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Executives

Mark L. Mey - Chief Financial Officer, Chief Accounting Officer and Senior Vice President

Robert J. Saltiel - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

Gregory Lewis - Crédit Suisse AG, Research Division

Collin Gerry - Raymond James & Associates, Inc., Research Division

Todd P. Scholl - Clarkson Capital Markets, Research Division

Ian Macpherson - Simmons & Company International, Research Division

Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

David Wilson - Howard Weil Incorporated, Research Division

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

Zachary Sadow - Barclays Capital, Research Division

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Atwood Oceanics (ATW) Q1 2013 Earnings Call January 31, 2013 12:00 PM ET

Operator

Good day, everyone, and welcome to today's program. [Operator Instructions] Please note, this call will be recorded, and I'll be standing by should you need any resistance. It's now my pleasure to turn the call over to Mark Mey, Senior Vice President and CFO. Please go ahead, sir.

Mark L. Mey

Thanks, Alicia. Good morning, and welcome to Atwood Oceanics conference call and webcast to review the company's operating results for the first quarter ended December 31, 2012. The speakers today will be Rob Saltiel, President and CEO; and myself, Mark Mey, Senior Vice President and CFO.

Before we begin, let me remind everyone that during the course of this conference call, we may make forward-looking statements, which are not historical facts and are based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us. These statements involve a number of risks and uncertainties, including the risks which are described in the company's most recent Form 10-K and other filings with the U.S. Securities and Exchange Commission. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements if one of these risks and uncertainties were to occur or our assumptions prove incorrect. Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof. Now let me turn the call over to Rob for his opening remarks.

Robert J. Saltiel

Thanks, Mark, and good morning to all of you joining today's call. Our first quarter provided a solid start to the 2013 fiscal year, although it was a bit quieter than our previous quarter. I will discuss some of the highlights and update our market outlook before turning it back to Mark, who will provide color on our financial results.

A key accomplishment of the first quarter was the successful and timely completion of our planned life boat upgrade project for the Atwood Eagle in Australia. We had anticipated 25 zero rate days, but due to excellent planning and outstanding execution, our project team completed their work in only 18 days. With the project concluding just before the Christmas holidays, the Eagle was able to achieve an earlier commencement of its 18-month drilling program.

Operationally, we had a good quarter with our fleet-wide revenue efficiency exceeding 95%. Also in the quarter, we took delivery of the Atwood Manta, the second of our 3 Pacific Class newbuild jack-ups, which is now the 10th active rig in our fleet. The Manta departed Singapore in early December and mobilized to Thailand to begin its 1-year contract with Coastal Energy.

On the marketing front, we concluded 2 significant jack-up fixtures since our last call. We signed our initial contract on the Atwood Orca earlier this month with Mubadala Petroleum for a 2-year drilling program in Thailand. We had been targeting a longer term, so we are pleased to have secured this 2-year agreement. Earlier this month, I visited the PPL Shipyard in Singapore and viewed the Orca's construction progress. We remain well ahead of the initial delivery schedule, and we expect that the Orca will be delivered by early May. We also aimed to a 1-year extension of the Atwood Mako with Salamander Energy in December on top of their initial 1-year commitment and added increasing day rate. In total, we have secured 5 years of contract backlog on our 3 newbuild jack-up rigs. And while we certainly did not expect that all 3 of these rigs would begin their work in Thailand, we will be able to realize synergies for having done so.

Turning now to the market. The world macroeconomic environment has definitely improved since our last call. Almost all of the recent economic data for the U.S. and China has been positive, setting the stage for moderate economic growth expectations in 2013. Even in Europe, the worst-case scenarios are starting to fade. Not surprisingly, Brent oil prices remain strong, world stock markets are at or near multiyear highs. With oil and gas capital spending estimated to rise in 2013, fueling additional demand for offshore drilling, most industry analysts remain positive on day rates and utilization for both floaters and jack-ups, and we do as well.

