Q3 2019 Earnings Call
Good day, everyone and welcome to the lowest plc third quarter 2019 financial results Conference call.
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Well now turn call over to Mr., Nick Georges Senior director of Investor Relations will moderate the call. Please go ahead Sir.
Welcome everyone to the worst third quarter 2019 conference call with me today, our President and CEO , Tom Burke Executive Vice President and CFO , John box and other members of our executive management team.
We issued a press release, which is available on our website at <unk> Dot com.
Any comments, we make today about expectations are forward looking statement and are subject to risks and uncertainties.
Many factors could cause actual results to differ materially from our expectation.
These are probably our press release and that you see filings on our website. It to find forward looking statements and the risk factors and other events that could impact future result.
Also please note that the company undertakes no duty to update forward looking statement.
During this call you refer to GAAP and non-GAAP financial measures.
Please see the press release I don't website for additional information required reconciliation.
As a reminder, we issued our most recent think status report, which provides details on contracts across a rig fleet on October 25th.
And updated Investor presentation is also available on our website now let me turn the call over to Tom Burke, President and CEO .
Thanks, Nick and good morning, everyone welcome to the Cold and thank you for your interest in Florida.
I'm going to speak three main topics in my prepared remarks today I will briefly comment on the Companys third quarter results and provide an update on the company's full main priorities before discussing the broader market offshore rigs and specific contract wins I will then hand the call over that.
John for his comments.
In terms of all financial results for the third quarter, we reported adjusted EBITDA of 35 million approximately 26 million back up and the outlook. We provided on our second quarter conference call.
These results reflect robust execution I know ongoing focus on operational excellence and disciplined cost management, including aggressively realizing merger synergies.
Well, we have a lot going on with integration, we remain focused on delivering safe and reliable reliable operations to our customers.
Well My last conference call I highlighted full priorities for the company following the combination in April .
These all integration and synergy capture.
Delivering value from I wrote drilling.
We are actively managing our balance sheet.
I'm fleet management, which encompasses our contracting strategy.
With respect to our integration and synergy capture priority. We reached the six month Mark as a combined company in mid October .
During this time, we've made significant headway on our integration plan, which is now approximately 65% complete.
Plan includes the standardization of operational policies and procedures across our fleet, which will drive a consistent approach to rig operations flux ongoing consolidation of <unk> infrastructure and performance management systems.
I thought the end of September we reached a run rate synergies of approximately $150 million, which is ahead of schedule as we walk to work towards our previously announced merger synergy targets.
Well I completing the merger earlier this year the largest became the leading offshore driller in terms of scale and scope of operations.
However, I am intent on Dolores also being the industry cost leader.
Well not August earnings Conference call I noted that we are looking for opportunities to deliver additional value from a combination.
I'm, sorry, what six months of operations behind US we now have that's insight into areas, where we can further increased efficiencies.
At this and I'm, commenting that the company will deliver significant incremental merger synergies beyond the previously announced 165 million dollar target.
Most synergies targeted announced today, how come from onshore G.N. <unk> an operation support.
We are now expanding all focus to optimizing all areas of cost within the business.
While we will leverage all scale to create additional value by driving efficiencies across the operations, we will not increase our risk profile electoral operational performance slip in order to do sorry.
We intend to provide more details on our revised target unexpected timing for the end of the yeah.
Our second priority is arrow drilling off 50, 50 joint venture with Saudi Aramco, which owns and operates offshore drilling rigs for the largest customer jackups in the world.
I wrote Drillings operating fleet continues to deliver study result, with the least rig fleet expanding <unk> eight rigs with the addition of a lot of Jackup last month and another valores jackup expected to commence operations on the it's at least the arrow drilling imminently.
With respect the new build construction program International Maritime industries, or I am I am just I M. A C recently announced an agreement whereby I am I Wouldnt license <unk> NFC technology, but jackups that are built in Saudi Arabia with the expectation that concern.
Function of the first Newbuild jackups in the King Saumen Global Maritime industries complex at Roswell care will commence in 2021.
In the meantime average drilling continues to consider various options for the for the period before I am I is ready to start construction in Saudi Arabia.
Additionally, at the timeline and plans for new build construction pharma I wrote drilling Belarus, and Saudi Aramco, well crawl principally develop next step in Ara Drillings financial strategy.
Don will comment on our balance sheet party in his prepared remarks as you will expect respected balance sheet management. The longest his board of directors and management a highly engaged on this priority.
We recognized that our shareholders and other stakeholders are focused on how we plan to address off balance sheet and capital structure.
We intend to take action studies in the past long term interest of the company so that we maximize value for our shareholders.
To help US achieved this Dolores board of Directors has formed a finance committee to assist in its oversight of the company's capital structure and financial strategies.
Now moving onto our broader fleet management priority.
Focus remains on taking a disciplined portfolio approach to contracting reactivation and over time into that that.
In terms of off floater fleet I.
As reflected in our Investor presentation, we think about automotive as a portfolio of three main groups of assets.
I was modeling floats is we're working or intend on working both flow Muslim floats is that we're holding off marketing for now.
Smaller group a much older floaters.
We have 15 floaters in the first group of rigs that are working well, we intend on working including 10, Drillships and five STEMI fobs, including the Valores and that's one and D. P. S. One.
These assets were focused on winning new contracts that generate cash for the company and actively managing cost for these rigs during uncontracted periods, particularly be particularly between now and mid 2020.
We anticipate that as we secure high 11th utilization for this group of rigs, we'll see a higher pricing on subsequent contracts.
Within the second group for Floaters, we have 10 rigs.
This includes two warm stacked drillships two new builds in Korea, She preservation stack Drillships and for preservation stacked 8500 theory semi stops.
These assets full well behind the first group of rigs I mentioned in the contract in Q.
A holding these rigs I lowest state of readiness, which reduces our call.
Given the Q I just mentioned, we all marketing these rigs on a very limited basis and would need to be compensated for pushing a rig from the second group to work.
And well the contract to be cash accretive for us to do so.
The third group contains all three much older rigs, we will continue to evaluate whether these rigs have a place an ongoing fleets.
One of these rigs for law with 5006 recently completed a contract and we now have the rig classified as held for sale.
I would note that since the beginning of 2015, Floris Fenix predisposed to the Companys appetite 14, smokers, including two Drillships and 12 semi subs.
Excluding this group, which is composed of three less semi subs.
Remaining 25 floaters in the Valores fleets are more than six well seventh generation assets all of which were delivered in 2008, well make huh.
With respect to our Jackup fleet, we take a similar approach to fleet management and contracting while we may consider reactivating Jack up under the right economic trends our focus remains on securing a creek the backlog for actively marketed assets before doing so.
