Gulf. We're seeing it in South America. We're seeing it in West Africa. And then we'll see, and certainly, in the Middle East. So there are a lot of opportunities for us to secure contracts for them right now. When they'll come to fruition, it's just really difficult to say. But I can assure you, we're staying on top of them every day.

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Operator [10]

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Your next question comes from Ole Slorer from Morgan Stanley.

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Ole Henry Slorer, Morgan Stanley, Research Division - Global Head of Energy Research, MD, and Oil Service and Shipping Analyst [11]

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Congrats, Tom and team, for what I think continues to be very strong revenue efficiency and cost control. My question, more on the lines of the first question on assets transactions. You highlighted that the jack-up market barring something, double dip in commodity prices or some other unforeseen event, troughed about half a year ago. The board transactions took care, took place just about then. Do you think that asset prices have moved up since that time? Or do you think that clearing prices are still in the same kind of ballpark?

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Thomas P. Burke, Rowan Companies plc - CEO, President and Director [12]

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That's a good question, Ole. I think when we look at asset prices, it does feel like they have moved up a little bit at least so, few data points. At least, from the first board transaction to the second one, it feels like they moved up. I think when we look at asset and we run our analysis, we tend not to look so much at construction price. We're just really focused on how it looks or going forward under our model, so as far as what the value of buying asset would be and how value creative it is. And so we tend to go as we look at the (inaudible) model of a particular asset transaction, and we also reflected back that we -- while we think the market is pricing our jack-ups in our enterprise value. And I -- so I do feel, while I feel that asset price and fees have moved up a bit, it's sure that the prices -- as our stock price has gone down over the last several months, it feels like the asset prices have gone down a bit. So the ranges where our asset prices trade in our stock, I mean, depending how much you value the different assets, but it's definitely on the lower side of -- more in line with the board transaction or a little higher in the first board transaction than the second. So I don't know if I could give you any color on how we think about it, but we definitely -- we look at our -- where our assets are trading, and we also look at an NPV on future cash flow.

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Ole Henry Slorer, Morgan Stanley, Research Division - Global Head of Energy Research, MD, and Oil Service and Shipping Analyst [13]

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Yes, sure. Do you see any changes in the competitive landscape? I mean, we have Bohr as new entrant, and there are others who've been waving a big flag at private equity for buying assets, although they haven't sort of done anything. So how is the competitive landscape right now for -- that you're meeting when you're looking at assets that you want to acquire?

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Thomas P. Burke, Rowan Companies plc - CEO, President and Director [14]

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I think that you haven't -- obviously, the Bohr -- the set-up on the Bohr side was, honestly, more competition than jack-up. But beyond that, I mean, the Shelf Drilling and shelf -- the Rowan Company, it's gone out and bought some assets, which is not unsurprising because they bought some from Lamprell before. So I think the competitive landscape hasn't changed that much as far as other players besides Bohr coming in, but we haven't seen many moves from others. Although, clearly, I wouldn't say that offshore drilling is becoming more invoked, but it's certainly becoming less more interesting to other players as we've seen. But we haven't seen any actions in those spaces yet.

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Operator [15]

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(Operator Instructions) Your next question comes from Eduardo Royes from Jefferies.

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [16]

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I guess, this one is for Mark. Just curious if you can provide some color on, obviously, not the daily structure per se or getting too much into detail. But I'm just curious, to the extent that there are maybe -- maybe we start to do some more longer-term contracts where you can sign a rig up starting a year from now for 18 months or 2 years. Do you feel like you guys are always in a position to be able to talk to customers and say, "Look, we're out of trough now. If I sign this rig up starting a year from now, it doesn't roll off until end of '19 or 2020," or something like that? Are you guys able to build in some pricing escalators, whether it's indexing, whether you start lower, end higher? Just curious if you think that there will, at least, be an ability to negotiate with customers and then say, "Look, I mean, yes, I'm happy to take the job. I'll start low upfront. But our job in this market is a lot tighter 2.5 years from now, so you got to cut me a break. I don't want to lock in at a trough price, and I want to be earning on this rig for up until 3 years from now," or something like that.

