Q3 2019 Earnings Call
Corporation earnings Conference call.
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I'd now like to and the conference over to your Speaker today Surabhi. Thank you. Please go ahead Sir.
Thank you Chris Good morning, everyone and thanks for joining us.
With me on the call to their market Burke, President and Chief Executive Officer, Ron Woll, Executive Vice President and Chief Commercial Officer, and Scott Carmilani, Senior Vice President and Chief Financial Officer.
Before we begin to remarks, I remind you that information reported on this call speaks only as of today.
And therefore, you're advised the time sensitive information may no longer be accurate at anytime a replay of this call.
Additionally, certain statements made during this call may be forward looking in nature.
Those statements are based on our current expectations and include known and unknown risks and uncertainties.
Many of which were unable to predict or control semicon cause our actual results or performance that differ materially from any future results or performance expressed or implied by these statements.
These risks and uncertainties include the risk factors disclosed in our filings. The FCC included in our 10-K intend to pilot.
Further we expressly disclaim any obligation to update or revise any forward looking statements.
Please refer to the disclosure regarding forward looking statements incorporated in our press release issued earlier today and please note that the content of our color covered by the disclosure.
We will be referencing non-GAAP figures on our call today. Please find a reconciliation to GAAP financials on our website.
And with that I'll turn the call over to Mark.
So Matt good morning, everyone and thank you for joining us today in the third quarter of 2019 Diamond offshore haven't adjusted loss per share 67 cents. This compares to an adjusted loss per share a 26 cents in the third quarter 2000, a day team.
The decline year over year was primarily driven by the ocean Blackhawk and ocean Blackhornet being afraid while undertaking that special survey and technology upgrades in the third quarter of 2019.
Additionally, the now sold Ocean Guardian was on right in the third quarter of 2018.
Mostly offsetting the year over year decrease was the startup of two premier more drugs, the ocean apex and the previously cold stacked ocean in data.
I will start with an update on all strategy.
We have previously communicated that we are focusing on the underserved.
Proving mod market and today, we are announcing new awards, the ocean apex, and the ocean and other two of 'em more drugs that are amongst the most capable in the market.
The Ocean apex is being awarded over 300 days at work with Woodside that you're right that is close to double the trough scene for similar rigs in the Asiapac region.
This right exceeds recent day rate fixtures that we have seen for sixth and seventh generation Drillships and with the apex, having a lower operating cost compared to a drillship. This will lead to a high margin.
This new contract is also the fourth consecutive fixture set has seen an increase in day rates for this rig.
The apex is now contracted through to the fourth quarter of 2021.
Further shelf exercised a two well option for the ocean endeavor in the North Sea. This will keep the rig also working until the fourth quarter of 2021.
When we look forward F.I.D.'s awaiting sanction offshore.
We are very comfortable with the pipeline of opportunities said the mod segment for represent.
Recall that the more asset category, primarily focuses on water depth between 400 feet and up to 2000 feet because of the limitations in the response time to disconnect from a wellhead and the event to the power side or on a D P asset.
Furthermore, 125 floaters that have been scrap the vast majority were more drugs.
We now have six of the seven best.
Well more drugs and this asset class, which from a supply and demand perspective is balancing faster than all of those.
The Ocean Onyx another about more das it is soon to complete its upgrade and Singapore, where upon immobilize over the new yet to the outweighed basin in Australia.
It's an overall contract is with beach energy, where we'll drill forgot to address shortfalls and supplying the local market.
And staying with almost fleet.
Early in the fourth quarter. The Ocean morning delivered a successful exploration well for Cooper, where it was more or less than 200 feet and the very challenging harsh environment South Australia.
The rig is currently drilling and exploration wells for Exxon.
After which it will return to Singapore for additional enhancements and preparation for 60.
16 month contract and my mom commencing in the first quarter of 2020 .
The second element of our strategy is to employ unique innovative technologies to deliver superior performance and improved economics to both all clients and diamond offshore.
Our most recent product launch with the stock be service announced last quarter.
So this applies 24, seven real time monitoring data visualization and advanced analytics to identify trends and detect anomalies and BNP performance, enabling diamond optimize.
P. maintenance program and potentially prevent sub sea downtime.
First of its kind. So this is now fully implemented an operational once all of our drillships.
