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Atwood Oceanics (NYSE:ATW)

Q2 2014 Earnings Call

May 01, 2014 10:00 am ET

Executives

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

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

Analysts

David Wilson - Howard Weil Incorporated, Research Division

Ian Macpherson - Simmons & Company International, Research Division

Klayton Kovac - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Michael W. Urban - Deutsche Bank AG, Research Division

David Smith

Roland Morris - Cowen and Company, LLC, Research Division

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Haithum Nokta - Clarkson Capital Markets, Research Division

Operator

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

Mark L. Mey

Thanks, James, and good morning and welcome to Atwood Oceanics conference call and webcast to review the company's operating results for the second quarter ended March 31, 2014. The speaker today will be Rob Saltiel, President and CEO; and me, 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 that reflect management's current plans, expectations, estimates and assumptions concerning the future. These statements involve risks and uncertainties, and actual results may differ materially from those expressed in these forward-looking statements. These risks and uncertainties are more fully described in our latest 10-K and our other filings with the U.S. Securities and Exchange Commission. Undue reliance should not be placed on these forward-looking statements, which are applicable only at the date hereof. Let me turn the call over to Rob for his opening remarks.

Robert J. Saltiel

Thank you, Mark, and welcome to all of you joining this morning's call. Starting with operations, our fleet-wide revenue efficiency for the second quarter was approximately 93%, which was a bit lower than Atwood's usual standard of reliability. A prolonged startup period for the Atwood Advantage was the single biggest factor impacting our revenue efficiency so I will provide some additional color on this. Outside of the start up of our newest rigs, the rest of our fleet operated at a healthy 96% revenue efficiency for the second quarter. Given that the Atwood Advantage is the first of our 4 A-class drillships, our technical services team committed extra resources both during the transit from South Korea and here in the Gulf of Mexico to ensure that all rig equipment was fully functional before commencing drilling operations. In doing so, we discovered a number of minor equipment issues that required repair, calibration and/or fine-tuning, and many of these corrections required equipment vendor specialists to travel to the rig to implement the necessary remedies. In addition, due to extended delivery delays on certain vendor equipment, some components were installed here in the Gulf of Mexico rather than in the shipyard as originally planned. This is not how our project team typically delivers a ready-to-drill rig, but the delays we were facing were so extreme that we agreed with our client to commence mobilization of the Advantage and to complete some of these installations here in the Gulf.

We also transferred the second BOP onto the rig here in the Gulf of Mexico since this BOP was ordered separately after the initial drillship order, and was delivered by the supplier in the second fiscal quarter. Our technical team performed quite well with these equipment fixes and installations, but the extra work still did delay our startup considerably. As a result, we incurred just over 3 weeks of zero rate downtime in the month of March that is reflected in our second quarter financials. We also incurred approximately 21 days of zero rate downtime in April, as indicated in this morning's fleet status report.

Today, I'm pleased to report that the Atwood Advantage is on full operating rate, and has been since April 23 without interruption, and that the rig is progressing its first well for our client. We expect that our most significant technical issues are behind us on the Atwood Advantage. And fortunately, the lessons learned from the Advantage are directly transferable to our other 3 drillships. For the quarter, our other 2 ultra-deepwater rigs, the Atwood Osprey and the Atwood Condor, which were delivered in 2011 and 2012, respectively, averaged 99% revenue efficiency between them. These rigs are really hitting their stride as steady performers, and understandably, our clients are very satisfied with their operations. We expect that the Atwood Advantage will achieve a similar level of reliability and consistency once we are through with breaking-in period. Our 3 new Pacific Class jack-ups also continue to perform extremely well, averaging more than 99% revenue efficiency between them for the second quarter. These rigs continued to impress, and their solid performance has been a driver for recent contract extensions and future marketability.

Shifting now to our projects. We completed the Atwood Hunter's regulatory and maintenance project at the end of April. With this now behind us, the Hunter should be ready to operate for another 5 years without a shipyard stay. The rig is currently standing by ready to go to work, and I will discuss its marketing prospects in a few moments. The Atwood Achiever, our second A-class drillship, continues to make good progress in the shipyard. However, as indicated in this morning's fleet status report, we now expect delivery to occur in late August due to vendor equipment and commissioning delays and the heavy project load in the DSME shipyard. With the exception of the second BOP, we do not plan to install any significant equipment outside of the shipyard for the Achiever, as we were compelled to do for the Advantage. All of the major vendor equipment, besides the second BOP, is currently on track for delivery in time for full installation and commissioning in the shipyard. We do plan to install the second BOP on the Achiever on the transit to our first drilling location in Morocco.