Specific to Atwood's marketing efforts, the Atwood Beacon, Atwood Aurora and the Atwood Hunter are the 3 rigs with near-term availability that have our keenest focus. The Beacon is our first rig expected to become available. We now think the Beacon's current program in Israel will extend until the middle of May. We are marketing the Beacon into a number of visible opportunities in the Mediterranean, but we're also looking outside the Med as well. We are optimistic that we will secure a follow-on work in direct continuation of the current job. The Atwood Aurora's drilling campaign in Cameroon is now likely to extend into January 2014 based on the updated well planning schedules we received this month. The Aurora is well placed to remain in West Africa as we already see a few programs that line up well with the rig's updated availability date. And finally, the Atwood Hunter is likely to stay busy with Noble Energy in Equatorial Guinea until at least October. We understand that Noble may have some additional wells that could add another quarter's worth of work and take us through the end of the calendar year. We are marketing the Hunter primarily into opportunities in West Africa.

And let me close my section on marketing by adding that our marketing team is making good progress in discussions on the Atwood Achiever, the second of our A-class ultra-deepwater drillships, which is scheduled for delivery in June of 2014. We've been marketing this drillship design for 2 years since we first committed to build the Atwood Advantage, so many of the clients that we'd discussed the Atwood Advantage with are also good prospects for the Achiever. At this point, the most likely destinations for the Achiever appear to be in the Gulf of Mexico or West Africa, although we're not limited to those locales. We remain optimistic about our chances to secure an agreement on the Achiever by this summer.

This concludes my prepared comments, so I'll hand it back over to Mark, who will take us through the numbers.

Mark L. Mey

Thanks, Rob. Let me now walk you through our financial results for the fiscal first quarter ended December 31, 2012, comparing those results to the same quarter in the previous year and also to the previous fiscal quarter. Finally, I will update our guidance for the remainder of fiscal 2013.

Our diluted earnings per share for the quarter ended December 31 were $1.10 on revenues of approximately $245 million as compared to diluted earnings of $1 on revenues of $185 million for the same period in 2011. This 10% year-on-year improvement in diluted earnings per share was a result of 189 additional operating days for a total of 833 operating days during the quarter. The increase in operating days was mainly due to the Atwood Condor, Atwood Mako operating for the entire quarter and the Atwood Manta starting operations on December 9, 2012. This was partially offset by 18 zero rate days on the Atwood Eagle loss in the shipyard during the quarter.

Financial highlights achieved in the quarter include revenue efficiency of slightly more than 95%, up 3% from the same quarter in fiscal 2012. Note that the jack-up segment achieved revenue efficiency of 98.4% despite including the Atwood Mako and Manta startup operating performance. Average day rates of 282,000 as compared to 276,000 during the same period in fiscal 2012. Contract drilling margins are 55% and net margins are 29%, as compared to 58% and 35% for the same quarter in fiscal 2012. The reduction in net margins is due mainly to nonoperating line items, including increased depreciation and increased interest costs.

You may have noticed that we split out reimbursable revenues and reimbursable costs for the first time in our 8-K and 10-Q. As reimbursables begin to become material and negatively impact contract drilling margins, we feel the additional disclosure is warranted. Reimbursable revenues and costs are in line with previous quarters, but will continue to grow as we deliver new rigs and operate a larger fleet of assets. Contract drilling costs totaled $112 million for the quarter as compared to 78 for the same period in 2011, with the increase attributed to the additional 189 operating days during the quarter. In addition, the Atwood Eagle incurred an additional $3.5 million in costs associated with the 18-day UWALD [ph] and life boat upgrade project. Depreciation totaled almost $28 million as compared to $15 million for the same quarter in fiscal 2012, with the increase attributed to the addition of the Atwood Condor, Atwood Mako and Atwood Manta to our operating fleet.