This information implementation, we have assisted our Gulf of Mexico clients in obtaining regulatory approval to move from 14 day to 21 day testing of the subsea stacks.
This technology helps further drive efficiency gains and love is the total cost of deepwater drilling.
As I've spoken to on previous calls Diamond Offshores seventh generation Drillships are some of the most efficient and the industry and as a result, all contracted through 2022 and beyond a day right so tall materially higher than the current market.
However, I'd say progressed through the five year surveys, we are adding enhanced automation to the rig floor and will also be the first adopter of a new technology to further improve tripping speed.
These steps being taken to ensure our drillships remain at the front of the deli lineup desirability.
We still see the sixth and seventh generation drillship market as challenged I believe that differentiation is enabled by the process efficiency, we continue to deliver from these rigs.
According to an industry recognized third party database Oh, it drillships have drilled three of the for most cost efficient wells in the Gulf of Mexico.
And our backlog suggests that this differentiation is recognized by applying.
So let me now say few words on all Capex.
Our capital discipline.
The best demonstrated by the fact that we have scrapped over 25 assets during the past market downtime.
And during this past quarter, we have elected to scrap yes, another about D. P fluxes the ocean competence.
We have spent capital this past year, only where it aligns with our new and unique strategy.
That is on further differentiating our ultra deepwater drillships.
Enhancing our mod acid capabilities.
As a result of this strategy, we now have the best Board fleet utilization among stop here.
We are encouraged by recent tend to data points, suggesting that a recovery in the mod market is well underway.
No that although the DP market remains challenged day rates have moved off a trough.
So with that I will turn the call up to Scott to discuss the financials for the quota and then I'll have some closing remarks Scott.
Thanks, Mark and good morning, everyone as always I'll give a little color on this past quarter's results and then I'll provide some guidance for the upcoming quarter earlier today, we reported a net loss of $95 million or negative 69 cents per share for the third quarter of 29 team on a normalized.
Basis, adjusting for one time asset sales, our net loss was $92 million or negative 67 cents per share.
This compares to our second quarter 2019, normalized net loss of $136 million or negative 99 cents per share.
Quarter over quarter change was primarily driven by fewer shipyard days in the third quarter compared to the second.
Now, let's take a look at the quarter over quarter variances first contract drilling revenues of $242 million. During the third quarter of 2019 were $35 million higher than the prior quarter, primarily due to four rigs operating most of the third quarter following extended shipyard stays.
The Ocean Blackhawk operated for about two months, the third quarter compared to spending the entire second quarter in the shipyard undergoing a special survey and various upgrades focused around efficiency and automation.
Okay encourage upon completing its five year special survey and upgrades in July worked for the remainder of the quarter compared to spending most of the second quarter off rate while in the shipyard.
The ocean endeavor and ocean apex, both operated the entire third quarter compared to each working for about half of the second quarter after finishing up their shipyard stays.
Endeavor, completing its reactivation and upgrades and the apex completing its five year survey in various upgrades.
Partially offsetting these increases with the ocean Blackhornet spending about two months of the third quarter in a shipyard undergoing a survey and upgrade similar to the ocean Blackhawk compared to operating the entire second quarter.
Contract drilling expenses of $202 million were $23 million lower in the third quarter compared to the second quarter and were $3 million below the low end of the guidance range.
Approximately $15 million of the quarter over quarter decrease.
Is attributed to a net reduction of noncash amortization previously deferred mobilization and contract preparation costs compared to the second quarter as discussed on prior calls U.S. GAAP accounting rules dictate that we amortize contract preparation and mobilization costs over the term of the initial car.
Crack after them open shipyard stay.
At the initial contract on the Ocean Greatwhite and Ocean apex were relatively short the amortization was accelerated and occurred mostly during the second quarter.
The remainder of the quarter over quarter decrease is primarily related to fewer third quarter shipyard costs for the ocean Blackhawk and ocean courage, partially offset by the third quarter shipyard cost for the Ocean Blackhornet. The slight beat guidance is mostly attributed to the timing of shipyard cost.
Ocean Blackhornet.
Third quarter depreciation expense of $89 million and net interest expense of $30 million came within previous guidance DNA expense of $19 million was $3 million higher than guide and then prior quarter guidance, primarily due to a third quarter adjustment.
The loss on disposition of assets is a noncash charge related to equipment disposed of during the third quarter.
