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Edited Transcript of RDC earnings conference call or presentation 27-Feb-19 4:00pm GMT

Q4 2018 Rowan Companies PLC Earnings Call

LONDON Mar 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Rowan Companies PLC earnings conference call or presentation Wednesday, February 27, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan Quintero

Rowan Companies plc - SVP of Business Development

* Brian Jackson

Rowan Companies plc - Manager of IR

* Stephen M. Butz

Rowan Companies plc - Executive VP & CFO

* Thomas P. Burke

Rowan Companies plc - President, CEO & Director

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Conference Call Participants

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* Gregory Robert Lewis

BTIG, LLC, Research Division - MD

* Kurt Kevin Hallead

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

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Presentation

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Operator [1]

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Good morning. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2018 Rowan Companies plc Earnings Conference Call. (Operator Instructions)

I would now like to turn the call over to Mr. Brian Jackson, Manager of Investor Relations. Please go ahead.

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Brian Jackson, Rowan Companies plc - Manager of IR [2]

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Thank you, operator, and welcome to Rowan's Fourth Quarter and Full Year 2018 Earnings Call. We appreciate 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 me on today's call are Tom Burke, President and Chief Executive Officer; and Stephen Butz, Executive Vice President and Chief financial Officer as well as other members of the Rowan team.

Before I turn this call over to Tom, I'd like to remind you that during this call, we may make certain forward-looking statements regarding our company and business that are not historical facts. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Please refer to our annual report and most recent quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results may differ materially from those contemplated by these forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance.

Any forward-looking statement made by us during this call speak only as of the time at which it was -- is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

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

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

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Thank you, Brian. Good morning, and welcome to Rowan's Fourth Quarter 2018 Earnings Call. We appreciate you joining us today and your continued interest and investment in Rowan. Following my prepared remarks, Stephen will walk you through Rowan's financial performance. We will then open the call for questions.

I'd like to take a moment to make a few comments regarding our proposed combination with Ensco. As disclosed last week, Rowan shareholders overwhelmingly supported the merger with approximately 91.5% of shares voted approving the transaction. From a regulatory standpoint, last November, the U.S. Department of Justice and the Federal Trade Commission granted early termination of the waiting period under the HSR Act. The United Kingdom's Competition and Market Authority cleared the combination earlier this month on February 15. We recently received clearance from The Committee on Foreign Investment in the U.S. Lastly, the initial review period for our filings with Saudi Arabia's General Authority for Competition will likely expire on April 4.

Over the past several months, we've been diligently working with Ensco to map out the new organization while respecting regulatory-imposed limitations. I am highly encouraged by the process in which the Rowan and Ensco teams have professionally worked together to prepare for the transaction closing and plan combined company operations. While there's still much to do, we have completed a great deal of detailed integration planning, and I'm pleased to see our cost synergy target increase to $165 million per year from $150 million per year as originally announced in 2018. We would expect to reach full run rate synergies by year-end 2020.

I would also note that this synergy figure is largely reflective of onshore cost reductions, insurance and facilities. Once we close the transaction, we can better assess rig-level opportunities such as procurement savings and best-in-class crewing practices. Also, the synergy number does not include any potential savings in capital expenditures, which we will be able to evaluate upon the closing.

Customer feedback regarding the combination continues to be positive. The demands on drillers to work with customers to bring down overall well costs has never been greater. Rowan's combination with Ensco is exactly what is needed to become more competitive while still managing our cost structure to more appropriate levels.

Turning back to our quarterly results as we've done in past calls, I'm going to discuss the overall market, recent contract awards to Rowan and what to expect in terms of future contracting opportunities. The fourth quarter of last year was a particularly volatile period in the oil markets as Brent crude oil prices dropped from $86 per barrel to a low of $50 per barrel. Prices have recovered somewhat with Brent hovering around the low-60s for much of this year and more recently improving to the mid-to-high 60s.

Despite this decline in oil prices, oil and gas companies are expected to sanction at least 100 offshore projects in 2019, which is ahead of the 96 projects that received final investment decision last year. Overall, contracting activity increased significantly in 2018 over previous years, although contracts were generally of shorter duration.

