Q1 2020 Earnings Call
General and administrative expense was $43 million for the quarter.
Please see slide.
Well below our guidance, primarily lower legal professional and advisory fees.
As part of our long term objective.
Demand our balance sheet, we repurchased approximately $76 million of negated gets in the open market during the quarter.
And.
Cost of $3 million to $5 million. This will also say was approximately $11 million an interest through maturity.
We ended the first quarter with total liquidity of approximately $3 billion.
Including unrestricted cash and cash equivalents of $1.5 billion.
And approximately.
$200 million, a restricted cash dedicated forget service and $1.3 billion from the Undrawn revolving credit facility.
Consistent with last year, and do the timing of interest and tax payment.
And the unwinding of some accruals, we did not generate operating cash flow during the first quarter.
But consistent with 2019, we fully expect generate significant positive operating cash flow in a second.
The quarter and full year 2020, as revenue recognition and generation and customer collections remain strong.
Let me provide an update now 2020 financial expectations.
From second quarter 2020, we expect adjusted contract drilling revenues to be approximately $785 million.
The sequential decline reflects lower activity as a result or the reduced.
Durational discover India's contract coupled with the delay and transfer to acquire those drilling program on the 712.
Q4, we Lloyd or transaction leader.
This work is going to resume in second half of the year.
For the full year 2020, we now anticipate adjusted contract revenue approximately 3 billion.
$10.
The change from our previous forecast into contracts during the third and contract adjustments recently negotiated with our customers.
We expect second quarter OEM expense to be approximately $545 million.
The slight increase quarter over quarter relates to the additional expenses incurred as a result of maintaining ALJ record operations during the cold 19 pandemic.
These include or not limited to overtime costs charter flights in contract boats include changes hotel costly extended coronary prior to an actor quotations and.
And certain logistical expenses.
Furthermore, we anticipate full year aluminum expense of approximately $2 billion.
First our priorities. This is approximately $100 million of net savings.
In the result of out of drilling of activity related operating expenses throughout the remainder of 2020 offset by approximately 45.
[music], our anticipated cost associated with our responses to coverage.
Additionally, our forecasted DNA experience full year.
You've now approximately $175 million, a $10 million decrease from our prior guidance.
Net interest expense for the second quarter is expected to be.
Approximately $847 million.
This forecast interest capitalized interest approximately $12 million, an interest income of $3 million.
We anticipate full year net interest expense gearbox.
Maybe 519 $90 million.
Were $49 million, the capitalized interest $30 million of interest income.
Capital expenditures, including capitalized interest.
For the second quarter anticipated to be approximately $55 million.
This includes.
Approximately $32 million for our Newbuild drillships under construction and $23 million of maintenance Capex.
For the full year, we expect capex to be approximately $840 million.
Which includes approximately $740 million for our two Newbuild drillships.
And $100 million on maintenance.
Our cash taxes will second quarter are expected to be approximately $12 million and approximately $15 million for 2020.
Turning now to our projected liquidity at December 31, 2021.
Including our Undrawn revolving credit facility and the potential securitization of the deepwater Titan.
End of year, 2021, liquidities estimate between 1.2 and $1.4 billion.
This liquidity forecast includes an estimated 2020 capex with $840 million.
Discussed previously and we reduced 2021, capex expectation of $815 million.
Between 21 Capex includes $750 million.
The two our legal.
And $65 million for maintenance Capex.
Please note that our capex guidance excludes any spec rig reactivations who upgrades.
In conclusion, while safety operational integrity or our prime areas of focus we are acutely aware of the rapidly changing offshore drilling environment.
So then in mind.
We will completely contracts, we will rapidly resource operations, including Ogaden DNA to effectively reduce operating fleet sites.
I'll now turn the call back over to Brad.
Thank you Mark.
Salary, we're now ready to take questions and as a reminder to the business trends. Please limit yourself to one additional question and one follow up question.
Thank you.
If you like to ask a question. Please signal by pressing star one on your telephone keypad.
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So just a moment hello, everyone and opportunity to signal for questions.
We'll now take our first question from Ian Macpherson Astellas. Please go ahead.
Thanks, Good morning, guys Jeremy.
Stepping that rigs on schedule versus what levers you have to hospital for that.
Yes. Good question and there are lot of moving part as you can can imagine of course, you got both the Atlas going to tighten underwriting under construction at the moment.