Wrapping up the third quarter results, our tax rate of 7% was within the guidance range given during the last call and finally during the quarter, we elected to reclassify the ocean confidence as held for sale.
Wrap the rig within the next 12 months.
With that let me now provides some thoughts on the fourth quarter of 2019, but before I do I will remind you to refer to our fleet status report, which was published earlier today for contract details as well as known and projected out of service time for the remainder of the year.
For the fourth quarter, we expect contract drilling revenue to remain relatively flat at between 235 and $245 million.
Revenue for the Ocean Blackhawk and Ocean courage are expected to increase as both rigs should operate the entire fourth quarter compared to each operating for about two months during the third quarter after departing the shipyard.
Also during the fourth quarter, we expect to recognize $30 million from a previously negotiated gross margin commitment. If you recall last year, we entered into a 135 million dollar agreement with a customer that could either be satisfied through the contracting of additional rigs or through.
Payments at designated period.
The first designated period concludes at the end of this year and we expect the $30 million obligation to be satisfied by payment.
Offsetting these expected increases is the ocean blackhornet spending the entire fourth quarter in a shipyard completing its upgrades and preparing for its two year campaign, which commences early next year compared to operating for about a month during the third quarter.
Also the ocean Greatwhite and Ocean apex will work part of the fourth quarter as their contracts conclude.
Fair to operating most of the third quarter finally, the ocean Blackrhino will take about two weeks of unpaid downtime to perform its five year survey.
We expect contract drilling expenses for the fourth quarter 2019 to remain relatively flat at 195, and 200 between 195 and $205 million compared to $202 million in the third quarter. However, there are a few moving parts fourth quarter contract drilling expense will.
Decrease as the majority of the noncash amortization of previously deferred cost roll off starting in the fourth quarter, the noncash amortization should stabilize at about $10 million per quarter.
Offsetting this decrease is a full quarter if she shipyard cost for the Ocean Blackhornet and the special survey cost for the Ocean Blackrhino.
Also for the fourth quarter 2019, we expect GNS expense to come in at approximately $17 million and depreciation and net interest expense to remain relatively flat at $90 million and $30 million, respectively, and finally, we anticipate our effective.
Tax rate to be in the low single digits for the fourth quarter of 2019 of course, the rate may fluctuate up or down based on a variety of factors, including but not limited to change it to the geographic mix of earnings as well as tax assessments settlements or movements in exchange rates and with that.
I'll turn it back to Mark. Thank you Scott, we will continue to focus on providing.
And over to solution Clos, leading operational performance.
Doing so today has allowed us to secure over 16 years of walk across our fleet in the past 18 months delivered over $540 billion and backlog year to date.
This has been accomplished and what is still a challenged market and is a testimony to our differentiated strategy.
So now let's open it up for your question.
As a reminder to ask a question you would need to press star one when your telephone.
To withdraw your question please press the pound Keith.
Please stand by what we've compiled the company roster.
And our first question comes from them on Ian Macpherson with Simmons. Your line is now.
Thanks, Good morning, guys.
Hi.
Given your AD.
So, yes pretty positive outlook on that the market balances for more.
Voters of high quality I, just wanted to get a refresh on the possibilities for moring upgrades for the courage, where the dollar after they wrap up their work next year at those studies of.
Taking on.
More activity or if you're to still waiting to see.
More specific contract opportunities develop our if you think that might be receding at this point.
So it's still remains an option for us to put Maureen onto the college in the bottom, but at the same time it behooves us to take a look at the Brazilian market for us and see what opportunities materialize for the assets as they rank.
As D P assets now.
I think everyone's aware of what's been going on in Brazil, We've seen a number of tenders come to market recently for D. P assets as well as Mort assets and I think if I could just a dress up more dossett market for us because of course, the data down there is public but I think that one of the.
Data points it demonstrates the more NASA.
Category is coming back is the result of the Ted the recent Tenda, we saw down there for Mod assets.
The number of assets the went into the Tenda was significantly less than a prior tenda down there.
We are in the yet but also I think what surprised some commentators was a day rates had moved substantially up now having said that I know a lot of people differentiates from a a category.
Perspective around the specific.
Features of the Drillships, but having said that Brazil is a market, where it's probably different and that.
A D P semin can compete.
Certainly in the a and the pre salt walk.