Rowan has clearly benefited from these improvements in the contracting environment as our backlog days grew substantially in 2018. The number of backlog days for Rowan's fleet, excluding ARO Drilling-owned rigs, rose from approximately 3,000 days as of April 2018 to 11,300 days based on our last fleet status reported earlier this month. Assuming a relatively steady oil price environment at roughly current levels, we expect contracting activity to continue to improve in 2019 as our customers take advantage of low-service costs and spend offshore capital budgets that appear to be on par with but slightly higher than 2018 levels.

From an execution standpoint, 2018 was a successful year in which we achieved our best safety performance ever. Our operational uptime, while still very high, was slightly lower than 2017, impacted by the reactivation of several rigs during the year. Over the past year, utilization for the global fleet of ultra-deepwater drillships has remained relatively stable at around 75%. Big shore activity for these types of assets continues to be higher than at any point since before the start of the 2014 downturn, although the average firm term of new contracts continues to remain well below 1 year. Day rates have also improved since bottoming in mid-2018 and customers have a clear preference for high-specification assets such as our R-class rigs. We expect both trends to continue with a magnitude of further pricing improvements, dependent on several factors, including equipment availability and timing of contract commencements. In the U.S. Gulf of Mexico, BP and other operators have announced significant oil discoveries.

Drilling plans and permit activity in the U.S. Gulf today is much higher than at this point last year, and we continue to consider the U.S. Gulf of Mexico a key part of our future. Currently, the Rowan Resolute is finishing up its contract with LLOG. After a short break period, the rig will mobilize to Fieldwood for a 1-year contract. The Rowan Relentless is on its first option well with Exxon Mobil, who have exercised their second and third options, which should keep the rig busy until the end of the third quarter of this year.

The Rowan Reliance is warm-stacked in the U.S. Gulf of Mexico and is available for suitable opportunities. Although the recent leadership changes may be creating some uncertainties in Mexico and Brazil, we believe that recent exploration successes in Mexico by BHP and in Guyana by Exxon Mobil as well as the upcoming bid round in Brazil will keep the industry keenly watching Latin America where ultra-deepwater drillship utilization has increased by 15% to 74% over last year, while marketed utilization is at a strong 95%.

The Rowan Renaissance began operations for Total in Mexico, drilling in a water depth that we believe is the deepest ever in the Gulf of Mexico. Following this current well for Total, the Renaissance will mobilize to Petronas for a 1 well plus 1 option well program also in Mexico.

In Africa, we are seeing many of the long-term requirements in the region shifting to the right, some to 2020. That said, we're tracking opportunities in Ghana, Namibia, Angola, Equatorial Guinea and Mauritania among others.

Now I'm going to shift to the jack-up market. Recovery for jack-ups certainly appears to be unfolding ahead of that for floaters. As of today, all of Rowan's jack-up units are contracted except for our 2 vintage cold-stacked units. In the worldwide fleet, there are 26 more jack-up units contracted than a year ago. That, in conjunction with the retirement of 9 units over that period, have resulted in an increase in global marketed utilization by 7% to 76%. The North Sea continues to experience strong marketed utilization of around 93%, which we expect to remain robust over the near term.

Currently, we have 2 Super Gorilla rigs and all 3 N-Class rigs with contracts in the region, including the recently announced contract with ConocoPhillips in Norway for the Rowan Norway in direct continuation of the current program in Turkey for Turkish Petroleum. We expect the FERN program with ConocoPhillips to keep the Rowan Norway busy until early 2020. Our biggest risk in the North Sea are the gaps between contract periods, and we're doing our best to manage these.

Latin America, and particularly Trinidad, continues to be an important region for Rowan as shown by our recent announcements of a further extension for the Joe Douglas with BP in Trinidad and an extension for the Gorilla VI with Shell also in Trinidad. In addition, we secured new contracts for the Ralph Coffman with EOG in Trinidad and CGX in Guyana, with other opportunities in the area also being explored.

Activity in the Gulf of Mexico has remained steady. In the U.S. Gulf of Mexico, 10 to 12 jack-ups have been operating since last March. Mexico is gaining steam with potential interest by the new government that may generate jack-up activity for PEMEX. Finally, the Middle East continues to be a healthy consumer of jack-ups with 132 units on charter, mostly in the UAE and in Saudi Arabia where we operate as ARO Drilling in our joint venture with Saudi Aramco.