And the shipyards are challenged they have been hit pretty hard with Cowen 19, specifically in the shipyards, which caused.
Some disruptions they've had some disruptions from some of the equipment providers in terms of delays providing product.
So we're doing our best to to juggle both both assets of course, the Titan already has the contract whichever onto or were obviously mindful of that.
As I mentioned in my prepared comments it's.
Quite honestly, a bit, but a bit surprising and pleasantly surprising to me to to see that our customers who were previously interested in securing the Atlas and upgrading her to 22nd 20 K rig are still very much interested.
I would say one of the customers is looking at potentially delaying the start of their program by a few months, but that haven't changed their resolve in terms of moving forward and our other customer what the move forward at the at the pace originally.
That they originally expressed before we were all hit with as pandemic and so we're working both sides of it right now in my guess is is that the the delivery of the Atlas del slip a little bit whether that later this year early next to be determined.
But we're just we're just working right now as best we came with customers the shipyard any Oems.
Turning to work on the timing of that.
Okay got it.
Well I have to say, it's been impressive to see that.
Offshore contractors like you all have been able to continue operating through the past.
Several months with.
Without a great deal of interruption.
I would echo your kudos to your your crews and your your platform for keeping.
The rigs running but it also seems to me that theres, an added layer costs for logistics.
Extra evacuations or.
Relating crews et cetera, and although your your OEM guidance for this year has come down a little bit I imagine that's a little bit activity related is there has there been a squeeze on your margins associated with.
The.
Disruption of this of this virus and is any of that subject to negotiation for buybacks or how are you sharing that that cost of it is in fact material to you.
Ill Mark I'll, let mark handle that but I will tell you. It we are incurring additional cost as you rightly point out in Marquis give more specifics and ultimately yes, we will be talking to our customers about recouping. Some of that are all of that but that go ahead mark.
Yes, that's exactly right and good morning.
My comments I actually mentioned that we anticipate about $45 million into additional costs. This year.
Mainly around overtime.
Highly charter flights or contract bodes alright hotel costs.
Some of this is rebillable to the customers some of it maybe we're still in negotiations with customers.
But we haven't landed on that yet so you can expect to get a better update.
The next quarter.
Thats helpful well good luck with everything thank you guys.
Thank you Vic.
Thank you.
Your next question from Connor Lynagh from Morgan Stanley. Please go ahead.
Yes. Thanks.
I was wondering if we get discuss what your contract terms generally look like and I appreciate asking you to generalize many different contracts, but it occurs to me that you have not really space many contract cancellations. Unlike some of your peers.
Can you discuss generally what determines.
Cancellation for convenience look like.
Most of your contracts.
Yes, sure. Let me just they all are different as you as you probably point out in and it really matters related to weather, we when we negotiated the contracts that you think about the eight contract that I referenced in my prepared remarks that really make up the bulk of our backlog.
They're going to cash flow perspective does renegotiated before the initial downturn began in 2014 at a time when drilling contractors had far more leverage.
But but in terms of a little more specific let me just handed over to to our senior VP of marketing contracts right.
Hi, yes, and so.
We have not seen the termination is our competitors have seen then primarily the is due to stronger terms and conditions in the contracts.
Even the contract that we signed during the downturn and.
We've been pretty adamant that.
Our customers tend not to.
Dissolve or get out of the contracts without some sort of compensation coming back to us so where weve been.
I guess, particularly difficult on the terms and conditions is really to avoid the situation, where we get spurious terminations that happened quickly.
Makes sense makes the customers think twice about 10, whether it is necessary to terminate.
You know that combined with the stuff that marketing Jeremy just went over in terms of our operations in our HR teams between a fantastic job at making sure that we are able to continue operations essentially Fortunately youre.
Situations are not upon us the maybe upon the customers at which they need to say do much determinate.
In all cases of the contracts we have there's certainly.
Remedy periods and.
A time to overcome those particular instances all of the list to terminate quickly then there is a pretty sizeable PEO attached with those contracts. So.
Really that's the primary trucks over as them.
Yes, we maybe a little bit difficult on the terms conditions, but we do that to protect ourselves from a dramatic swings and activity.
We kind of which the everyone else, we do the same but set us up to them, but from from our point of view.
We do make sure our contracts are not easily cancelable.
Makes sense, thanks to the color maybe sort of shifting gears here on the cost side of things.