Since our last call, we did allow our options to construct the fifth drillship to last. We are taking a pause from further rig building at this time to focus on contracting our last 2 drillships, the Atwood Admiral and Atwood Archer, and to assess the impacts of the present market uncertainty. We are certainly not through expanding our high-specification rig fleet, but we will proceed more cautiously over the next few quarters.

Shifting now to our contracting activities since our last call. This morning, we announced an important fixture with the 11-month contract for the Atwood Falcon with BHP Billiton. We are pleased that Atwood continues to maintain the leading position in Australia offshore drilling market. And with this fixture, we have a combined total of 7 rig years contracted on our 3 semisubmersibles there. We continue to believe that each of the Atwood Osprey, Atwood Eagle and Atwood Falcon have extensive runs ahead of them in Australia. We also announced this week a 9-month extension on the Atwood Orca with our current client at an improved day rate. This fixture, along with the short extension of Atwood Mako that we include in our April fleet status report means that all 3 of our Pacific Class jack-ups have been extended by their clients since their deliveries from the shipyard. In the quarter, we also inked a 1 year extension on the Atwood Aurora that will keep that rig busy in West Africa through July 2016.

I'll turn now to our market outlook, starting with the floaters. Nearly everything written about the floater segment has been bear since our last earnings call. So I won't spend a lot of time on this. We agreed that the market for floaters is becoming more challenging, given the supply growth and the slowdown in demand. However, we continue to believe that Atwood Oceanics is in an excellent position due to our strong contract backlog and the high quality of our floater fleet. Of our active floaters, only the Atwood Hunter has exposure in 2014 and 2015. The Atwood Admiral, our third A-class drillship that is scheduled to join our fleet and be available in the second calendar quarter 2015 is the only other Atwood floater with open time in 2015.

Our marketing team continues to focus its efforts on securing additional follow-on work for the Atwood Hunter, especially now that the rig has completed its regulatory maintenance project. We are working constructively with GEPetrol, with whom we have a short-term contract, to determine their timing and constraints for drilling in Equatorial Guinea. At the same time, we are pursuing longer-term drilling programs in West Africa that may bridge us through the end of this calendar year and into 2015. In general, opportunities remain fairly scarce in West Africa, as many of the programs we were tracking for 2014 have been either delayed to 2015 or canceled. However, we do remain optimistic that the Atwood Hunter will resume drilling in the second half of this calendar year, but this is likely not to occur before August.

Turning back to the Atwood Admiral. We continue to target drilling programs that either require or will materially benefit from this rig's extensive drilling and well-controlled capabilities. Atwood A-class drillships provide a 2.5 million pound hook load, and a dual seven-ram BOP system, both of which are clear differentiators from fifth-generation floaters, where competition is intensifying. We expect that rigs such as ours will become the gold standard in deepwater markets, particularly the Gulf of Mexico, over the next 5 years. They will be highly desired for new programs and, they may displace older floaters in existing programs, as those rigs roll off their existing contracts. Any concerns with the contracting of the Atwood Admiral should be less about whether the rig will work upon delivery, we remain confident that it will, and more about finding the right client and program to begin its drilling operations.

Shifting now to jack-ups. The global market for high-specification jack-ups continues to hold up very well, as evidenced by our recent extension on the Atwood Orca, Atwood Aurora and Atwood Mako. We are focused on securing additional term on the Mako as that rig approaches the end of its contract in November. Longer-term, we remain a bit cautious on the supply and demand balance of jack-ups, given the large number of uncontracted newbuilds scheduled to be delivered in 2014 and 2015. However, we believe Atwood is in a strong position in the jack-up segment as well if the market does soften, given the strong operating performance of our fleet and our current contract backlog. And with that, I'll pass the call back over to Mark for his financial commentary.

Mark L. Mey

Thanks, Rob. Today, I'm going to touch on a few second quarter financial highlights, and then compare these results with the previous fiscal quarter. I will then comment on our financial position, and provide updated cost guidance for the fiscal third quarter and remainder of the year.

Let's start with the fiscal second quarter highlights. Revenues of $273 million on 911 operating days for the quarter, diluted earnings per share of $1.13, however, unadjusted for the Vicksburg sale, earnings per share is reduced to $0.76, as compared to $1.28 for the prior quarter, a decrease of 41% on 98 fewer operating days during the quarter. Revenues and net income were negatively impacted by the zero rate downtime on the Atwood Advantage and the Atwood Hunter's out-of-service time while performing its regulatory maintenance and inspection projects during the quarter.