The Bess Brants and Earnest Dees are in the ASRY shipyard preparing for their contracts with Saudi Aramco. Completion of the reactivation and upgrades on these rigs has been challenging for a number of regions. And as previously disclosed in our recent fleet status, are expected to start their drilling contracts in April.

Staying with ARO Drilling for a moment, as disclosed last December, it was decided to push out the ordering of the first 2 newbuilds to later this quarter or early next quarter. At year-end, ARO Drilling has approximately $178 million of cash on hand, which we believe will be sufficient to fund the down payment and meet ARO Drilling's operating needs.

That concludes my remarks on our business. In closing, the recent decline in oil prices was a stark reminder of the volatility that we must deal with in our industry. Although this unexpected price change postponed some potential drilling programs, especially with a few smaller customers and independents, we continue to believe in a long-term cyclical recovery.

Oil price volatility aside, as we start what will be the fifth year of the downturn in offshore drilling, I'm really encouraged by developments in the offshore drilling industry that have made the exploitation of offshore hydrocarbon resources much more competitive today than when the downturn began in late 2014. Our pending combination with Ensco comes in an opportune moment in the cycle. Together, we can offer much more to our customers, regardless of the commodity environment.

We will be prudent with the balance sheet and are better equipped to manage through any prolonged down cycle. When the cyclical market recovery is more pronounced, we'll have greater upside exposure with a larger, more diversified fleet and some of the best people in the business to execute operations.

This concludes my remarks. I do not expect that we'll have another earnings release before the merger closes. So this will be the last Rowan earnings call with Stephen and the rest of the team here in the room at Rowan. It's been a real pleasure working with you through some good times and some tough times. Some of you will leave and some will continue with the combined company, but either way, I want to say a deeply felt thank you for all your hard work.

With that, over to you, Stephen.

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Stephen M. Butz, Rowan Companies plc - Executive VP & CFO [4]

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Thank you, Tom, and good morning, everyone. On the call today, I will review our fourth quarter 2018 results in comparison to third quarter 2018 results. I will also briefly discuss ARO Drilling's operating results. Given the pending merger with Ensco, we will not be providing stand-alone guidance for Rowan at this time.

Earlier this morning, we reported a net loss of $14 million or $0.11 per diluted share for the fourth quarter 2018 compared to a net loss of $144 million or $1.13 per diluted share in the third quarter of 2018. The net loss for the fourth quarter of 2018 included a $66 million gain on the sale of rigs to ARO Drilling, a $68 million tax benefit related to the release of valuation allowance on the company's net U.S. deferred tax assets and $8 million of merger-related expenses. Excluding the impact of these 3 items, Rowan reported a net loss of $1.11 per share in the fourth quarter of 2018.

Adjusted EBITDA for the fourth quarter was negative $7 million, which excludes the aforementioned $8 million of merger-related expenses and compares to a loss of $15 million in the third quarter, which excludes $1 million of merger-related costs. The EBITDA improvement was driven by higher deepwater revenue and lower general and administrative expense, partly offset by lower jack-up revenues, following the sale of our Scooter Yeargain and Hank Boswell rigs to ARO Drilling.

Fourth quarter 2018 revenue of $179 million includes $7 million of transition services revenue from ARO Drilling and $26 million of rebillables. Excluding transition services and rebillables, contract drilling revenue was $147 million, an 11% decline from the third quarter level. Jack-up revenue excluding rebillables was $122 million, a decline from $152 million in the third quarter. The revenue decline was largely driven by the sale of the Yeargain and Boswell as well as the transition of 4 rigs operated by ARO from managed to leased during the third and fourth quarters.

Utilization improved to 91% during the fourth quarter from 74% in the third quarter, mainly due to the Rowan Norway and Rowan Stavanger recommencing operations and the leasing of the EXL I and EXL IV to ARO. Average day rates for our jack-up fleet declined by 27%, largely on mix due to the ARO-related rigs that transitioned from managed to leased, lease commencement on the EXL I and IV and again the sale of the Boswell and Yeargain.

