Q3 2019 Earnings Call
After the speakers presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to handle the conference over to your speaker today, just Chastain Vice President of Investor Relations. Please go ahead.
Okay. Thank you can see and welcome everyone to noble corporations third quarter 2019 earnings call. We appreciate your interest in the company and in case you missed it I know a copy of Noble's earnings report issued last evening, along with the supporting statements and schedules can be found on the noble website, That's noble Corp Dot com.
Before I turn the call over to Julie I'd like to remind everyone that we may make statements about our operations opportunities.
Plans operational or financial performance, the drilling business or other matters that are not historical facts that are forward looking statements that are subject to certain risks and uncertainties.
Could differ materially from these forward looking statements and noble does not assume any obligation to update the these statements.
Also note, we will be referencing non-GAAP financial measures in the call today, you will find the required supplemental disclosure for these matters. These measures, including the most currently comparable GAAP measure and an associated reconciliation on our website.
And finally, consistent what our quarterly disclosure practices. Once our Paul has concluded we will post our to our website a summary of the financial guidance covered on today's call and that will provide guidance on our fourth quarter and full year 2019.
With that I'll now turn the call over to Julie Robertson, Chairman, President and Chief Executive of Noble.
Thank you drew.
Good morning, welcome to <unk>, No Corporation's third quarter 2019 results along with the updated view of the offshore drilling industry. We appreciate your participation on today's call and your continued interest and noble.
Then overview, our third quarter financial performance provide financial guidance for the fourth quarter and full year 2019, and finally, well provide a discussion on the global offshore industry and address opportunities for the noble sleep after which I'll provide some closing thoughts and then we won't be happy to address your question.
Joining me on the call today as we cover these topics as Laura Campbell, Our Vice President Controller, who will provide the financial report also participating as Craig Your head, our vice President Treasurer, and both will be available to respond to any questions you might have.
Meanwhile, we are continuing or search for chief financial officer, and hope to complete that process in the near future.
After Laura Robert I flourish senior Vice President commercial will cover the marketing discussion.
Well activity levels remain encouraging the upper trajectory since seen since early 2018 in several of our quarterly measures, including fleet utilization revenues and EBITDA slowed a bit in the third quarter as we manage to combination rig mobilizations shipyard in contract preparation projects and scheduled Ridley.
20 work.
These events, which involved three floating units into Jackup contributed to a 6% decline in third quarter fleet operating days and revenues.
Lord will provide more detail in her financial discussion.
More importantly, these rig mobilizations and projects have concluded we'll conclude very shortly.
The Jackup noble Scott marks, which completed a schedule regulatory program returned to location offshore Saudi Arabia in late September .
The noble Houston Colbert again, its do assignment in the UK North Sea on October 28 the.
The drillship noble Globetrotter to return to school operating day rate in early October following the rigs relocation to the U.S. Gulf of Mexico, and a brief shipyard <unk> project.
The drillship noble Sam Croft completed the mobilization to certain am in late September where the rig commenced a project that was recently increased two or three well program up from one will and this increased project scope should keep the rig employed into March 2020.
I want to recognize and thank our engineering technical support Marine original operations teams for the safe and successful execution of these numerous projects.
Oh, so over the third quarter and since its close we continue to secure additional days under contract <unk> contract as evidenced by several contract extension a new contract award for our Jackup fleet.
Robert will have more to say on these achievements, including details on the news noble Regina Allen contracts in a moment.
With the phone comment on the quarter I want to address developments with our customer show as they relate to the bully too and shells, 50% interest in the two joint ventures that own and operate the ball, we want im going to drillship.
We have been in discussions with shell with respect to the drilling contract they have with a bully two joint venture which runs through April 2022.
The discussions which are at an event stage contemplate a transaction whereby shelby buy out the remaining term with the drilling contract with a joint venture and noble would acquire shelf interest in a bully too, but we won joint ventures.
Importantly, if we conclude the transaction, which we believe is likely double warsi the pay out of the chair of the drilling contract and be free to market the bully too.
Given the affected the advanced stages of the negotiations we recognized bros. Impairment on the bully too in the third quarter of 596 million or 331 million net of non controlling interest.
We would expect received the lump sum payment in the fourth quarter this year.
As noted we have not yet on lots of definitive documents. It will provide an update when discussions conclude Robert will provide further background on the discussions in his remarks.
I'm pleased to have found a mutually beneficial path for noble and shale in regard to the joint venture, which we have been operating together for almost 10 years.
I'll now turn the call over to last for the financial review.
Thank you Julie and good morning to everyone I'm happy to provide a review of our third quarter financial performance.
From an operating point of view, a favorable outcome for both revenues and operating costs led to better than expected third quarter EBITDA and loss per share.
