Q2 2020 Noble Corporation PLC Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Noble Corporation plc second quarter 2020 results at this time opportunism, it's going to listen only mode. If required any further assistance. Please press star zero.
I would now like to turn the conference over to your speaker for today Mr., Craig mere head Vice President of Investor Relations and Treasurer.
Thank you and welcome everyone to Noble Corporation second quarter 2020, <unk> earnings Conference call.
We appreciate your continued interest in the company.
You can find a copy of noble earnings report issued yesterday evening, along with the supporting statements and schedules on our website at noble core dotcom.
For today's call, we will not have a question and answer session at the end of the prepared remarks.
Before I turn the call over to Robert Eisler, I'd like to remind everyone that we may make statements about our chapter 11 filing restructuring activities are planned operations opportunities plans operational or financial performance the drilling business or other matters that are not historical fact, and our forward looking statements that are subject to certain risks and uncertainties.
Our filings with the U.S. Securities and Exchange Commission, which are posted on our website discuss the risks and uncertainties our business and industry in the various factors that could keep outcomes of any forward looking statement for being realized.
Including resolution of a chapter 11 cases, our ability to consummate our restructuring is contemplated the impact of cobot 19 pandemic on noble's operations, 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're referencing non-GAAP financial measures on the call today, you will find required supplemental disclosure for these measures, including the most directionally directly comparable GAAP measures and an associated reconciliation on our website and with that I'll now turn the call over to Robert Eisler, President and Chief Executive Officer of Noble.
Thank you Craig.
As previously announced on July 30, Onest Noble filed for chapter 11 protection under the U.S. bankruptcy code.
This was not a decision we made lightly or without evaluating a number of potential alternatives.
We ultimately determines that a comprehensive restructuring path best position interval to meet the challenges we face in the current environment and to create a strong and appropriate financial foundation to support our industry leading operations.
We assign a restructuring support agreement with several of our largest bondholders and plans to convert our bonds into equity in the reorganized company and those bondholders have committed to invest an additional $200 million in the company.
Additionally, a steering committee of our existing bank lenders has agreed in principle to a new 675 million dollar revolving credit facility with our existing bank group.
We also have had discussions with the Paragon Litigation Trust.
Which we think is the right path to get to a resolution of this case hopefully soon.
While there is clearly work that remains to be completed before we emerge.
We're very pleased to have obtained to have obtained this consensual deal and are optimistic we will navigate through the core process in a relatively expeditious manner.
Given the status of our having filed for chapter 11, and the related activities, we will not be holding a question and answer session on todays call and I hope you understand our position there.
It is important to stress that we remain absolutely committed to delivering operational excellence for our customers.
It is our balance sheet that needs to be fixed not the company.
We plan to pay all of our employees and vendors in fall, while our day to day operations continue uninterrupted.
Our legacy was built through operational excellence in customer satisfaction.
While this is a significant event in our company's history, we will not lose focus on our core competencies or change the way, we do business with our customers.
Richard will address our restructuring again and just a moment.
But first I would like to give you an update on our operations in the good work. The noble team is doing and we'll continue to do around the world.
As everyone knows our industry is dealing with one of the most difficult environments, we have endured in decades.
I've heard the current market described is perfect storm or a double black Swan event.
Whatever the label, we've seen a significant disruption in our business.
During the current 19 pandemic, our primary focus has been on keeping our workforce safe and maintaining the high operational standards that our customers have come to expect from noble.
Travel restrictions have created a challenge for crude changes with 14 day quarantine before travel to many regions or outright travel restrictions in some cases.
This is difficult on our crews and their families who had to endure much longer hedges and more time away from home.
We've organized quarantine procedures for the most difficult regions that allow us to pre change regularly.
But the time away from home is still difficult for crude.
Our covered 19 response team has done a great job of organizing the very complicated logistics.
And our offshore crude has stepped up to the challenge and done an incredible job keeping our rigs running.
I cannot be prouder of the men and women of noble and would like to offer my thanks and appreciation for the many individual efforts that have collectively allowed us to continue operating our rig during this most challenging uptime.
Far from the Green shoots we were seeing a 2020 began operator drilling plans have been flashed across the board and we expect the depressed activity level to persist well into 2021.
Tender activity in the second quarter was down 50% from Q1 and offshore rig contractors have lost $1.3 billion of backlog since March due to contract being early terminated or canceled prior to start.
While the focus the recovery remains unclear offshore exploration and development remains a key component in the global in the supply of global oil.
With a growing number of rigs coming out of the global rig fleet. We believe the supply demand dynamics will be more favorable coming out of this downturn than the previous downturns.
And.