Deepwater revenue excluding rebillables was $25 million, an increase from $14 million in the third quarter primarily due to a full quarter of operations on the Rowan Relentless, which also drove the improvement in utilization to 49% during the fourth quarter. Average deepwater day rates rose modestly to $138,000.

Direct operating cost in the fourth quarter were $141 million, excluding cost of rebills compared to $164 million in the third quarter and near the low end of our prior guidance. Lower costs were mainly due to the elimination of direct operating expense on ARO-related rigs that transitioned from managed to leased as well as the sale of the Yeargain and Boswell. This was partially offset by higher costs on the Stavanger in Norway as they return to service, and reactivation costs on the Rowan Renaissance to prepare the rig for its contract commencement in the first quarter 2019.

SG&A expenses excluding merger-related costs for the fourth quarter were $20 million, down from $25 million in the third quarter. This reduction was due to lower professional fees and mark-to-market adjustments on stock-based compensation. We also incurred $8 million of merger-related expenses during the fourth quarter compared to approximately $1 million incurred during the third quarter. Depreciation expense in the fourth quarter totaled $95 million, down from $99 million in the third quarter and in line with our prior estimate.

Interest expense totaled $40 million, essentially flat with the third quarter and in line with our previous estimate. We recorded an income tax benefit of $57 million during the fourth quarter, which includes the $68 million income tax benefit due to an adjustment on our U.S. valuation allowance on deferred tax assets. For 2018, our tax benefit amounts to $52 million, which includes the fourth quarter adjustment just mentioned and prior quarters benefits from the resolution of prior year tax contingencies. Income tax expense without these discrete benefits would have been $26 million, primarily due to profitable operations in Saudi Arabia and the U.S.

Moving to our balance sheet and cash flow. We ended the year with just over $1 billion in cash and essentially flat with the September 30, 2018 level. Our ARO shareholder loan balance increased to $456 million at year-end from $269 million at the end of the third quarter, largely as a result of the sale of the Yeargain and Boswell to ARO. Rowan also received a net of $91 million in cash from ARO. As we disclosed last December, the ARO board during its last meeting elected to pick the interest earned on the shareholder notes during 2018. This move contributed $12 million to the increase in the shareholder loan balance.

Capital expenditures during the fourth quarter totaled $52 million, which was well below our prior guidance of $100 million to $120 million, principally due to some slippage of spending on the Bess Brants and Earnest Dees in preparation for their 3-year contracts with Saudi Aramco.

As we disclosed in our latest fleet status report published on February 13, we now anticipate contract commencement for the Brants and Dees will occur in April. As a result of the delay, a portion of capital expenditures needed to get these rigs compliant with Aramco requirements has been pushed into the first quarter of 2019.

I would now like to take a moment to discuss our operating results for ARO Drilling, which Rowan accounts for under the equity method. In the fourth quarter, ARO generated net income of $13.6 million compared to $6.3 million during the third quarter. Rowan's 50% share of this net income is reflected on our income statement.

The joint venture generated revenue of approximately $131 million in the fourth quarter, an increase from $89 million in the third quarter. The strong revenue growth stemmed from the addition of the Yeargain and Boswell as owned rigs to the ARO fleet; a full quarter's contribution from the Arch Rowan, Charles Rowan, Rowan Middletown and EXL IV as leased rigs to ARO, and a partial quarter contribution of the Rowan Mississippi and EXL I that are now also leased to ARO.

Operating expenses increased to $73 million from $51 million in the third quarter. This increase was primarily driven by the transition of previously managed rigs to leased rigs, which shifts direct operating cost of these rigs from Rowan to ARO, the lease commencement of the EXL I and IV and the addition of the Yeargain and Boswell as wholly owned rigs by the JV.

All in all, ARO generated adjusted EBITDA of $50 million in the fourth quarter compared to $31 million in the third quarter. Looking forward for ARO Drilling's, we still expect 2019 EBITDA will range between $160 million and $180 million. Although, the delay in the start-up of the Brants and Dees makes the lower end of this range more likely than when we initially provided it.

Now before we start our question-and-answer session, please allow me to digress for a moment. As you all know, while our combination with Ensco awaits final regulatory approval and other customary closing conditions, these may occur prior to our first quarter earnings call.