We continue to take appropriate action when it comes to removing Jack ups from the global drilling supply.
At this and we recently sold one Jack up if a lot as California, the salvage value on a now holding Floris Jay you 68 style.
Since the beginning of 2015, we've retired 19 jackups from the fleet can we expect the largest Jay you 68 joins these rigs soon.
We continue to evaluate our legacy Jackups and May retired more rigs in the culture has to come.
Awfully strategy is also influenced by broad industry dynamics and I will briefly touch on this before delving into the specifics of the offshore markets.
As it relates to macro factors impacting the demand for hydrocarbons concerns over a potential global economic slowdown have led market for cost as to adjust that growth expectations low in the near term.
On the supply side growth from non OPEC sources has been partially offset by continued reductions from OPEC.
Hi growth from U.S. shale has tapered off more recently and there is potential that it flows are.
Financing conditions, Titan and declines in production accelerates.
These factors collectively have led to a more volatile commodity price environment that in ton impacts market expectations of future demand for offshore drilling services.
Meanwhile, many integrated energy companies continue to discuss the relative attractiveness offshore projects given improved economics.
With respect to the offshore markets token Thislife station for the global Floater fleet continues to gradually increase and currently stands at 67% best is 58% a year ago.
This improvement in the result of both increased contracting activity with a 23% year on year, increasing the number of rig he has awarded through the first nine months with the yeah and a decline in total supply at the number of floating rigs were tied from the global fleet continues to outpace you.
Failed deliveries.
Despite the macro backdrop I just described you flow to contracting opportunities increased meaningfully drawing the third quarter.
For example, during the third quarter, we recorded 19 customer inquiries from projects that real quiet drillship compared to 21 inquiries for the the entire first call. This yeah.
We also observed a similar trend in pre inquiries, which indicates a good number of additional tenders will be released in the coming month.
In addition flow to contract durations have increased slightly over the past three months and our expectation is that contract durations will stop Len and as we move into 2020 .
Focusing on the drillship market, excluding 19 assets that are yet to be living to live event. There are currently 105 drill ships on the water today.
Off these reclassified 39 at highest specification, meaning they would deliver didn't 2013 or later how to blowout preventers and Joe directs with at least 2.5 million pound hook load capacity.
Utilization for these higher specification Drillships currently stands at 85%. That's is just 59% the remaining 66 drill ships in the global fleet.
On the open drillship opportunities at Tenda or pre tend to stage is approximately 50% for work offshore Africa, and Brazil, and we expect these two regions to be a significant driver of incremental drillship activity over the next few years.
I would drill ship fleet includes 11 at the highest specification assets, including new builds for Laura's, yes that theme and D. as 14 and is well positioned to benefit from the recent increase in customer activity the deepwater projects.
Since our second quarter conference call, we've been awarded new contracts or extensions five of our Drillships from August the S 15, and D. S 16 in the U.S. Gulf.
A lot of C. S seven offshore Egypt, and Valores, the 12, Mds full offshore Angola, and gauna, respectively.
Moving now to the benign environment semi sub market. There are approximately 75 assets on the water today that fit within this category with approximately two thirds of these rigs capable of working in more mode.
And one third capable of operating in dynamically positioned boat.
Correct projects in regions real quite quite different specifications and our fleet. The best file semi Submersibles provides us with the technical capabilities to meet thought you such unique demands.
Our recent contracting wins under school. These abilities. We won work full of dynamically positioned semi from Rsvps going offshore Australia and is expected to ramp from the first culture of next year through the end up a third quarter 2021.
The Australian market continues to be an important region for semi submersibles and we expect several opportunities to emerge sandy's in this region in 2020 . Meanwhile, Dolores 85 to five had its current contract offshore Mexico extended through the end of the third quarter 2020 <unk> versatility off the.
85, or five and its sister make the 85, three which are capable of operating in either dynamically positioned or more than those places these rigs wealth future opportunities in the Gulf of Mexico.
Moving to the Jackup market, we continue to see an improvement in global Jackup utilization, which currently stands at approximately 73% compared to 66% year a guy.
This improvement is in utilization is almost exclusively driven by higher customer demand with a number of contracted rigs increasing to 380 from approximately 340. This time last year and more than 50% year on year increase in a number of Ricky as awarded a new.
Fixtures through the first nine months of 29 team.
The overall improvement in the Jackup market is also highlighted by an average increase and the average contract durations, new Jackup contracts signed during the first nine months I'm trying to 19 at an average time of 16 months versus 11 months for the same period in 28 team and this number in Q.
<unk> 18 months when looking at contracts signed during the third quarter.
These dynamics are helping to drive a broad based improvement in pricing for jackup rigs, although the strength of the improvement varies by asset type and region.
The strongest segments of the Jackup market is a multi cultural harsh in harsh environment rigs, which are mostly located in the north sea.
Utilization for these rigs stand at 98%, reflecting the highly contracted nature of this asset calls.
As a result of these high utilization levels, we've seen day rates for these.
Rig steadily increase since the beginning of 28 team with leading edge day rates of approximately 200000 Boes per day for anklets rigs operating in Norway and above $100000 per day assets operating in other sectors of the North Sea.
Harvest has the largest fleets of modern ultra Austin harsh environment rigs with 13 of these assets all of which are either under contract will have a contract for future work.
In the past three months, we've been awarded new contracts or extensions for these assets totaling roughly 135 million in contract backlog as disclosed in our fleet status report at the end of last week.
Since this fleet status report, we've been awarded at least nine months of additional work split between the Valores Jay you to four nine with Chrysler oil and the floor as Jay you won 22, which out both in the UK sector. The North Sea, we will provide additional details in on November contracting updates.
Benign environment Jackups, we're also seeing customers demonstrate strong preference from multiple rigs.
We'll utilization from bottom benign environment Jackups is currently 77%.
10 percentage points higher than utilization older Jackups.
<unk>, despite new rig entering the market over the past yeah utilization from bottom benign environment rigs has increased by approximately eight percentage points. During this period.
Once again below ours is the market leader in the Muslim benign environment Jackup space with 25 of these rigs, including five that at least I wrote drilling on long term contracts.
The middle East and Southeast Asia are the primary markets that these types of assets and they're up several opportunities, including multi year jobs that were currently bidding on.
In addition, we're pleased to start a program in Guyana without Jay you won 44, expanding our footprint in Central America, where we'll see additional activity in 2020 .
Additionally, we received a number of recent inquiries fidelity for development and exploration work in shallow water offshore Mexico from both Pemex and the international players.