<unk> for some insight on revenues and cost and review our capital expenditures and liquidity before I provide our thoughts on full year and fourth quarter 2019 guidance.
Yep noble bully too, which has been idle since April of 2017.
As Julie mentioned, the impairment decision, resulting from discussions with our customer.
Excluding the portion of the impairment charge attributable to our partner and captured in the non controlling interest line of our piano noble recognized the net charge of 331 million dollar 33 per diluted share.
When the charges excluded from our reported results noble would have reported a third quarter net loss attributable to the company of 114 million or 46 cents per diluted share.
Contract drilling services revenues and the third quarter total 259 million compared to revenues of 275 million in the second quarter. The 6% decline is due to fewer fleet operating days and the third quarter, what planned out of service periods on the noble Don Taylor and the noble Houston Colbert as both rigs.
Prepared for the commencement of new contracts.
Also the noble Scott Mart Dol fewer operating days due to scheduled regulatory inspection.
Finally, the noble globetrotter to experience, while were lower daily revenues and the quarter. Following the utilization of our MPV system during the second quarter.
Contract drilling services revenues were slightly better than our guided range of 245 million to 255 million due primarily to the noble Dod Taylor and the noble Sam Croft remaining under contract for a longer than expected period in the quarter before commencing preparations for the relocation to new region.
Contract drilling costs in the third quarter totaled 176 million compared to costs in the second quarter of 169 million.
The 4% increase was due in part to higher operating expenses on the noble Joe night as the rig approach the commencement of its initial contract in Saudi Arabia.
The three year contract comments on April October 20 seconds.
Also the noble Don Taylor, and noble Houston, Colbert incurred higher cost as both rigs prepare for new contracts.
We expect at an earlier startup and was realized on the noble Joe Night, and this outcome together with a delay and timing of expenditures contributed to our contract drilling services cost, finishing the third quarter seven <unk> better than our expectation.
Third quarter EBITDA before the noncash impairment charge totaled 68 million, reflecting the better than expected.
Right growing services revenues and cost.
Net cash used in operating activities increased approximately 25 million from June thirtyth.
This is primarily attributable to a refundable D.A.T. payment made in connection with the importation of the noble Houston Colbert and we expect to receive a full refund for this amount by the end of the first quarter of 2020.
Capital expenditures for the third quarter totaled 57 million, including 22 million of sustaining capital.
33 million related to major projects, which included rig reactivations and the purchase a sub sea capital spares and two Mariana capitalize interest.
Through September Thirtyth, 2019th capital expenditures totaled 204 million, excluding the 54 million seller finance portion of the noble Joe Night purchase price and was comprised of the following spending categories.
56 million, a sustaining capital 139 million related to major projects, including rig Reactivations and the purchase of sub sea control fair and 9 million of capitalized interest.
We concluded the third quarter with cash cash equivalents at 136 million and total liquidity representing cash cost availability under our credit facility of 1.2 billion.
Note that my guidance for the fourth quarter and full year 2019 excludes the impact of a potential lump sum settlement, resulting from shells termination of the drilling contract and does not include any fourth quarter day rate revenue for the noble bully too.
Contract drilling services revenues for 2019 are now expected to range from 1.05 billion to 1.06 billion compared to our previous range of 1.07 billion to 1.09 billion.
The downward adjustment is due largely to the anticipated loss of contract day rate revenues from the noble bully too and this guidance does not contemplate any potential lump sum settlement for the bully too [noise].
Revenues in 2019 from quiet Reimbursables are ribeye, hi, or to a range of 55 million to 65 million compared to our previous range of 45 million to 55 million with the adjustment driven by various client request and modifications and services.
In the fourth quarter of 2019 contract drilling services revenues are expected to range from 245 million to 255 million compared to 259 million in the third quarter of two 2009.
Again, the protected decline in revenues is driven in part by the expected termination of the noble bully to contract with shell and excludes any potential lump sum settlement and its partially offset by an expected improvement and fleet operating days and a modest rise an average daily revenues.
The rig is expected to commence its drilling excitement on November 5th.
Also the noble Joe Night is expected to contribute operating days following the commencement of its contract in October .
Revenues from client Reimbursables are expected to be in a range of 14 million 16 million in the fourth quarter.
Contract drilling services cost for 2019 or lower to a range of 700 million to 710 million or my previous range of 710 million to 725 million due in part to lower repair and maintenance expenses and the timing of certain expenditures.
[noise] cost associated with client Reimbursables for 2019 are now expected to range from 45 million to 55 million up from my previous range of 35 million to 45 million.