Let's now compare this quarter to fiscal fourth quarter ended September 30, 2012. Despite an increase in operating days, revenues decreased by $7 million or 3% due to the Atwood Eagle's 18 zero rate days, Atwood Hunter's direct reduction as the rig change contracts with Noble Energy in mid-October. This was partially offset by additional operating days on Atwood Mako and Atwood Manta. Contract drilling costs totaled $112 million as compared to $102 million for the fourth quarter ended September 30, 2012. The increase is attributable to 78 additional operating days during the current quarter coupled with additional costs incurred during the Atwood Eagle's UWALD [ph] and life boat upgrade. Net income declined $23 million due to the reduction in margin on the Atwood Hunter and Eagle's out-of-service time and higher maintenance costs during its shipyards day in December.

Taking a look at the balance sheet. Capital expenditures totaled $322 million during the quarter which consisted mainly of the down payment on Atwood Admiral and the final payment on Atwood Manta. Long-term debt increased to $1.07 billion while cash increased to $108 million. We ended the quarter with liquidity of approximately $240 million and a debt-to-capital of 35%, up from 30% at September 30, 2012.

Let me now provide an update to our outlook for the remaining 3 quarters of fiscal 2013. Firstly, and consistent with our -- my guidance during the previous earnings conference call, contract drilling costs should range between $440 million to $460 million for fiscal 2013. The fiscal second quarter, we anticipate contract drilling costs of between $112 million and $116 million. These costs are all net of reimbursable costs. Secondly, Atwood Orca is expected to begin its contract in Thailand in early May upon delivery from the PPL Shipyard In Singapore. We anticipate a 10-day mobilization to its first location, which will be at a mode rate of 95% operating rigs. Depreciation should be flat quarter-on-quarter, and internal administrative costs should revert to a quarterly run rate of between $12 million and $13 million for the remaining 3 quarters. Interest expense should range between $6 million and $8 million for the quarter for the remainder of the year, net of capitalized interest. We expect our tax rate for 2013 to remain between 13% and 14% for the rest of the year.

As previously mentioned, we spent $322 million in capital expenditures during the first quarter, leaving approximately $300 million for the remaining 3 quarters of fiscal 2013. Of this amount, $65 million is projected to be spent in the fiscal second quarter. This amount is primarily comprised of expenditures on capital spends and project management for the remaining rigs under construction. We will continue to use a mix of cash, cash flow from operations and our revolving credit facility to fund these capital expenditures throughout 2013.

That concludes my prepared comments. I'll now turn the call over to Alicia for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Gregory Lewis with Credit Suisse.

Gregory Lewis - Crédit Suisse AG, Research Division

Rob, could you provide a little bit more detail on the Atwood Hunter? I believe the rig is in Guinea. I believe it's still working on the first well. Have you had any advanced discussions on Noble, sort of extending that other option?

Robert J. Saltiel

Yes, I mentioned in my prepared comments that while we expect that we've got a firm commitment through about October based on the well program that we see, that there's a potential for some additional work that could take us all the way through the end of the year. Beyond that, we're looking at longer-term opportunities for extension of the rig in West Africa.

Gregory Lewis - Crédit Suisse AG, Research Division

Okay. And they need to let you know that after -- I mean, before the second well starts, correct?

Robert J. Saltiel

That's correct. For the option that has been awarded as part of the agreement, that's correct. But even beyond that, we have some ideas that there may be some more work there for us in EG.

Gregory Lewis - Crédit Suisse AG, Research Division

Okay, great. And then just as I sort of shift gear over to the Beacon and the Aurora, are we seeing any sort of -- I mean, I know there's that cost escalation. Are you guys seeing sort of in the market like cost escalations related to labor? And is that flowing through into a little bit higher day rates than maybe we're seeing reported?

Mark L. Mey

Greg, obviously, you know that day rates are tied to market rates. So when we have the opportunity to push rates, we do that, as you've seen most recently with the progressive increase in day rates on the Mako, the Manta and the Orca, in addition to the increased term. So there is no direct increase to day rates from labor cost inflation or any other kind of inflation, but we certainly try and get the market rate for our assets when the opportunity arises.

