Q4 2019 Earnings Call
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Thank you Melissa and welcome everyone to noble Corporation's fourth quarter and for your 2019 earnings Conference call. We appreciate your interest in the company and in case you missed it a copy of Noble's earnings report issued last evening, along with the statement sporting statements with schedules can be found on the noble website at <unk>.
Again that noble Corp dotcom.
Before I turn the call over the Julie Robertson 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 are subject to certain risks and uncertainties.
Our filings with the U.S. Securities and Exchange Commission, which are posted on our website skus the risks and uncertainties in our business and industry and the various factors that could keep outcomes of any forward looking statements from being realized and these include the price of oil and gas customer demand.
Operational and other risks our actual results could differ materially from these forward looking statements and noble does not assume any obligation to update these statements.
Also note we are referencing non-GAAP financial measures in today's call you will find a required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation on our website.
And finally, consistent with our quarterly disclosure practices.
Once our Paul has concluded we will post our work on our website, a summary of our financial guidance covering today's discussion which will.
Result in numbers for first quarter and full year 2020.
With that I'll now turn the call over to Julie Robertson, Chairman, President and Chief Executive of Noble.
Thank you Joe.
Good morning, welcome to review of Noble Corporation's fourth quarter and for your 2019 result.
We appreciate your participation on today's call and your continued interest to noble an offshore drilling industry.
In addition to Jeff I'm joined this morning by Robert off work or senior Vice President of commercial.
The latest member of our noblemen management team Stephen but.
Steven joined the company in December 2019, as Executive Vice President Chief Financial Officer, and brings a wealth of experience. Following similar Simon said offshore drilling industry over more than 15 years.
Stephens demonstrated leadership and financial strategy and as Bob knowledge of capital markets are important skills that would complement our management processes and we look forward to his valued contribution.
Another patch it a person who better fits noble's legacy of values of principle, but I'm grateful to sort of on this team with Stephen.
I'll begin this morning with some brief comments on our fourth quarter and full year 2019 operating result, as well as details on some impressive commercial development.
Stephen will follow with a more thorough explanation of fourth quarter financial performance as well as our 2020 financial guidance.
Robert will then provide commentary on the global offshore market.
People off a regional perspective and thoughts on opportunities for the mobile fleet after which I'll provide some closing thoughts and we will all address your question.
The close another quarter with strong operational performance extending a record for consistency that remains among the best in our industry.
Active fleet utilization in the fourth quarter, excluding our three cold stacked units was 88%, including 93% and our Jackup fleet and 80% across our active floaters.
Downtime in the quarter was minimal at 2.9% and remain near our lowest quarterly downtime on record.
So the combination of better than expected revenues and strong cost containment drilled fourth quarter EBITDA to its highest quarterly total for 2019.
We grew year over year fleet operating days by 18% in 2019 due largely to improvement in our Jackup fleet. Following the commencement of operations over two new Jackup the noble Johnny what side, and then I will jump night.
Additional operating days and our drillship slate.
Total fleet downtime in 2000 might change was limited to just over 3%.
We concluded the here was 90% of our active fleet under contract, which excludes three cold stacked rigs.
Also 60% of the active floating fleet days, and 2020 committed to contracts and 62% the Jackup days, which removes the standard duty Jackup Noble Joe Bill After February 2020.
More importantly, our days under contract has improved since we began 2020.
We continue to benefit the fun commercial strategy that focuses on the placement of our premium assets at attractive region, where interest among customers is on the rise leading to the prospects multiple years of exploration and development drilling opportunities.
The improvement in contract coverage has been most pronounced in our floating sleep.
And is linked to our significant presence in the guy on the short end basin.
As this close last week, we reached a unique commercial agreement with Exxonmobil coping drilling services into gotten Im sure gotten habits turned on basin.
Well, we had been active since March 2018.
The agreement, which deposits contract drilling terms for the services on three <unk> Ultra deepwater drillship noble Bob Douglas Noble, Tom Madden and the noble Dante.
Provides for an initial three and a half years of term with potential for six additional here subject to future development decisions and government approval.
Robert will address other features it agreement at the moment.
Lee the multiyear contract visibility and prospects for both utilization of color across three of our premium drill ships is an exceptional results of the agreement we're honored to play a significant role in this prolific offshore region.
Also the agreement allows for the addition of other noble rigs is required and I can report. This morning that Exelon has awarded a one year contract to the noble Sam Croft for drilling services offshore Guyana.
Are you seeing noble's persons to four rigs in this exploration and development play.
The noble Sam Croft is expected to commence operations in the third quarter 2020, following the completion of its greatest Simon offshore Sorenstam.
The one year contract term b. So the number three years awarded under the agreement to four and a half was six additional years dependent on future developments and government approval.
Collectively these contract awards build a solid base a floating fleet days under contract well into the decade would be awarded additional contract dice increasingly likely.
I'll now turn to follow the just Stephen for a discussion of our finish.
Thank you Julie good morning, everyone and thank you for joining.
Many of you on todays call know that I'd, just recently joined the company. According to services Chief Financial Officer, and I was pleased to join this management team and a company that I have long held in high regard.
So those of you know me from my previous service it to other offshore drillers I look forward to reconnecting with each of you in the coming weeks.
I accepted the financial leadership role at noble with an understanding of the tough, though improving environment that the industry is experiencing and the challenges. We face is the result of our high financial leverage and declining liquidity.
