Rowan Companies Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.27.14 | About: Rowan Companies (RDC)

Rowan Companies (NYSE:RDC)

Q4 2013 Earnings Call

February 27, 2014 11:00 am ET


Suzanne M. Spera - Director of Investor Relations

W. Matt Ralls - Chief Executive Officer, Director and Chairman of Executive Committee

Thomas P. Burke - President and Chief Operating Officer

Mark A. Keller - Executive Vice President of Business Development

J. Kevin Bartol - Chief Financial Officer, Executive Vice President and Treasurer


Robert J. MacKenzie - Iberia Capital Partners, Research Division

Thomas Curran - FBR Capital Markets & Co., Research Division

Gregory Lewis - Crédit Suisse AG, Research Division


Greetings, and welcome to the Rowan Companies Fourth Quarter and Full Year 2013 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Suzanne Spera, Director of Investor Relations. Thank you. You may begin.

Suzanne M. Spera

Thank you, Melissa, and good morning. Welcome to Rowan's Fourth Quarter and Full Year 2013 Earnings Conference Call. Joining me on the call this morning are Matt Ralls, Chief Executive Officer; Tom Burke, President and Chief Operating Officer; Mark Keller, Executive Vice President, Business Development; and Kevin Bartol, Executive Vice President and Chief Financial Officer, who will have prepared comments.

Before Matt begins his remarks, I'd like to remind you that during the course of this conference call, forward-looking statements may be made within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements about the change in corporate structure, as well as statements as to the expectations, beliefs and future expected financial performance of the company that are based on current expectations and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected by the company. Other relevant factors have been and will be disclosed in the company's filings with the SEC.

With that, I'll turn the call over to Matt.

W. Matt Ralls

Thanks, Suzanne, and good morning, everyone. This will be the last time I'll actively participate in a Rowan earnings call, so I want to say how much I've enjoyed meeting and talking with all of you over the past 5 years about the exciting opportunities facing Rowan.

While we've had our ups and downs, overall, I'm extremely pleased with the tremendous progress we've made in terms of putting in place the strategic changes we outlined in early 2009. In the interest of time, I won't go through them all, so suffice it to say that with a lot of hard work by a very talented and dedicated team and some fortuitous market timing, we have successfully focused the company exclusively on offshore drilling with one of the youngest and most capable fleets of jack-ups and ultra-deepwater drillships in the industry. The design and capabilities of our rigs are such that despite the addition to the world fleet of more than 171 jack-ups in the latest building boom, our high-spec jack-ups have continued to roll the higher day rate contracts over the past several years, reflecting both their superior capabilities and the demand for our own operated jack-ups.

On the drillship side, the delivery of our first ship in January went very smoothly, with the exception of some equipment delays, which our deepwater team has done a great job of working around. And first revenues are expected in April. We contracted the first 3 of our 4 newbuild drillships, and day rates were at the top of the market when they were contracted. We're confident we will get contracts for the fourth at a market-leading day rate between now and when it is delivered next spring.

Because of the young, high-specification makeup of our fleet, we face much less of the competition of newer rigs on older-generation rigs than do most of our competitors. The advantage of our fleet positioning is reflected in the consensus of analyst estimates, showing that Rowan has the highest earnings growth potential among our larger competitors between 2013 and 2016, the majority of which earnings for us are based on contracted backlog. Having committed over $6 billion to new jack-ups and drillships over the past several years, our emphasis for the near future is to continue to execute at a high level to ensure we deliver on this strong earnings potential.

With that, I'll turn it over to Tom for his comments on our operations.

Thomas P. Burke

Thanks, Matt, and good morning, everyone. For the fourth quarter and the full year 2013, we are fairly pleased with our operational results. We ended 2013 with our best safety performance and operational downtime years on record. We're extremely proud of our employees for achieving these milestones.

However, these results were offset by challenges that increased out-of-service time on the Gorilla VII, one of our higher day rate rigs. This had a negative financial impact on the quarter. I'll discuss the Gorilla VII in more detail in a moment.