Gregory Lewis - Crédit Suisse AG, Research Division

Sorry, maybe I just misworded the question. I just meant -- I mean, are you seeing noticeable cost escalations in any of these basins that have those kickers?

Mark L. Mey

No, we're not.

Operator

We'll take our next question from Collin Gerry with Raymond James.

Collin Gerry - Raymond James & Associates, Inc., Research Division

Another stellar quarter, especially on the revenue efficiency, so congratulations.

Robert J. Saltiel

Thank you.

Collin Gerry - Raymond James & Associates, Inc., Research Division

Rob, you have mentioned in your market commentary and -- balance on the jack-up and the deepwater side. I wonder if you could just kind of juxtapose these 2 markets for me, and tell me where you're seeing a tighter market, maybe near term and then over the next few years.

Robert J. Saltiel

Well, on the jack-up side, I mean, as Mark had just alluded to, you've seen the strength that's taken place in Thailand through our successive fixtures there. And if you want to think about that as a proxy for the Southeast Asia market, I think you can do that. Even as the new rigs have been coming out of the yards, and a lot of those have been coming out of Singapore, we're seeing increased demand for the newer rigs, increased bifurcation between the new rig rates and the older rig rates. And so we've been able to take advantage of that with successive rate increases and even increased term that we got on the Orca versus the initial contacts we got on the Mako and the Manta. I think in the other markets in which we operate, if you look at the West Africa market, for example, for jack-ups, we think that we're going to see some potential for rate appreciation there although we haven't had a fixture there in some time. When you look at the ultra-deepwater market, we think that overall, the outlook continues to be very good for that market in terms of demand. The new rigs that are scheduled to come out between now and the end of calendar year 2013 are largely contracted, we count somewhere between 3 and 5 rigs that may not have contacts, but we're just at the end of January here. So we think that's a pretty good take-up of the new capacity. And then as we look at the demand that we're seeing in the areas where we're marketing specifically the Atwood Achiever, we see a lot of programs that are going to be coming to the market that give us confidence that the ultra-deepwater market continues to stay strong and that we can continue to absorb the 20 to 25 rigs per year that are coming out of the yard in '13, '14 and then the beginning of '15. So everything that we're seeing from the markets suggest things are still strong. It's fair to say that when you get into the holiday period, kind of late November through early to mid-Jan, that's a quiet period in our space. So some folks have made comments about things seem to be slowing down, but I think that's a bit of a seasonal effect. It's also not atypical in this market to have a kind of a flurry of fixtures and then a pause. And we certainly saw a lot of fixtures there in the second and third quarters of calendar 2012. So we feel very good about where both markets are going, ultra-deepwater, as well as the high spec jack-up.

Collin Gerry - Raymond James & Associates, Inc., Research Division

That's an interesting comment on the seasonality and the lumpiness of fixtures. I tend to agree, when you look at that stuff, especially on the fixtures side, when you look -- if you think about that same kind of thought process on tenders, do you also see kind of as your customers get their budgets together and understand what they're really working with for the balance of the year that maybe the amount of outstanding tenders in January isn't as high as maybe say February or March? Is there some seasonality there or is it mostly on the fixtures side?

Robert J. Saltiel

I think you're going to see a bit of both, but I think it's definitely fair to say that budgets are typically set in the October-November time frame, and before folks can go to the market with confidence, they're going to need to have gone through that process. In some cases, there will be some foreshadowing by clients about things that they expect to get approved. In other cases, especially with potentially updated and increased expectations for, let's say, oil prices, there may be some additional budget monies that get allocated late in the year, which may give rise to, let's say, incremental exploration programs. Development programs are determined well in advance, but the incremental exploration programs can be a function of the budget process, which of course is a function of the cash flow process. And I think with the expected rates that folks are looking for in oil prices, that certainly bodes well for incremental increases in activity in 2013.