Well. This backdrop is tough it is not one that is either on familiar to me or are unique to noble rather it is in fact widespread across our industry.
Hi, rife with a clear list of priorities and over these initial 50 days on the job I've worked closely with the rest of the management team to complement the work they have done to identify the best solutions to these challenges.
I'll have more to say on priorities in a moment.
But first I would like to provide some observations on the company's operating result by comparing the sequential quarters.
Then I will walk you through our expectations for 2020 operating results and capital expenditures before concluding with some perspective on the company's balance sheet and my priority.
As we announced yesterday Nobel concluded the fourth quarter 2019, with a net loss attributable to the company of 33 million or 13 cents per diluted share on total revenue of 454 million.
The results included 167 million of contract drilling services revenue, resulting from the noble bully to contract buyout with Royal Dutch shell.
The transaction, which was first disposed during the third quarter 2019 report.
Both in early December.
When adjusted for associated costs taxes, Noncontrolling interest the net impact of the buy out was 80 million or 32 cents per diluted share.
The buyout with shell was partly offset by two other items in the quarter.
First item as a noncash asset impairment charge of 17 million net of tax or seven cents per diluted share related to one of our rigs and certain capital spares.
The second item was the charge, which totaled a net of 13 million or five cents per diluted share related to various noncash discrete tax item.
When combined these three items contributed 50 million in that income 20 cents per diluted share to our fourth quarter results.
When excluding their effect from reported results the net loss attributable to the company for the fourth quarter 2019 was 83 million or 33 cents per diluted share on total revenue of 287 million.
[noise] now starting with our topline contract drilling services revenue in the fourth quarter reached 441 million inclusive of the hundred and 67 million in revenue from the noble bully to contract buyout.
Excluding this buyout revenue totaled 274 million and compared favorably to to 259 million in the third quarter.
The 6% normalized increase was due partly to the company's Jackup fleet, which experienced an 11% increase in operating days.
Revenue was further supported by an increase in mobilization fees and higher average.
And our floating rig fleet.
These events were partially offset by fewer operating days on the noble bully too.
Fourth quarter adjusted contract drilling services revenue came in 10% ahead of the midpoint of our guided range of 245 to 255 million.
This favorable variance was driven by the noble bully II, which generated 63 operating days in the fourth quarter and 14 million up revenue due to the later than expected close of the transaction with show.
Additionally, average daily revenue on the noble Globetrotter too was enhanced by utilization of the rigs managed pressure drilling system.
Contract drilling services expenses in the fourth quarter totaled 182 million, including 7 million of cost from the noble bully to transaction related to the acceleration of previously deferred mobilization expense.
Excluding this mobilization expense contract drilling services expenses for the fourth quarter were 175 million essentially flat when compared to 176 million in the third quarter.
When compared to guidance.
Adjusted contract drilling services expenses came in below our guided range of 180 to 288 million. The favorable result was due primarily to lower than expected repair and maintenance expense.
The favorable results for both adjusted contract drilling services revenue and expenses drove fourth quarter adjusted EBITDA to 83 million up from 68 million in the third quarter.
For the full year 2019 noble generated adjusted EBITDA of 329 million.
Moving onto capital expenditures in the balance sheet.
Capital expenditures for the fourth quarter of 48 million compare favorably to 57 million in the third quarter, but were modestly above our expectation of 45 million due largely to an increase in reimbursable client requested rig enhancement.
Approximately 29 million up the Capex was related to major projects, which included contract preparation and the purchase of sub sea capital spares with the vast majority of the remainder focused on sustaining capex.
For the full year 2019 capital expenditures totaled 253 million, excluding that 54 million seller finance portion of the noble John night purchase price.
2019, Capex consisted of the following component.
75 million of sustaining capital.
Hundred 38 million related to major project, putting rebillable capital modification and the purchase of sub sea control spares.
30 million related to the purchase of the noble Joe Night, and 10 million of capitalized interests.
The company ended 2019 with cash and equivalents of 105 million.
In December we terminated the 2015 credit facility just prior to its maturity.
Repaying 300 million in borrowings under the facility using borrowings under the 2017 credit facility to do so.
At December 31, 2019 borrowings outstanding on the 2017 credit facility totaled 335 million.
I would now like to provide some details regarding our expectations for financial performance in the first quarter and full year 2020.
Beginning with our fleet, our expectation for downtime is 3.5% or Conversely, a fleet uptime factor of 96.5%.
This represents a 50 basis point reduction from our guidance for the last few years.
Our 2020 active fleet count, which excludes cold stacked units is expected to total 21 rigs.
We expect fleet operating days in 2020, when adjusted for the expected cold stacking or sale of the noble Joe Bell to decline slightly when compared to 2019.
More specifically for the Jackup fleet, a full year of operations for the noble Johnny Wettstein, Johnny will sign and the noble Joe night are expected to be offset by the lots of days on the noble Joe Bell and lower operating days for our rigs located in UK North Sea is five Jack.
Thats complete contract during the year.
And we anticipate incurring some gaps between certain jobs.
In our floating rig fleet additional operating days on our for ultra deepwater Drillships in Guyana are expected to be largely offset by fewer days for the noble bully too.
In light of our expectation for relatively flat operating days year over year contract drilling services revenue for 2020 is expected to range between one and 1.1 billion essentially flat with 2019 revenue.