Overall, our marketing efforts a benefiting from our enhanced scale and has the largest offshore drillers with exposure to shallow and deepwater markets. We are much more relevant customers with offshore projects.
With cost of them on increasing over the past three months. We've leveraged these advantages to add approximately 450 million to our contracted revenue backlog, replacing nearly 90% of the backlog consumed during the third quarter.
This is an excellent result, considering some of the higher dollar legacy contracts that were within our backlog and we're focused on finding additional contracts that benefit our backlog position provide that they all consistent with the marketing strategy I laid out earlier.
Before I hand, the call over to John I want to emphasize that while the offshore drilling market continues its recovery remain focused on a full priorities, namely proactive balance sheet management continuing to support our drillings development delivering on our cost reduction commitments from the merger and winning new work for already.
That benefit cash flow and position our fleet to meet increasing levels of customer demand.
Hi, pursuing these priorities, we will enable the company to weather the cyclical nature of our industry participates in the unfolding offshore market recovery and maximize value for our shareholders I'll now turn the call over to John .
Thanks, Tom and good morning, everyone I.
My prepared remarks today will focus primarily on discussing our financial position and balance sheet management, given the heightened interest in our ability to manage our liabilities.
As I've noted previously we continue to focus on managing our liabilities in a manner that provides the company with financial runway and adequate liquidity to best navigate the sector recovery.
But before going into this topic in more detail I'll first cover our third quarter 2019 financial results and our outlook for fourth quarter 2019.
Starting with our third quarter 2019 results adjusted EBITDA was $35 million for the quarter approximately $26 million better than the guidance. We provided on our last conference call you'd better than expected results were primarily driven by disciplined expense management, including efficiently reducing cost for rigs.
Recently completed contracts and faster realization of merger synergies.
When comparing to our third quarter 2019 results to the prior sequential quarter as we have done in our press release note that the third quarter was our first full quarter as a combined company falling merger closing earlier this year and that second quarter results reflected 10 fewer days of legacy Rowan operations. Since we completed the merger on April 11.
Revenue for the third quarter was $551 million.
Compared to $584 million in the prior quarter.
And the floater segment revenue declined to $270 million from $296 million in the prior quarter, primarily due to the Lars 85, or four DS four and Dps, one having fewer operating days on a sequential basis after completing contracts during the third quarter.
This was partially offset by increased revenue for Drillships Lars do you have seven yes, nine and DS 15, which had more operating days in the third quarter after beginning new contracts in the prior quarter.
In the Jackup segment revenue declined to $218 million from $229 million, primarily due to a four percentage point decline in utilization.
This decline in utilization resulted from several rigs that were in transit or experienced other idle period between contract, which was partially offset by the large jackup 123.
Commencing its maiden contract during the third quarter as well as contract startups for large Jay you 100, and Jay you 117.
Moving now to costs, excluding transaction costs contract drilling expense was $488 million, which was in line with the prior quarter.
And $17 million lower than our part conference call guidance, primarily due to more efficiently reducing costs for rigs that completed contracts and the deferral of certain repair projects.
Within third quarter contract drilling expense of $488 million was $13 million for rig mobilizations during the period as we repositioned assets for new contracts or in anticipation of future contracting opportunities.
Which was $11 million higher than those costs in the prior quarter.
This was offset by lower contract preparation costs as compared to the second quarter, which included cost to prepare to rigs for lease contracts at arrow drilling along with large Jay you 100, which commenced the new contract in June .
Third quarter results included a noncash asset impairment charge of $88 million related to semi submersible Lars 5006.
Which has been classified as held for sale and is expected to be retired from the global drilling fleet.
After carefully considering the opportunities for this asset and the cost required to keep the rig competitive we did not foresee an adequate return on invested capital and therefore, we are moving to quickly divest the rig to minimize future holding costs.
Depreciation expense increased to $163 million in third quarter 2019.
$158 million in the second quarter due to a full quarter depreciation for the legacy Roland rigs and the addition of Lars Jay you won 23 to the active fleet during the third quarter.
Excluding transaction costs general and administrative expense declined to $29 million and $33 million in the prior quarter, primarily due to lower personnel costs, resulting from merger synergies.
During the third quarter, we incurred approximately $16 million of merger related transaction costs, which are excluded from adjusted EBITDA and adjusted loss per share amounts presented in the press release.
Other income was $40 million for the third quarter.
Driven by $194 million gain resulting from the July repurchase of $952 million of debt due in near and medium term and partially offset by $114 million net interest expense and a $53 million bargain purchase gain adjustment.
Tax expense declined to $2 million from $33 million, mostly due to $18 million discrete tax benefit in third quarter 2019, compared to $1 million a discrete tax benefit in the prior quarter.
The discrete tax benefit in the third quarter was primarily due to the impairment charge for Valores 5006.
Cash outflows from changes in working capital were $43 million for the third quarter due primarily to interest payments and I would note that each year, the third quarter as the quarter, where we pay the most interest.
In addition to interest we made a 29 million dollar prepayment related to a tax matter in Australia that were in the process of litigating and a 23 million dollar payment to a shipyard as part of a previously disclosed agreement to delay the delivery of Lars DS 13, NDS 14.
I will expand upon in a moment.
These payments were partially offset by approximately $60 million reduction in accounts receivable in the third quarter and we expect to see accounts receivable declined further in the fourth quarter.
Now I'll move to third quarter results for our joint venture Arrow drilling.
Operating income was $22 million compared to $27 million reported by the Larsen the second quarter when accounting for the 10 operating days before the merger close on April 11, Aero Drillings second quarter operating income was $30 million.
That's compared to the prior quarter higher revenues for an additional 10 days of Arrow drilling financial results were more than offset by higher repair and maintenance cost or survey work on two rigs.
Additional operating costs for the Lars Jay you won 47 and 148 following their delivery from the shipyard and certain nonrecurring and other minor ramp up costs as ever drilling continues to transition as processes and personnel from the Lars.
As a reminder, aero drilling as a 50 50 nonconsolidated joint venture between the Larsen, Saudi Aramco and Lars is entitled to 50% of Arrows net earnings.
The largest is 50% interest in Aero Drillings net income was $5 million for the third quarter as compared to $8 million in the prior quarter driven by the items I just discussed.
Because of the Nonconsolidated status of the joint venture large this 50% interest in our drilling is accounted for using the equity method of accounting, we only recognize our portion of Aero Drillings net income which is included in equity earnings of air drilling in the condensed consolidated statement of operations.