For the fourth quarter 2019 contract drilling services cost are expected to range between 182 million at 188 million compared to actual results of 176 million in the third quarter of 29.
The higher cost are due to the startup of operations on the noble Joe night as well as rates return into service following out of service period.
Cost associated with client Reimbursables and the fourth quarter are expected to range from 10 million to 13 million.
Did I guidance for 2019 as being lower to a range of 439 million to 444 million compared to previous range of 445 million to 460 million.
The reduction follows the third quarter impairment of the noble bully too.
S DNA expense guidance for 2019, including the 100 million dollar charge recognized in the second quarter and associated with it Paragon litigation is expected to range from 66 million to 69 million with a range of guidance for the fourth quarter of 16 million to 19 million.
This compares to actual expense in the third quarter of 18 million.
Interest expense now to capitalized interest for 2019 is unchanged with a range of 276 million to 280 million well capitalized interest for the year is expected to total 9 million.
Interest expense for the fourth quarter is expected to range from 68 million to 72 million, which is comparable to interest expense in the third quarter of 69 million.
After the commencement of operations on the noble Joe Night, there will be no further capitalization of interest.
65 million, which represents a portion of the noble bully to impairment attributable to our joint venture partner.
[noise] for the fourth quarter, we expect from non controlling interest of 1 million to 3 million before any impact from the potential contract settlement, while the third quarter actual.
129 million for major projects, including Reactivations and sub sea spares.
30 million related to the purchase of the noble Joe Night, and 9 million related to capitalized interest.
With our capital program is largely complete on the novel Johnny went sign and the noble Joe Knight capital expenditures for the fourth quarter are expected to decline to 45 million compared to 57 million in the third quarter.
Fourth quarter estimate consists of 26 million of sustaining capital and 19 million for major projects.
[noise] finally, following the impairment charge on the noble bully to our full year 2019 affective tax benefit is now expected this title and the mid single digit with the eventual outcome highly influenced by the geographical mix of revenue.
Estimated cash taxes to be paid in 2019 remain at 20 million and relate entirely to our international operation.
In conclusion, the third quarter reflected a period of transition.
A portion of the operating days last year and these activities should return in the fourth quarter drive an estimated 7% to 8% improvement in operating days when compared to the third quarter and adjusting for the removal of the noble bully too.
Also adjusted EBITDA remains on pace to approached 300 million for the year.
Even excluding I potential cash settlement related to the bully to contract.
Well I estimated capital expenditures for the fourth quarter, a 45 million represent the lowest quarterly total and 29 team.
Although our evaluation is ongoing and we plan on providing full year 2020 guidance and our fourth quarter earnings call a reduction in capital expenditures as expected to continue with a current expectation of 150 million for the full year a 2020.
I'll now turn the call older Robert for a discussion on the offshore drilling environment.
[laughter]. Thank you Laura good morning, and welcome to everyone on the call.
For example, when comparing the active contracted utilization at the end of September 29 team to the same measure at the close of 2018.
The industry's Jackup fleet stood at 85% compared to 79% last December driven by a 10% increase in the contracted rig count.
Among the industry's floating fleet the measure was 80% in September compared to 75% as the year began with an 8% increase in the contracted rig count.
In addition contract durations are getting longer according to IMS Hs data the average duration tendered for floating rigs has increased to nearly 11 months in September from just over eight months in January this year.
The progress is more pronounced for the industry's premium rig fleet.
The active contracted utilization of premium Jackups, which represent 46 units with high specification features has remained at 100% over the period.
And this improvement has led to a noticeably better commercial environment.
Given the clear preference among many customers a fully committed supply. These high specification drillships is increasingly likely in 2020.
Growing list of exploration and production companies are working to gain access to promising deepwater basins or build already prominent positions in these patients. Many of these target areas reside in the western Hemisphere and include locations offshore, Brazil, Guyana, Suriname, Trinidad and Tobago in Mexico, and we are witnessing an acceleration of cost.
From activity in each of these regions.
Also during the third quarter further offshore properties with many representing legacy production to mature basins, where it were identified for Doug divestment by the current owners. This activity continues a highly favorable trend that eventually places ownership of these properties into the hands of motivated active parties.
This trend has consistently led to incremental jackup in floating rig requirements and regions such as the North Sea Asia and Australia.
I also want to comment on rig attrition.
Which remains an essential catalyst in support of long term industry improvement and is inevitable in our view.
[noise] since late 2014.
Total 132 floating rigs have been retired from service, including nine reported retirements, thus far in 2019.
And this reduction in supply of approximately 40% so far is likely to continue.
40, floaters were 27 semis in 13, Drillships remain cold stacked with 14 of these units being 20 years old or older.