2020 revenue from client Reimbursables is expected to range from 45 to 55 million below the 2019 total of 59 million due largely to fewer client request in rig modifications ahead of new contracts.
[noise] for the first quarter 2020 contract drilling services revenue is expected to range between 260, and 270 million nearly in line with fourth quarter adjusted revenue of 274 million.
Fewer operating days on the noble bully too and the noble Joe Bell are expected to be substantially offset by increased activity for the noble Don Taylor following its relocation to Guyana during the fourth quarter and the noble Tom processor, which commenced its latest assignment in late January offshore Australia.
Contract drilling services expenses for 2020 are expected to range between 680, and 700 million also in line with our adjusted expenses for 2019 of 692 million.
Contract drilling services expenses associated with our Jackup operations will largely reflect the absence of expense associated with the noble dobell.
Offset by a full year of operations on the noble Johnny Wettstein, and the noble Joe Night.
Expenses related to client Reimbursables for 2020 are expected to range between 30 545 million.
For the first quarter 2020 contract drilling services expenses are expected to range between 170, and 180 million in line with adjusted actual results of 175 million in the fourth quarter 2019.
We expect a reduction in depreciation and amortization expense in 2022 to 420 million to 430 million range from 440 million in 2019 due to the asset impairment charges, we recorded during the year.
Depreciation expense for the first quarter is expected to approximate 105 million.
Down slightly versus the fourth quarter level of 107 million.
S. DNA expense for 2020 is expected to range between 65, and 70 million compared to adjusted EPS DNA expense of 69 million in 2019.
The 2019 adjusted amount excludes the 100 million dollar provision relating to the Paragon claim.
We expect to incur SGN a expense a 15 to 18 million in the first quarter down from 19 million in the fourth quarter.
Interest expense for 2020 is expected to range from 285 to 295 million compared to 279 million in 2019 as the 2019 figure was reduced by 10 million of interest which was capitalized.
First quarter interest expense.
It is expected to range from 71 to 73 million.
In line to slightly higher than fourth quarter level of 71 million.
Finally, our effective tax rate for 2020 is expected to range from zero to 3% driven exclusively by tax expenses and non U.S. jurisdictions.
Our actual outcome will be significantly influenced by the geographic mix of revenue over the year.
Cash tax outflows are expected to approximate 20 million.
Moving to capital expenditures, we expect full year 2020 capital spending will range between 190, and 200 million compared to 253 million in 2019, excluding the Selman finance portion of the noble Joe Night purchase.
This the expected capital spending is above our initial guidance provided last quarter of 150 million with the increase relating entirely to a client to client reimbursable items.
Of the expected total we estimate approximately 115 million is related to our sustaining capital.
Capital expenditures for the first quarter are expected to range from 55 to 65 million.
Now I'd like to circle back to priorities.
Certainly the top priority for the company will always be the health and safety of our employees and the environment.
Noble has shown strong performance in this area and it will always have the appropriate attention of our management team.
Additionally, my top priority as the Chief Financial Officer is to ensure that we have adequate liquidity going forward and to improve our leverage profile.
Before walking you through more detail in this area I'll start by affirming that our liquidity today is adequate and we are actively evaluating options that we believe will provide our shareholders with the best opportunity to participate in the recovery that is underway in our industry.
Today, our liquidity primarily consists of our 1.3 billion dollar revolving credit facility, which does not mature until early 2023.
As you consider our revolver. However, I would like to remind you have to constraints, we have which have the effect of limiting access under the facility.
The first as a test which limits capacity to 15% of noble Cayman consolidated net tangible assets or CMT Ed.
This test effectively limits the facility to 1.2 billion today.
The commitments above that level could become assessable again in the future. However over the near term CNTA, it's more likely to decline constraining the commitment further.
The second covenant and the credit agreement, which has an impact on our access under the facility.
The requirement that we maintain minimum liquidity at all times of 300 million.
With approximately 100 million and cash on the balance sheet at year end. This covenant has the effect of restricting our ability to borrow under the revolver by approximately another 200.
The walking down from the constraint commitments of 1.2 billion Ben subtracting the use portion of the revolving credit facility of 344 million, which includes outstanding letters of credit.
Leaves us with capacity of 860 million prior to considering the minimum liquidity covenant.
When taking we covenant into account our ability to borrow additional funds under the revolving credit facility was reduced to 660 million at year end 2019.
As mentioned earlier this represents adequate liquidity for the company today.
However, we must be mindful of our debt to capitalization covenant in our seller note.
And the current expectations for negative free cash flow generation, which could lead to meaningful draws under the revolver over the next two years.
Therefore, my focus is firmly fixed on determining the best path for protecting and enhancing the liquidity and improving our leverage profile.
These of course are challenging and complex issues with that easy and I'll be a solution so want to be clear about timing.
While this is a key area of focus you should not expect quick result.
All of that said, we have many attractive characteristics. We can build bonds, we have strong and constructive relationships with our lender note holders and shareholders and the company benefits from a legacy investment grade capital structure, which is largely unsecured today with reasonable flexibility providing capacity.
Issue debt at several different ranks and priority.
The company has amongst the strongest backlog in the industry, a young and high quality fleet situated in some of the most prolific region a world class workforce and an operating history filled with numerous achievement.
We believe these factors will provide us with a number of attractive option.
Moving forward that could reduce our financial risk and we are evaluating those expeditiously.