The equity earnings of Arrow is also impacted by noncash amortization as a basis difference generated from the fair value write up of our investment in Aero reflected on our balance sheet through acquisition accounting this upward adjustment to our investment in Aero resulted from the estimated fair value of arrow exceeding its U.S. GAAP book value at the.
Time of the merger.
The acquisition of this bases differences $9 million to the third quarter, resulting in a net loss of 4 million dollar recognized in our income statement through equity earnings Janeiro, while this trend of noncash amortization will continue for a period of time does not impact our overall equity interest in the joint venture or our access to our share of cash flow.
In Aero drilling is expected to generate please reference our Form 10-Q filed with the FCC. This morning for more information on this concept.
Looking forward, we expect arrow drilling 2019, EBITDA will be approximately $170 million towards the low end of our prior guidance due to the Lars Jay you won 47 and 148 commencing contracts of Saudi Aramco later than previously anticipated.
Now moving to the Valores fourth quarter 2019 outlook.
We expect total revenues will be approximately $505 million with fleet utilization declining to approximately 60% from 64% in the third quarter due to fewer operating days for floaters Lars 5006.
S. One, yes, 15, Mds for that will be partially offset by higher revenue for the Jackup fleet as harsh environment rigs begin new contracts and in the North Sea.
Our fourth quarter revenue outlook breaks down as follows.
$205 million to $210 million from our floater segment.
Approximately $230 million from our Jackup segment.
Approximately $67 million of other revenues, including $23 million Reimbursable revenue from Arrow drilling.
$22 million of era drilling lease revenue.
And $22 million related to to manage rigs in the U.S. Gulf.
Note that this revenue outlook includes day rate revenue from the approximately $440 million of contracted backlog disclosed in our most recent fleet status report plus additional revenue from expected contracting and Reimbursables and amortize revenues that are excluded from contracted backlog.
We didn't transaction costs, we anticipate that fourth quarter contract drilling expense will be approximately $450 million potential quarter decline is mostly due to reduced operating costs for rigs that completed contracts during third quarter are expected to complete contracts during the fourth quarter.
Lower mobilization costs compared to the prior quarter and further realization of synergies.
We expect depreciation expense will be approximately $165 million and June expense, excluding transaction costs is anticipated to be approximately 20 $929 million inline with the prior quarter.
We estimate the fourth quarter tax provision will be approximately $33 million and fourth quarter EBITDA is expected to be approximately $25 million.
Fourth quarter capital expenditures are expected to total approximately $65 million.
This includes $50 million of costs from on a rig enhancements and upgrades, including residual spend for scheduled the upgrade and large Jay you won 47, and 148, which are partially reimbursed by the customer in advance of their commencement of multiyear contracts in the middle East.
And the addition of the fully automated drill for on the large Jay you to 91 before beginning and new contract in the North Sea.
We also anticipate $15 million of Newbuilds capex, primarily related to the startup and mobilization of large Jay you won 23, which commenced its meeting contract in the North sea during the third quarter.
Turning now to our financial position.
As of September Thirtyth are available liquidity was $1.6 billion of which $130 million with cash and $1.5 billion undrawn capacity on our revolving credit facility.
Pro forma for the debt repurchase completed in July our cash balance declined by $224 million on a sequential quarter basis, primarily due to the repayment of $202 million of debt that matures during the quarter and $124 million of cash interest payments.
In addition, we made a $29 million tax prepayment and a 23 million dollar payment to delay the delivery of two newbuild drillships as I mentioned earlier.
The impact of these payments on our cash position was partially offset by borrowings on our revolving credit facility, which had an outstanding balance of $141 million at the end of the third quarter.
We anticipate using our revolving credit facility to meet our interim funding need as borrowings on this facility or at LIBOR plus four on a quarter, which is more cost effective financing and if we were to raise additional capital today.
However, we recognize that using our revolving credit facility to meet funding gap not sustainable in the long run since this facility is scheduled to expire at the end of third quarter 2022.
Yes, several tools at our disposal to help us address our funding needs and as we have done throughout the cycle, we will not sit idle, while we wait for the industry recovery.
Our financial strategy will focus on two key tenants extending runway and bolstering liquidity.
Our capital structure permits us a great deal flexibility since it is composed largely of unsecured debt and because of this we have the ability to layer our capital structure fighting guaranteed debt and secured debt.
Since our last earnings call market sentiment towards energy and offshore drilling has continued to weaken including increased market concern regarding a broader global economic slowdown and a corresponding impact on hydrocarbon demand that would negatively impact customer activity.
Our credit spreads have widened meaningfully in the last quarter, which could limit our ability to raise new funding on an unsecured basis on reasonable terms in the current market.
However, given our high quality asset base, which third party analyst of estimated has between $9 billion and $12 billion of gross asset value. We believe that the secured debt market is currently accessible to us.
In addition to raising new debt our capital structure also gives us the ability to monetize assets. While this provides further funding flexibility there are limited cash buyers for offshore drilling rigs at the moment.
That said the market for asset sales of dynamic and there's potential that we see increased interest from buyers of day rates continue their gradual improvement.
Our our ownership interest in Aero drilling also provides us with a potential source of liquidity and as Tom noted earlier, we're in discussions with arrow in Saudi Aramco to better develop arrows financial strategy.
Our drilling has no external debt, which presents a future financing opportunity given that the company's rig fleet is fully contracted and has meaningful revenue backlog. Furthermore, Lars holds $453 million of shareholder notes from arrow drilling with 2027 and plane 28 maturities.
Bear interest at LIBOR plus 2%.
And we received as compensation for assets that were contributed to the joint venture.
As of September Thirtyth Aero Drillings current assets, including cash and accounts receivable were $453 million.
It is a sizable liquidity position arrow today as Tom mentioned earlier, we expect the board of managers to support a cash interest payment of $23 million in the fourth quarter for our portion of the shareholder notes.
Bloggers has also received an arbitration award for $180 million for damages, resulting from a pending legal matters with Samsung heavy industries.
We are seeking interest and related costs that would increase the amount due to the Lars.
Yes, I has filed to leave to appeal. This ruling and we expect the English high court to issue its ruling on the matter during the fourth quarter.
We are new to enforce this judgment at the high court works or rule in our favor. Although I'd note. The timing of collection of the award and Fuller impart is uncertain at this time.
In addition to help reduce our funding requirements. We are focused on actively managing our liabilities in cost base.
As I mentioned earlier, we reached an agreement with DSME shipyard in the third quarter to delay the the deliveries of Newbuild Drillships. The large DS 13, India 14 lay up to two years each.