Our operational downtime was less than 1% for the fourth quarter and almost exactly 1% for the full year. We believe that our 2013 revenue efficiency of 99% is world class, and we will maintain our focus to continue this performance.

During the quarter, our out-of-service time was 10%, which was an improvement from 13% in the prior quarter but slightly higher than our guidance of 9%. With respect to the Gorilla VII, as I mentioned last quarter, we experienced leg damage as the rig was leaving an offshore location. Completing the expensive repairs and waiting for appropriate weather conditions to move the rig to its next job resulted in 174 days of off-rate time in 2013 and $0.43 per share in lost earnings. For the fourth quarter specifically, there were 92 days off rate and $0.20 per share in lost earnings.

Moving on, we are currently experiencing some unplanned off-rate time for the Gorilla VI in the North Sea. This rig needs certain complex repairs, upgrades and inspections, and also needs to be reapproved by the Norwegian authorities to return to work in the Norwegian sector of the North Sea. This process is taking longer than anticipated and will impact the first quarter, but we believe it is now on track, and the rig will begin operating in April.

Now turning to deepwater. Our construction program is on time and on budget. The Rowan Renaissance left the Hyundai Heavy Industries shipyard in Korea on January 21, only 2.5 weeks later than the date we set 2.5 years ago, thanks to a tremendous effort from our construction and deepwater operations team. This rig is sailing to West Africa and will arrive in Namibia in March 4 for commissioning and acceptance testing before the rig's expected commencement date in mid-April. We continue to closely monitor the delivery of drilling equipment for all of our drillships, and work diligently with vendors to minimize the impacts of any late deliveries. The contract commencement dates given in our last fleet status remain valid, and we will keep you informed if these dates change.

Addressing our other drillships under construction, our second drillship is 87% complete, our third is 83% complete, and our fourth is 28% complete. We continue to see market opportunity for our fourth drillship, which is our only uncontracted deepwater asset. We expect this rig to be delivered from the shipyard at the end of March 2015 and to be available to commence work in the summer of 2015.

Now I'll turn the call over to Mark to comment on market and region fixtures.

Mark A. Keller

Thanks, Tom, and good morning, everyone. 2014 is a year of opportunity for Rowan. We have the opportunity to establish our presence in the deepwater arena, as our first drillship is expected to enter the market in April. We have the opportunity to increase day rates and contract duration, as 17 of our jack-ups will roll off their current contracts in the remainder of 2014. We have the opportunity to prove our mission statement, that customers rely on Rowan for their most demanding drilling projects worldwide. We look forward to the challenges that 2014 may bring.

Today, I'll review the jack-up market, including regional comments of the areas where we are currently operating, and I'll conclude with an update on the ultra-deepwater market and the outlook for the fourth drillship, the Rowan Relentless.

Worldwide jack-up utilization is 88% despite the continued increase in utilization since January 2011. The industry seems a little bit anxious about the recent plateau. With the current supply of 515 jack-ups and 137 more under construction, the big question remains will the market be oversupplied in the coming years. After careful analysis of the current market and the newbuild units, we are confident in our position in the jack-up market. It all comes down to the quality of our fleet, the quality of our people and the strength of our customer base. We maintain one of the youngest fleets in the industry. And as a large portion of the total jack-up fleet approaches 40 years of age, we believe those rigs will exit the market. Age, coupled with technical limitations, removes many units from what we consider to be the competitive jack-up fleet in today's stringent operating environment. Considering the newbuild fleet, only 33% are being built by established drilling contractors. In a post-Macondo world, the NOCs and the IOCs require trained and experienced drill crews and proven operational and safety systems that speculative newbuild companies will not be able to provide. As a result, many of those newbuilds will not be approved for most tender lists worldwide. Rowan has been in business for more than 90 years. And with our focus on continuous improvement, we will continue to be a leading contractor in the industry for many years to come.