Collin Gerry - Raymond James & Associates, Inc., Research Division

You just had to throw the oil price forecast that way, didn't you?

Robert J. Saltiel

Well, we're not going to predict that we can read the tape as well as anybody, but I think that the -- as I mentioned, some of the news coming out macro-economically is supportive of higher oil prices. And again, some of the things that we were really concerned about in terms of world economic malaise seem to be fading to some degree and, of course, that's going to give strength to a longer and more buoyant oil price in 2013.

Operator

We'll take our next question from Todd Scholl with Clarkson Capital.

Todd P. Scholl - Clarkson Capital Markets, Research Division

Let me first echo Colin's comments of praise on the great job on the revenue efficiency front. And let me ask -- my next question will be, now with the contract you have for the Orca, your speculative newbuild program is no longer speculative. Should we expect to see any more potential jack-up orders for you, or are you guys kind of now full steam ahead focused on expanding the floating fleet?

Robert J. Saltiel

Well, we certainly are pleased with how our jack-up build program has developed. And as I mentioned, getting 5 years of backlog on these 3 rigs kind of right out of the yard, we think we've done quite well and it really confirms for us the confidence we had in the design of the rigs and our expectations of where the market would be. Going forward, we don't have any direct plans at this time to add any more high spec jack-ups. We took a pause on that program to really focus on the ultra-deepwater, but we certainly believe there's value in having a premium mixed fleet of assets. We think that we've done well balancing those. But as I say, at this point in time, we don't have any exercisable options or any direct plans to add to the jack-up fleet. We do, however, still retain an option to build an ultra-deepwater drillship, which would be our fourth if we decide to do that. So that's probably our next incremental growth opportunity that the management and the board will consider.

We do have, of course, 2 ultra-deepwater drillships, the Achiever and the Admiral, that don't have their contracts yet. But as long as we feel their strength in the market and as long as we continue to get good contracts on our rigs and potentially expand our backlog, we're going to be growth-biased. But we want to be careful that we don't overdo it, and we want to the careful that we're getting good returns on capital for our shareholders. So that's really where our focus is in terms of growth. But down the road, it certainly wouldn't -- shouldn't be surprising to our investors to see us step back into the ultra-deepwater -- sorry, into the high spec jack-up space and add capacity there.

Todd P. Scholl - Clarkson Capital Markets, Research Division

Great. And I just kind of wanted to touch on some comments you made earlier, particularly around the Southeast Asian market on the jack-up front. I mean, that does seem to be a market that we've seen a lot of strength. And all the commentary we've heard really has been pretty bullish. But are you concerned at all for that market as a number of these jack-ups that are being delivered this year come into the market, some of which without contracts? You don't think that could potentially put pressure on the Southeast Asian market, that's not something you're concerned with?

Robert J. Saltiel

Well, I think it remains to be seen how the uncontracted rigs, in particular when they come into the market, how they impact the supply and demand balance. Thus far, I think all of us who are in this space have been pleased with the orderly absorption of the newbuild capacity. And again, the fact that we've gotten the commitments that we've gotten on our rigs, I think, is suggestive that the operators don't believe that this market is going to fall off anytime soon. I mean, one of our customers actually extended by an extra year without any requirement to do so, and then, of course, we just got a 2-year contract. So if there was really imminent concern that this market was going to oversupply, we probably wouldn't have gotten 2-year deals on 2 of the 3 jack-ups. So I think it's something that we'll need to continue to watch, but we are very big believers in the value of these new assets in terms of what they offer in terms of drilling capability, flexibility and safety and redundancy. And we think that they're going to continue to find their way into the market and -- either as the pie expands or to replace existing, aging capacity. We're really not too concerned about those rigs going to work. We'll have to watch and see what kind of impact they have on the overall market in the months ahead.