Part of this agreement, we made a payment of approximately $23 million, representing all holding costs and related accrued interest due to first quarter 2019 as a result, the scheduled delivery dates for these rigs and now September 2021, and June 2022, respectively.
Most importantly, the final milestone payments interest there on for the rigs our do it these revised delivery date.
As these payments were to be made upon delivery. They would total approximately $313 million in aggregate. However, we continue to have the option to finance the milestone payments and accrued interest through a promissory note, which bear interest at 9% per year with maturity at year end 2022.
Management of cash requires tight scrutiny of our cost base and adjustment to these costs in light of market conditions.
Direct costs to run and manage our fleet 79 rigs. We currently require approximately $950 million of cash to cover interest capital expenditures taxes and support costs on an annualized basis.
This amount roughly $400 million is cash interest on our debt and another $150 million are for cash taxes and other costs like pension obligations that are more difficult to reduce.
However, the remaining $400 million for capital expenditures and support costs.
Can be managed to reduce annual cash spend going forward.
One way that we are able to reduce capital expenditures and ongoing holding or stacking costs is by disposing of non core rigs from our fleet.
And we will continue to do this as older less capable rigs complete contract.
Further project spend encore rigs will continue to be closely scrutinized unless these projects result in relatively short paybacks, they will not be funded.
Before costs are also expected to decline.
After giving effect to merger synergies realized to date, our annual run rate for DNA expense stood at approximately $115 million at the end of the third quarter as we continue to realize synergies from the merger over the next year. This run rate is expected to decline to $100 million per year.
Similarly annual run rate for operation support expenses currently $100 million and is expected to decline to $90 million per year as visible merger synergies are captured.
As a result of these efforts, we expected capital expenditures and support costs for 2020 are reduced from $400 million to $350 million learning next year's expected cash uses.
We will continue to evaluate our cost base as we complete our annual budget process and look for additional ways to further reduce costs. So that we lower our near term funding requirements.
Another aspect of the capital structure that we continue to work on the previously announced internal reorganization to make the unsecured senior notes issued by Rowan companies Inc. very frustrated with our other unsecured senior notes.
Completing this reorganization, we will simplify the capital structure and gain additional flexibility as we plan. Our next financial actions. All you have yet to affect this reorganization, we've made significant strides towards facilitating it.
In addition to managing our liquidity and liabilities also want to reiterate our focused on winning new contracts for our rigs as a means to generate better operating cash flow. Our marketing teams are committed to contracting rigs on sensible terms to generate cash for the company and recent contracting success has helped to de risk our outlook for next year with the addition of.
Approximately $300 million to our 2020 contracted revenue backlog.
While we anticipate some gaps or rigs between contracts during the first half a 2020, particularly for floaters, we expect to add more revenue backlog that result in better utilization in the second half of the year.
We remain highly focused on disciplined cost management for rigs with Uncontracted time during the year to minimize cash outflows during these periods.
As a result of our contract backlog anticipated contracting success and cost management efforts. We expect next year's EBITDA will improve as compared to this year. The first year over year improvement this cycle.
Well the gaps and utilization I, just mentioned are anticipated to cause EBITDA to move slightly low in the near term fleet utilization is expected to gradually increase during 2020 as a result of new contracts and coupled with further improvements in our cost structure from fleet rationalization and other efforts leading to a noticeable improvement in EBITDA as a move into the back half of 2020.
In closing, we will continue to focus our efforts on addressing our capital structure proactively managing our liquidity and liabilities and winning new contracts that are accretive to cash flow.
During this we can most effectively execute our strategic priorities and maximize value for shareholders.
Now I'll turn the call back over to Nick.
Thanks, John .
Operator at this time, please open the line for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
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The first question comes from James West with Evercore ISI. Please.
Please go ahead.
Hey, good morning, Tom Werner John .
Hi, James Good morning pointed.
Tom you seem a bit I guess a bit more optimistic about the floater market than you maybe were previously specifically cited and you know more.
Tenders in the third quarter than almost all that first half off from the high end and then you suggested that the rates would start to move up here on the the higher in group of floaters that you have could you elaborate a bit more on kind of how you're seeing the conversations changed how you're seeing the interest or clients a change.
If there is a bit of urgency now in the market to a to lock in rigs for a for next year.
Yeah. Thanks James.
Yes, good question.
Important question and.
We certainly.
Still project from what we.
Well I talked about last quarter, which is we see.
The second half of next year.
Yes.
Considerably larger amounts of work so I think you know.
Overall the up the theme is the fact the back half of next year.
Is looking pretty is looking pretty good.
Which is what we said last last quarter I would say that in this last quarter.
Third quarter. This year, we did talk more than $250 million of backlog.
Which included five contracts extensions and.
You know a cross sell drillship fleets.
So what I'd like I'd like to look forward.
So what is going on and the tempo it is certainly.
Moved up.
Quite a bit from lost.
From where we were at the last earnings call.
As I highlighted in my comments.
Just a half of this year.
21.
Orders, which is 21 projects, which we especially 121.
Tenders that we responding to add into third quarter.
It was 19, so it's quite a.
A significant.
The increase in the 10 part.
With respect.
For the customers you know I just spend a lot of signed with customers talking to them about you know that plans and and certainly the temporal in deepwater, particularly for will start saying.
Q2, Q3 Q4 of next year is increasing.
And so we do have.
There is limited availability in certain markets such as the attrition markets entity.
In the Gulf of Mexico, and so I would say, yes. It is improving obviously you know we want to see contract lengths improved contract lengths for floaters have incurred haven't have increased if we look at.
Year to date 28 seen best as yet right.
Year to date 2019, we have seen a modest improvement as I said in my comments.
But we're also seeing that improvement starting to to actually quicken.
As we at least in the tenders that we are being off to respond to those haven't actually been pins, yet I would actually be one yet by anybody but.
We do see that the contract lengths, increasing which along with utilization.
It is important.
I would say in the short.
As all the drilling side.
We have turned down work for early 2020 wall.
Which we basically just didnt have a rig available and we'd also turned down work, where we weren't willing to mobilize rig or put a warm Greg back to halt pull back on to contract.
Without being contracted for that.
Okay. Okay makes sense. Thanks, Thanks, and then John maybe a quick question for you on the liquidity. So I know you went through a lot of stuff.
And your prepared remarks, but I guess the big question for me is is to prove a this liquidity is available what's what's stopping your whats MPD you from going ahead.
In hitting the secured debt markets today is it just you don't like the price of is at the issue or is it does not open.
Yeah sure James I recognize that that that my prepared remarks are bit normal a little bit longer than a than normal so.
Just kinda give you a little bit just to reiterate but yes. You are the word you used is kind of to prove that we have access it's an interesting choice of words I would.