And finally, our customers. They recognize the value in our premium equipment. We work diligently to build and strengthen our relationships worldwide through providing safe and reliable operations. And they come to us for their most difficult wells. Even with the ramp-up in new capacity in the near term, we see continued success for Rowan in the jack-up market.

I'd like to briefly mention a few comments about the regions in which we are currently operating, starting with Southeast Asia. We recently signed the contract extension on the EXL IV with Carigali Hess for 1 year at $160,000 a day. The rig will continue operations in Malaysia, and the additional work will carry the rig contract through early 2016. In addition, we are in final negotiations for the J.P. Bussell in Malaysia. The rig is expected to commence operations in early March, immediately following its stay in the shipyard. Both the Gorilla II and the EXL I have options on their current contracts, and we remain in constant communications with the customers regarding those programs.

Now turning to the Middle East. We have 10 jack-ups operating in the region, with 7 units rolling off their existing contracts with Saudi Aramco in 2014. We secured a 10-year contract extension with Aramco for the Bob Keller in November of last year, and we are currently in negotiations for additional extensions. We believe we'll be successful in continuing our long-standing relationship with Saudi Aramco.

All 5 of our active jack-ups in the U.S. Gulf of Mexico will have the opportunity for new contracts in 2014. Recently, the Joe Douglas was committed to LLOG for a 75-day project at $160,000 per day. The EXL III commenced operations for Freeport-McMoRan late last year, and the unit will continue the Davy Jones project through August of 2014. We continue to see increased demand in Trinidad, as the Gorilla III has been extended into the second quarter of 2015 at a day rate of $165,000 a day. The EXL II was also extended with BP Trinidad for 3 years at a day rate of approximately $180,000 per day. Our premium equipment is well positioned in this region.

And finally, the North Sea, all 6 of our jack-ups are contracted, and we're optimistic about our presence in this region.

Our harsh environment, high-spec fleet fits the needs of the market, and we continue to be in discussion with our established customer base for future projects. Operations for the Rowan Stavanger continue with Talisman U.K. And given recent progress reports, the rig will not mobilize to the Norwegian sector until later in the year. Meetings are ongoing for opportunities for the Stavanger, following the accommodations work at the Yuma platform.

I will finish with a few comments on the outlook for the Rowan Relentless. Despite the recent volatility in the ultra-deepwater market, we are well positioned through 2014, as 3 of our 4 new drillships are contracted. We are actively marketing the Rowan Relentless, and we are closely monitoring the contracting window for a midyear 2015 delivery. Currently, we believe there are approximately 29 units that will be available in the months surrounding the delivery of our fourth drillship. However, when comparing the technical capabilities of those ships, we believe only 3 other units could truly compete with the Rowan Relentless, and its dual-stack, 1,250-ton capability meeting leading-edge demand. We're in communication with multiple operators and remain confident that we will contract our fourth drillship at a market-leading day rate, well above our hurdle rate and prior to delivery.

Thank you for your time this morning, and I will now turn the call over to Kevin.

J. Kevin Bartol

Thank you, Mark, and good morning, everyone. Excluding the impact of the noncash impairment charge, our fourth quarter normalized earnings per share was $0.42. I'll now provide further details for the fourth quarter financial results, as well as updated guidance for 2014.

Our fourth quarter revenues were $393 million, up by 11% over last year, due to higher average day rates and slightly higher utilization between periods. Our out-of-service time was approximately 10% of our available rig days during the fourth quarter, which was slightly higher than our previous guidance of 9%, due to the extended out-of-service time for the Gorilla VII. As previously mentioned, extended poor weather conditions in the North Sea prevented the rig from getting on its next operating location until mid-February. Out-of-service time was down from last year's level, as fleet repositioning declined and certain rigs returned to service. Our operational downtime, which is unbillable time when a rig is operating, was 1.3% of in-service days during the quarter, which we consider an excellent result.