Since I will not be continuing with the combined company, this may be my final earnings call at Rowan. Therefore, I'd like to take this opportunity to thank all of our sell-side research analysts that cover the company for the diligent work you do and the important function in the market that you fulfill. I also sincerely appreciate all of our shareholders and creditors for the strong support you have shown to our company.

It has been my great pleasure to serve you as well as Rowan's world-class employees, management team and Board of Directors as Chief Financial Officer for the last 4.5 years. During this period, our industry has faced some incredibly tough headwinds. Through Tom's leadership, we have been able to manage through these challenges. And I am confident that Tom, along with the combined company board and senior management team will successfully navigate Ensco-Rowan to more prosperous times ahead.

That concludes my prepared remarks. With that, we're now ready to open the call to questions and answers. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from the line of Kurt Hallead of 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 congrats to you guys on the next chapter. Stephen, very well said. Thank you for that, that shout-out to what we do. Appreciate that. So in the context of the fact that you're not going to be providing some specific kind of guide points on Rowan's stand-alone, maybe I can focus my Q&A and attention more about the evolving market dynamics. And I know you went through some great detail on that, Tom. But in the context of how we think about the deep, the drillship market and the fact that you have a warm-stacked asset, how are you looking at that opportunity set? And do you think that, that rig could potentially get on, land a contract in 2019?

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

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Sure. I'll give you some comments on that, and then I have Alan Quintero, who is our SVP of Business Development and Marketing. He may want to comment on that as well. So I think when you think about our strategy on the drillships, as our contracts are fairly short, we are definitely -- we have a year contract with Fieldwood, and we have customers who -- with options with the Exxon Mobil contract, but we definitely want to try and push work to the hot rigs. And on the Rowan Reliance, we would not want to reactivate that unless it had an opportunity to have a reasonable amount of work. So -- and the reason for that is, is that all the rig is hot-stacked, there is a cost, both a financial cost and sort of a morale cost of ramping a rig up and then ramping it down again around the cost to do that but also the cost of hiring people and then having to let them go. So I think as we think, we got 3 rigs that are working. We're trying to keep those 3 working. But if an opportunity for some longer work or work that clashes comes up, we would put it on the Reliance. Alan, do you want to comment on the opportunities on the Reliance?

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Alan Quintero, Rowan Companies plc - SVP of Business Development [4]

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Yes, we are -- like we said in the prepared comments, we are seeing a high level of fixtures and a high level of interest for rigs. They continue to be primarily short-term, but we have seen a couple of longer-term fixtures recently, and we are talking to one or more customers right now about longer-term work that could potentially be something that we bring the rig out for.

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Thomas P. Burke, Rowan Companies plc - President, CEO & Director [5]

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This year.

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Alan Quintero, Rowan Companies plc - SVP of Business Development [6]

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Yes.

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Thomas P. Burke, Rowan Companies plc - President, CEO & Director [7]

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Kurt, did that answer that question?

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [8]

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Yes, that's really helpful. So maybe the second part of the question then would be I think we're all pretty much well-versed on how challenging the day rate market had been, at least the very near term for some of the spot work or short-term work. Yet there are some markers out there with respect to, say, contracts starts in 2020 or 2021 that could indicate the near term -- it should be positive for near-term dynamics on pricing for ultra-deepwater drillships. So I guess what I'm really looking to do here is, can you help us bridge potentially kind of what the current day rate structure is vis-à-vis the prospective for the day rate structure that's out there for work in 2021? That for all intents and purposes seems being priced somewhere in the $300,000 per day range versus, I guess, what the current market range has been kind of $135,000 to $150,000. So when are we going to get the uplift on the short-term dynamics? And how do you see that's bridging that gap?

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Alan Quintero, Rowan Companies plc - SVP of Business Development [9]

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Yes. Alan here again, Kurt. Yes, I think there are some markers out there that have been made public that show that longer-term work are being bid at higher day rates in the spot market is today, and we ourselves are proposing our rigs for longer-term work at higher rates than today. Not just in the ultra-deepwater but I think we've also made public the fact that we have some of our jack-up work with long-term options also being bid, and the options being higher rates than current rates. So like what we said in our prepared moments, I think we did hit bottom mid-'18, and we see better things ahead.