During the trough divest properties will still be drilled such as those in the Guyana surname Basin, where another significant discovery was announced last week.
Despite the very challenging backdrop noble has continued to outperform the market with respect to marketed utilization.
In our floating fleet the drillship noble Sam Croft is currently working on a very successful program for Apache in Suriname and.
And we will complete our contract there in the fourth quarter.
I'm excited to announce that earlier this week Exxon Mobil awarded the noble Sam Croft, a new six month contract to drill offshore Guyana with operations commencing in the fourth quarter 2020. After the rig finishes its current program.
This contract was awarded under the previously announced commercial enabling agreement established with Exxon level earlier this year.
We did experience a temporary pause on the noble Tom Madden due to covert related travel restrictions, but returned to full day rate in early June.
So with this award all four levels high specification HHR drill ships will now be contracted to Exxon Mobil in Guyana, expanding our relationship with a valued client in one of the world's most exciting deepwater basins and deepening our footprint in this emerging region.
Gulf of Mexico, Drillship utilization has dropped by about 20% as contracts roll over with few new opportunities.
But still has a stable base of long term contracts.
Also.
While rates are trending downward early indications reveal they are holding up better than 2016 2017 loads.
Our two rigs in the region the noble Globetrotter, one in globetrotter to remain on contract with shell into 2022 in 2023, respectively.
The noble Clyde Boudreaux has been impacted by the market conditions with the cancellation of its previously announced contract in Vietnam.
We are bidding into multiple opportunities now, but the rig we'll see some downtime and is currently mobilizing to Malaysia for warm stacking.
Five of our floaters are currently cold stacked in not marketed.
We are evaluating options for these units, including selling your scrapping and we'll closely manage any spending related to our cold stacked rigs.
Turning to our Jackups in the North sea outside of Norway. The spending outlook has dropped 21%. This year's operators review cancel or to further work scopes.
Four of our Jackups rolled off contract between March and April.
In which was a challenging time to be looking for work.
The noble hands dual and noble Houston Colbert remain warm stacked.
But the noble Sam Hartley in the noble Sam Turner received two of only for contract awards outside of Norway. Since the conclusion of the first quarter.
These contracts position the rig very well for follow on work in the region.
The Norwegian market has gotten a basis through a recently passed tax relief package by the government.
Projects I mentioned before the end of 2022 will benefit from the new tax measures, resulting in meaningful improvement project economics, and we expect new projects to be fast tracked on the Norwegian continental shelf over the next two years.
The noble Lloyd Noble has performed extremely well on the Mariner platform in the UK sector supporting our discussions for follow on work.
The rig isn't one of the most tech is one of the most technologically advanced in the world and we remain hopeful that we will be able to secure incremental work following its current contract.
In Australia, Jackup demand fell to one rig in the quarter.
Fortunately for us it was a noble Tom processor.
Instead experienced a period of covert related standby time, but went back on full David day rate in mid July.
We are currently chasing several opportunities for follow on work in the country.
Our lastly status report disclosed an extension for the Mega brand in Qatar until November.
We are hopeful they exceptional operational performance will lead to additional work in the country.
Saudi Aramco has suspended the noble Scott marks which began its one year standby period on May 10.
This suspension is not a reflection on the rigs performance, but rather a ramcos global respond to the change in oil prices.
We have also agreed to a day rate reduction on the novel, Roger Louis, which will put the day rate at $139000 per day effective from April Onest 2020 through the end of 2021.
Good day rates for the noble drowning goodstein enable Joe night remain unchanged.
Despite the challenges we continue to perform very well for Aramco.
Earlier this year the novel Roger Louis received recognition from Aramco for successfully delivering a well 64 days ahead of schedule.
And with the lowest recorded last time percentage of 2.95%.
We are pleased to deliver this type of performance to evaluate longstanding client in Saudi Aramco.
The Regina Allen the finishing its program in Canada, and we'll move to Trinidad and Tobago to start work there in September.
We expect the efficiencies of the Jay you 3000 in design to compete well in the Trinidadian market, providing an opportunity for follow on work in the region with broader market recovery.
I'll now turn the call over to Richard to give an update on our financial results in more details on our restructuring process.
Thank you Robert.
Good morning, everyone.
I would also like to welcome each of you on today's call and thank you for joining US I will start my comments with some highlights of our second quarter results and then give an overview of our restructuring support agreement and what we're trying to achieve through this process.
As announced yesterday noble concluded the second quarter Twentytwenty with a net loss attributable to the company a $42 million or 17 cents per diluted share on total revenue of 238 million.
Our EBITDA in the second quarter was $58 million after adjusting for pre petition charges for professional fees related to our chapter 11 filing and an increase in legal contingencies related to ongoing litigation.