We currently expect our jack-up out-of-service time in 2014 to be approximately 7% to 9% of our available rig days, including our 2 cold-stacked rigs, which is in line with our previous preliminary guidance. We also expect out-of-service time to be approximately 13% in the first quarter of 2014. As a reminder, our monthly fleet status report contains planned off-rate days by quarter. Planned off-rate days include forecasted out-of-service time, but do not include either forecasted or unplanned operational downtime. We continue to expect jack-up average operational downtime of 2.5% of in-service days.

Also shown in our fleet status, we currently expect our first 2 ultra-deepwater drillships to begin operations in early second quarter 2014 and late third quarter 2014, respectively. While we do not expect any out-of-service days in 2014 for our drillships, please note that we are expecting our operational downtime to be less than 5% after some break-in period, when operational downtime could be somewhat higher.

As of the date of our last fleet status update on February 21, our backlog of drilling commitments was near an all-time high of approximately $5 billion. We estimate that 27% of our contract backlog will be realized as revenue during 2014, 28% will be realized in 2015, 23% in 2016, and the balance in 2017 and beyond. Excluding our 2 cold-stacked rigs, we have approximately 66% of our available rig days under contract in 2014, 38% under contract in 2015 and 24% under contract in 2016.

Excluding the impact of higher reimbursable expenses, which are fully offset by incremental revenues, our fourth quarter operating expenses were slightly higher than our previous guidance, due primarily to additional expenses related to the Gorilla VII incident. And I would like to emphasize this point, if you exclude the Gorilla VII impact, we would have met guidance, and we are, of course, very happy to have this high-earning rig back on rate.

Operating expenses in the fourth quarter were 15% above last year's level, primarily due to the impact of certain rigs operating in higher-cost locations, the impact of more rigs working rather than being in the shipyard for upgrades during the prior year and the incremental Gorilla VII leg repair cost. It is important to note that the rigs operating in higher-cost locations earned revenues that more than offset the incremental costs.

Looking at 2014, we estimate our operating expenses, excluding rebuilds, will be in the range of $960 million to $980 million, which is approximately 16% to 19% higher than 2013 and in line with our previous preliminary guidance. Our first quarter 2014 operating expenses, excluding rebuilds, are expected to be in the range of $214 million to $219 million. Our 2014 operating expenses are expected to increase, primarily due to the addition of drillship operating days and more activity in Norway, which is a higher-cost jack-up market but also with higher day rates, which more than offset the expected higher costs. And secondarily, we expect our operating expenses to increase due to labor rate increases, which we estimate to be approximately 6% to 8%. All other operating costs are estimated to increase by only 1% to 2% over the 2013 levels, which we believe is moderate given the expected increase in total jack-up in-service days. And this reflects the maturing of our infrastructure and processes to more efficiently support global operations and entry into the ultra-deepwater market. As a result, we expect our average gross margin as a percentage of revenue to improve modestly in 2014 over the 2013 level.

Our fourth quarter SG&A expenses totaled $35 million, which was in line with our previous guidance and up by 36% over last year, primarily due to professional services and fees for initiatives related to the company's corporate restructuring, which have produced and are expected to continue to produce significant economic benefits. Additionally, our SG&A expenses increased for support for entry into the ultra-deepwater market. We estimate 2014 SG&A expense will be in the range of $130 million to $140 million, which is lower than our previous preliminary guidance and is only a slight increase over the 2013 level. These levels reflect the full year impact of growth in our support functions for our global expansion and deepwater operations during 2013 and an unexpected reduction in outside service fees in 2014 for our corporate restructuring, which is substantially complete. Our first quarter 2014 SG&A expenses are expected to be in the range of $33 million to $35 million.

Our fourth quarter depreciation expense totaled $71 million, which was in line with our previous guidance in last quarter, and up by 9% over the last year, primarily due to fleet additions between periods. We estimate 2014 depreciation expenses will be in the range of $310 million to $320 million, in line with our previous guidance, including approximately $72 million to $73 million in the first quarter of 2014. Our depreciation expense will begin to increase in the second quarter and again late in the third quarter as the 2 ultra-deepwater drillships are placed into service.