In closing noble concluded in 2019 with another quarter of excellent operational execution as demonstrated by a near record result for fleet uptime and continued tight control on operating costs.
Our fourth quarter adjusted EBITDA of 83 million was our highest quarterly level in 2019, resulting in an and adjusted EBITDA for the year of 329 million.
We began 2020 was a total revenue backlog of 1.5 billion, which has been bolstered by the initial four and a half rig years awarded under the C.A. with our clients, which add an estimated 310 million.
Of the 108 of the 1.8 billion and backlog approximately 800 million is associated with our current year and this represents a substantial portion of our revenue guidance.
As Robert will address our fleet remains well positioned to capture additional contract days as the year progressive.
Our expanding presence offshore Guyana advantageous to reposition half of our ultra deepwater drillship capacity for multiple rig years of demand in the offshore industry's most opportunity rich basin wireless, establishing a growing and increasing increasingly visible base of revenue.
I'll now turn the call over to Robert for a discussion on the offshore drilling environment.
Thank you Stephen good morning, and welcome to everyone on the call steady improvement in offshore industry fundamentals remained Evan into 2019. The number is contracted jackups and floating rigs ended the year well ahead of levels at the conclusion of 2018 with meaningful day rate appreciation, resulting from the tighter rig capacity.
Importantly, customers continued to signal a growing interest in offshore programs.
The purchase a sizable offshore positions over the past three years in a number of emerging regions has led to the commencement of exploration campaigns and further appraisal drilling in several of these perspective areas.
As exploration activities increased in deepwater basins, new discoveries were announced including 20 deepwater discoveries in 2019, representing the second consecutive year of increase.
Multiple successes were announced in Guyana.
Trinidad and Tobago, the U.S. Gulf of Mexico, and gone up.
The incremental rig needs emerging across the Jackup and flooding segments. Our industry is is poised for further improvements in both utilization and day rates in 2020.
And the noble fleet is well positioned to benefit from this improvement.
We began 2020 with all 13 of our Jackups in seven of our 12 floating units under contract also across the 25 rig fleet, 52% of the available days in the year, we're committed to contracts, including 58% of the days associated with our Jackup fleet and 45% related to the floating rigs.
Excluding three cold stacked rigs floating days contracted improves to 65%.
Hey, Jack ups and for active floating rigs were expected to complete their current contracts over the year.
And through the first two months of 2020, we have begun to increase the number of contracted days in both the jackup in floating fleets.
I want to bring you up to date on the progress thus far in 2020 and provide some insight into near term prospects for active fleet beginning with our Jackups.
Well they jackups with expected availability. During 2025 are located in the UK North Sea and full of those are expected to be available before mid 2020.
The noble Sam Turner Noble Han's dual noble Sam Hartley and noble Houston Colbert each have a proven record of strong operational performance and we believe they are advantageously positioned for future opportunities in the UK North Sea.
However, the prevalence of short term contracts combined with a little in fourth quarter regional contracting activity has created a more challenging environment. During the first half of 2020 than we had anticipated and utilization gaps or probable for some or all of the rigs.
The good news as we have numerous conversations ongoing with customers covering both short and long term opportunities and believed that the second half of the of the year will be noticeably more active than the first.
The fifth Jackup with availability is the noble Lloyd noble, which is contracted into the fall 2020.
We're currently in discussions with our customer regarding the possible extension of the contract and expect to have a resolution in the intermediate term.
The two other jackups with near term availability, the noble Mick O'brien and noble Joe Bell, our operating in the Middle East.
We continue to evaluate opportunities for the noble Mick O'brien, both in and outside of the region and hope to have some news for you soon.
The standard duty Jackup noble Joe Bell is expected to concluded drilling assignment offshore Saudi Arabia by the end of February at which time, we will dispose of the rig.
Finally, the noble Tom Prosser operating offshore Australia is under contract into August 2020, and remains the most capable jackup in the region. The rigs current drilling assignment includes nine single well options and we believe in extension beyond August is increasingly probable.
Turning to our FFO to floating fleet, we closed 2019 with three rigs scheduled to complete contracts at various times over 2020 and to warm stack rigs. However, the open capacity has recently declined to just one active rig following last week's announcements covering our expanded role offshore Guyana.
With the signing of the CEA noble has expanded its presence in the Guyana, Suriname basin, which represents one of the world's premier offshore exploration and development opportunities.
There are a number of important features to the CEA, including following.
The agreement provides highly visible near full utilization into the future and the four drillships included in the CEA will be shielded from the frequent lost revenue in costs caused by contract rollovers in rig mobilizations that remain calm and in today's short term contracting environment.
The agreement maintains exposure to rising day rate being attractive commercial framework that allows day rates for each rig to reset to a market rate every six months.
The rates will track the prevailing spot day rate for rigs possessing the technical features found on the industry's tier one benign ultra deepwater floating rigs.
To appropriately to appropriately aligned the interests of both noble and Exxon.
The mutually agreed spot day rate is subject to a scale based discount and performance bonus.
The discount is a function of the number of rigs contracted under the CEA in the amount of backlog awarded under the CEA. The performance bonuses based on rig uptime targets in certain safety metrics.
In addition, we expect to realize some economies of scale as well as savings from improved logistical efficiencies.
Finally, we're particularly pleased to have all of our HHR built drillships positioned in one of the most prolific offshore plays in the world.