Against the drillship and Brazil, specifically is one of the places where they accept a differentiation on on on a financial perspective in other words I Uh Huh DP semi can compete against the six to six generation or some generation drillship, just by giving a discount and that.
Except it down that so with that in mind and with the tenders that have recently come to market. We see that there is a possibility of these these two rigs staying in Brazil, moving forward and I will be participating in that so once we know the outcome of that them.
I'll make a decision as to how much capital if any we put into these rigs.
Makes sense thanks Mark.
If I could ask a quick follow up have you Scott.
Could you comment on your Capex guidance I think we're looking for 200 million of Capex in the back half of this year is that still.
Current or it was little bit lighter than that in Q3 or less than half of that Q3 is that coming down or is it does it unchanged no we're going to keep our full year capex guidance at the 360 to 380 that we guided to a few quarters ago.
You're right Q3 doesn't extrapolate out to that but we knew Q4 would be the heavy spend quarter, we're finishing up the onyx one thing I will point out in is that we do guide to a cash capex number not a GAAP based accrual capex. So if some of the onyx payments slip into the.
First week of January instead of the last week of December we may come a little under but he'll strictly just be a timing and I'll just my 2020 capex guidance for that.
Okay got it thanks Scott.
I want them, one or two more but I'll re queue. Thanks.
Thank you and our next question comes from the line of my Sabella with Bank of America. Your line is now open.
Hey, good morning.
Oh I was wondering if we could kind of start with with 2020 Capex I know you guys talked about at resetting lower we just discussed.
Potential for potential Capex in Brazil.
Is there any way you can help frame 2020, capex for us in kind of a range of potential outcomes given kind of growth.
Yeah, Hey, Mike This is Scott.
Not ready to get a number yet, but I will tell you it will be lower and I would say much lower than 2019, you remember 2019 was a with a very heavy capex year for us and that was by design as we started investing into the fleet them. The automations and other things that market has talked about Westwood nine rigs in the.
Right at various times, because with special surveys and then these various upgrade now that most of that heavy lifting is done we're ready to go back to work right now we have to surveys a scheduled for our shipyard stays for 2020, and that's where the second to black ships that we talked about some of the upgrade that will do all those similar to the.
First two and half absent that you know just below normal maintenance capex with the wildcard being encouraged valor and you will have a decision on that I'd say in the next handful of months. So I'll tell you now is it will be lower significant significantly lower and we'll give you. Some some goalpost to shoot for next quarter.
Yeah. Thanks, that's helpful.
And then.
Another one follow up for me.
Wrapping up the ocean confidence is there any cash the diamond for that rig and then as we think about those other two cold stacked rigs.
When do you all think Youd make a decision on what to do with those rigs and have you talked at all about how much capital you would think you'd need to reactivate them.
Yeah, I'll make the Scott again, I'll I'll take the the competence question, we have previously impaired that rig down to its scrap value of a million dollars.
We don't expect scrap value to deviate much from that.
Yeah. This this is rob on the second half your question regarding the other two rigs that we have staff to the Rover and the America I would say that the path for them or turning to the service is really not clear the markets not there and that's really not part of our go forward plan. So I wouldn't think in terms of of Capex needs. We've done the math, but the market just isn't.
There to support that.
Great. Thank you.
Thank you and our next question comes on line of JB Lowe with Citi. Your line is now open.
Hi, good morning, guys.
HM.
My first question is just about all the investments you guys and your peers are also making it.
In technology given.
New technology for driven tripping speed.
Well what have you you know how does that playing out and affecting the kind of bifurcation in the near the top and at the floater market and you mentioned that the rates have come off the bottom here, a little bit, but but how is that.
Proven to technology on a subset of rigs really to be able to drive that day rate higher how these kind of see that's playing out over the next couple of quarters.
This is rob so from the standpoint of how our customers look at technology I think it's a matter of really a rigs that work versus <unk> rigs that don't work we've done a good job with our black ships earnings from rates would I think what what we had many considered to be above the market rate I think much that's tied back to our content and technology thought leadership.
But also the crew plus a plus kind of rig interface and so I think we've seen clients to date. We showed good results here I think acknowledging where the investment in technology pays off because for them they get a well drilled more efficiently more safely and sort of a goodwill a construction outcome. So we've seen.
Not in the Black ship and drillship space, We've also seen more broadly with our.