It seems like you guys have been running pretty efficiently. So I'm curious if activity comes down further beyond.
The variable cost affiliated with the rig itself.
What options do you have to actually further reduce your operating costs can you walk through any any opportunities there.
Yes, let me hear that whatever tomorrow.
So as I mentioned jerk on on the monetary Commerce and Jerry mentioned the same thing we have some long term contracts of the one true.
Next year to year after that that so I. Appreciate it changes is that an l., we do have contracts that one off later this year.
Our next year, we will take action to rightsize the business to reflect reduced footprint of the operating rigs. So I can't get into an excellent numbers right now, but so far we have folks supporting a rig in a certain jurisdiction and there's no real operating metrics affliction. Clearly, we'll then have to can make a decision.
With regard to how do we.
Right size the organization move those folks around or andexxa covering some of them in cases, where we reported country.
Okay understood. Thanks for the color.
Thank you define that your question has been answered you may remember yourself from the Q by pressing star too.
We'll go next question from Taylor virtue of Tudor Pickering Holt. Please go ahead.
Hey, good morning, Thank you.
Jeremy you talked about working with some of your customers that have.
Near term options.
Also.
In the initial stages of the downturn, we tend to see.
A bunch of blend and extend type arrangements this downturn seems to be a bit different where.
Clarity that such a huge premium for for frankly on every offshore driller out there and so I'm curious if you could you share what your appetite would be for for a blend and extend type arrangement moving forward.
I'll start and then I'll hand, it over to Super his thoughts I will just offer some color on the market. This has been an a very interesting couple of months I would say at the outset of this this pandemic.
Number one focus area for for Us and our customers all the other service providers, what how do we make sure to maintain.
Safe and healthy operations on the rig and so everybody really came together around.
Around that and then and then once once our customer starting to feel comfortable with it and I mentioned, they've been very complimentary the way we handled the and the team deserves.
Not me the operations team in the HR team the travel team deserves.
A lot of kudos to just them system some herculean work.
But what's our customer started to get comfortable that we had this.
Fairly well contained in our with the proper protocols in place then it started to pick.
The conversation started to shift toward Hey, could you help give us a little relief and relief with different for everybody whether that was there a read his day rate for a period of time or a blend and extend type of conversation.
And now I think we're getting to the point, where people are really customers, especially really starting to feel the pain and and that's where you've seen some some early termination from some of our peers over the course of the past the past week or so so I think the conversations are starting to morph as as we get further along in this and this crisis and we start to see how it how it open.
Currently plays out right out and if you want to share any additional color on what you're hearing specifically as it relates to potential blend and extend opportunities and how we're approaching that.
Yes, so we have seen that which is encouraging actually because it means that there is no additional work to be performed for several of the operator. So we have a couple of requests to do that.
Let me assure you will we will not be taking on them and you blend and extend into that the extension equivalent daily would be.
Cash breakeven or something like that I mean, we really view that Tim no more than ever.
Yes your costs should include all overheads.
All the amortization of shipyards, all all things associated with mobilizations and none of those should be given away for free.
We're very disciplined as Jeremy said before that we never did that in the downturn meal, we always try to maintain that.
We would have cash flow positive contracts not just from a local opex point of view, but from a corporate opex point of view as well. So we kind of feel no more than ever it's essential for driller, Stephanie if they wish to have any degree of viability to ensure those costs are fully capture than remunerated. So.
Yet blend and extend the possible, but youre not going to see them at the bargain basement numbers from from our point of view.
Okay. That's really helpful and my follow up I wanted to ask about Brazil, obviously, we've seen a big Capex reduction announcement from Patra Ron.
Bit unclear at least to me what that means for further.
Land rig needs over the next this year at the same time, a lot of the I assume that acquired acreage there frankly, havent really gotten going.
Down in Brazil, again, and probably will need to it at some point in the future. So just curious if you could give us.
A little bit of an outlook.
Over the next 12 months for for what you're seeing and hearing in Brazil.
Okay ill start and then handed over to Roddy again, but I would say, it's not exclusive to Brazil. I mean, if you look at the current environment and that dramatic drop in oil prices and the continued uncertainty about the timing that we will contain carbonite cover 19 globally and get the economy going again and create demand again for oil and gas I think everything.
It's going to get pushed to the right for a period of time and I don't think Brazil's any different.