Interest expense net of capitalized interest was approximately $16 million during the fourth quarter, which was in line with our previous guidance. Following our recent bond offering in early January, we now expect 2014 interest expense net of capitalized interest to be approximately $95 million to $100 million, including approximately $22 million to $23 million in the first quarter of 2014.

Our fourth quarter tax rate was approximately negative 13%, which was below our previous guidance due to the beneficial impact of discrete items during the quarter. The discrete items were primarily related to our corporate restructuring. Our 2014 effective tax rate is currently expected to be in the single digits, though this rate will likely fluctuate as we enter into additional contracts. As a reminder, the tax rate is driven by our mix of domestic and foreign income and the underlying tax rates in each jurisdiction.

Property and equipment additions totaled $160 million in the fourth quarter, which was significantly lower than our previous guidance due to the deferral into early 2014 of the delivery of the first ultra-deepwater drillship, which remains on budget, and the timing of certain equipment deliveries in other rig projects.

We are currently estimating our 2014 capital expenditures to be approximately $2.1 billion, with approximately $1.7 billion for 4 drillships and related costs, $254 million for life enhancement projects and jack-up fleet maintenance, $61 million for jack-up fleet contractual modifications and $67 million for jack-up fleet spares, improvements to shore bases and other items. These amounts differ from the previous preliminary guidance, primarily due to the deferral from late '13 into early 2014 of the delivery of the first ultra-deepwater drillship. However, the capital expenditures for our jack-up fleet is -- are expected to be approximately $70 million lower than our previous preliminary guidance.

At December 31, we had approximately $2.2 billion of remaining capital expenditures under our drillship newbuild program, with $1.7 billion required in 2014 and $450 million in 2015. Our drillship commitments will be funded through available cash, cash flow from operations and amounts available under our revolving credit facility.

That concludes our prepared remarks. With Melissa's assistance, we will now open it up for questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Rob MacKenzie with Iberia Capital Partners.

Robert J. MacKenzie - Iberia Capital Partners, Research Division

I just want to try and dig into the Middle East a little bit. You mentioned in the prepared comments that you're talking extensions there on the rigs apart from the Keller, which recently signed its extension. I guess, the Boswell and the Yeargain. Any kind of commentary -- further commentary on, on how that looks? Is it better or worse than what we saw with the Keller?

Mark A. Keller

Rob, all I can tell you is that we're in active negotiations and discussions with Saudi Aramco. I think those will be ongoing over the next several weeks. The terms of the contracts will vary in length, and I don't know the final outcome of how that's all going to shake out. But I can tell you that we are in negotiations. We're starting with the gas rigs, and they'll progress throughout our fleet. All indications from Saudi Aramco today are that they are going to renew all of our 7 rigs that are rolling off in the Middle East, and we're also in discussions with them for adding additional rigs to the fleet.

Robert J. MacKenzie - Iberia Capital Partners, Research Division

Great. And then, I guess, understanding you're also in final negotiations on the Bussell, any kind of further guidance on where that might come out in terms of rate and duration at all?

Mark A. Keller

I can't give the rate. All I will tell you is the day rate that we're negotiating is above its current rate, and it's a good contract in Malaysia with a good operator that we've worked for before. So we hoped to have it signed prior to the call, but it -- we didn't quite get it done. So we should be announcing -- look forward to announcing that shortly.

Robert J. MacKenzie - Iberia Capital Partners, Research Division

Okay. And I guess my final question comes back to use of capital. You guys did not exercise a further option, I guess, for a drillship. Your debt-to-cap, even after the recent raise, is still at a very manageable level. What are your thoughts on use of free cash flow, particularly once some of the newbuilds are delivered going forward? Should we expect to see a further dividends hike, new jack-ups being built, how should we think about that here?