Todd P. Scholl - Clarkson Capital Markets, Research Division

Okay. And I just have one last quick one, real quick. On the -- you mentioned earlier that the Achiever and the Admiral are more likely to end up in the Gulf of Mexico or West Africa. I was just wondering, is that kind of a deliberate focus or deliberate decision on your part, given the fact that you had put the Advantage in the Med, which is more of an emerging market?

Robert J. Saltiel

No, I was really referring specifically to the Achiever, and that's really more a function of the opportunities that we're seeing in our discussing related to a 2014 delivery. I think going forward, when you look at the Admiral, which would be coming out in early 2015, it may be a different story. But our focus right now in terms of marketing those rigs is on the Achiever. And again, we see a larger number of opportunities in the Gulf and West Africa than some other places. That's not to say there aren't other opportunities elsewhere, but that's where we're focusing most of our marketing efforts.

Operator

We'll take our next question from Ian Macpherson with Simmons.

Ian Macpherson - Simmons & Company International, Research Division

I also will echo the congratulations. It does seem at times that you guys operate in a different field than your peers. I know that it's not easy, but your results tend to make it look easy. But that being said, some of the concerns that we've seen with companies that are significantly ramping up new ultra-deepwater assets are the cost issues that come in front of that, and we haven't seen that yet with Atwood. And I just want to get your comments on sort of how you think about the risk of controlling the rollout. You've done it very efficiently with jack-ups, but as you're taking in drillships, do you think that we should be concerned about that type of raw cost risk and maybe for whatever reason, more revenue efficiency risk than what we've seen with your deepwater semis that have been delivered?

Robert J. Saltiel

Okay. Thanks, Ian. I think that we have done a good job thus far in terms of delivering new rigs and getting them to work and having them stay on the payroll to a very large degree even in their early days. But that's not to say that you're out of the woods if you've got 3 or 6 months under your belt. I mean, we definitely want to keep our focus on maintaining that high level of revenue efficiency on all of our assets. The jack-ups here that will be coming out, we've got 2 of them out, we've got one more to deliver. And then the Atwood Condor is still really in its early days in drilling in the Gulf of Mexico. I think one of the things that really has helped us out is choosing common equipment both within our classes of rigs, and in the case of the BOP, across the jack-ups and the floaters. And we've got common drilling packages, and again, for the floaters, common riser equipment. So what we're trying to do is learn all of our lessons once and then apply those lessons learned across the rest of our rigs in the class or again in some cases, across the fleet. And so I do think we have an advantage in our ability to learn how our equipment should be run, and if there's any deficiencies, how we can correct those deficiencies and get some scale and how they get applied to the rest of our fleet. Going forward, there's no question that getting the proper trained, competent personnel for the ultra-deepwater drillships is a challenge for the industry. We've got tremendous growth in the ultra-deepwater slated, and we, like others, are making sure that we don't deliver a rig unless our people are competent and trained in how to operate that. I think we've done quite a good job in our ability to attract the right people to Atwood Oceanics. I think people like our growth story. I think they like the fact that we're the combination of an established driller who's been in the business for almost 45 years, but at the same time, we've got this tremendous growth potential and ramp within our portfolio. And yet, we're a small enough company that you can have an opportunity to feel like you're part of something personally as opposed to just, if you will, disregarded or a footnote to the story. So I think that, that certainly helped us in terms of attraction. And then going forward, we got to make sure that we stay competitive in terms of how we maintain our benefits and compensation. So I think all those things are challenges for us and for others. But right now, we feel like we've got a good formula, and we're going to continue to execute against that as we deliver the Advantage and the Achiever and the Admiral.

Ian Macpherson - Simmons & Company International, Research Division

Very good. As a separate follow-up, Helmerich & Payne, on their conference call shortly before yours, talked about their intent to monetize their shares, which is as you knew, they're obviously have been a long-term strategic holder. I wonder if they've talked to you about that plan, and how you think about that shareholder possibly exiting Atwood. And if they do that, if that influences at all your thoughts on share repurchases or if we will continue to expect you to allocate capital purely to growth.