I want to half years of term have already been awarded in the CEA specifies an additional six years of term to be allocated at exxon's discretion subject to future development decisions and government approvals.
Furthermore, the agreement is designed to allow additional term as needed.
With the CEA in place and the noble Sam Croft contracted into 2021.
Our remaining open floater capacity in 2020 is on the drillship noble bully II and more semi submersibles noble Clyde Boudreaux and noble Paul Romano.
The noble bully to remains warm stack, the rig as being bid into assorted opportunities, but we believe there is a low likelihood that the rigs active in 2020.
Given the advanced equipment figuration large deck space in conventional moring capabilities of the noble Clyde Boudreaux.
We believe the rig is advantageous Lee position to secure a series of short term programs in southeast Asia, such as the estimated 30 day assignment reported in our last fleet status report.
The short term opportunities could lead to longer duration programs over the second half of 2020 and into 2021.
Finally, the warm stack semisubmersible noble Paul Romano remains under consideration for programs with an expected 2020 commencement.
The more rig market remains relatively tight and we are marketing the rig into several opportunities. However, the rigs age design and capability limit the number of appropriate prospects and we are cautious on outlook for 2020.
I will now provide my thoughts on the status of opportunities across our operating regions focusing first on the western hemisphere in the Gulf of Mexico.
The U.S. Gulf of Mexico experience noticeably higher activity over the fourth quarter, continuing the steady trend of improvement in 2019.
Active premium drill ships in the region totaling 21 units enter 2020 at full utilization.
With publicly announced premium assets fixtures, averaging around $225000 per day.
The average contract term is continuing to train longer as offshore operators increased spending in rig supply Titans, ending 2019 with average contracts around eight months compared to around six months in 2018.
Given operators demonstrated preference for high specification rigs, we expect we expect to see contract extensions for much of the open premium drill ship capacity over the near term also.
Range of new deepwater projects and tieback opportunities should provide additional opportunities in late 2020 in into 2021.
Offshore Mexico 2019 saw an increased focus on opportunities in the shallow water basins that drove a 46% increase and the number of jackups under contract compared to a year ago.
Shallow water activity as well as some mid water opportunities should maintain steady pace in 2020.
While deepwater exploration activities are expected to increase as some iOS. He is begin drilling campaigns on recently acquired acreage.
Deepwater rig needs are expected to be sourced from the U.S. side of the goal was short contract durations likely until the region transitions into a development phase.
South America is home to several regions of offshore expansion with few basins currently displaying more growth potential than the Guyana Suriname basin.
Exploration in this area continues to impress and the list of oil and gas participants is expanding.
Exxon announced first oil offshore Guyana from their lives a destiny FPSO in mid December 2019.
And further project sanctioning in the region is likely as the resource base is better understood.
With respect to Guyana exploration plans have been filed covering 31 wells, including wells located in Boston adjacent to the prolific stalled black box players Julie mentioned earlier three Newbuild Drillships are currently deployed with the fourth on the way later this year.
The region is also a need a premium jackups for exploration in the blocks located in shallow water.
Offshore Trinidad and Tobago or later this year, we will relocate the premium Jackups noble Regina Allen demand for floating and Jackup rigs is improving and we believe the rig will be well positioned to leverage its superior technical capabilities and proximity to the surrounding offshore growth markets to gain incremental work in the region.
Finally in Brazil, a steady recovery has been led by Petrobras, who ended 2019 15 rigs working and commitments outstanding for three more.
The increase follows are working rig count of only 11 units during the third quarter of 2019.
In addition to Petrobras needs demand from Iowa sees an independent oil and gas companies is increasingly apparent with three floating units currently employed among these companies in further needs are outstanding.
Turning to the eastern Hemisphere, the North Sea Jackup fleet maintained a marketed utilization of around 92% from the beginning of 2019 to the beginning of 2020 with both the marketed supply end marketed contracted count increasing by one rig each.
Robust level of infill drilling programs were accompanied by a rise in exploration campaigns, resulting in five announced discoveries in the basin over the year.
Utilization of the premium Jackup fleet was essentially 100% throughout 2019 supporting a meaningful move in day rates. During early 2020, we expect a period of seasonal weakness to produce some availability in the active Jackup fleet.
With opportunities in the second half of the year likely to support higher utilization.
In the Middle East another 65 rig years were awarded to Jack ups during the fourth quarter with an estimated 48 rig years awarded by Saudi Aramco.
Active utilization of Jackups across the region, which excludes cold stacked units improved to 88% at the conclusion of 2019, resulting in gradual day rate improvement for both premium and standard units.
Tenders totaling an estimated 26 three years of demand remain outstanding with approximately half of this time representing rig needs in Qatar.
West Africa is rebounding in the number of visible offshore prospects is improving especially for floating rig demand.
Following a number of successful exploration campaigns in 2019, coupled with the planned near term commencement of large development programs the floating rig count could improve by up to five units in 2020.
At the same time idle floater capacity in the region is expected to decline several rigs are expected to fulfill contract commitments and relocate to other regions.
With the exception of development programs planned offshore Nigeria in Angola, which involve multiple years of term much of the anticipated floating rig demand remain short.
Jackup rig demand in the region concluded 2019 with 17 of 25 Jackups under contract a modest uptick in demand as possible during 2020 with visible needs offshore Angola, Nigeria in Congo, finally prospects for the far East No Shana region remain encouraging.