With our Sims that service as we put that in place across so many more rigs that's something which operators have also acknowledged as as a worse worth having on their program. So for us in this oversupplied a market that we're in it as Mark referenced is probably come off a trough, but still in the improving state not yes, not yet.
Past tense improved so while still improving I think the committed to technology and thought leadership really helps put rigs on contracts compared to rigs that don't get there at all and so in an oversupplied market. That's kind of one of the the tools that we have in our tool kit to keep our fully utilized in our stats bear that out so we have a fully.
Fully kinda utilized a fleet today, so from that standpoint, the clients do acknowledge why that commitment technology does matter it's a.
Let me come in here and just explain about our differentiated strategy. So we.
We've come and we put a number of a new technologies that are unique to us onto our drillships.
And as we spoke to earlier in my prepared remarks, Olduvai Drillships are now contracted through 2022 and beyond no. Other none of our peers can say that but beyond that that contracted out a day right, which is significantly higher than recent data point suggests.
Paul Drillships, so I think.
And the markets that were targeting we've proven that our differentiation can command a higher day rate than it otherwise would know.
We're still challenged.
The day rates still need to move higher but from what we're doing whether it's on our drillships.
Hi, I'm more semis, we are at the forefront of pushing day rates higher.
We don't disclose their rights, but the day right that we've just been awarded in Australia for the apex. Following an upgrade on that rig is higher than all clean dayrates that have been and now this year for drillships.
On a rig that has a lower operating cost.
So I think that you've got to target those markets that are receptive for differentiated pricing.
As I mentioned earlier in the first question here. However, Brazil is a market where you can you can put a standard rig into that market and they will accept a day rate discount from an efficiency perspective. So it's it's it depends if you go to be surgical.
Into which markets you put these differentiated assets you've got to you've got to put them into a market where the client understands the efficiency gains from a differentiated portfolio.
Okay, great. It sounds like that Australia is one of those is one of those markets you have a rig the monarch, which is moving out of that region into Myanmar is is there an opportunity for a another rig to go into Australia, I guess looking at the great White here rolling off contract pretty soon I know, it's in the UK, but what's coming out looks about Rick.
Yes, Ron again, so in terms of Australia.
I don't think we have a grand plan to move many more rigs into Australia, we like where we are of course, we've got the onyx coming out here shortly for B. So we've already kind of made our best there in terms of the great White I would not assume that we're going to drag that rig back in the UK to Australia. That's that's a long trip I think the greatwhite hunting ground if you will.
As well placed there in the UK, perhaps will that with half mine on Canada, a and she is not good job. Fortunately this year in the UK. If you recall, we started 2019 the rig really had no resonate as she hadn't drilled and anger. Since you came at the shipyards in 2016, so for US It was vitally important for her to start off strong.
That is I promise that's now been kept so she drill down for just over six months. The two clients multiple wells a rig NPT, you know very favorable on or two and half percent subsea NPT under 1.5%. So she's done a great job for clients and in the back half a 19.
And she really earned her harsh credentials, having seen are way through several of storms. There in the UK comment to that to that geography. So I think the great watch in the right place.
As Mark said I think the market is improving not yet im not yet sort of fully recovered. So theres more work ahead I think the great white to work, but we do expect to see or worked for the majority of 2020 going forward.
All right good stuff thanks, guys.
Thank you and our next question comes from a lot of Sean Meakim with JP Morgan Your line is now.
Thanks, Hey, good morning.
Good morning, Sean.
So mark on the Ocean apex can you maybe talk a little more about.
How those types of negotiations look today, when you're looking to tender rigs over a year out you fleets, mostly working at this point.
Just curious how that influences those types of negotiations and can maybe just elaborate on the capital costs associated with the contract was the upgrades you mentioned.
So the way we've previously a given guidance on the upgrade for for the apex itself.
It was it was offline capability and it was.
A round.
30, Yeah, that's about right 20 to 30, so so it doesn't make the rig mall suddenly more efficient in that market and sort off that.
Yeah, we've been talking with clients about follow on work for that Reagan Indeed at a higher day rates again.
One of the things that we're finding somewhat.
If I have a headwind against us is scheduling.
In the market so that.
The overlap of potential future walk actually coincides with some of the work that we're contracted to do today. So it's a case of talking that through with our clients, but the rig remains very very attractive in that in that region and of course, that's not the only one that we've got that this is one of the reasons why we're bringing back the ocean.