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Mark A. Keller, Rowan Companies plc - EVP of Business Development [17]

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Sure. That's too great question, Eduardo. The way I would answer that, obviously, we're in an extremely competitive situation with tendering. But I can tell you that we've gotten creative, very creative with a lot of our tenders. We're very mindful on the jack-up side. We do think that we'll see things the end of this year if incremental demand presents itself like we think it will toward the end of the year that it will trough, and you'll start seeing multiyear contracts, and you'll start having to change the way you tender because as we move out depending on the term, you certainly want to have some built-in provisions so you don't miss the upside of the market. But on the deep -- on the ultra-deepwater side, we're certainly mindful of that with poor ships. We see, as I've mentioned in our prepared remarks, we see 6 to 8 prospects right now, and most of those commencing sometime in 2018. So we're very mindful and getting very creative on how to protect the upside with the ultra-deepwater ships, given the fact that those are 1,250-ton dual-BOP ships. I don't know if that answered your question but...

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [18]

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Yes, I know it's tough to answer, but no...

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Mark A. Keller, Rowan Companies plc - EVP of Business Development [19]

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And this has got to be -- we're just in such a competitive situation right now, but we are going too long and staying at very low rates.

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [20]

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Yes, I know. Makes sense. I guess, going more along the line of all these questions just now but more broadly. I think a lot of guys in our seats sit here and think that you're going to need some level of corporate M&A to help tighten the market. Because guys, to the extent they start thinking about market share, obviously, maybe more inclined to scrap some older iron, if you had that. It's a little bit tougher maybe to think about that on the jack-up side, which is so fragmented both versus the floating rigs side. But I guess, maybe this is just more a broader comment of it seems like depending on the earnings seasons, some guys talk a little bit more or less about the role that larger scale M&A can ultimately play. A lot of guys are recently arguing that as you get down to these levels, probably the synergies aren't insignificant going forward because rates are depressed, and obviously, they're much smaller businesses. So just curious for some perspective on what you think the next 6 to 12 months can look like more broadly, and I guess, Tom, this is probably more for you, on the larger scale transaction side.

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Thomas P. Burke, Rowan Companies plc - CEO, President and Director [21]

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Yes, well, I think it's obviously something we discuss a lot. I would say to sum up 3 comments. One is the capital markets or at least the debt markets are constructive or are open a now. We see the equity market had been pushed down for the publicly-traded drillers. But the debt markets are open, which is positive towards M&A. We have seen 4 of the asset deals announced, 1 with Shell, 2 with Bohr, and 1 with Northern Drilling. And so we have seen that, so there has been some movement. And normally, it's the movements that get movement, right? And then finally, the outlook is improving, at least, from the jack-up side. And maybe it's hard to call a broader movement at the floaters side, but the outlook on jack-ups side is improving. Now the outlook, as you mentioned, it's not clear exactly what M&A will do on the jack-up side. And also, when we say the jack-up market is improving, that is basically a stagnant market or almost stagnant market in 2015 and 2016. So any level of contracting really, over '15 and '16, would be improving. I don't mean it's -- when you think of the oil and cash cost per rig, including CapEx and overhead, a lot of jack-up contracts that are coming out right now are not that exciting. So I do think with those 3 elements, deals have happened, debt markets have opened in the recovery market, it would lead -- some transactions have happened, it would lead to more transactions. But we do believe we will see some movement in this -- in 2017, early 2018. Whether or not Rowan will participate, it'd really be around how much value we think it creates for our shareholders. And then the thing what we talked about on this, on calls like this, on our earnings calls and we talk about in (inaudible), first of all, we're certainly not in the trends management team, so it'll be right thing for the shareholders. Secondly is, we don't want to back into too much debt. We believe we have a strong balance sheet in this business, and we're willing take on some more debt. But it has to be -- the cash flows have to support it. And we have to have to buy assets at a reasonable price, at a good price. As I made in my prepared comments, we believe we should invest through the cycles, through the cycle. And so we want to improve our firm, we want to scale down our investment per rig. So now is a good time to do that whether it's through M&A or through individual asset transactions, remains to be seen. But I would say that we work on it real hard, and we spend a lot of time working and -- on -- this exact issue. So yes, I think it's likelier than it has been for the last 2 years, I think.

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [22]

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Great. I'll turn it over and congrats again on the revenue efficiency, and that drillship downtime number was pretty impressive so congrats on that.

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Operator [23]

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There are no further questions at this time. I would now like to turn the call back over to Christopher Pitre.

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Christopher Pitre, Rowan Companies plc - VP of IR & Corporate Development [24]

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All right. We'd like to thank everyone for your interest in Rowan and joining us on today's call. If you have any additional questions, Carrie Prati and I will be available to take your calls. We look forward to speaking with you again next quarter. Mariana, thank you for coordinating the call, and good day, everyone.

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Operator [25]

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This concludes today's conference call. You may now disconnect.