I think we've already seen some some tenders delayed from from Petrobras, we've seen the royalties who are still moving forward, but if it kind of stalled a bit as they wait to see how this unfolded I think around the globe and every geo market for the for the most part you're going to see a bit of a bit of a delay but right now do you want to add anything specific to Brazil on that.
Yes, sure I mean in relation to the offshore drilling rigs.
Our part of the business saw a huge contraction over the last few years in Brazil, and so when you talk about the overall Capex cuts will then Petrobras is interesting to note then they havent really had many terminations of existing drilling contracts because.
They are essentially got to a little web of contracts it and in fact right now you. There's there's four major tenders out there at the moment.
Matt you know if you depending on how you can't it could be anywhere from eight to 10 rig years awarded to you know and access a 20 rig years.
So it's interesting that Petrobras is not canceled very many contracts they are still continuing on with these tenders.
And that we kind of feel that I would end of the business is not going to be dramatically negatively impacted in Brazil, because it really was.
Negatively impacted in a few years prior so we still think that there's going to be contracts awarded.
What I, what I'd, probably say is that.
There are several rigs are coming off contract in Brazil, and the next year or two and.
And is more likely that those rigs would be extended rather than seeing a significant influx of rigs.
Reason simply being that.
There's no money to bring rigs into Brazil, and less is fully compensated by the operators at this time, so one moving rigs into Brazil, Mobilizations, and then of course and complying with local standards is pretty significant rig by rig so as our view that none of the contractors will be willing to subsidize that any.
Sure.
And we would expect that the local rigs are already in there.
With pick up a lot of the work on any rigs coming from outside would be pretty significant berries. So maybe a little bit time before we see a significant influx again, but Tim it's certainly not all doom and gloom on the drilling rig outlook in Brazil. In fact, it's probably neutral compare to where it was.
Got it thanks for the answers guys.
Thank you.
Well move to our next question from Greg Lewis from BG I'd. Please go ahead.
Yes, Thank you and good morning, everybody.
Good morning.
Jeremy I guess, just bigger picture question I mean, clearly the last couple of year on year challenging, but yeah in whether it's 234 years from now.
Well make it to results in terms of the offshore rig market. So just kind of curious.
Given what you've seen over the last one to two years as you think about what maybe like a normalized slow Marvel looks like either if that's even though right word yes, [laughter] as we think no right Ed as as we think about clearly regular timing. So we're going to happen again have already started.
On the market still heavily oversupplied.
I know, it's still early in this long cycle think about whether whether its or how many rigs do we think.
Retired this time around them and what how you think about normalized just kind of curious if you give us any color around now.
Yes, you're accurate Greg I don't think our position is changed over the last five years, we've said about re reshaping our fleet.
And as kind of the premise behind that it wasn't listen we want to we want to own the highest quality asset than the ultra deepwater in harsh environment space, because that's where we think we can differentiate ourselves.
And then we started to think about okay. Within these more efficient assets are we going to need as many as we did during the last peak and if you remember back in 2014 I think the total contracted floater fleet was approaching 260 floater something in that range.
And we took a position that we're never going to get back to that that the industry with these new more efficient assets.
Mailing need 180 to 200 on the high end, maybe 20, and so we really started to shape our fleet with that in mind and if you. If you look at what we've done over the course, the last five years with respect to the multiple retirement.
As well as the acquisitions in the new build that we've introduced to the fleet that's really how we've been building building transaction.
So we get to that pandemic, we hopefully get back to some some more normalcy.
Global economy tick up demand picks up oil and gas or oil prices go back up into the pick a number 50 $60 range.
And rig start to go back to work, we still think somewhere somewhere around a 180 total floater contracted floater count still feels about right. In fact entering this year, we felt pretty good that we were going to start making our way toward that I think we ended the year with about 150 floaters under contract somewhere in that in that range or future Contra.
Got it.
And we saw demand on the horizon.
In 2020 2021 at 20000 to that gets could easily gets its the global fleet up to a number.
That that's approaching 180, and so you know if things back to normal all you airports as I say normal it could easily see a growing to do that again and really we take comfort in knowing that we've got.
Certainly all of our assets fall into that top a top when 80.
So should be fully utilized and with that I'll, let me hand, it over to ready for any his comment on that.
Yes, I think I'd also add to that let Tim you know, we're encouraged to see that some of our competitors are finally, acknowledging that the need to cold stack rigs and not keep them in the active supply and I think we all know that.