Given this dynamic any customers general preference for high specification floaters, we do expect attrition to continue and be a meaningful part of the recovery story.
Among all 13 Jackups all are currently working in each rig is committed well into the first half of 2020 or beyond.
The current contract coverage reflects the recent extensions for three Jack ups that duly noted earlier.
We currently have contract rollovers during the first half 2020.
Unfortunately helps in the North sea one in the Middle East enrolling in Canada.
In the UK, we are evaluating opportunities for the noble Sam Turner Noble Houston, Colbert Noble, Sam Hartley and noble Honda stool.
Opportunities for both long and short term contract durations are under review.
Although the region remains attractive for Jack ups with 100% utilization of the active premium fleet.
Some rigs could experience inconsistent utilization in 2020, as we transition between operating assignments.
In the Middle East offshore Qatar, we continue to evaluate opportunities for the noble Mick O'brien that are expected to follow the recently awarded six month extension, including several multiyear prospects.
The standard duty Jackup noble Joe Bell, which is operating offshore Saudi Arabia is expected to complete its current drilling assignment in December after which we don't anticipate continuing to operate or market the rig.
Lastly, as Julie mentioned previously the noble Regina Allen was awarded a contract for operations offshore Trinidad and Tobago with a minimum duration of 160 days in a rate of $120000 per day.
The contract is expected to commence following the completion of the rigs current commitments offshore Eastern Canada in a short shipyard program.
Among the seven working floating units the drillship noble Sam Croft and Semisubmersible Noble Clyde Boudreaux are expected to conclude their current contracts before mid 2020.
We believe the noble Sam Croft has exceptional opportunities, including emerging needs in the guy on a certain M. basin, where the rig is currently deployed.
Our recent too well extension should keep the rig under contract offshore Suriname into March 2020.
The noble Clyde Boudreaux, which is equipped with an advanced conventional more in configuration is expected to conclude work offshore Myanmar in May 2020, Threeg is evaluating several opportunities in the Asia Pacific region, including Australia.
Julie noted that we are in advance discussions with shell with respect to that bully joint ventures.
Because we're not quite finished we cannot go into the economics, However, I would like to provide some color as.
As disclosed the transaction would involve shell buying out the drilling contract with the joint venture in a lump sum and we would receive our 50% share of that amount.
The drilling contract de weight day rate with the bully two joint venture consisted of a $200000 per day margin on top of already operating costs.
And you can assume that a payout would be focused on the present value of that margin.
Please keep in mind that our backlog reflected the full day rate as we've explained in our backlog information.
The transaction also involves noble acquiring shells interest in the joint ventures, which would be for a nominal amount.
This transaction, we will be able to search for work outside the structure of the joint venture and are currently pursuing opportunities for the Billy to while the bully one will remain cold stacked.
We're pleased to be reaching a mutually beneficial outcome with an important client you consider this another example of the strong relationship between our companies.
Finally, the warm stacked semisubmersible noble Paul Romano remains under consideration for programs with an expected 2020 commencement.
The board market remains relatively tight and we're marketing the rig into several opportunities appropriate for the rig design capability.
I'll now provide some regional observations beginning with the western hemisphere.
The U.S. Gulf of Mexico saw an increase in activity over the third quarter and utilization of the active deepwater fleet continued its upward trajectory and now sits at over 96% of the active marketed fleet.
Several operators are evaluating the rig needs for 2020, and we anticipate a number of announcements in the upcoming weeks.
As this demand is predominantly shorter term in nature, we do not anticipate any major reactivations or an excessive number of rigs entering the region.
Day rates have been increasing and are expected to continue as available capacity remains constrained.
In Mexico, Tendering has improved with both Pemex and multiple iOS, he's looking for 2020 rig capacity.
Well the iOS see program terms are relatively short these programs should reduce the capacity imbalance and support day rates and we see the beginning of an important transition into development drilling in the coming years, which will drive additional demand.
Activity levels in South America are improving driven namely by Petrobras in Brazil significant tendering activity has occurred in the past three months Petrobras has steadily added rigs under its pool Tinder and recently released a 3000 meter tender seemingly poised to quickly increase its fleet size from an historic low of 11 floaters to over.
20 floaters.
Additionally, numerous iOS either currently tendering for pre salt projects in Brazil, with several indicating they will add rigs in the near term.
The recently completed 16th post Salt bid round had a high level of participation from both Petrobras and iOS sees and 13 companies have been qualified to participate in the six pre salt bid rounds scheduled for November seven.
Continued exploration success in Guyana is driving strong interest in the basin with several iOS season independence tendering for a combination of Jackups and floaters to be deployed for exploration activity in the region.
Similarly, additional activity offshore Trinidad and Tobago for both Jackups and floating units round out what has become an opportunity rich region of the western hemisphere.