Robert J. Saltiel

Yes, I don't want to say too much about Helmerich & Payne's specific plans because we'll leave that to them to communicate to the market. But it's certainly been our understanding that in the longer term, they'll divest of that stake either partially or fully. And the trend has been for them to reduce their interest in Atwood over time, having gone from a near 50% share to where they are today. But I don't want to speculate on what we might do if they do reduce their shares, but we'll just have to see how that develops.

Operator

We'll take our next question from Byron Pope with Tudor, Pickering, Holt.

Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

I have dialed-in late, so I don't want to rehash ground that's already been covered. So I'll de-queue.

Operator

We'll take our next question from Dave Wilson with Howard Weil.

David Wilson - Howard Weil Incorporated, Research Division

Rob, with 6 ultra-deepwater rigs, 3 deepwater rigs and 6 jack-ups, can you remind us again on where you think the optimal fleet size is for Atwood, I guess, in particular on the ultra-deepwater class? You kind of already answered the jack-up class size already.

Robert J. Saltiel

Yes, I mean, I think the ultimate size [Audio Gap] and that we can absorb the growth and not compromise our safety and reliability. I think those are the key parameters that govern how big this company get. And of course, getting the right returns as a function of whether we have confidence in the market being there to give us the contracts we need so that we can get those returns. But I'm not sure I'm ready to say that there's any governor on the size of our business as long as we have opportunities to do positive NPV transactions.

Operator

We'll take our next question from Matt Conlan with Wells Fargo.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

I do have a technical question on your revenue efficiency. Was your revenue efficiency impacted by the 18 down days on the Eagle or does the denominator in that exclude those days?

Mark L. Mey

Excludes those days, Matt.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

Okay. That's what I thought, just wanted to double-check. And unrelated, I wanted to follow-up on what's your current thoughts or opportunities are for the potential disposition or reactivation of your cold stacked rigs, the Seahawk and the Cross?

Robert J. Saltiel

Yes, I mean, there's really nothing new to report there. Those rigs are not being actively marketed right now. We do periodically field inquiries about those rigs, either to reactivate or potentially for others to purchase those rigs. And we're certainly open to looking at opportunities to monetize those because right now, they're not contributing to the Atwood story nor are they contributing to our income story. So we'll just have to see where that gets this year. I mean, with the market strengthening, I think that improves our opportunities to find a way to either divest or reactivate. But at this point in time, there's nothing certain for us to be announcing.

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

Okay, so I guess you're being more opportunistic with it, you don't have any firm deadline to jet us in them from the fleet?

Robert J. Saltiel

No, we don't. I mean, both of those rigs have been stacked really for less than 3 years, and they're both in great shape. Obviously, we don't want to do this indefinitely. We were certainly pleased to be able to divested of the Richmond last year and longer term, we do want to monetize these again either through reactivation or through sale, but there's no plans for anything immediate this year.

Operator

We'll take our next question from Zachary Sadow with Barclays.

Zachary Sadow - Barclays Capital, Research Division

Considering the wave of jack-ups that will be coming into the market in the coming 2 years and being able to re-contract it, and considering your relatively healthy balance sheet and solid jack-up experience, do you think you might be in a position to help consolidate the jack-up market?

Robert J. Saltiel

Well, I think that it's always an opportunity for those of us who are in this space, is to take a look at whether there are occasions when buying makes more sense than building. We really embarked on our growth strategy in earnest around the jack-ups in October of 2010, and clearly at that point in time, it was advantageous to build. But going forward, if you're suggesting that while our rigs are contracted, there may be others that are struggling to find work, and the cost of purchasing those rigs goes below build cost, or adjusting for time value, goes below build cost, would we consider buying? I think the answer has to be yes. But that would have to be a careful consideration given that a lot of times when you buy things you don't get the kind of synergies we've been able to build through constructing like-minded the rigs with the common designs. But there's no question that if there were opportunities down the road for well-priced acquisitions, we would look at those.

