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Edited Transcript of SHLF.OL earnings conference call or presentation 2-Mar-20 2:00pm GMT

Q4 2019 Shelf Drilling Ltd Earnings Call

Mar 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Shelf Drilling Ltd earnings conference call or presentation Monday, March 2, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David J. Mullen

Shelf Drilling, Ltd. - CEO & Director

* Greg O’Brien

Shelf Drilling, Ltd. - Executive VP & CFO

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Conference Call Participants

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* Erwan Kerouredan

RBC Capital Markets, Research Division - Assistant VP

* Johannes Møller;JM INVEST;CEO

* Martin Huseby Karlsen

DNB Markets, Research Division - Senior Analyst

* Terran Andrews Miller

Cantor Fitzgerald & Co., Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the Shelf Drilling Q4 2019 Earnings Call. (Operator Instructions) I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, David Mullen. Please go ahead, sir.

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David J. Mullen, Shelf Drilling, Ltd. - CEO & Director [2]

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Thank you, operator, and welcome, everyone, to Shelf Drilling Quarter 4 2019 Earnings Call. Joining me on the call today is Greg O'Brien, Shelf Drilling's CFO.

Earlier this morning, we published the Shelf Drilling, Ltd. financial statements for quarter 4 2019 as well as our latest fleet status report on the Investor Relations page of our company website. In addition to our press release and the financial statements, we also published a short presentation with highlights from the fourth quarter and guidance for the first quarter of 2020. A recording of this call will be made available on our website within the next few days.

Before we begin, let me remind everyone that our call will contain forward-looking statements. Except for statements of historical facts, all statements that address our outlook for 2020 and beyond, activities, events or developments that we expect, estimate, project, believe or anticipate may or will occur in the future are forward-looking statements.

Forward-looking statements involve substantial risks and uncertainties that could significantly affect expected results. Actual future results could differ materially from those described in such statements. Also, please note that we may use non-GAAP financial measures in the call today. If we do, you will find supplemental disclosures for these measures and an associated reconciliation in our financial reports.

I will provide an overview of the company's performance for quarter 4 2019 and share with you my latest views in the jack-up market. I will then hand over to Greg to walk you through the financials before we open up the floor for question and answers.

As always, I would like to start the commentary on our earnings call with our safety performance. We delivered outstanding safety performance in 2019. The total recordable incident rate was 0.19 as of 31st of December 2019, the best ever in the company's history and 70% better than the industry average of 0.63. For 5 continuous months of 2019, our entire fleet operated without a recordable safety incident.

In addition, 19 of our rigs included in our entire fleet achieved 0 recordable incidents. And we -- our entire fleet in Nigeria achieved 0 recordable incidents through 2019. We also had no major unplanned discharges to the sea in 2019. While our safety performance has consistently been industry leading, we are particularly pleased with the results in 2019 when many of our rigs had started new contracts.

These results have further demonstrated a demonstration of our -- of the dedication of our leadership teams and offshore crews to achieve our vision of incident-free operations. The fleet-wide uptime was 98.9% for quarter 4 2019, which is remarkable considering that we brought 7 rigs into operations during that period. The full year uptime was 99.2%, and this is the highest ever since the company inception.

Our India operations achieved 99.5% uptime for the full year and ranked as the highest-performing region amongst all our operating regions. The High Island VII jack-up rig in UAE achieved 100% uptime in 2019, followed by the High Island II, the High Island IV and the High Island IX in Saudi all with less than 10 hours of downtime throughout the entire year.

Our 2 newbuilds, the Shelf Drilling Chaophraya, the Shelf Drilling Krathong continued to deliver wells with exceptional performance in the Gulf of Thailand. The Shelf Drilling Scepter acquired in 2018 started its maiden contract in December 2019 with Chevron in Thailand on an asset retirement program. The rig was heavily customized to deliver highly efficient plug and abandonment operations, a growing market within our areas of operation. This was reinforced by the January 2020 contract award of the Shelf Drilling Enterprise, a rig we acquired earlier that month specifically for this program. The Shell Drilling Achiever acquired in 2019 also commenced its maiden contract with Saudi Aramco in December, making it the first time Shelf Drilling has deployed a newbuild CJ46 rig design.