Cold stacked rigs for any length of time make some prime candidates for recycling so.
While.
We were seeing utilization numbers, claiming obviously with the cancellations that have been suffered by many we're going to see that debt, but I.
I think pretty quickly you might see that utilization numbers resigned because these rigs will be removed from supply.
So look we we applaud that but then also I think that also bodes really well for the future viability. The business as people are now going to be looking at.
The ability to reactivate is now significantly diminished.
If the if the day rates don't support it theres not going to be spare cash, especially for.
Those distress contractors to to basically put all of those into the mix to to try and grab market share any cost so.
We expect that some of that behavior will now be abated significantly and it will just be done through necessity. So one.
Actually there there could be a silver lining to this that.
So you're less rigs working means that.
You have to be working it better economics and no more disaster this free molds and upgrades.
And also maybe some tightening of contract assurance.
You're going to give away the rigs at the bargain basement prices you would hope you'll at least had some certainty around collecting those revenues so.
There could be some hard learned lessons here that perhaps we lift the entire industry in terms of them.
Economic returns on a contract assurance to.
Yeah.
Yeah, perfect, let's hope so and then just Roger you know I guess, while heavy on the phone Omnisource for year. One you mentioned the 80 projects the nine new rig years I will get on the rough math is.
In.
Average year, a one year is there anyway to kind of ships through that and really what I'm trying to get at is.
As we think about those is that going to translate into basically 80 rigs working or really buried in those 80 projects is there a lot or is that a lot of short term workers or any kind of multiyear term war excuse it that way any kind of color you could get around super helpful. Thanks.
Yeah actually I think of it what I was talking about was the the Brazil campaigns, there and yes, the answer to the duration as that all of them are multiyear campaigns and I think even the shortest one is going to be at least 12 months, but.
Again.
The the the idea by the short term campaigns.
It really is kind of moving away a little bit because typically the short term campaigns were the ones that were exploration in nature.
And then what success those would lead onto development campaigns, which tend to be a little longer.
So I think what we're seeing at the moment as them that.
Contracts that continue actually happened to be the development campaigns, because they are related to increasing production I think it in the near term the retraction in the market you will see will be primarily around exploration type activities. So I.
I would actually say you would see less short term contracts right now because that's where a lot of the terminations of come from.
And again, thanks, very much Im sure, yes, sorry, just to add to that when we when I was mentioning the 80 different campaign potential campaigns in the 90 rig years in my prepared remarks that was really spread across the globe and I think obviously, Norway continues to be or at least pre pandemic continues to be a very.
Active spot with with Lucky directly on the horizon, but we're also seeing tremendous pickup in the Gulf of Mexico, but the U.S. and Mexico side, Brazil, and West Africa, the gold trying with the will.
I think of all that.
Programs are still on the horizon as we mentioned they've just been pushed to the right a little bit in some in some areas.
First of all leases that West Africa is going to get hit hardest as result of the pandemic is there really struggling to to container.
Whether it'd be a lack of medical resources lack of social distancing.
Yes.
Maybe but but we think that area really going to struggle and so the delay.
There, maybe a little bit more than what we might see in other parts of the world.
Perfect. Thank you everybody.
Thank you.
Your next question from CRE.
Hollywood of RBC. Please go ahead.
Hey, good morning, everybody and hopefully all your families are.
Healthy and safe.
Thanks, Likewise Kurt.
I appreciate that.
So Jeremy or would it appears that a number your competitors could be heading for a chapter 11 protection.
And then not too distant future. It sells very clear to me based on the commentary from the press release and all the conference call here that.
Transaction is on very strong putting sort of financial standpoint.
Just kind of curious you know in your mindset you know when when you think about the competitive landscape going forward and now with some of your competitors substantially going through a British class capital restructuring coming out with the let's say less encumbered balance sheets and do you think that that.
Puts those companies on a on a better competitive flooding or do you still feel very confident that from an operational financial standpoint are you guys are still lead the way through the next cycle safe.
Thanks, Curt good good question and what I can tell you as we've already been through this I mean, we've had multiple competitors that have already gone through restructuring one of them, we acquired and ocean rig, but Pacific Seadrill.
Vantage all went through it and what we saw in that experience is that our customers clearly demonstrated a favorite tourism. If you will a preference for the more established drillers with the with the more solid balance sheets and our thought is that they recognize that those companies.