Thomas P. Burke

Rob, this is Tom. The -- as we think about the use of capital in -- I mean, going forward, we become cash flow positive sometime in 2015, and we are considering all options. So we are looking at our different opportunities for the allocation of capital. And at this point we are not committed to a particular path. We have just reinstituted the dividend, a modest dividend, and it's something that it's -- our shareholders have been looking forward to, which we've done. And we'll be looking to review that ongoing as we -- as our cash flow from our drillships comes on.


[Operator Instructions] Our next question comes from the line of Tom Curran with FBR Capital.

Thomas Curran - FBR Capital Markets & Co., Research Division

Could you share some color on the recent progress you've made with regards to the Gorilla VI in your process in getting it approved by the Norwegian regulatory authorities? And then what key steps or milestones remain and what underpins your confidence in the timeframe which you'll be able to clear them?

Thomas P. Burke

Sure, Tom. I'll give you some thoughts on that. So the Gorilla VI has been operating in the North Sea for the last several years. It actually went into Norway and operated one well, and it gained the correct certification to do that. It gained the AoC. And then it went back into the U.K. sector of the North Sea and proceeded to drill what has been pretty well recognized as some of the most difficult and demanding wells in the U.K. sector of the North Sea and has just -- did a real nice job. And then came into the shipyard in Holland to have, basically, 2 things done to it, 2 main things done to it. Apart from all the normal sort of maintenance, what we have done with it is we have upgraded the drilling equipment on it. So it's a 12- to 14-year-old rig or thereabout. And it's -- it needed a sort of a refresh of its drilling equipment, which we did. And we also had -- we have to basically renew or basically make sure that we're still on track with the AoC. Now it was difficult to keep the AoC fully -- everything up to scratch when we had basically been in the U.K. sector for the last couple of years, so we've been working through that. We're a little disappointed -- actually, more than a little disappointed that it's taken as long as it has, but there's an awful lot of focus on both operating that drilling equipment and making sure that we have everything ticked and tied with the AoC. And so there's an awful amount of focus here on it, and it's just something that we sort of meet on a -- I basically get briefed on it on a biweekly basis. So I think we're on track. We're installing drilling equipment. There are always things that come up, which have come up. But I think we've pretty much broken the back of this project and we'll be getting it on, on rate at the end of April.

Thomas Curran - FBR Capital Markets & Co., Research Division

Okay. And then turning to the labor front, are there any rigs, or even for the fourth newbuild drillship, where you still have critical positions that you're looking to fill or where you already have meaningful crew turnover underway or that you're anticipating over the course of 2014? I know at times in the past -- I guess this would be the second part of the question -- you've shared very helpful statistics about your rig crews, be it average 10-year by senior position or rate of internal promotion. Could you speak to both of those topics?

Thomas P. Burke

Sure, as we -- so on the first subject, the first question about our ramp-up plans on our deepwater rigs. So clearly, we stage our ramp-up plans to hire the most senior managers and supervisors early, so they're involved in the construction process. And then it is sort of blended across the rest of the construction program, with the most junior hands, the roustabouts and floorhands, coming on really just before the rig leaves or in the period before the rig leaves the shipyard. And that's what we did on the first ship, and that's what we will do on the other 3 ships. It is a competitive market for labor. However, having said that, Rowan is an attractive place to work. I mean, we've got a good reputation. So I won't tell you it's been easy, but we -- our deepwater operations and our Human Resources departments have done a sterling job in crewing the ships. And are there gaps? Do we have all the positions filled? No, because we don't plan to have all the positions filled because it's sort of a rolling ramp-up as we fill them going forward. So I feel like our starting plan for the drillships is on plan. And it's been -- right now, it's something we spend a lot of time looking at and reviewing, but it's not something which I'm particularly concerned about, although there's a lot of effort going on. To the second part of your question, we have definitely taken the approach at Rowan to start these drillships with a combination of employees from inside the company, some employees from the company and also hiring in employees on the outside. And I don't have statistics in front of me as far as the seniority of our workforce, but what I would say to you is that we have pursued over the last couple years a very aggressive succession planning, really engaging front-line supervisors as far as the workforce. I personally go out to our rigs and tell the employees that we want them to move ahead. It's a great time to be in the offshore drilling industry, and you need to get competent, and we'll move you up. So I don't have the stats in front of me, but it is -- but that's the approach we're taking on our deepwater ramp-up.