The 2 rigs that started their maiden contracts in quarter 4, the Shelf Drilling Achiever and Shelf Drilling Scepter, have done so in a seamless fashion, no safety incidents and an uptime greater than 99%. Our remarkable operating performance is a clear demonstration of the quality and effectiveness of our people, our maintenance program. The performance of our project teams is clearly demonstrated in our ability to bring rigs seamlessly into operations.

Seven rigs commenced operations in the fourth quarter. In addition to the Shelf Drilling Achiever and Shelf Drilling Scepter, the F.G. McClintock, C.E. Thornton commenced their contracts with ONGC in October and December, respectively. The Parameswara commenced a new contract with HOEC in India in December. The Baltic and Adriatic I commenced their contracts in October for Total and Conoil both operating offshore Nigeria.

The activation of the Shelf Drilling Journey was also carried out during 2019 and is almost complete. We are in advanced discussions with an operator in the Middle East on a term contract with the Shelf Drilling Journey. Work on the Trident II is ongoing, and we expect to conclude in April 2020 when its next contract with ONGC begins.

The Shelf Drilling Enterprise is currently undergoing contract preparation and customization for its asset retirement project in the Gulf of Thailand. We expect the rig will commence operations in quarter 3 and join the Shelf Drilling Scepter on its asset retirement program for Chevron in the Gulf of Thailand.

Total revenues for the quarter increased 21% on a sequential basis from $132 million in quarter 3 2019 to $160 million in quarter 4 2019. The increase in revenue quarter-over-quarter was primarily attributable to the startup of 7 new contracts across all geographies and the full quarter of operation of those rigs that started operation in Q3.

Adjusted EBITDA for the quarter for 2019 increased 74% sequentially from $32 million in quarter 3 to $56 million in quarter 4. The increase was substantially driven by the increase in activity. We expect our revenue and EBITDA numbers to continue to improve into quarter 1 2020 as the 7 newly commenced contracts will enjoy a full quarter's revenue and most of our contracted rigs do not have any scheduled downtime in quarter 1. We have provided revenue and CapEx guidance for quarter 1. Greg will provide you more details on our 2019 financials and outlook into 2020.

Oil price has dropped approximately 26% since the beginning of 2020 due to demand uncertainty resulting from the recent outbreak of the coronavirus. The impact and duration of the coronavirus is not as yet fully understood. And provided the outbreak is contained and ultimately brought under control, we do not envisage a significant impact to the jack-up market. As of now and despite this short-term correction in the oil price, we continue to see a strong recovery in the jack-up market.

Global number of contracted jack-up rigs increased by 27% from a low of 311 rigs in early 2017 to 394 rigs in March 2020, surpassing the long-term averages. All our key regions have experienced increasing demand. Additionally, jack-up rig demand increased significantly in Mexico and China, providing further support for the improvement in global fundamentals in the demand-supply of jack up rigs.

The further increase in jack-up demand and reduction in available supply, we are seeing significant improvement in day rates in all asset classes and in all regions from the cyclical lows. We expect this continued tightness in availability to lead to further improvement in day rates. In fact, several of our recent awards represent an improvement in pricing relative to contracts signed in the prior year.

Our marketing performance has been extraordinary. We have more than doubled our backlog in 2019 adding approximately 71 rig years, resulting in a book-to-bill of 2.8x for the full year of 2019.

Since the beginning of quarter 4, we have executed the following contracts in addition to the ones announced on our last call. In Saudi Arabia, 4 of our top-performing rigs within the Aramco fleet have successfully executed long-term extensions following the short-term extensions that were announced previously.

The High Island II, High Island IV, Main Pass I have been each awarded a 10-year contract extension, while the Main Pass IV has been awarded a 5-year contract extension. The Aramco contract awards were entirely due to the performance of the 4 rigs measured through a number of key performance indicator over the past 5 years. The award is a testament of our commitment to exceeding customers' performance expectations.