I had the cash to invest in the training of the people and the proper maintenance of the assets and that they were a lower risk option than it otherwise risky venture.
And so what we saw during that first phase of restructuring a couple of years ago with that we want a disproportionate number of contracts.
And so my expectation would be that as as our competitors go through that restructuring phase.
That once again, our customers will look to the low risk option, which is transition both from an operation standpoint, but also from a from a balance sheet standpoint.
And so my expectation would be that we would be able to grow market share at premium day rates during that period of time now once our competitors come out of restructuring and have the opportunity to demonstrate that they can still safely reliably efficiently operate.
They will have a lower cost base, we recognize that but my guess is they won't come through restructuring without any debt and probably not a lot of cash in so they're going to need to they're going to need to ask for day rates that help them generate enough cash to to continue to invest in their business and service their maturity, which are likely to be pushed out, but there's still going to have them and so.
So we don't we're not at this stage overly concerned about it because what we've seen play out in the past didn't support they gave any of those restructuring competitors a competitive advantage and Mark I don't know if you want to add anything to that.
No I think Thats right Jamie.
Hi, Good complex is trading awfully low known as well.
That said previously weve being opportunistic in the past who's been aggressively in the past you can expect us to liquids rich you take the opportunity this time as well to do something on all Dexter.
Awesome, that's great color increases that maybe follow up I have for would be for mark.
And liquid liquidity.
Forecast that you provided for the end up 2021.
Mark is adding include any draw on that on the revolver.
So the focus is 1.2 to 1.4 the midpoint obviously is.
1.3, which happens to be the amount of our vulgar. So about forecasts ends up being accurate and there is no need to go on the revolver.
By the end to 2021.
Alright, perfect. Thanks for that clarity appreciate it.
Thank you.
Your next question from Mike Sabella Bank of America. Please go ahead.
Hey, good morning, everyone.
One of them. So I know you guys. When you know talked a lot about getting cost down that obviously, a big focus and there was some discussion around you know.
Adding cost down off of the rig I was wondering if we could we could kind of move onto the rig like is are there any strategy. You guys are undertaking that can help bring down.
Next at the rig level, you know maybe your automation or.
Renegotiating contracts with vendors.
In technical cost down there.
Yes, so as you know since 2000 in late 2014 2015, we have aggressively look for every opportunity to safely reduce our cost structure, both on the rigs and onshore and I think the teams done a fantastic job of Rightsizing the business to fit the new reality, obviously, we're going to go to that process again, given the impact that coding.
Hi team has had on on oil prices and the business at large I would say offshore now as it comes to you know our major spend components from equipment standpoint, we structured long term, what we call care agreements health care agreements with all of our major Oems across the entire rig. So every major component we have long term.
Agreements with with the party Predefine pricing that we obviously negotiated at a pretty steep discount.
And so there's not a lot that can be done with those those are in place their multiyear and really honestly, having been in OEM myself I know, there's not a lot more for those guys to give and so not a lot. We can do there. If you look at the other big spend components on the rig you're really talking crew and fuel so from a crude standpoint, we continue to.
Look at that at all from accrued sizes. We have worked very closely with one of our customers in the Gulf of Mexico to significantly reduce the number personnel required on the rig.
If they tremendous savings.
Which mostly goes through our customer Nevertheless, it makes a our offshore operations lower costs and airport projects more economically viable. So we have undertaken efforts to reduce the size of the crew on on especially on our big dual activity seventh Gen rigs.
And then on the fuel side last year, we introduced the industry's first hybrid power system onboard a floating asset and that was on the transition Spitsbergen, we're collecting data from that right now were about four months and and and we are showing.
Lines of the pretty meaningful fuel reduction, which which obviously not only reduces our cost but also reduces our carbon footprint.
And makes us a.
More in environmentally friendly if you will in the delivery of our service and so those are really the big buckets. So is there opportunity. Yes is it a isn't going to be a game changer, probably not because we've already rig most of that that low hanging fruit, but let me turn it over to writing for some additional comments on that.
Yeah, you asked about things like automation on the rigs a NIM.
What I'd point out there are opportunities there, but we carefully analyze that on an ongoing basis, we actually have several projects on the go at the moment to assess the viability of increasing automation on the rigs, but the truth as a matter as involves investment involves buying equipment and it involves them.