In the eastern Hemisphere tendering activity in the North Sea has remained healthy throughout the year end was up significantly compared to a year ago. The majority of tenders remain short in duration with this pattern expected to hold into 2020. However, three tenders covering longer terms are pending award while others are expected to be tendered in the near future.
The middle East Jackup demand continue to robust pace in the third quarter with more than 39 rig years awarded up from 24 years awarded the previous quarter.
Demand growth in the region is expected to continue through the conclusion of the year in possibly beyond supporting modest day rate appreciation as active utilization crosses 86%.
In West Africa, Jackup in floating rig demand was flat through the third quarter with significant idle Jack up and floating rig capacity in the region. We currently expect only a modest improvement in 2020 demand for both Jackups and floaters.
However, it should be noted that there are several long term opportunities outstanding and the average duration for floater tenders in the continent has increased by 20% since January of this year.
Finally tender activity in the far East know, she and I continue to increase through the third quarter.
Fleet utilization remains on an upward trend with nearly 80% of Jack ups in the region now utilized which should support future day rate improvement.
New contract awards were up from the second quarter with 30 fixtures announced in the quarter. Excluding Chinese awards comprised of 24 Jackup in six floater fixtures program duration associated with new tenders is lengthening.
The award a significant term opportunities pending in southeast Asia, and Australia, New Zealand.
To summarize steady turn of operators.
Turn of operators to the offshore sector continues driving positive implications for industry activity in day rates.
Sanctioning is on pace to improve for the third year running.
On a return to offshore exploration is more obvious today than at any time over the past four years.
An increasing number of offshore basins possessing exceptional resource potential in compelling access or capturing the attention of operators, while driving future demand for high specification rigs.
Utilized utilization and day rates are improving while average contract durations are lengthening and noble continues to benefit from these encouraging industry trends over the next 12 months ending September 2020, almost 70% of the available days associated with our Jackup fleet, our contracted with 57% of the floating dates contracted.
More importantly, as the pace of recovery accelerates, we expect our forward contract coverage to expand.
[noise]. Thank you Robert as we approach the end of 29 team. It is hard to dispute the fundamental progress achieved to date in offshore drilling industry.
The utilization metrics presented by Robert and numerous other indicators in support of our customers growing offshore exploration and development properties bode well for future activity.
With 95% of the active fleet under contract Noble's fleet utilization has remained.
Wide utilization measures.
Strong operations execution and commitments outstanding safety performance across our fleet of largely premium designed rigs is a significant contributor to our success.
Also we have advantageous repositioned our fleet in regions, where we can readily matched the technical sophistication of our fleet with our customers increasingly complicated wealth construction project.
At the same time, we remain focused on identifying regions with emerging customer interest in long term disability.
On the latter point, there's currently no better example than the Guy honest surname basin or noble has been providing drilling services early 2018, initially with the noble Bob Douglas.
With the recent relocation of the noble Sam Croft and the local Don Tyler, We now have for ultra deepwater drillships assigned to the region, which is arguably the most prolific offshore opportunity in our industry with prospects for multiple years of exploration and development activity.
As a regions resource estimates increase following the confirmation of numerous successful exploration efforts customer interest continues to build an incremental rig needs covering both shallow and ultra deepwater requirements or increasingly likely.
We continue to evaluate ways in which you know can grow its presence in this attractive offshore basis.
From a financial standpoint, we've improved our position under our credit facility. Following a well timed amendment and we continue to possess attractive flexibility is when evaluating alternatives to further man debt maturities.
In regard to operations, we have maintained exceptional performance our fleet uptime through September at just under 97% and we added two new jackups to deplete each with multiyear contracts, putting us on track to grow fleet operating days for full year 2019 by 18% over the prior year.
By taking the steps necessary to fortify our already strong global fleet position, we've improved our prospects for additional growth in the future.
All of these financial and operational accomplishments leave noble better positioned as we prepare for 2020.
As we approach the end of two 2019 I'm proud of what we have achieved during the year and as always I want to recognize and thank the employees had no continue to provide superior service to our customers an unwavering dedication to our company.
That will turn it over to Jeff.
Okay. Thank you Julie Kenzie, we're going to go ahead and began the Q in a segment of the call. So if you'd please if you please identify the.
Actual person in the queue. Thank you.
Certainly our first question comes from the line of Kurt Hallead with RBC. Your line is open.
Hey, good morning.
Good morning cart.
Sorry about that fell a little bit of cold here.
Thanks for that thanks for that update appreciate the color so.
Julie I just want to get to see if you guys get a general sense that some recent discussions with some other companies have already reported.