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Operator [10]

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(Operator Instructions) Your next question today comes from the line of Greg Lewis of BTIG.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD [11]

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First, congrats on getting this to the finish line. And Stephen, hey, it's been a pleasure and hope forward to seeing you soon in another spot.

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Stephen M. Butz, Rowan Companies plc - Executive VP & CFO [12]

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Thank you, Greg.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD [13]

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Yes. When I look at -- clearly, congratulations. You guys were able to get the Rowan Norway back into Norway. So we kind of have all 3 of the N-Class rigs back in the Norway under contract. Just as we think about this, are we at a point now in the North Sea, or specifically Norway, where we're going to start to see some pricing momentum? Or have we already started to see some pricing momentum?

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

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Yes, Alan, why don't you take that as well?

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Alan Quintero, Rowan Companies plc - SVP of Business Development [15]

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Greg, like I said just a little while ago here, we are already seeing some pricing momentum. We are being able to price our rigs off bottom for the short term and to a price some of our options at increasingly higher day rates. So -- and we see the North Sea market as a whole, the North Sea region as a whole picking up momentum.

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Thomas P. Burke, Rowan Companies plc - President, CEO & Director [16]

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And it's certainly -- just to add to that, I certainly -- where there's a technical differentiation in Norway in the central North Sea for sure, more in Norway, some in the central North Sea, we are seeing more pricing momentum than into, perhaps, some of the other areas.

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Alan Quintero, Rowan Companies plc - SVP of Business Development [17]

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Yes, good point, Tom, yes.

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Thomas P. Burke, Rowan Companies plc - President, CEO & Director [18]

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Greg, does that help?

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD [19]

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And then just -- yes, perfect. And then just big picture. I mean, clearly, you guys are merging, but I know you were pretty active in looking at a lot of potential matches prior to agreeing for the merger with Ensco. As you kind of look around the offshore drilling landscape, are we going to look back and see this as probably the last sort of trick -- deal out there, this sort of cycle -- down cycle? Or do you think there's still opportunities for some more consolidation?

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Thomas P. Burke, Rowan Companies plc - President, CEO & Director [20]

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Yes, that's a really good question. I think from Rowan's perspective, we are very focused on this merger with Ensco and so that's got all of our attention. But I'd say in a sort of a much bigger picture, for the whole industry, I wouldn't be surprised if there's more changes and more moves. I think when you're in the top of an up-cycle and you think about what the company should do versus 5 years into a very tough downturn, definitely gives a different perspective on the world. So I think big picture, certainly, I would expect more things to happen. But certainly, at Rowan, we are absolutely focused on making this merger successful.

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Operator [21]

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And at this time, there are no further questions in queue. Oh sorry, we do have another question from the line of Kurt Hallead of RBC.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [22]

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Couldn't let you guys off that easy. Tom, I know in the past, you've kind of talked about some technologies that you guys were deploying on a variety of your rigs to kind of make them more efficient to help the oil companies kind of drive down the well cost. Can you give us an update on how that has progressed? And what kind of successes you've seen?

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Thomas P. Burke, Rowan Companies plc - President, CEO & Director [23]

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Yes, no, it's something -- I'll try and keep it fairly short because I can kind of waffle on about it all day because I'm very passionate about it. But I would say that as we think about the offshore drilling space, when you're in this sort of cyclical upturn, what you really just focused on is getting -- not in the good thing, but when you have a cyclical upturn and the customers are demanding rigs, everybody's very, very focused on construction and just getting rigs out of the yard. In a downturn, it makes you a lot more introspective about the industry structure and who owns the technology and how do we compete with other hydrocarbon resource accumulations. So we've got to become more efficient. And so as I think about some of the things we've done, it's been -- we have done and Ensco has done as well. Now obviously, we're separate but a couple of things that are being really interesting. One is the ability to move on an off-location. The classic offshore drilling off the jack-up -- on a jack-up, classically what would happen is, the crew would look over the side of the rig and see how -- what the wave height was and look in the operating manual, it would say don't move if the wave height is more than 5 feet or 10 feet or 15 feet. And that was what the industry has used as a way of moving a jack-up. The reality is, you can do a lot better than that. And so we've applied some fairly, I'd say, commodity sensors but in a very smart way, such as wave height, millimeter wave radar, gyroscopes to work out what the rig is actually doing comparing it to the structural model of the rig and then making -- and then giving the rig crew actually a decision window based on true structural dynamics of, can I move the rig in this location. And it's not something that you would leave -- you would use in every market around the world because it's dependent on the market. So that's something we've used to good effect in Trinidad where the issue in Trinidad is actually getting off location, getting your jack-ups off the platforms when you're in this big Atlantic swirl. And so I think we've used that to good effect in Trinidad. We used that on our rig moves down there. In the North Sea, and that's -- sorry, and in Trinidad, because the bottoms of the ocean is very sticky and you get a lot of penetration, North Sea has very different issues, you don't get a lot of penetration with jack-up. So you really -- you have a hard surface on the bottom and so you definitely have different issues.