I would tell you that we have liquidity today at $1.5 billion. If you look at between the cash on hand, and the available revolver.
Today, so the the revolver Oh, we have is 1.5 billion available on that and another 130 million of cash. So I'm sorry to that 1.6 billion of total liquidity right. That's available to us effectively on demand and we have drawn on the revolver as you know starting a few months back and so.
There's there's certainly you know we certainly recognize as I said in the prepared remarks that that's not a long term funding strategy should rely on both could it be from the revolver in a in the short term.
In the long term, but it is something that is available to us and that we can continue to utilize.
We have the asset base that.
Based on your gross asset value in those are some of your peers. You know this isn't the magnitude of $10 billion and so.
Yes, we have no unsecured there's no secured debt in the capital structure today.
That is certainly a level that we feel very strongly that we could utilize and access that markets should we choose to do so at the appropriate terms and timing.
But again, we don't.
Theres, but we're certainly focused on it we're certainly something that we think we we spend a lot of time.
Thinking about having conversations about with with here internally it but it's also something that we don't feel like we need to go out there in Russia off to do something just to kind of use your words proved to the market that we can do it so good.
Okay makes sense okay. Thanks.
Thanks, Jeff Thanks.
Your next question is from Greg Lewis the BTI James Please go ahead.
Yes, Thank you and good morning, I guess good afternoon also.
Just looking at the floater fleet.
Specifically the Drillships you haven't you have 90 or I guess, what you deem to be premium high end Drillships contract and it's interesting is as you look at those nine drillships each one of them as varying levels of options attached to them I guess, just looking at the initial for that.
Roll off through Q1 of 20.
You know they all have options any thoughts around when you expect or sort of thoughts around do we think some of these options get exercised really I'm just trying to understand and yeah. I don't think you were talking about these rigs, but when you mentioned you know not necessarily being able to bid into some work for us.
Ill ability of rigs on how should we think about the availability of of kind of what you guys seem to be your high end Drillships in 20.
So.
So Greg good morning, So you know as as we look at the fleet and we look at the options that we have over obviously varies by a customer to customer and.
Strikes guys, some options battery, but I would say that.
We think that's.
Yes based on public commentary from our customers, we expect those those options to be exercised cycle a number.
And.
So to your options that we all unexercised, we do see opportunities.
And in the.
So called Golden triangle in the Mediterranean.
So, which those rigs up a pretty well suited.
A lot beginning in mid 2020 and beyond that maybe some yachts, but certainly as always I'd like you know as such I did my comments. There we have a 25 floating rigs which were delivered in 2000 nights or late so all of which 15 or you know we are.
We are we are actively marketing and the other 10, we're holding back to see what you saw costs.
So we also saw reconcile those those 15 rigs and you know we do feel.
Yeah, we do feel.
But we will we have to be able to contract.
Okay, Great and then just just one more for me I mean, I mean, clearly you guys highlighted in your prepared remarks that that the Jackup market is improving you know you mentioned that about the potential for rig disposals.
You know I guess is as we look at the Jackup fleet and I'm really just curious around I guess, there's Pacific class rigs because they look to be two of your better stack jackup rigs as we look at 2020 or their thoughts about maybe reactivating or maybe I'm looking at.
Maybe I'm thinking about it definitely are there any I mean, the jackup market is going to other opportunities to maybe put some of these other sideline jackups to work or is it more a function of hey, we have kind of our core fleet of Jackups working and it's really just about keeping knows.
On higher rigs working.
So with respect to those two specific Greg well very good rigs and said you know that.
All something which customers.
That's how it looked a lot suddenly we want to change our off.
The rigs that we have working basketball Halsall all World War walking.
No. So we certainly are very focused on that.
We would reactivate those rigs if the.
But in my remarks.
If the economics for right so.
We do think.
There is a regs are in very good shape, and but we would you know we wouldn't want to make sure that we weren't comfortable that we've got a good at home.
On capital for reactivating.
Okay perfect. Thank you everyone for the time.
Yeah. Thanks, Thanks, very much thanks, Rick.
The next question is from Carter lined up with Morgan Stanley . Please go ahead.
Yes. Thank you just wanted to address.
Just wanted to address some of the information that's.
During the market.
<unk> suggested by some of your competitors that.
You guys are being on disciplined in some regions I just wanted to sort of give me the Mike and give you a chance to address what what's ever been sitting out there.
Yes, but it's certainly a yeah, we certainly oh, yes and competition.
For full walk across the across the world and I don't really going to dignify. Some of the comments, perhaps you have directly.
What I would say is.
As I articulated in my comments, you know, we have we're holding 40% of Iowa.
Excellent model.
Floater fleet off the market.
Today to help us for GE saw costs and so they rigs that we do have when we all marketing.
We are certainly want to keep walking.
And so yes, I think that there has been.
There have been opportunities well there have been instances, where we have a rig coming off a contract and that was a short gap and we've been aggressive all know on filling that gap.
So we certainly yeah Oh.
Focused on driving value and expanding on the large and on all of all all floating assets.
So.
And I I called out looking specifically you specifics about why we bidding out because that is an appropriate.
But we certainly feel like we have a very good understanding what the market and Ah yes.
As we drill ship or tend to that we make it very thoughtful about how to maximize value for our shareholders.
Got it appreciate the color.
Just switching gears here.
Moving to some potential upside to synergies I appreciate I want to give a number yet but could you preview maybe where the conversation for you is has shifted this.
Or cost savings is it more.
She deficiency like reducing spares or things like that but how do you think about what the next the next leg is here.
Yeah, I can I, just wanted to get a little bit more color I'm sorry.
You know we are off six months into the merger.
And certainly as you know I went to companies Oh gun to combine that's a lot of information.
That cannot be shad, and and Walton will shed.
Around.
A lot to talk a lot of the two companies cost structure.
So now it's six months into it a little actually just over six months into it.
We have a have I've spent a lot of time thinking about the cost structure.
And what we can do and we are very focused on driving.
Driving add back the cash flow margins and so.
I would say you know as far as specifically where and how much we will we'll have to hold off on that for the moment, but it will be.
Significantly higher than 165, and we're looking across all of our cost base.
I'm, excluding from when I'm thinking about synergies Oh, I'm, excluding from that any improvement or any reduction in interest I'm I'm more focused on.
Operating costs I support costs.
You know dot $165 million of synergies, which is still currently toward our current target for the endorsed 2020 until we yeah I'm out something higher.
He is you know a large portion of it is coming from the GE today.
And the support cost all that that the contract drilling expense portion, which is onshore support.