That kind of baked a kind of future day rates for ultra deepwater rigs.
Somewhere in the vicinity of a 170 to $250000 today for contracts had to get started in 2020.
Just want to get your perspective around that range and.
See if there's a potential for that to be a at the upper end or you know so we're in the middle.
We don't disagree with that at all hurt a we think that you know we think obviously day rates are moving up two of US we're not disclosing right. So I hope, that's putting pressures and others to to maintain discipline and we think the upper end of that is readily achievable in that time period.
Okay. Appreciate that now when you are going through the process here of the the acquisition of the bully joint venture I was wondering can you give us some ideas when do you think the bully to might get back on day rate.
We don't have any estimate right now, but as you as Robert noted that we all know that think at our script show. This does give us flexibility to market the rig more more widely yeah. We think there we definitely think that there are opportunities for the Hewlett So Robert his team are focused on.
Finally, marking it as we speak and we'll see what what comes out but we don't have anything right now for but we are very helpful.
Okay. Thanks for the color.
Thank you Kurt.
Thank you.
Your next question comes from the line up Sean Meakim with JP Morgan Your line is open.
Thank you good morning.
Morning, Sean.
So Julie the transaction with shell makes sense and I think you take cash now and I. Suppose. This gives you optionality on the Billy to so hard to see the downside.
Taking these steps from your perspective, assuming you get your you're getting me hole in the contract as you laid out can you talk about your confidence is getting work for the bully to next year and if you're unsuccessful could we maybe just talk about the impact to cash flow.
As it relates to your desire to get to free cash flow neutrality by the end of 2020.
Sean.
We just said the prospects we believe are getting would drop for the Billy to reveal obviously increase because we're able to market it more broadly.
We don't have anything yet, but we remain optimistic so were you know, we're just now being able to market. It more broadly so give us a little time to see what's out there and see where the applicability for that unit will be but it's a it's a good unit with a lot of operating efficiency capabilities and we think there you know we think that has a lot of lot of opportunity ahead for it.
In regard to free cash flow positive body and 2020, obviously with this being removed from.
You know for me divestments, we don't know what will be replaced but you know that is going to be a lofty goal. At this point, we think that would probably be pushed out. We I think I've always said, we would hopefully reach that point by the end of 20 really moving into 2021 going forward, obviously, it's still our goal.
That tightens, but we we remain in a in and focusing on that as our as our goal going forward. Obviously speakers for positive we agreed to deal with shell was a good deal. We were glad that we could reach a deal that was good for both sides and one that they're satisfied with the we're satisfied with because they're an important customer going forward and.
So we're anxious to get that completed and more details out about it.
Got it. Thank you for that's that's helpful.
And then the Capex budget for next year 150 million to maybe walk through the big buckets inside and then just maybe to flex points, depending on what the market gives you next year from an activity perspective.
The Capex budget for next year is about 150, which would be about 120 for sustaining and 30 for projects.
[noise].
How do you know what stability.
Go ahead.
Let's just say isn't it.
You can fluctuate around depending on what the market gives you next year there are there.
Levers that could drive that number up or down.
We don't see that going up Sean we feel very comfortable with that number right. Now if anything you know we think thats on the high end.
So that's what you're talking in terms of flexibility that's what we're anticipating as you know the the Capex for this year was high because of the projects. We had built into that the two she did 46. It so we're getting back down to a much more normal running rate in 2020.
Got it okay. Thank you very much thank you Sean.
Your next question comes from the line of Taylor's darker with Tudor Pickering Holt Your line is open.
Hey, good morning.
Good morning, Tyler.
I don't want to beat a dead horse in the ground, but for the the fully to now that your marketing, it's and two other operators beside shale. Obviously, you don't have worked for today, but.
Maybe talk about what sort of rig programs or regions that rig might be ideally suited for I know, it's a technically a section I'd floater, but the technical specifications on that are a little bit different than some of the other tier one assets out there. So just curious what side of what sort of work programs that rig might be ideally suited for moving forward.
Sure Taylor I'll take that will not.
We've said in the past.
The bully too is not as you mentioned not necessarily a tier one it does not have to be O piece, but it has an excellent performance history and it's currently located in southeast Asia, where there's a bit of a tightness in the dynamically positioned market at present. So we have a few different options there I see.
I think generally speaking and we said we're marketing at worldwide I think generally speaking we will be focused on kind of moderate term projects, we probably will not chase wild well projects with that rig today.
But as I mentioned in my script, there are a number of projects out there that would be suitable for the rig today and Morgan out we're going to see if we can't find anything we see the market tightening.
Significantly in the middle of next year, we see a very definite path to all of the tier one rigs.
Becoming fully utilized.