Current expectations are for steady to higher floating rig needs in southeast Asia and in the far east well, we witnessed strong demand in 2019 from China.
Also numerous floating and jackup rig needs are visible for the Australian market with an expected timing of late 2020, extending contract durations well and into 2021.
To summarize actions by our customers continued to demonstrate and expanding focus on shallow and deepwater drilling programs situated in both mature and emerging basins around the world. The number of contracted jackup in floating rigs continues to trend favorably and day rates are responding positively to the tighter capacity among the industry's active fleet.
As I noted in my regional discussion there are numerous opportunities outstanding throughout our regions of operation and we are actively engaged in contract discussions it discussions addressing rigs with near term availability.
Expanding role in Guyana positions four of our Drillships in a region with multiyear exploration and development needs, providing highly visible utilization and excellent commercial model and improving revenue potential. Our 2020 contract coverage continues to expand let's six of our eight drillships now committed into long term contracts all our pre.
Mhm and highly versatile Jackup fleet is well positioned to capture IMR emerging customer demand across their regions of operation and I'll turn the call back over to Julie.
Thank you Robert before we close and begin addressing your questions I want to expand the Roberts thoughts with regards to the status of our industry.
Middle while since a discussion about the offshore drilling industry was not accompanied by cautionary tone.
Industry challenges over the past five years have been immense encouraging signs of a steady pace of fundamental recovery are now evident.
As we enter 2020, we're not blind to the early concerns for crude oil demand caused largely by the CRO the buyers, which has led to a declining oil prices.
However, we currently have no reason to believe this price decline will alter the spending plans of our customers.
Therefore, we remain encouraged by the prospects for further industry.
And the floating rig sector evidence continues to Mount in support of a heightened interest in oil and gas resources, among the industry's exploration and production company.
With an intensified focus and regions, such as Guyana, Suriname, Brazil, and Gulf of Mexico.
These regions as well as others in the eastern Hemisphere, including West Africa, the Eastern Mediterranean and Asia Pacific region continue to demonstrate still strong oil and gas resource potential, which we expect to result in incremental rig needs as exploration and development drilling campaigns commence.
I believe the noble fleet of premium floating and Jackup rigs possess an optimal geographical alignment that improves our prospects for securing contract awards and extensions as demand for premium efficient rigs accelerates.
Industry, leading presence in the Guyana, Suriname basin were four of our premium ultra deepwater drillships operate.
Represents a unique position in an area that provide the western hemisphere most will.
Tim.
Our Jackup fleet located predominantly in the middle East in the UK North Sea is well positioned into the industry's premier Jackup regions.
In addition, the premium nature and have versatility of our fleet great ample optionality as we consider new locations with emerging needs such as offshore Trinidad and Tobago were later this year the Gina Ellen will relocate.
We approached 2020 with growing confidence you predominately to our premium point ability to consistently deliver operational excellence, our dedicated and talented workforce strong regional alignment of our fleet.
Exceptional customer relationships.
These factors combined with our knowledge understanding of our markets favorably positioned to noble, but the opportunities that lie before us.
Speaking of the future of our company.
Yesterday, we announced the leadership transition plan that will direct our achievements well into the feature.
I believe this plan as well.
Sure as a smooth transition of leadership at noble.
At the upcoming annual General meeting in May I will resolve is president and Chief Executive Officer Noble and assumed the new role as executive Chairman, Robert I'll put it will depend noble's president and CEO.
Robert 15 years.
He has demonstrated outstanding leadership qualities, well possessing strong institutional knowledge in financial acumen.
Robert has played an influential well in building simple the customer relations that will contribute to our successful performance for years to come.
Im very excited for him to had the privilege of leading this incredible company.
I look forward to continue to work with him as he begins the next chapter of Noble's history, well, what you're seeing is excellent future contributions to our company.
Before turning the call back to Jeff as always I want to thank the men and women who make up team.
The continued dedication and commitment to our company as it worked tirelessly everyday to ensure that we continue our long history of excellence in all areas of our business.
Putting safety superior operational capability customer service and organizational efficiency.
In April we will begin our 100th year continuous business operations. It is always always Vincent This company, who sets us apart that is never more true that today and I deeply value each member of our noble family.
Yes, Okay. Thank you Julie Melissa we're ready to begin the question and answer segment of the call. Please. Thank you as a reminder to ask a question do you want me to press Star one on your telephone to withdraw your question press the pound or hash key please limit yourself to one question and one follow up.
First question comes from the line of Greg Lewis from BTI T. Your line is open.
So thank you and good morning, I guess first Julie thanks for the help over the years.
Robert.
Congratulations and Steven welcome back.
Yes, I guess Stephen first just since you could you walk through it a little bit in your prepared remarks around the tangible asset value on on the on the credit facility.
As we think about that in 2020, I guess, some kind of curious what would trigger a potential write down in those assets and is that something that is annual or how can we think about that as we think about your access to that liquidity.
Sure Yes.
We're always mindful of triggering event for for impairments and that's something we're required to do under the accounting rules. When there is a triggering event to too.
Test and assets Recoverability, the cash flows that would generate over the life versus the book value the rig and in this environment where.
Weaker oil prices do budget, we expect that we're we're doing that frequently.
So that was of course part of our year end procedures as well.
We did have the $17 million and impairment.
And I mentioned.
But.
There's there's no way to know what the future will hold because it depends on our assumptions as far as the.