In West Africa, we have secured a 1-year extension for the Trident XIV and direct continuation of its current contract in Nigeria. As of December 31, our contracted backlog was $2 billion with 31 of our 32 marketable jack-up rigs contracted, representing a 97% utilization across our marketed fleet.

Subsequently, we completed the acquisition of the Shelf Drilling Enterprise on the 7th of January. The rig was acquired for an attractive contract opportunity with Chevron in the Gulf of Thailand. The all-in cost of the rig was fully financed with a new debt private placement in February 2020. The Shelf Drilling Enterprise is scheduled to begin its 21-month contract on the asset retirement project in quarter 3 of this year.

An area of increasing concern for investors is sustainability, and we are pleased to announce that we are -- that our first comprehensive sustainability report will be published on the 16th of March as part of our 2019 annual report. Since our inception, we have been focused on running our business in a sustainable manner. This report will provide details on the programs and the metrics we have in place and our plans for 2020 to further enhance our reporting and measurement systems to fully comply with the external reporting standards.

In 2019 and 2020, we conducted a climate risk review for our business in line with the recommendations of the task force on the climate-related financial disclosures. According to Rystad, Shelf Drilling's core operating areas have an average among the lowest CO2 emissions per barrel. Similarly, our jack-up rigs emit less CO2 per day than other offshore rig types.

The majority of our activities are conducted in brownfield operations with a growing proportion of plug and abandonment work. These factors together lead us to believe that there will be a long-term demand for our services across all of the climate-related scenarios to be considered.

We continue to see a solid pipeline of near-term marketing opportunities and expect utilization and day rates to further tighten in the coming months. With our strong customer relationships and a differentiated operating track record, we believe we are very well positioned as the jack-up market continues to recover.

We remain focused on creating long-term value for our shareholders with a significant improvement in utilization and contract coverage. We are confident that 2020 will deliver substantial improvements to our financial performance as we capitalize on the investments we made in 2019.

I will now hand it over to Greg, who will walk you through the financials.

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Greg O’Brien, Shelf Drilling, Ltd. - Executive VP & CFO [3]

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Thanks, David. Revenue for Q4 2019 was $160 million, including $153 million of day rate revenue, $3 million of mobilization and bonus revenue and $4 million of recharges and other revenue. Revenue increased by $28 million or 21% relative to Q3 2019 primarily due to the commencement of 7 new contracts during Q4 and fewer planned out-of-service days following the completion of 2 shipyard projects during Q3.

In Nigeria, revenue increased by $14 million following the start of new programs on the Adriatic I and Baltic during the month of October. In India, revenue increased by $5 million primarily due to the start of the F.G. McClintock contract with ONGC in October, 2 additional contracts commenced in India in December and those rigs will be fully operational for all of Q1 2020.

Similarly, the Shelf Drilling Achiever and Shelf Drilling Scepter commenced multi-year contracts with Saudi Aramco and Chevron, respectively, during the month of December. This generated a modest level of revenue in Q4, but will contribute a further increase in 2020. Average day rate was flat at $64,600 per day in Q4 and effective utilization increased from 65% in Q3 to 80% in Q4, the highest level since Q1 of 2015.

Operating and maintenance expenses of $92.1 million in Q4 were comparable with Q3 2019. Shore-based costs rose by $1.1 million due to the increase in activity. An increase in rig operating expenses in India primarily for the contract preparation on the Trident II was offset by a reduction across our fleet of rigs in Nigeria. G&A expenses were $14.4 million in Q4, up from 12.8% in Q3.

Adjusted EBITDA was $56 million for the period, representing a margin of 35% compared to $32 million and a margin of 24% in the previous quarter as a substantial portion of the revenue increase translated into EBITDA improvement. We had a total of $3 million of EBITDA adjustments in Q4, primarily for the final expenses associated with the contract preparation of the Shelf Drilling Scepter, which we completed in December.