And I think that puts rigs like the bully two and other sixth generation rigs very much in play towards the middle of next year.
Okay got it for 2020, I know that rigs been warm stacked for for quite awhile now in the Capex guidance is there anything embedded in there for a bully too.
I guess the real question is is there any capex needed to bring that rig back to act of status on a contract next year.
I traveled there's not anything in the Capex budget for 2020 for the rig and you know we're lucky I look at what it would take but it's basically recertification issues that that would be included in that primarily the VLP, so let's say around $30 million.
Okay, great. Thanks, guys.
Thank you Tyler.
Your next question comes from the line of Greg Lewis with BT <unk>. Your line is open.
Yeah. Thank you and good morning, everybody good morning, Greg.
Robert I'm, just not a couple fleet questions for you.
I guess the first one is you mentioned potential opportunities and Australia I'm just looking at the Australian market do you see though you do you see the potential demand as more of an incremental.
Rig demand into that region or is it more just kind of getting in there I guess, maybe some of these existing contracts that are rolling all four.
I think that it is more I think incrementally there could be another jack up and there could be.
A replacement opportunity on the floating side I think incremental floating demand is more of a 21 2021 type of event there.
Okay, Great and then just on the you know Dion I mean, clearly you guys have done a great job you have four rigs down there.
Just trying to understand a little bit more about that based on I guess, if we throw in that other.
Competitor rig that that that'll have five rigs in that region. Robert just kind of curious as you think about 2000 and wanting and we'll even think I guess, maybe 2021 also.
Any thoughts around you know what that market could look like in terms of rig available.
Demand and then just I mean, you're down there, but you do have some some rigs rolling off maybe what that could mean around.
Getting specific elm theory to maybe incremental increase percentage increases to roots in that space.
Sure. So you know there have been I think 13 discoveries install brick block two discoveries outside of that.
And there are multiple exploration wells being drilled as we speak as well as a few other on on the program for 2020 there. So.
It is early days to determine what development drilling might what demand might be drip driven by development drilling.
But with the number of discoveries, we do expect incremental.
Rig demand I think.
I think we'll have to wait and see.
What that looks like kind of going into next year as as oil companies evaluate their discoveries and start to and start to shape up more firmly there additional exploration and development needs.
On the rate side I expect the the rigs that have been use down there largely seventh generation rigs and I expect the rates there to track with the seventh generation rigs elsewhere worldwide. The operating expense there is roughly similar to the U.S. Gulf of Mexico.
So maybe just a tick higher but but I think bill track very closely with the with the broader market of the tier one rigs.
Okay perfect <unk>. Thank you everybody for the time.
Thank you Greg.
Your next question comes from the line as Ian Macpherson with Simmons Your line is open.
Thanks, Good morning, everyone good quarter.
I Miss the the term duration on the new Regina Allen contract sorry.
160 days.
Thanks, Robert which would you characterize that as.
Incremental work or displacing a competitor and Trinidad.
I characterize that as incremental.
Okay. Good. So I was just taken aback really over the course of this year the increasing we observe you've been fully utilizing your jackups, but the rest of the high end market has been playing catch up and it seems like the entire high spec Jack up market.
His definitively tight today and so given that backdrop I wanted to ask about your appetite as you described mirror various opportunities for contracting this year on the Jack was growing over some shorter duration and some longer duration does the recent sort of more comprehensive tightening make you a little.
More averse to contracting long term at this point going into 2020 or do you think you still have to have a equal balance.
We've always show for balance I think you know we've been somewhat averse to longer term contracting now for almost 18 months.
Today.
We we would we would be fine I think taking a year contract I think beyond that kind of term, we and a number of others are likely to look for some sort of.
Day rate escalation or protection going out past that.
There aren't I hope there are some aren't a ton of projects that are.
Well over a year today, although there are few in the middle East and in a few others elsewhere.
So we look for a balance.
I think I think I'm getting out past two years is where we'd we'd start to think think a little bit about about how to structure that.
Okay that makes sense.
And then I just wanted to ask a follow up on the Paul Romano that reactivation opportunities.
On an out and it sounds like it's back in play now and I just wonder if.
If the reactivation parameters for that rig has.
Have swelled at all or if you still think its.
Really quick and an expensive to bring the Romano out and.
What type of contract structure would would trigger that for you.
So nothing's changed on the reactivation there I think we've guided two to eight to 10 million if anything it it'd be on the high end of that range.
And just a few months of of required.
Reactivation time.
That said.
We're not marketing that rig into short term opportunities I think given its capabilities in age and and the presence of a number of longer term opportunities out there right.
Right now we're focused on on opportunities that are more like a year and over and as I. Just mentioned there are several.