Zachary Sadow - Barclays Capital, Research Division

Great. And then looking out to 2014 through 2015, you guys should be coming up in pretty nice free cash flow expansion. How should we think about some of the ways you're looking at this in regards to further fleet expansion versus returning cash to shareholders?

Mark L. Mey

Zach, if you look at over those next few years, we got to become cash flow positive, free cash flow positive in 2015. So we still have at least 2 years, 2.5 years, before we get to that point. Obviously, when we get to 2015, all the option is on the table, from returning cash to shareholders or repurchasing shares. But as Rob said previously, we have not communicated any desire to stop the growth initiative that we have underway. So in the interim, there's a good chance that we could be adding additional assets to the fleet over the next few years. So I think it's a question we're going entertain in 2015. It's still quite a ways in the future.

Operator

[Operator Instructions] We'll take our next question from Darren Gacicia with Guggenheim.

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Two things. One kind of a higher level. We've seen sort of activists come in this space now, trying -- wanted to get your thoughts about what that may kind of mean on a go-forward basis for how maybe you think about your structures. I know dividends have become a bigger part of that activist’s logic. What do you think that, that does for kind of the industry, and how do you think about that in terms of Atwood?

Robert J. Saltiel

Well, I'll offer a commentary on that. I think what I've seen over my career is activists tend to go where the opportunity is the greatest for companies that may not be executing against their strategy or who have obvious opportunities that aren't being exercised. I think our goal as a management team is to make sure that we're pretty transparent in terms of what our strategy is and to execute that to a very high degree. And so a lot of this activist discussion is taking place in the industry. We understand why it's taking place where it is. I think for Atwood Oceanics, our goal is to continue to focus on keeping our rigs running at a high degree of revenue efficiency, adding capacity very carefully, making sure we do it at the right prices with the right designs, that we've got confidence in getting the right contracts. And I think as long as we continue to do that, we're going to be creating value for our shareholders. And then as Mark said, to the extent that we don't have opportunities to grow our business in a positive NPV way, we absolutely will look at the proper vehicles to return cash to our shareholders. Again, that's just a discussion that doesn't take place in 2013. It's more of a 2015 discussion. But I think as we do all those things, then the activists will probably find more fertile areas to play.

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Sure. The one thing that sort of impresses me given the question on HP earlier though, and it's something I sort of offer up for comment and welcome replies, that it would strike me given your cash flow profile into '15 starts to ramp up pretty extremely. Your funding needs are relatively minimal, given what you have left to deliver according to my math. It would strike me that there's an opportunity if you went possibly to a fuller payout model on re-rate it on a yield basis, you could kind of create an exit strategy for the HP shareholder at a premium to NAV for possibly even tap that kind of NAV premium paper as a financing vehicle for future growth. Is that something that's been considered in some way? I'm not resorting towards an MLP, but more of just kind of a path on straight equity.

Robert J. Saltiel

Well, you covered a lot of ground there. You've obviously given this a lot of thought. But look, we're going to look at what makes sense for us in terms of returning cash to shareholders, whether those are large shareholders like H&P or others. And again, I think as Mark said, it's just a little premature to be definitive on how we're going to address that issue. And also there's a question of when, because keep in mind, we still have additional growth opportunities that we can look at between now and then that could push out that point of cash flow generation a bit further. But look, we know over the next couple of years, that's going to become more in view and more of a discussion point. And I would just say a few quarters from now, we'll be much better able to be proactive on that discussion.

Operator

[Operator Instructions] It appears there are no further questions at this time.

Robert J. Saltiel

Okay. Well, if there are no more questions, we thank everybody for their interest and look forward to having you join on our May call.

Operator

This does conclude today's teleconference. You may now disconnect, and have a great day.

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