Onyx, a significantly upgraded rig into that market. So as Ron earlier suggested.
We're already bringing an extra rig back in that but we're very very comfortable.
With.
With that market and with the more assets that we've gone.
That's helpful. Thank you for that.
I was curious if we could get maybe an update on the current state of the L. alive for sea Lion given as ladies.
He is a slip to the right looks like 2020 now is to try and target can you get a sense.
How that fits into your strategy.
This is Ron so I'll I'll defer to the client for kind of their commentary on kind of their own program, but but broadly speaking the program has been in them in sort of known as the market for quite some time. It's been one of few what I'd consider to be very sort of chunky development programs that are out there. There are few a number of easy to identify and name.
I think there's a good case, where I think theres operators do have high hopes I think for a market to recover. So that's why that program I think continues to move on the fairly complex program I think as the operator will that would describes there's a lot of moving parts to get right to get that one kind of off the ground. So that's one that we are quite sort of a keen on.
Very we have a good sort of view into it we have good I think credentials with both the that one operator, but also I think declines in general on the UK sector.
And so that's a program that we certainly have an eye too.
But I would say it also speaks to Mark's earlier comment there are headwinds and so the program is well understood.
But for a variety of reasons, it's not an easy go to get F idea cross the line I think that's a pretty pretty common a common I think narratives that we're finding with clients that they've got good programs.
Proven fields resources that they would like to develop and extract but candidly. If you look at the competing demands for capital that our customers have it's not always an easy want to get across and so I think we're fortunate with many of our operators and clients. There there are relatively I think.
Clear with us about how to think about expectations for programs and how to how to consider where they might fit into the schedule for us well. This is one that I think it is is is I think a good example of why there's both promise in the future, but also some strong headwinds that keep good programs keep good program should come.
The market easily do you look at the big Chunky programs that are out there. There's only a few to name that's one of them one of the bigger ones.
And what I like about where we are is our credentials with with that one client and will that class work is quite strong. It's a great. It's a great piece of work in the mortgage space and as Mark mentioned, that's an area. We've invested quite a lot by way of effort technology differentiation. So I think what a good place for that program, but we'll just have to kind of watch and see how that plays out.
Fair enough. Thanks, a lot.
Thank you and our next question comes from a line of Kurt Hallead with RBC. Your line is now.
Hey, good morning.
Good morning cut hey, thanks, so much as always for a you know for the color. So.
Mark it's pretty clear now that's all the investment you guys made in these technologies is is paying off for sure on on the utilization front and as you teased quite effectively on on the day rate front.
As well so just trying to maybe connect the dots here a little bit we think about return on capital and what these investments in technology ultimately mean on a on a through cycle basis moving forward from here Mark you know comparison in contrast to the prior cycle dynamics, how much incremental.
Return on capital and maybe you could put it on a percentage basis or basis points or something but give us some sense as to what the incremental return on capital you think you're going to be able to get.
For this upcoming cycle with all these these technologies that you've been fully deployed.
I can I'm not going to be drawn on on given your return on capital of this time.
When the.
The market is somewhat opaque moving forward, but when we made these decisions we look at at the company as a whole.
We look is how we allocate capital moving forward in terms of what is best shareholder value and we also understand that the ultimately this is a cyclical business now this cycle has.
Being much longer and deeper than others.
First suggested it would be and where we were one of the first two.
To to pull up the drawbridge stop taking counter measures to reduce cost and to limit investment, but at the same time you know we've gone from a 44 fleet down to a fleet that is effectively a 16 assets, we need to make sure that those assets.
Our assets that are very very capable and are ready to take the opportunity when the market recovers because.
You know this is a cyclical market one of the questions that I have been in August .
Flight was what does it truly need for deepwater come back into the picked a deepwater is not going away. It remains an important part of the supply stack for our clients.
And the what has extended this downturn of course is the non OPEC.
Production growth, which is surprised the upside for a number of yes.
That has really come from his show.
The question becomes is when its shell going to rollover.
And our awesome data points out that the suggests we're beginning to see the beginning of that so when we do our scenario analysis.
Its a.
We believe that a recovery is coming it's not coming in 2020 . It would be 2021, all 2020 too we have good liquidity, we have rigs that are working at day rates that are above market rate and will be so moving into the future and when we look at the returns that we.