This compares to EBITDA of 91 million in the first quarter.
Hi contract drilling services revenues were down 47 million from the first quarter to 220 million in the second quarter.
This is due to a number of rigs rolling off contract in late first quarter and early second quarter.
However, we have focused hard on managing costs closely with contract drilling costs being reduced 17 million quarter over quarter totaled 144 million in the second quarter, which includes approximately 3 million of costs in the quarter related to Echo 19 response efforts.
On our last earnings call, we discussed our move to improve efficiency and reduce actual base and DNA spending by $25 million on an annualized basis, excluding restructuring related costs, we're continuing to work diligently to find additional areas of efficiency without sacrificing our operational excellence.
Our capital expenditure estimate for the full year Twentytwenty is in line with our estimates at the end of the first quarter and is expected to range between 165 and $175 million of which we anticipate reimbursement from our customers between 50 and 60 million.
Additionally, we previously referenced the anticipated cash tax refund of approximately 152 million as a result of the can act provisions.
During July we received roughly 134 million of this refund and anticipate to receive the remaining $18 million before the end of the year.
In addition in July we also received roughly 19 million in refunds related to closures of certain prior year tax audits.
These tax refunds received in July bolstered our cash position at the start of the third quarter.
Last week, we signed a consensual restructuring support agreement with a number of our largest bondholders that calls for the full equitization of all of our outstanding bonds, which total over 3.4 billion today.
As of July 31st approximately 70% of the aggregate principal of the Twentytwenty six counties notes and approximately 45% of the aggregate principal of all our other notes while the always say described as our legacy notes have signed up to support the agreement.
We're very encouraged by the support we have been shown by our bond holders and our banking partners in coming to this consensual agreement to recapitalized, our balance sheet, which will be implemented through a voluntary chapter 11 process.
The same group bond holders have committed to provide 200 million of new investment into the company in the form of secondly notes with a seven year maturity.
The company will have the option to pay cash interest on the new notes, hi, interesting kind or pay some combination of cash interest and pick.
This will further allow us to manage our liquidity and cash outflows, providing incremental flexibility to the company.
We have also agreed to a term sheet in principle with a steering committee to our existing revolving credit facility lenders to provide a new five year 675 million secured first lien revolving credit facility, which will provide meaningful liquidity and a multi year extension of our banks.
Credit commitments.
As a result of our current cash balance we expect to have sufficient liquidity to manage through the duration of our Bart bankruptcy proceedings without the need for additional financing.
We currently have 545 million of borrowings on our credit facility that we anticipate will be paid info either through refinancing with borrowings under the new revolving credit facility or three cash pay down.
At emergence we expect to use the proceeds from the second lien bond and any remaining excess cash to pay down borrowings under our credit facility.
This will free up borrowing capacity on the new revolving credit facility and bolster our liquidity add emergence.
These agreements are not final as they still require additional support from bondholders and banks compliant with certain conditions and then approval by the court.
There is more information in our 8-K filed on July 31st and additional details are being developed.
Both the new first lien credit facility and the second lien notes are scheduled to become effective upon emergence.
We currently anticipate that we will complete the chapter 11 process and emerge as a restructured company before the end of the.
In connection with our restructuring announcement shares of our common stock I'd be delisted from the New York stock exchange and as of Tuesday have been listed for trading on the over the counter Pink exchange under the ticker and E. B L. Q.
As shares will continue to trade here until the final conclusion about chapter 11 cases.
Upon emergence we intend to regain listing status for the restructured company.
As Robert mentioned, we spent considerable time evaluating numerous alternatives to address our balance sheet issues.
The comprehensive restructuring, which we now have engaged in will provide significantly reduce leverage and corresponding interest expense.
And enhance liquidity position and improved cash flow after financing costs, which will create a much more sustainable capital structure for us as we navigate the current market conditions.
I will now turn it back to Robert.
Thanks Richard.
We are facing many challenges as an industry and that had to make a lot of hard choices.
Restructuring is clearly a major event for our company, but it does not deterred our focus to maintain our reputation and our brand.
We will continue to deliver operational excellence for our customers, we will work safely and we will be good stewards of the environment.
These are things that we do well and the people that come to expect from noble which is why we are fortunate enough to have many great relationships with discerning customers.
We're pleased to have received this support of our lenders and note holders in a consensual deal I'm, especially proud of the men and women at noble has continued to deliver operational excellence for our customers every day and I'm confident that on emergence from chapter 11, the strength of our operations combined with a solid financial platform will position novels.
To lead the industry.
That concludes our prepared remarks. Thank you for your participation in our call today and I'll now turn it back to the operator to close the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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