Income tax expense was $4.9 million in Q4, which represented 3.1% of revenue for the period. Net interest expense was $20.3 million for the quarter, marginally up versus Q3 following the drawdowns on our revolving credit facility. Noncash depreciation and amortization expenses totaled $40 million in Q4, substantially in line with Q3. In Q4, we also recorded a noncash impairment charge of $58 million on long-lived assets, mainly 5 stacked rigs that have been inactive for 2 years or more and that we are no longer actively marketing. As a result, the net loss for the quarter and year were $70 million and $150 million, respectively.

Capital expenditures and deferred costs totaled $46 million in Q4, down from $64 million in Q3, which corresponded to the low end of the guidance we provided in November. This included $28 million in Q4 relating to rig acquisitions, mainly the reactivation and operations readiness projects on our 3 recently acquired rigs, the Scepter, Achiever and Journey. The projects for the Scepter and Achiever were completed in December, while the final rig readiness efforts on the Shelf Drilling Journey are continuing in Q1 2020.

Capital spending across the rest of the business fell from $31 million in Q3 to $18 million in Q4 following the completion of projects on the High Island V in Saudi Arabia and the Key Singapore in the Mediterranean. Net debt was $898 million as of year-end 2019. Our cash balance was $26 million and the total borrowing under our revolving credit facility was $35 million.

We drew down a further $20 million in February to fund working capital needs following the completion of several projects late in 2019. This increased the total borrowing under our RCF to the current balance of $55 million, and we'd expect this balance to be partially repaid during 2020.

As David mentioned, we acquired the Shelf Drilling Enterprise in January and subsequently commenced the rig reactivation and upgrade projects in Singapore for a long-term contract with Chevron in Thailand. In February, we announced the issuance of new senior secured notes with a principal amount of $80 million, a coupon of 8.75% and a maturity date at the end of 2024. This offering fully finances the acquisition and deployment costs for the rig and helps preserve the strong liquidity position we have built and maintained for the business.

On Slide 21 of our presentation published this morning, we included guidance on certain financial metrics for Q1 2020. Revenue is expected to further increase by approximately 10% sequentially versus Q4 due to the full quarter of operations on our 4 rigs that commenced new contracts in December. The guided revenue range for Q1 is $173 million to $181 million compared to actual revenue of $160 million in Q4.

With respect to capital spending, we expect a total of $65 million to $75 million in Q1. This includes $50 million to $55 million associated with our rig acquisition projects, approximately $5 million for the ongoing rig readiness efforts on the Shelf Drilling Journey, $38 million for the purchase of the Enterprise with the balance being the initial reactivation cost for that rig. The remaining $30 million to $35 million of estimated total deployment costs for the Shelf Drilling Enterprise are expected to be incurred during Q2 and Q3 of 2020.

Maintenance capital spending guidance for Q1 is $15 million to $20 million, similar to the level from Q4 2019. Sustaining CapEx was $97 million for calendar year 2019 due to the higher level of shipyard work we had in Q2 and Q3 of 2019, and we expect to see a modest reduction for full year 2020.

The series of contract awards over the last 6 months has created great momentum for Shelf Drilling heading into 2020. We successfully brought 7 rigs into operation and delivered strong performance in Q4. As illustrated in the guidance published this morning, we expect to generate a further improvement in operating results in Q1.

The outbreak of the coronavirus and reduction in oil prices in the recent weeks have clearly created a degree of uncertainty in the markets and broader economy. We believe our operational focus and track record, our $2 billion backlog, the 97% level of contracted utilization and strong liquidity position the company very well in both the short and the long term.

With that, we'd now like to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is coming from the line of Erwan Kerouredan from Royal Bank of Canada.

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Erwan Kerouredan, RBC Capital Markets, Research Division - Assistant VP [2]

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First up, congratulations on the very strong operational performance this quarter and in the past year. I've got one question. Thanks for the information you put on the rig valuation. Maybe I'd like more color on the 4.5x EBITDA multiple that you provide whether it can vary over time and like whether it has, I don't know, different values across different types of rigs.