We make on all capsule that we've done this year, we're very very comfortable that the endeavor, which we pull back from cold stack, the onyx, which we pull back from cold stack have significant runway is ahead of them in a more market, where we are seeing.
Dayrates recovered substantially again in my prepared remarks.
The work that we've just won in Australia on the Apacs is about double the trough some mod assets in that region and we have increased the day right for the fourth consecutive fixture in Iraq.
The Onyx when it goes down that it's going to be working and the outweigh basin drilling for gas to supply the local energy market and ER and Eastern Australia, which we know is suffering from blackouts et cetera. So when we make these decisions to bring a to bring assets back with very very comfortable.
And the long term.
Success of those assets, we've spoken about about the full Clancy line earlier in the cool and again, we've got another life for the endeavor.
For that for that work. So you know with very very comfortable on when we bring these assets back we have they work in place that will give us a good return on capital, but when you're asking for a specific number.
This moment in time I don't think it's additive benefit for us to put a number out there right now.
No. That's all that's all fair I appreciate that incremental color.
So I've a follow up question here for a for Scott you know you indicated that capex would be down.
Meaningfully in 2020 versus 2019 thinking to prior call. You also indicated that you may.
Have a need to kind of tap into into the revolver, but.
Given out some things have evolved here given the efficiency factors you have on your rigs.
And a lower capex.
Wondering your view on whether or not you can get to a point of ER positive free cash flow you know in 2020.
Yeah, not when I made that comment last quarter. Kurt you know that was with the visibility of where you know I kind of thought 2020 would play out and that really has not changed at this point.
So I will reiterate we will most likely hit the revolver during the first half of the year timing still beat to be determined based on working capital and and some other items, but not at 20 2020.
You will see has hit the revolver and we will still have a balance outstanding more than likely at the end the 20.
Okay appreciate that Scott Thank you.
Yep.
Thank you know last question comes from the line of Taylor Zurcher, Tudor Pickering, Holt and company. Your line is now.
Hey, good morning, I appreciate all the color on on the apex pricing.
First question is just on pricing for the more to asset category clearly, there's some pricing power in Australia, but could you just compare and contrast for us how pricing on a leading edge basis is looking for the moored assets in the north sea either on a daily gross margin basis relative to what you're seeing in Australia.
This is Ron tailored good morning, so what I'd say in the UK sectors that are in some way similar to Australia, we're seeing kind of each successive contract is price better in the one before.
So I think theres a shared expectation between both the you know that you offshore drillers as well the operators are over time those rates I think do kind of quick forward at a higher level I wouldn't describe as dramatic but it is I think it is a I think a fairly consistent trend over time, if you look at kind of where.
Leading prices are today, how they are what the expectations are for forward contracts and and if you look back over the arc of time and a sharp contrast to.
17, and 18, you can definitely see the trend kind of upward that way so that the trend goes the right way I think the tricky part is what's the slope that curve right. How fast are those rates kind of recover I think overall a.
Big picture I think in them the more asset class I think this supply demand picture is slightly better by comparison to the drillship space here.
But I think the pricing power you've got to recognize has limits its not its not a limited I think the the market does keep those rates in a fairly fairly in check. So the general trend is good but I wouldn't call that dramatic is simply steady and improving so let me just throw something again here for you.
Tyler the when we looked at how we allocate our capital moving forward one of the things that we study was the dollar value of the.
Deepwater at five days available through 2025.
And there are.
100.
And 90.
D P floats is out that chasing walk.
That's 44.
Mod assets out that chasing work and when you look at the dollar value of potential if I D.
On a per rig basis.
The opportunity for more the assets is double that in terms of by de dollars than it is fall.
P. assets.
So that is why we are quite comfortable having allocated capital.
Two mod assets and pop from the college about but basically done now it's going to spoken to in terms of Capex moving forward, but that's somewhat explains our strategy.
Understood that's helpful and a follow up maybe for Scott on the revenue guidance for Q4.
It is the 235 to 10 to 45 million inclusive or exclusive of the of the gross margin commitment from BP now that's inclusive of the $30 million.
Got it that's it for me thanks, guys.
Thank you all right I conclude today's question and answer session Mr. Mark. Please proceed thank.
Thank you for participating in today's call them, we look forward to speaking to you all again.
The next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.