Revenue efficiency for the fleet was 93%, lower historical average and expectations were in line with the prior quarter. Contract drilling cost, excluding reimbursable cost of $9 million totaled $137 million for the quarter, as compared to $123 million for the previous quarter, slightly below our prior quarterly guidance. $123 million for the prior quarter also excluded reimbursable costs. This increase in contract drilling costs is due to the addition of the Atwood Advantage to the operating fleet for the quarter, while mobilizing from South Korea to the U.S. Gulf of Mexico and the Hunter's regulatory and maintenance projects previously mentioned. These increases were partially offset by reductions in cost for the Atwood Falcon, which have increased costs associated with its regulatory project in the prior quarter, and the sale of the Atwood Vicksburg in mid-January.

General and administrative expenses totaled $15 million, in line with expectations for the quarter. Our effective tax rate was 24.5%, significantly above last quarter, but in line with expectations. The increase is primarily related to the tax, and the gain on the sale of the Vicksburg, our Australian-owned rig.

Moving to the balance sheet. Capital expenditures totaled $35 million during the quarter, $14 million below my guidance due to capital equipment marksman payment in delay, consistent with the delays of certain vendors in reaching these necessary milestones. The $35 million consists mainly of payments for capital spread and project management and other related costs for the 3 drillships under construction. Net debt was unchanged at $1.5 billion at March 31. Our net debt-to-capital ratio also unchanged at 37%. The quality, as defined as cash on hand plus the unused portion of our revolving credit facility totaled $305 million at the end of the quarter. Subsequent to March 31, we closed on an amendment to our revolving credit facility, whereby we upsized, extended and repriced the credit facility. The credit facility now totals $1.55 billion, with maturity extended to May 2018. We also reduced our average interest margin by 43 basis points, resulting in increased savings of 17.5%. As we delivered rigs as part of our fleet transformation and growth strategy, our overall credit profile has also improved. We now have a positive outlook for a credit ratings upgrade of both credit rating agencies, anticipate positive ratings action later this year.

Now let's look at the outlook for our fiscal third quarter 2014. Firstly, as you can encounter from our most recent fleet status report, we have 92% of our remaining available days for fiscal 2014 contracted, and approximately 80% of our fiscal 2015 available days contracted.

Now for our guidance. We estimate reimbursable revenues of $13 million for the fiscal third quarter. Regarding contract drilling cost, I now anticipate full year 2014 to a range between $515 million to $530 million, with the fiscal third quarter ranging between $125 million and $135 million. These estimates of contract drilling cost excludes reimbursable cost, which should approximate $9 million for the third quarter and $34 million for the fiscal year. Included in this guidance are cost to complete the Atwood Hunter, regulatory and maintenance project in the amount of $6 million, which was completed in April, as Rob mentioned, and costs associated with Atwood Hunter for the remainder of the quarter. As Rob mentioned, we do not believe the rig will return to work until August. So we anticipate operating cost of $80,000 to $90,000 per day for the 3 months at the end of July.

Depreciation should remain around $38 million for the third quarter, and around $40 million for the fourth quarter, factoring in the delivery of the Atwood Achiever during the quarter. G&A expense should range between $13 million and $15 million for the remaining 2 quarters of 2014. Interest expense should approximate $12 million net of capitalized interest for each of the remaining quarters. We expect our effective tax rate for the third quarter to approximate 12%, perhaps a little lower for the fourth quarter, with our full year effective tax rate approximating 14%. Capital expenditure should range between $55 million and $65 million for the third quarter, with another $425 million being spent in the fourth quarter. The vast majority of the remaining 2014 CapEx comprise of the final payment of Atwood Achiever upon its delivery in August. Both of these CapEx forecast exclude capitalized interest. Capital expenditures for the full year 2014 should range between $175 million and $185 million. We will continue to use a mix of existing cash, cash flow from operations and our revolving credit facility to fund these capital expenditures. This concludes my prepared comments. And now, I'll turn the call over to James for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Dave Wilson of Howard Weil.

David Wilson - Howard Weil Incorporated, Research Division

Rob, just wanted to touch back on the Advantage, and wanted to see how we should be think about revenue efficiency from here on. And I guess basically just what I'm asking is trying to figure out how long the shakedown period is once the rig went on contract in April 23rd.