Taking time ice install things so the reality of the situation is.
Unless those things are being compensated directly is unlikely to see a wholesale move towards significant automation without an injection of capital from from the end use that ultimately which is going to be the customers. So right now clearly they're not thinking about that we keep these projects on the back burner.
We keep thinking about that kind of stuff, but certainly we will not be investing heavily in these kind of technologies without a decent return.
That's great. Thanks, and then just a quick follow up if I could we just talked for a bit about working capital or are there leverage you guys are planning on pulling this year to to free up some cash from working capital and in Mark you know if we can you just kind of.
Talk through how you how you see working capital and liquidity forecast that you gave.
Yes no.
Having ongoing initiative right now with regard to looking across our fleet.
For inventory to be shared amongst rigs groups you shouldnt that last year on automated the.
Recently, so the rig move something you two things the central facility.
See what are the.
Sure when is that if it is I think it shipped to that rig. We also as we always are we were very focused on their revenue collections. So yeah, I talk to more focus as a target.
Only five days.
77 days for this quarter and refrigerant.
With regard to chasing batch.
So those two items are clearly.
What we're looking at when it comes to working capital.
But beyond that Didnt come much else, we can do on that front at this stage.
Great. If you can just due to mark Brooklyn, the $45 million I think you you budgeted for you know kind of call. It special covered type costs could you just talk through the shape of that spend I'm, assuming it's pretty twoq you heavy but just want to just want to understand it.
Yeah, it's are mainly second quarter.
Some of its moving over to the third quarter.
That's great. Thanks, so much guys.
Thank you.
And we'll use during next question from Sean Meakim with Jpmorgan. Please go ahead.
Thank you Jeremy you anyone else some plans to scrap rigs your peers are starting to some the same.
As you noted earlier, there's less cash in the system. The fund long term stacking programs compared to maybe into 2015 at 2017 downturn can you maybe just give us a sense of how much floater supply you think it come out permanently over the next 12 to 18 months.
It's difficult to say you know Sean we've never been overly hung up on the total number of floaters that reside in a database.
There have been more concerned about those that that are active or could become active in marketable with with some investment from either ourselves or from our fingers and so I.
We've got this investor Relations presentation, I think we had this lot in just about every DAC, but it kind of shows what we think is contracted supply marketable supply would've been up how many rigs need you know between five and $25 million and which rigs need more than $25 million in order to reactivate and as you look for that schedule I think we've identified 40 to 50 rigs.
That we don't think we'll ever get another contract that just because one there they're older technically less capable and or is going to require a massive reactivation of the to get them back up and running and so.
I don't think this changes that story I think maybe some of our competitors just finally thrown the talent, okay, what will officially scrap it now but.
Really not not as concerned about the the total number of supply them about transition, having the best available assets in the industry and so.
It will certainly bring down the total supply number we've already seen I mean, we've announced some some recent retirement some of our peers out as well and I guess as you'll see more of that as we work through the next several months.
I appreciate that makes sense then just it in other way of thinking about then if we go through another 12 to 18 months of relatively low level of levels of activity, perhaps you're going lower than where we were coming into 2020.
How many more of those rigs could push.
Over the edge versus that for your 50 that you mentioned previously.
Sorry, I ask again.
So the question would be.
The 40 or 50 rigs you've identified as being a unlikely never come back.
How much does that number increase if we go through an EUR 12 to 18 month period with activity levels at or below where we were coming into 2020.
Yes. Good question I don't know if that number necessarily increases, but it probably pushes some rigs far even farther to the right before they can before they can actually come out with the reactivation because the day rates just won't be there too to support it and so.
I think what you find is a much smaller active fleet globally.
And that those those rigs that do stay active start to really pushed day rate up any meaningful way before anyone can can afford to reactivate any the at that they're going to be cold stacked. During this this latest downturn.
Right and according to records as rigs cost as well will go up dramatically.
Yes, I think thats right. Okay. Thank you very much.
Thank you.
That is all the time, we have for questions Mr. Alexandria at this time I'd like to turn the conference back to you for any additional for closing remarks.
Thank you Valerie Thank you to everyone for your participation on today's call pure further questions. Please feel free to contract Tonight.
We look forward to talking with you again, when we report our second quarter 2020 results. However, good day.
This concludes today's call. Thank you for your participation you may now disconnect.
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