Thomas Curran - FBR Capital Markets & Co., Research Division

Okay. Just last one for me. Just when -- on the high-spec jack-up side, which emerging niches seem the most promising to you? Which new markets are you guys really starting to get excited about on the demand front? And then just, Matt, congratulations on a phenomenal record, and best of luck.

W. Matt Ralls

Thanks very much. Mark, do you want to take the market question?

Mark A. Keller

Sure. Tom, we -- of course, the Middle East right now, a lot of demand in the Middle East as our rigs roll off there. There's -- I believe there's incremental demand there for high-spec jack-ups. Also we're seeing high-grading take place of fleets from major oil companies in West Africa. We're seeing some demand in the Mediterranean, Southeast Asia, more HPHT demand coming in those regions. And of course, the North Sea, where our Super Gorillas and N-Class rigs work, has been a long-standing market for high-spec rigs. Trinidad has been very active with -- as I mentioned in my comments, extension of the EXL II and the Gorilla III there. We believe there's more demand in Trinidad for high-spec rigs. So it's a -- we're very bullish about where our position is with our jack-up fleet today. And so we feel good about it on the jack-up side and on the deepwater side for high-spec rigs.


[Operator Instructions] Our next question comes from the line of Gregory Lewis with Crédit Suisse.

Gregory Lewis - Crédit Suisse AG, Research Division

I guess, my first question, Mark, you touched on the outlook in -- with Saudi Aramco in the Middle East. And you mentioned -- beyond the initials are the 7 rigs that are rolling off contract, you mentioned about potential additions. Is that something where we think Rowan could be out in the market looking to add additional rigs? Or is that more a repositioning of rigs that are either in the area or maybe potentially in the Atlantic?

Mark A. Keller

Greg, we have -- as you know, we have high-spec rigs in the U.S. Gulf of Mexico that we talked about. We market them constantly on international projects for multiyear term contracts. So that's certainly a possibility. But we have some high-spec rigs in our current fleet that could fill that demand from Saudi Aramco. Kevin Bartol and his team, of course, look at opportunities around the world all the time. So we're always looking at opportunities to expand the fleet. But for the short term with Saudi Aramco, we have existing rigs that can fill that demand.

Gregory Lewis - Crédit Suisse AG, Research Division

Okay, so that's more like maybe a 2015 or 2016 type demand?

Mark A. Keller

The earliest, I believe, would be the end of '14 and early '15.

Thomas P. Burke

Greg, this is Tom. I'll just add to what Mark said. 2014 is definitely an execution year for Rowan. But we still like jack-ups a lot, and as much as we like drillships. So where opportunity -- we will definitely look at opportunities as they come along. But just as Mark said, we're definitely very focused on this deepwater entry and the repositioning of some of our key assets in the North Sea.

Gregory Lewis - Crédit Suisse AG, Research Division

Okay, great. And then just, Kevin, you mentioned on the jack-ups in the CapEx, you mentioned about, I think, it was $70 million of cost savings. Was that jack-up maintenance or -- anyway, if you could just provide some color around where that $70 million of savings was being derived from, that would be very helpful.

J. Kevin Bartol

Sure. It's spread around, and it's generally in the jack-up maintenance area plus spares. We go -- we do a ground-up budget at Rowan. And as we finalize that and we went through that, we -- there were some things we were able to defer and to reduce that amount, be a little more efficient with the money -- capital money for the jack-up fleet.


Ms. Spera, there are no further questions at this time. I'd like to turn the floor back to you for any closing comments.

Suzanne M. Spera

Thank you, Melissa, and thank you to all of you for joining us this morning on our fourth quarter and full year 2013 conference call. We appreciate your attendance and interest. Thank you.


Thank you. This concludes today's teleconference. You may disconnect your lines, and have a wonderful day.

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