Robert J. Saltiel

Yes, as I mentioned in my prepared comments, Dave, we've had good weeks worth of running since we got through the startup issues. And I think it's pretty safe to say that the 6 weeks of downtime at zero rate that we've already incurred in March and April is the -- if you will, the worst news that you're going to hear on the Atwood Advantage here in 2014. Just a lot of little things conspired to keep it delayed from getting to work as we had originally planned, but we feel very good about the opportunity for the rig to run at a relatively high revenue efficiency going forward. Not sure it's going to be at the level of the Condor and the Osprey, which as I mentioned in my comments, are running nearly 100% revenue efficiency. If you'll recall, each of those rigs also went through a shakeout period that lasted anywhere from 2 to 4 quarters. So we're not ready to declare victory on the Advantage at the level of 99% revenue efficiency. But we do believe that, as we progress through the year, we can certainly get into the low-90s on revenue efficiency from here on out on the Atwood Advantage.

David Wilson - Howard Weil Incorporated, Research Division

Okay, great. And just one other one, and I know you kind of touched on it in your prepared remarks as well. Just regarding the Admiral and the Archer, I just wanted to gauge the extent that your expectations would change over the past couple of months in terms of securing contracts for those, specifically regarding the timing around when that could happen and any expectation as far as day rates?

Robert J. Saltiel

Yes. I mean, there's no question, as I mentioned, we're -- we've seen the market get more challenging for all floaters, as well as some of the newbuild ultra-deepwater floaters and absence of fixtures and some day rates that look to be trending downward. We still feel very good about, first of all, the technical aspects of our rigs being at the very top of the market. So the discussions we're having with customers tell us that we built the right rigs, and these are highly desired. We also feel a bit fortunate that we're not delivering a rig here in 2014, and that we're looking to come out of the shipyard in the first half of 2015. And given the discussions that we're having, the interest we're seeing from clients, we feel very good about the opportunities to get the right contract. Because we're already involved in some competitive situations similar to some of our competitors, we're not going to be able to offer you any specific comments on day rates. But there's no question, the trend has been downward, and we'll do as much as we can to mitigate that when we get our fixture.

David Wilson - Howard Weil Incorporated, Research Division

All right. And then just I know -- just one final one, on the Hunter, being in West Africa, are you looking at opportunities outside of West Africa for that rig? Or maybe post the Equatorial Guinea contract or you think that's where it will stay for the duration?

Robert J. Saltiel

Well, I think given the challenges in the market, you have to cast a pretty wide net. So we're not limited to any particular market, but clearly, your advantage in the market and where you're currently situated because of the minimum cost for mobilization and getting ready for abiding by local content rules and regulations and those sort of things. So clearly, our first opportunity and option would be to keep the rig closer to home in West Africa, but we are casting a wider net in order to ensure that we look at all opportunities.

Operator

And our next question comes from Ian Macpherson of Simmons.

Ian Macpherson - Simmons & Company International, Research Division

The Falcon contract was definitely a breath of fresh air in this weakening floater market. And earlier this month, we saw Transocean got almost a year on the Marianas at 370. So it's a struggle to understand what we all agree is a challenging market, and you said the Hunter probably won't work before August. But are these recent pricing data points? Are they lagging where the price in the market is today or is the day rates for 4th-gen rigs still that buoyant today?

Robert J. Saltiel

Well, yes, we've said on previous calls that Atwood Oceanics has a very strong position in the Australian market, and we've been in the market for over 40 years. We have as large a market share as anybody in that market, and we continue to operate extremely well both from safety and a reliability perspective. So I think we have a very nice position there with our rig fleet of 3 semisubmersible, the Osprey, the Falcon and the Eagle. I think what you're seeing on the fixture of the Falcon is just confirmation of what we've been telling the market. We feel very good about our positioning in that market, especially with the Eagle and the Falcon and their marketability being called into question. And hopefully, we put that discussions to rest with the picture we got here on the Falcon in the not-too-distant fixture we got on the Eagle when we extended that by 2 years. So we feel very good that the Eagle and the Falcon are well-positioned. The Hunter is in a more competitive market in West Africa. There really aren't a lot of entry barriers into that market, and so that rig's having to compete a lot harder to find work than what we were able to do in Australia.

Ian Macpherson - Simmons & Company International, Research Division

Any opinion as to whether or not the Marianas 370,000 per day is a real rate or stale rate?

Robert J. Saltiel

You'll have to ask our competitor about that.

Ian Macpherson - Simmons & Company International, Research Division

Okay, fair enough. Follow-up, can you just -- can you talk a little bit about the experience with running your first dual BOP rig and sort of what sort of challenges that presents to the crew, and what the customer is expecting in terms of improved drilling efficiency with this new configuration?