Anyway, broadening out to look at all about costs, specifically, all procurement costs and and and other call. So we're going to up so we're looking wider and it's hard it's very hard to give before you close the merger to give yes.
Synergies on.
Some of the cost that you do actually are unable to look at before the merger closes and so now we've had six months were able to go back and say you know that's more opportunity here.
And so we'll be.
Giving an announcement on it for the end of year.
And one thing I'll just add just briefly is the fact that were already 115 million in effectively two quarters into into the combination and really that's not even two full quarters, because we closed on April 11th.
That that also gives gives us a lot of confidence one in the synergy target into the ability to increase that target based on the factors Tom just discussed.
Makes sense thanks, guys.
Your next question is from Cole Sullivan with Wells Fargo. Please go ahead.
Hi, Thanks for taking the question.
On the the Threeq you Opex you guys bead from both the synergies and kind of some deferred.
Our NIM in the quarter of Fourq guidance is obviously lower than I think the for 80 that was kind of implied I'm on the last call. How do we how do we think about the kind of moving parts or is it mostly.
Is it mostly synergies that's kind of coming in in the fourth quarter.
Or is there some potentially some other deferrals or something that's going on there as well.
Oh sure call all I'll address that no I think the biggest piece is really there's the there's there's just flip fewer operating days, particularly for floaters. We have we have several floaters that are coming down I mentioned the 5006. The D. P. S. One the D. S 15, D.S. for a and really we.
We're going to be able to just.
Ah reduce the cost on those rigs in energy and other rigs as we.
As we move between contracts, but it is you know as Tom highlighted on us you're picking up the theme between between the two of US I mean, we are very focused on just managing costs aggressively when one where between contracts in any way that we've been able to continue to look for opportunities to reduce cost over the last three not since the last last earning.
This call and I think what you're seeing there is a reflection of that I think the activity is largely.
Inline with where we are seeing things last quarter, you know, it's probably a a touch better but it's it's really just effect a matter of really.
Focusing it on cost and where weekend or where we can be more efficient.
And as we think about as we kinda enter into 2020.
With wherever you kind of exit on a cost side and in Fourq here I know, there's a lot of moving parts with rigs some rates, maybe going back to work and one Q is there any.
Kind of based cost level that we can kind of think about before we start to include utilization changes and that sort of thing.
Yeah, I called out we're not going to guide any further into 2020, yet where we're actually going through our budgeting process now real time, and ER and I would I would look to to more guidance on Q1, and and full year any other expectations. We had said afterward, we're done with our.
Budgeting process that a that we're right in the middle of.
Alright, thanks, So I'll turn it back.
The next question is from Sean Meakim with JP Morgan. Please go ahead.
Thank you Hey, guys.
Thanks, Sean good long shot.
So on the on your floater fleet does your current balance sheet position restrict you <unk> restrict you from any opportunities in terms of.
Capital upgrades that could be necessary for certain jobs. How do you think about that for proportions of your sleeper that could be applicable.
I I don't think it does no there's no restrictions as it relates to capital upgrades.
Okay fair enough and I was hoping to touch on Aero as well you're going to see the progress in the near term results, but as we think longer term how would you frame.
The probability distribution of.
First new build deliveries and.
The key milestones that you're focused on between here and there too to stay on track.
Yes, no. Thanks for the question. So wondering if you know as you as you know, it's one of our big parties for the company. So I feel very good about the when you build program at Arrow drives up the yes, obviously, we set up arrow before.
The Oh, Yeah, My joint venture was set up and Weve, you know and so I am I is now fully set up it has you know it's been set up.
At some point, we're working very closely with diamond the announcements, which are highlighted which between because there when I see and I am all I Oh on rig design is a really good warm. So you know obviously to up the shipyard in rats out here in a in in Saudi Arabia is still under construction.
Actually a group and felt that recently and Ah you know I'll probably visited in December but.
They've given some a realistic timelines for that link to that you ought to start to be ready to cut steel and yeah. We were you know I am all I good still MSC, an arrow working hard on the on the on the W. build design, Phil I feel I feel good about it and and nobody.
So again, it's important to us.
But it's also very important hours. It say, it's a part of the you know a vision 2030 plan to Saudi Arabia, So I feel I feel good about it and you know overall, but that the fleet in Saudi Arabia, you know, there's some good assets that could you assets in the fleet in Saudi but they're all older.
That's but that will need to be replaced.
In the meantime, as I mentioned in my comments there is possibility all of our the you know construction.
The <unk> accessing other opportunities for rigs but.
Nothing is being decides on that I feel very good about the.
The new build program full arrow.
On the timeline for the holiday Michael.
Hi, Thanks, a lot Tom.
Sure. Thank you very much.
Your next question is some Kurt Hallead with RBC. Please go ahead.
Hey, good morning.
Good morning, they want a great hey lot of great color. Appreciate all that all that info I think Tom you did you did offer up or you know a perspective here on perspective or looking at the aerodynamic in and trying to figure out ways to kind of I guess maximize the financial leverage kinda back to a valero.
Right.
You know beyond just you know the dynamics around the note payable what other things could be possible.
You know in terms of potentially accelerating some cash you're getting some cash out of that JV and in at your hands.
Well [laughter] <unk> as I mentioned, some central its oh, it's a it's an important it's important thought subjects well what I. What I would say is cuts is that that's a you know we all obviously paying down the newbuild program and having more understanding of why not.
It's going to start and the rig cost as being key.
And you know there have been some delays because the shipyard has been a little bit Tonight I wouldn't say delayed its just its projections that we had the frontend before they start construction.
Have basically clarified.
So when I think about I wrote.
It is it is obviously, it's Jordan highlighted and you'll see an off Q. The its current asset saw increasing.
So there is you know as we move forward with more flexibility over time, we just need to pin down a little bit more of a new build program and all or.
<unk> program in the new build price.
Right now, it's John highlighted aloe doesn't have any external debt and yeah, we're working on.
The steps that you would do with any companies such as putting them in credit facility and Ah you potentially.
I'm, putting in more permanent changing out covenant debt, but there's no not basically I I went when do we know more current we'll certainly yeah, I love, you and give a bit more color to it.
Okay appreciate that and just at a Eddie curiosity, a and John again, a reference that EBITDA in 2020 will be higher than what it was in 2019 I appreciate that Directionally dynamic I just wanted to make sure recalibrating off the right a starting point on 2019, so given that you've already provided fourth quarter.
Guidance, what what does the baseline of EBITDA that that we should be looking off to build on on on 19 and for your basis, just I know because the merger dynamics just kind of make it you're on the same page on on that EBITDA number.