The the earnings power of the rigs.
Hi, it's highly dependent our forecast our reactivation plants and it's a fluid environment. So.
We're always monitoring the things and.
It's hard to raise more triggers of short, but it's more triggered by sort of rate expectations and with rates on on on on the.
On the slow move higher that that definitely would trump sort of asset transactions in the second hand market is that fair way to think about it.
Yes, that's right, it's driven by our expectation a future cash flows.
Okay, Perfect and then and then just one more for me on on them on the marketing side, Robert as as we look at the Lloyd Noble FSR. It kind of highlighted that may be that rig.
And the couple of months early just kind of curious how we should be thinking about that rig I imagine discussions are ongoing you probably can't talk much about those but as I guess as we think about it and you talked about potential downtime between contracts is there is that we're one of the rigs that we should be thing.
Talking about potentially seeing some downtime before.
It resets to a new contract.
Yes, sure. So you guessed right in the beginning we are in the middle of some sensitive discussion. So I'm afraid I can't say a whole lot.
We have offered previously that rig was built specifically for the Mariner platform.
And.
The amount of time that it spends on that platform is up to the customer and their partners and they are evaluating what that looks like right now at present, we've we've disclosed a November estimated end. We've also mentioned as you said that the contract could end is as early September and we are discussing ext.
Tensions on that so.
At this stage, we wish we had some more information for you, but we don't and we'll of course update everyone. As those as those discussions continue I would say that rig when it was built was built to do to Norwegian Sanders.
The Norwegian Continental shelf is.
Thriving right now.
And I would anticipate that all CJ seventies will be operating in the Norwegian sector.
So at some point this being we believe the most a competitive all that evolve the CJ seventies I would anticipate that that rig does end up in the Norwegian sector at some point there would be some gas in between to mobilize over there and I wish I had more guidance for you right now, but without a conclusion on what's.
Going to happen with the Mariner platform, we really cant give accurate guidance on on when that transition into Norway may happen.
Okay perfect. Thank you everybody for the time.
Thank you Greg.
Your next question comes from the line Sean Meakim from Jpmorgan. Your line is open.
Thank you good morning.
Good morning.
So Robert Congrats on the promotion.
Steven welcome good so to speak with you again.
Thank you. Thank you.
So that we could start with the two if you will be great. If we could just talk about.
How this revamped management team intends to put a stamp on the company over time in terms of capital allocation.
So in other words would be great just get a little of insight into.
The pitch that one over the board in terms of bring you and you both into these new seats.
Well.
Ill touch on it briefly on that handed over to Robert but.
Of course.
I mentioned near term in terms of capital allocation, we're really focused on on balance sheet.
Repair.
The whole industry has too much debt.
Course.
We have our share and as we've touched on and so thats really the the priority.
Our capital allocation now that said of course, you know we have customer specific requirements against contracts that are attractive we want to continue to reposition the fleet in the right areas and what the right customers and so that could be part of our certainly part of our capital allocation strategy, but.
Certainly again is a key part is trying to reduce the those levels of indebtedness.
Robert the I'd, just add I think what's gotten us here today, it's been our operational execution, we've had incredible results out of operations our safety results.
Have been great and we've had a very strong customer focus here. That's enabled a lot of a lot of what we have today. So certainly focus will continue there Steven mentioned.
The priority to address the balance sheet and and improve our liabilities that persist without question and Weve announced some targeted growth opportunities last year. We will continue to look at what's out there within constraints in August.
Actually we have a great deals constraints right now so we're trying to be creative and be mindful to what what could be out there to help to help move us forward.
And Julie can we get your thoughts on the same question just in terms of as you're shifting towards executive Chairman role just how you see.
Those pieces fitting in from that slightly alter advantage point.
Sure Sean.
Thanks for your support as always.
Yeah, we're looking forward to the into this next chapter Noble's history, having Stephen come on the team is a tremendous add to to this company and I'm very grateful for being here.
Robert Yeah, we are board spends a lot of common secession planning and they do it a mindful injectable job of that and this was the this we think this is the right time for this and Robert is certainly up to the challenge and ready to go well the privilege. It will be for him to had this opportunity that that I've had for for so long to be involved with this company.
We've been working on number the things that the two of them just mentioned that talked about and we will continue living that ahead.
Level has a long history in this business. We continue that we expect Teva continued long history and with these two at the top the ticket I can't imagine to people more capable of taking us into the next century of our operations that were looking forward to the future Sean. Thanks.
Thanks, I appreciate those comments.
Just.
I'd like to touch on it's just.
Thinking about the addressable market call, it and Guiana answer and I am overtime.
Can you maybe just talk about just.
At a high level given you've highlighted this big contract just bigger screen with Exxon just how you think about balancing securing volume versus price given the uncertainty of what the day rate environment could look like especially the further out we go and as we think about the introduction of potentially some shallow water opportunities.
Just going that addressable market over time, you great to hear more detailed how you think about that.
Sure. So first of all were extremely pleased to be there as I mentioned in the prepared comments I think the reserve estimate went from 6 billion to 8 billion here just a few weeks ago.
There is 31 exploration wells approved right now so we think that momentum will continue there.
And we're really pleased to be right at the center of all of that the shallow water side I would say is probably more on the periphery and but we do we do see a few wells, they're going to be drilled that would require some discoveries to to better understand what the demand there might look like.
On the rates.