And the more market as you probably know more markets bit Titan I mentioned it in my comments. So there isn't a lot of availability out there and so far we're just we're just trying to match it up with the right job.
Good good stuff. Thank you.
Thank you Ian.
Your next question comes from the line of Mikes Abella with Bank of America. Your line is open.
Hey, good morning off.
Good morning, Mike.
I was hoping maybe we could we could talk little bit about the outlook on Lloyd noble could you give us an update on what you're hearing from a customer on the options that are on that rig.
Talk about how we should be thinking about that rig approaching the end of the existing contract.
Yes, So I think we've mentioned earlier the option has expired on that rig.
The in its unfortunately, Mike a little too early to speak definitively about the rig.
We are in discussions with the customer and as we've mentioned before the that rig is the only jackup in the world.
It can get on the Mariner platform, we do believe that they have continuing work on the platform, but we don't have anything secured for the rig today. So.
I mentioned, we're in discussions and we'll give you guys an update and just as soon as Theres something to talk about there.
Alright, Thanks, and then.
With respect to the capital structure can you just walk us through what the next steps are you all see in terms of menu the balance sheet and maybe comment on kind of what you see as current market market conditions for priority guaranteed or what we know whatever comes next.
Sure Mike Yeah, we basically think we have a very solid one way right now with 1.2 billion of liquidity at the end of this quarter the third quarter, a and as you know we have minimal debt service due until 2023.
You know our capex requirements remain low we have considerable exposure to increasing data. So we feel good about where youre on the business side of things.
But as you know with the limit to the revolver a few months ago, we have a great deal of flexibility in our current balance sheet and we're looking at a number of opportunities, but we don't really feeling the urgency do anything right now we're continuing to you know to evaluate everything that's available to us out there and.
Do the flexibility we have we think theres lot of opportunities, but we don't really have anything to discuss.
You definitively at this time.
Great. Thanks.
Thank you Mike.
Your next question comes from the line of JB Lowe with Citi. Your line is open.
Hi, good morning, everyone.
One GB.
Sorry, I'm, sorry, I missed this before it helps on the call a little bit late but.
The payment that you guys paid to show for that or 50% interest in the fully too.
That being a nominal amount I'm just wondering given.
Given that gives them the boy rigs and implied rig value. That's that's pretty low I'm. Just wondering what was that some of the puts and takes around around that transaction.
Well I mean, the Oh, there are puts and takes but I mean, we just basically reaching mutual agreement of the contract you know what the contract term was what the payout would be and you know the rig values were.
Tween us from a client and.
I'm not sure what of the COGNA, obviously, we can't yeah, we're not able yet we haven't finalized the discussion. So there were not able yet to provide a lot of additional information other than what's in the press release and what was talked about earlier on the coal.
Okay. So so show has has kind of.
Historically been a pretty.
The decline of yours, they're down to just a couple of rigs.
Imagine an already know the answer this but.
The two okada rigs are they have working.
Actually actively drilling.
Turning to discussions around the longer term outlook for those rigs.
Yes, sure. So we weren't in constant discussion with shell, it's a little too early to talk about extending those contracts today, we have out till 2022.
We've just installed our noble owned in PD system on one of the rigs, which is operating offshore for them right now and we've got a long list of wells to drill for them for both of those rigs.
Our operating beautifully.
And.
Very efficient rigs both of them so that conversation will start at the appropriate time thats realistically the here and a half probably two years away before we get deep into the into that sort of discussion with them.
Okay, great. Thanks.
Kinsey, let's let's take one more question please.
Certainly your last question comes from the line of David Smith with Heikkinen Energy. Your line is open.
Good morning, and thank you for squeezing me in here.
Good morning day.
Thanks, I just wanted to make sure I understood guidance correctly that Q4 revenue guidance assumes no revenue from the ability to.
Correct.
So is it fair to assume the contract buyout, then would would be for the period starting in October Onest 2019, lasting through April 22.
That's correct.
Awesome and did I hear correctly that guidance for for the the JV interest line in Q4 as an expense of one to 3 million Despite no revenue.
That is correct because we'll have some expenses that continues in that.
At first Mark.
Right.
Appreciate it and.
If I could ask one quick follow up.
Thank you for for sharing the rate for the Regina Allen contract off Trinidad seems like a strong rate could could you say if that includes consideration to offset mobilization costs.
It does not that's the clean right.
Fantastic. Thank you so much.
Thank you David Okay, Kinsey, we're going to go ahead and close the call today I'd like to thank everyone for your participation today and your continued interest in noble and Kenzie. We appreciate your time and coordinating today's call good day everyone.
This concludes today's conference call. Thank you for your participation you may now disconnect.