Okay.
Sure sure Curt well, we guided to Q4 of a 25 million of EBITDA was was the guidance and to date, we've accrued here I would say that puts us roughly around 155 million of EBITDA for the full year basis on that on that a 25 million got into Q4.
Okay, all right. Thanks for that clarity I appreciate it.
Your next question excuse me. The next question is from Taylor researcher with Tudor Pickering Holt. Please go ahead.
Hey, Thank you wanted to circle back on the capital structure, clearly a opportunities there to raise additional secured debt and on certain out any metric on gross asset value, but on the other hand at least on the floater side. The there really isn't any long term contract backlog and so it John .
Curious if you could give us your thoughts on what the market is today for raising secured debt against you know a rig by itself versus a rig with a long term contract on the other side of it.
Oh sure trailer Yeah. We've you know the the defeat characteristics you a you call out or are are generally true right. Most no secured debt. If you have some cash flowing assets across or some backlog are typically easier to use to secure against on on a like for.
Like basis, you know again I'll just point to the fact that you know today, we have 79 rigs.
Which none of them their secured and with the gross asset value of $10 billion. If we wanted to and I'm just using I'm rounding for simplicity. The range I quoted before was is the range that we see in analyst estimates, but on that basis. You know ultimately then if you don't have cash flowing assets.
People look at asset value, an underlying kind of steel, which is why reference to gross asset value and then if you. If you kind of sub sub segment our asset class.
There are certain asset classes that are cash flowing assets or an asset classes, they have longer backlog in duration than others.
The drillships.
Part of our business is probably one of the probably stronger asset class valuations on an asset basis, certainly certainly on replacement cost.
But then you look at some of the other parts of business and Tom Tom highlighted some of the strength in yeah, particularly around just a look at the North Sea jacket business. So those businesses has probably higher cash flowing on a margin basis, and and probably more duration to the contracts, but we have that we have a mix in the fleet and so.
We would but across a across all those characteristics, we have plenty of assets and Castro profiles.
That would shoot 'em a variety of different secured secured investors.
Okay understood I wanted to follow up on a topic that I don't think I heard in prepared remarks, which is the 20 K.P. OSI opportunity set moving forward, obviously only there's there's only one rig in the market with that type of or soon to be in the market that type of capability, but there's more than one opportunity incremental opportunity on the horizon and those are likely to.
To go to upgraded rigs that are still new builds in the shipyard <unk> of which you have to is that the 20 K P. S I opportunities that's something that.
You're thinking about are pursuing moving forward.
Yeah, we do see a reasonable level of customer interest in 20 quite K work in the U.S. Gulf of Mexico, Mexico, I mean, it if it's always going to be a niche market in that in this game of well at least at the short time, it'll be a niche market short and medium seven it'd be a niche markets in the in the scheme of federal flux market.
What we would consider upgrading one of our assets, perhaps the T.S. 13, multi us a 14 to be capable of Oh, probably PK work. If we felt that it would achieve a a good retina on yet any capital invested in it so yeah, but in general you know anytime.
Total investments you know what's your favorite good return, we would suddenly instead of it and you know you know as far as.
You know drilling wells with.
20 Kay.
The other piece.
You know to this point I believe philosophy and company have gone back although it's being on the Jackup sites. So we have drilled I tried to take a full and jackup side than we would certainly.
Be interested in doing it's on the on the.
On the on the floating side if it was a good return on capital.
Awesome, Thanks for the responses.
Thank you.
Your next question is from Mike Sabella with Bank of America. Please go ahead.
Hey, good morning, everyone.
Hey, Brian maybe if we could circle back to Arrow and I don't know in the past you guys had said the the Valeros Jakob said operate outside of the JV. We should just assume they continue to operate independently kind of given the update on the manufacturing facilities. There is there any room for that study to change at all and can you kind of walk us through.
How both you and the JV partner view, you know that sort of transaction.
So I I think that's yeah, obviously that we have some jackups watching in in.
We have we have jackups in fact, there were offset by Rob Jackups in Saudi Arabia, which we are in hot fault, because we're a 50% arena.
Not really trailing they're all jackups in Saudi which we own 100% fault and they all leased to arrow drilling and they're all jackups, which we which are operating outside of our drilling in Saudi and you know we will have to see how things pan.
Over time, but you know the <unk> the largest jackups in Saudi will Oh, well operating outside of our drilling will suddenly finish that that Collin contracts I'm, what happens to them off the that will you know well we will tell you.
When we sign new contracts, but you know they was the carpet comfortable rigs that on contract that.
Well certainly Ah finished that current contracts as part of Dolores.
Okay. That's helpful. Yeah. That's helpful. And then just real quick we can kinda talk on technology is Apache discussing the advancements you guys have made on the rigs.
Can you comment a little on the success you've had getting paid for those investments and are you still making incremental investments in technology or is that mainly stop.
Hi, how are Ya, it's that's quite quite a I'm, giving up the <unk>. It's a [laughter] excuse me I mean, the question, which we could probably talk about for some time I would say that you know generally we are you know we are very focused fall on you know driving value and everything we do.
And I'll give you. An example effect from technologies why you know, we think that we have being paid for.
And you know that certainly I'll focus so you know valores has some.
Very you know what we believe advanced technology helps us move drilling rigs well be instrument. The jackups its patented and Oh it allows us to move Jackups and.
To be guy to be very precise about Walt.
Conditions, we were able to move off Jackups phase and even use that technology in certain markets in the world and we believe that we have been able to get outsized Opexa day rates, because we have that technology because the customers believe we book will be able to <unk> while rigs.
Well at least we believe grabs the group all rigs when others want so that would be a good example of technology, we've invested in where we are able to gain a.
A a an advantage in contracting or at least we believe we have an advantage and contracting.
So certainly there are opportunities another one would be what we've done with all maintenance system. We have a an advanced maintenance system, which helps us manage our costs and drive down all costs and be efficient in all in all maintenance.
Certainly not doing too little bit also set not certainly not doing too much and so no the customers not paying us for that what we do believe it's an example of something where we would you saw costs. So we would certainly be looking at back you know you know all we you know.
Our appetite at this point of the cycles to do so to do heavy capital investments in new projects. It is limited unless we get paid for it.
That's really helpful. Thanks, a lot guys.
Thanks, Mike Thank you Mike.
Well no further questions I would like to turn the conference back over to Nick towards just for any closing remarks.
Thanks, Gary and thank you to everyone on the call for your interest in Belarus, We look forward to speaking with you again, when we report full year and fourth quarter 2019 results have a great rest of your day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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