The second question, can you clarify the guidance on day rates? So you mentioned significant improvement in day rates in most regions, but expect utilization in day rates to tighten in the coming months. So if you could clarify the guidance on that. That will be my 2 questions.

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Greg O’Brien, Shelf Drilling, Ltd. - Executive VP & CFO [3]

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Yes. So Erwan, I'll take the first question. I think you're referring to one of the slides in our presentation this morning, on our recent rig acquisition and the contract we secured for that rig.

So yes, so we made a few announcements about the rig acquisition in the contract. We communicated a total estimated cost to put the rig to work, including the purchase price of $81 million. We also announced the contract value that we secured with the customers with a 21-month initial term. We communicated a value over that term of $59 million.

And with that, an implied rate, we think, we'll generate about $80 million of annual margin during the contract. So that backs into the 4.5x implied purchase multiple that we included in the presentation. That was specific with the recent acquisition. It's not consistent across the whole business, if you will.

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David J. Mullen, Shelf Drilling, Ltd. - CEO & Director [4]

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Okay. And just to address the question on day rates. There's a chart, Page #11 in the presentation material, that we put on the website. There, it breaks out the day rates per region. And we've seen towards the end of the year that there was a significant uptick in day rates from mid-2018, which is close to the low point on day rates.

So for example, the Middle East was -- in mid-2018, was somewhere between $40,000 and $70,000 a day; late 2019 at $65,000 to $90,000 a day. And on recent bids, we see it's very much at the high end. West Africa, $65,000 to $70,000 has moved $75,000 to $95,000. And we see it very much at the high end of that currently.

Southeast Asia, we've seen an uptick in day rates from low points of $45,000 to $60,000, now $70,000 to $90,000. That's in aggregate 50% uptick in day rates. And in India, we've seen a 60% movement in day rates. It's an important market for us. And it's a lower cost market, but the day rates were anchored between $25,000 and $30,000. They're now between $40,000 and $50,000. And in aggregate, across all of our operating regions, that aggregates to around about a 40% uptick in day rates. And we are, as I said, continuing to see day rates moving in the right direction.

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Erwan Kerouredan, RBC Capital Markets, Research Division - Assistant VP [5]

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Perhaps one last question, if I may. Just -- you mentioned the sustainability report. I was just curious, is there a sustainability leadership within the organization? And where does it sit?

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David J. Mullen, Shelf Drilling, Ltd. - CEO & Director [6]

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Well, the sustainability leadership starts with me. So we have -- all the executives work together to compile this report, and we are very much hand in hand with our Board on that. So it's led from the top.

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Operator [7]

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(Operator Instructions) The next question is coming from the line of Johannes Møller from JM INVEST.

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Johannes Møller;JM INVEST;CEO, [8]

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And thanks for providing guidance, which is very helpful. And also congrats on the great backlog. I was wondering if you could provide some more information on your standard fleets because apparently, some of the vessels are able to generate very nice contracts and some of the vessels are now put for sale. Maybe you could provide some information to an external investor about how many weeks do you expect to take out of the fleet over the next 3, 4 years or something like that.

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David J. Mullen, Shelf Drilling, Ltd. - CEO & Director [9]

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We currently have a fleet of 33 rigs. In fact, there's a nice chart on page -- it's not necessary. So we think of our fleet in 4 tranches. You have the premium jack-up fleet, which we have 9, and we currently have 8 of those 9 rigs contracted. We expect that the fourth rig will be contracted. The one remaining rig will be contracted very soon. We are in advanced discussions on the Shelf Drilling Journey.

We then have 3 rigs that we did a pretty extensive upgrade to in -- through the years 2014 to 2016. That's the Baltic, the Adriatic I and the Key Singapore. And those rigs are 100% contracted and day rates broadly commensurate with what we get for the premium jack-ups. That gives them a small discount, but it's not much of a discount. Those rigs are in excellent condition and perform extremely well.