So that's an area where we've done it, the business has done, the operations that we've done one way for years and years and years but standing back and thinking about how am I more efficient, where can I -- we shouldn't be waiting on weather, that just cost the customer a lot of money or it costs the driller a lot of money. How do we become more efficient, and that's just a good example of that. I'm not as familiar with this system, but the Ensco has deployed some continuous tripping technology on a rig, which I believe is going to the North Sea. Again, we're not super involved or don't have a detailed understanding on it because for competitive reasons, we haven't been able to. But that's an example on the Ensco side of some very clever intellectual property to be able to remove those 3-minute, 2-minute breaks when you're connecting pipe. If you can do it without stopping the pipe, it just has immense opportunities. And the final thing I'd say is I think all of the companies are doing, but there's a huge amount of data on our rigs and how do we really use that to make -- have safer, more reliable operations. I think that's been a big focus for us on the last couple of years, and we focused on drilling performance. So I'd say, today, compared to 2013, 2014, we truly understand our performance as far as drilling. We really understand how efficient we are, where probably 4 years ago we just simply didn't, and that has been a big data analytics program at Rowan. And I think it's really helping us as we think about contracting models. That's quite a lot, Kurt, but I appreciate the question.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [24]

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That's helpful. And I did have a follow-up on -- coming back around to the Reliance, how long would it take for that rig to get on location and start to drill? And what do you think the cost would be to get it to that state?

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Thomas P. Burke, Rowan Companies plc - President, CEO & Director [25]

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Sure. We had a quite a bit of experience around this in the last -- so we've done this twice actually recently. What will actually probably dictate the time is customer acceptance. But assuming the customers are -- have a -- are ready to go and accept the rig, it's probably 90 days, 60 to 90 days, 90 days to get the rig from where it is now, to ready to move to location. And as far as the cost, what is the cost? The cost is crew ramp-up, right? That is a big part of it. And -- so we -- the rig is in a warm-stacked state, which means we don't have any much capital to spend, but we do have to spend some money on moving from a warm-stacked to a live rig maintenance. So I would guess, Alan, Darin, $5 million to $10 million?

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Alan Quintero, Rowan Companies plc - SVP of Business Development [26]

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Probably.

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Thomas P. Burke, Rowan Companies plc - President, CEO & Director [27]

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Yes, $5 million to $10 million. And what is that $5 million to $10 million? Some of it the crew ramp-up, some of it is things like the rubber goods. Rubber goods have a shelf life for the BOPs and other things. There's no point stocking the rig with rubber goods because that stuff is it'll go stay and even if you keep it in a refrigerated room, which we do, and so we don't buy that stuff until you're ready to go. And frankly, we've run down that inventory and using it on other rigs to save money. So there's probably $600,000, $700,000 of rubber goods to add. I wouldn't -- that's just the guess off the top of my head. Does that help?

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [28]

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Yes. Perfect.

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Thomas P. Burke, Rowan Companies plc - President, CEO & Director [29]

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Yes, thanks for the questions, Kurt. Appreciate it.

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Operator [30]

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And at this time, I'll turn the call back to the presenters.

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Brian Jackson, Rowan Companies plc - Manager of IR [31]

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Thank you, operator, and thank you all for your interest and participation. If there are any additional questions, feel free to reach out to us for a follow-up call.

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Operator [32]

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And this concludes our conference call for today. You may now disconnect.