We we spin off a lot of time with our client negotiating this agreement and.
We are believed very firmly that this is a win win for both side.
One of the things that was extremely important to US was that we do maintain some sort of exposure to changes in rates now.
Of course, we have the same exposure to to downside, but right now we see an improving market and as we see what we have what we have contracted right now.
We're very pleased to have been able to reach an agreement that does provide some upside and is a win win with the structure. We've negotiated so we're just extremely pleased and honored to have been given this opportunity by by Exxon.
Got it great. Thank you very much.
Thank you John Dawn.
Your next question comes the line of Ian Macpherson from Simmons Your line is open.
Thanks, Good morning, I'd like to also echo the sentiments of.
Congratulations and welcome back.
To Robert into Steven.
And you know staying on that that you see with Exxon Robert I know that.
That was probably an index structure that was.
Not to put words in your mouth Im sure that that was a preference for the customer.
And your deepwater businesses.
So much over the past few years of there theres really a handful of active bidders and Pricers and with you and your team has been.
Among those who have been heavy lifting.
Bringing rates higher.
Do you have more confidence in the pricing discipline of your peers, you're more consolidated peer group today than you would have a year or two ago to put yourself to put this much of your fleet into a passive pricing.
Mechanism.
Yes so.
I don't I actually don't believe disciplines are going to pull a fluid I believe supply and demand can pull through it and we see improving demand here.
And I think that right now we have 20 legacy contracts from pre 2014 that will roll over the coming years and some of those are with great rigs. Some of those are with lesser quality rig. So I think you'll see high grading that will that will contribute to effective demand in the market.
And I don't think we've yet seen customers price in the efficiency that these top tier rigs provide is the way we look at Ed.
At the market, we kind of divide between tier one tier two tier three if you look at how we define tier one tier two.
The pricing there is no difference in pricing today.
So we believe the tier one rigs, which were essentially the two VLP rigs will still have room to price away from tier two and all of that's just driven by efficiencies in the value that the customer sees in the rigs that's before you ever get to the disciplined question all of that.
On discipline I think every driller on earth needs needs rates to improve and we only the market to improve so.
No I don't want to rely on discipline for this to get better and I don't think we have to.
But you do have the slightly added bonus that.
That we're all positive on the future. So we've we've worked hard.
To market it at fair rates and keep the market moving forward and if as we see demand during 2020 in 2021 in the floating benign segment, we see room for improvement.
Got it thanks, I'm, sorry, I've I've been split between a couple of recalls that I didn't get all of your remarks I don't know when you when you were talking about that.
Near term pass units in the North Sea Jackup market do you expect.
Rates to hold from through this.
Patchy period of utilization or do you see the risk to some softness in rates this year as well.
Okay. So I think rates, which are generally holding firm when rigs are at their highest and best use.
In the central North Sea.
You'll see some softer day rates potentially where we try on short term work are you trying to bridge the gap and I also think I think there's two two remaining standard specification jackups in the southern North Sea today.
With some of the softness you may see some of the more premium assets compete down into southern North Sea gas plays gas prices are a little bit weakened. So those customers are pretty price sensitive right. Now. So I think you could see some weak pricing there, but as it relates to the highest and best to use which is the majority of the way.
Work in the North Sea I think rates or are are pretty strong and have remained strong.
Understood. Thanks, Robert I will pass it over.
Melissa let's take one more question please.
Your next question comes from the line of tenders director from Tudor Pickering Holt. Your line is open.
Hi, Good morning, Thanks, and let me Echo the prior comments with respect to the management changes for your Julie Robert and Stephen a couple of housekeeping ones for me as it relates to see a.
In the press release, you put a.
Straight up 200000 dollar Day example, I'm just curious if you could give us anymore kind of detail on how that prevailing market rate.
As calculated the sort of leading edge spot rate, but is it an average of a handful of rates that are out there in the market or is it the sort of the highest most leading edge rate that you see out there any color there would be helpful.
Sure. So it's an average of what we call and I'd just mint earlier mentioned tier one the nine rigs so thats essentially all the rigs out there was to 52 activity et cetera.
As an average of that it's intended to represent.
Spot day rates at the time, there negotiated in it resets twice a year on a set date March one in September one for all of the rigs and keep in mind the rigs are staggered as they as they roll into this pricing structure and we disclosed that in the original press release there.
But once everything is operating under the agreement everything will reset March one in September one each year.
Okay, Great and then as it relates to the sluggishness sluggishness you called out in the and the North sea potentially over the first half year four rigs rolling I think in the first half relative to the full year revenue guidance, you gave today and what does that imply for utilization for those rigs in the back half should we assume or does it.
I assume that all four of those rigs find work in 2020 or.
Could potentially one or more of those rigs have to wait till 2021 to.
Zoom work falling in the current from periods of her contract.
Yes. So it seems all four rigs are going to find work and we as I mentioned, we have conversations on all four of the rigs.
I think.
Third quarter starts as an average would would be on all four of them would be would be a fair thing to assume I now there's just a couple opportunities that start earlier than that couple opportunity that start kind of at the end of the third quarter, but but on average we see some potential for white space to until about the third quarter.
Alright. Thanks.
Thanks, Tyler Okay, Melissa with that we're going to go ahead and close the call today I want to thank everyone for their participation today and your continued interest in noble Melissa. We appreciate your time and coordinating todays call good day everyone.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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