We have a number of shallow draft units and we have a number of standard specification rigs. The shallow draft units have maintained a very high utilization through -- since company inception, pretty much close to 100%. And the standard jack-ups, we've had a mixed utilization, but we're currently 100% utilized.

Our rigs are all fit for purpose for where they operate. And to demonstrate this, we had 3 rigs in Saudi that were given a 10-year contract extension. These rigs are 1982 vintage. These rigs are amongst the top-performing rigs in the entire Saudi Aramco fleet. They rank them. They rank them on a number of key performance indicators, which obviously includes safety, but it also includes your uptime performance, it includes your tripping speed, that is how fast you run equipment into the hole and it includes your flat time performance. So basically, they measure your drilling efficiency.

And the other factor they measure is what we call IKTVA, which is In Kingdom Total Value Added, and that's a measure of the national content. And our 3 rigs ranked in the top 10% of the entire Aramco fleet. So the rigs are clearly performing at the very high end of the performance curve. And I would say that goes beyond Saudi Aramco.

We were clearly given the contract awards with Chevron in the Gulf of Thailand on the basis of the 2 rigs that we have working there. And the rig that's doing the asset retirement is already inside the targeted measure and how fast we were to conduct the P&A campaign.

So it's all about performance. And it's all about making sure the rigs are absolutely equipped with the right equipment to conduct the job. And that's really what underpins our entire backlog.

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Greg O’Brien, Shelf Drilling, Ltd. - Executive VP & CFO [10]

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Johannes, this is Greg. One point I'd add. In total, we have 24 active older jack-ups, if you will. We're 100% utilized across them. It's a little more than $1.5 billion of our backlog across that group of rigs. It's generally for a pretty long term. We think that group is still quite competitive, and that's evidenced by the contracts we've been able to secure in recent months.

We have decided to dispose or stack select assets in recent years. We had 2 rigs that were previously classified as warm stacked that we have classified as cold stacked at year-end. Frankly, I think we could have found work for those rigs. But with passage of time, the cost to bring rigs back into service does grow, and we're trying to prioritize generating positive cash in the business this year and next. So we think it's less of a priority to try to put those rigs back into service.

So yes, we're constantly looking at each rig in the business. We have decided to dedicate less time and resources to certain units. But what we have in service and under contract today, we think, remains very competitive and will be cash generative in the years ahead. So at the current stage, we're not planning to do anything else with the existing fleet, but that's something we obviously continue to evaluate on an ongoing basis.

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Johannes Møller;JM INVEST;CEO, [11]

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All right. And then just a quick follow-up. I don't know if you have any comments on the potential dividend. There's been some speculation from the sell side regarding that.

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David J. Mullen, Shelf Drilling, Ltd. - CEO & Director [12]

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That's something we obviously have to talk to our Board with, but it's -- as you will be aware, we are already doing a share buyback, which is a distribution back to shareholders. And look, I think most of what I read, they were pointing towards the end of 2020, the beginning of 2021, I'd probably say more likely beginning of 2021. But in order to get the go ahead for that, that would become a Board decision and certainly something we have planned to discuss with the Board later this year.

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Greg O’Brien, Shelf Drilling, Ltd. - Executive VP & CFO [13]

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That's clearly something we would like to be in a position to do in the not-too-distant future. The backlog we've added gives us a lot of comfort. But we've also tried to be pretty reasonable and proactive around the balance sheet. We think our balance sheet is in very good shape, but our current leverage multiple is a little bit higher than where we would like it to be longer term. We think that it's going to move lower through the course of this year and next. And obviously, that gives us more comfort to think more seriously about the dividend in the near term.

So it's definitely top of mind. We obviously haven't communicated anything formal around that to date, but it's something we'll continue to discuss internally and have more of a view on in the coming quarters.

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Operator [14]

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Next question is comes from the line of Terran Miller from Cantor Fitzgerald.

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Terran Andrews Miller, Cantor Fitzgerald & Co., Research Division - Analyst [15]

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Just as a follow-up to that last question. Can you remind us what your target leverage ratio is?

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Greg O’Brien, Shelf Drilling, Ltd. - Executive VP & CFO [16]

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So yes, our current leverage as of the end of the year is around 5x. It's a little bit skewed because we've spent capital through the course of 2019. And we're just in the process of putting rigs into service. We did disclose in our reports this morning, but our -- the leverage under our revolver is closer to 4x, which allows us to add back future EBITDA and contracted rigs that are just coming into service. So it's a little bit closer to a run rate level, if you will.

We think we're going to get down closer to that 4x level by the end of the year. I think longer term, we'd like to see the business back closer to 3, which we think is doable over the course of a couple of years. So yes, comfortable with current debt level of the business. We think the leverage metric will move lower here in the next couple of quarters.

And we're also adding 2 rigs into service through the course of 2020. The Journey that David mentioned that is not contracted as of today, we think will be soon. And then the Enterprise won't start until the third quarter. So we hope to have that around 4x at the end of the year, longer term, closer to 3%, and we think we'll get there several years inside the maturity of our debt.

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Terran Andrews Miller, Cantor Fitzgerald & Co., Research Division - Analyst [17]

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Okay. And can you remind us what you think the secured debt capacity is above the $80 million that you just raised?

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Greg O’Brien, Shelf Drilling, Ltd. - Executive VP & CFO [18]

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Yes. So we really -- it's pretty tight and defined. We have 2 baskets in our unsecured indenture. One is for our revolver, which we obviously used to have our revolving credit facility in place. Obviously, the revolver is not fully drawn, but it's around $250 million is the size of the basket. Our revolver is $225 million today. And then we had a separate lean basket that's around $85 million. So we essentially used that entire basket with the offering that we placed a couple of weeks ago. So beyond what we did, it's pretty limited other than the 2 instruments that we now have in the capping structure.

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Terran Andrews Miller, Cantor Fitzgerald & Co., Research Division - Analyst [19]

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Okay. And last question, what's remaining on the share buyback?

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Greg O’Brien, Shelf Drilling, Ltd. - Executive VP & CFO [20]

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So we authorized a $25 million program. Through the end of the year, we had used $3 million of it. So it's been a little less than sort of $1 million a month, if you will, and that's been consistent through the first 2 months of 2020.

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Operator [21]

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Next question is coming from the line of Martin Karlsen from DNB.

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Martin Huseby Karlsen, DNB Markets, Research Division - Senior Analyst [22]

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Two questions, if I may. First, you mentioned contract opportunity for the Journey. Could you please shed some light on what we should expect in terms of start-up timing, economics on the contract and whether or not it should be on client-specific investments in the rig? And secondly, would you mind to update us on your latest thinking on the bareboat charter rigs?

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David J. Mullen, Shelf Drilling, Ltd. - CEO & Director [23]

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Okay. The first one, Martin, is Journey. It's going to require very minimal specific contract prep. It's going to yield a $12 million, $13 million of the annual EBITDA. And it's relatively short duration, 1 year thereabout. Expected start is probably middle of the year.

On the -- remind me again the other question. Oh, yes, the bareboat charter rigs. Yes, look, the bareboat charter rigs is -- we have not yet taking taken delivery of those rigs. They have been impacted by this coronavirus outbreak. We expect that will happen sometime in probably Q2. I would think -- the way I would characterize the market today. It's a little bit short of what we need to take these rigs out. We would need something in the range of 110, 115, generally creating about $25 million of annual EBITDA. Then it becomes -- the economics certainly work for the bareboat charter rigs, but we're not quite there yet.

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Operator [24]

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(Operator Instructions) There are no further questions at this time. Please continue.

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David J. Mullen, Shelf Drilling, Ltd. - CEO & Director [25]

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Okay, operator, if there's no further questions, I'd just like to take this opportunity to thank everybody for joining the call and look forward to our results in quarter 1. Thank you very much.

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Operator [26]

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That does conclude our conference for today. Thank you for participating. You may all disconnect.