Robert J. Saltiel

Well, as we've just gotten through the startup period, Ian, the real challenges we face haven't had anything to do with the 2 BOP system. We're just in the process of drilling our first well and being at an opportunity to, if you will, maintain test and certify 1 BOP while the other BOP is subsea working on the first well. But we're highly confident that it's going to be a win-win for the client and for Atwood. The client is going to have a much greater certainty of lower, nonproductive time because there should always be a BOP on the surface ready to run either on the current well or the next well. And if there is an issue where BOP has to be pulled or between wells when you have pull, maintain, test and certify, you can do all that off the critical path. So it's going to be a great -- really a great development for our clients. Obviously, for Atwood, we should see lower downtime on our side because we'll always have a BOP ready to run, and that will certainly translate through to higher revenue efficiency longer-term. But I think it's too early to really opine on how that system's working out, but we've got a great technical services team. Our BOP reliability has been industry-leading over the last couple of years, and we fully believe that our application of what we do well with single BOP systems will translate very nicely to 2 BOP systems like we have on our A-class drillships.

Operator

And our next question comes from Klayton Kovac of Tudor, Pickering, Holt.

Klayton Kovac - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

So what sorts of technical aspects or features do you feel operators are willing to pay up for in the floater space currently?

Robert J. Saltiel

Well, I think I mentioned it in my comments that a couple of things in particular really are the heavy hook loads that's required for long casing strings, deep wells, subsalt drilling, which is what you see in places like Brazil, Gulf of Mexico and increasingly even step out from West Africa. So that's clearly one. And then the second one is really about well-controlled integrity and minimizing NPT, nonproductive time associated with again, maintaining, testing and certifying BOPs. I think that's really -- those are really the 2 big factors that you get with the sixth-generation rigs that you hadn't gotten in the previous generations. Obviously, the ship shape is becoming really a standard for exploration work. You certainly get great mobility with the drillship to move between regions, especially if you're doing a multi-country exploration program. But I would say that the hook load in the 2 BOP system are really the differentiators right now that are driving client interest in the newest rigs.

Klayton Kovac - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay, great. And then as a follow-up, so given the soft market environment, how do you see your capital allocation strategy going forward?

Robert J. Saltiel

Well, that's something that, as I mentioned in the comments, we're going to have to understand a bit better. There's no question, the market has moved downward for the first time in a few years. We do have a couple of uncontracted newbuilds. But to the extent that we get contracts on those rigs and/or we see the market turning back up, we definitely want to continue to grow our fleet. We haven't made any decision to do that now. We are taking a pause. But in terms of capital allocation to growing our fleet, we certainly want to play in that space. And that's obviously where this management team wants to have the first opportunity to invest is in drilling our fleet and doing positive transactions and investments for our investor base. But at this point in time, we're going to take a pause and see where we go forward.

Mark L. Mey

And Klayton, this is Mark. As we discussed in past, you are well aware that we're free cash flow negative this year, and we only become marginally positive next year. So as it relates to free cash flow, that's -- we still have a ways to go before we get there. Secondly, we have upsized our revolving credit facilities so our available liquidity is substantially enhanced right now. So as Rob indicated, if opportunities arrive, we're well-positioned over the next 2 years.

Operator

And our next question comes from Mike Urban of Deutsche Bank.

Michael W. Urban - Deutsche Bank AG, Research Division

You guys seem to have a little bit more cautious view of the jack-up market than some of your peers, and just wondering kind of what's driving that view. I mean, the supply is pretty well-known. I mean, is it a demand issue, less attrition or is it just you look out there and there are more rigs coming on than you see jobs out there in the kind of short-term and medium-term?

Robert J. Saltiel

Yes, it's really around the supply growth that we're seeing, Mike, that's uncontracted, the significant number of uncontracted jack-ups coming out this year and next, somewhat of a similar pattern to what we've started to see on the ultra deepwater. And I think that there's certainly a potential for some softness in this space. That said, we continue to do extremely well in our own extensions and new fixtures for our jack-up fleet. So this may be one of those things that's still out there on the horizon and may not materialize for a few quarters. But we're just sounding a note of caution given the large number of newbuilds scheduled to come out and a large percentage of those that don't yet have contracts.

Operator

And our next question comes from David Smith of Heikkinen Energy.

David Smith

Most of my questions have been answered, but wanted to follow-up on the reinvestment question. I've recognized it's not immediately relevant, but I was hoping to get your thoughts on how you would evaluate ordering newbuilds that are consistent with Atwood's existing designs versus the opportunity to consolidate competitor newbuild projects that maybe distress acquisition opportunities in 2015 or 2016.

Robert J. Saltiel

Well, it's a good question. We have become, we think, pretty good at investing in organic growth, identifying designs for rigs that will be demanded by clients, picking good shipyards to build those rigs, and then delivering those rigs and putting them to work, and are being successful with that. And the opportunities to really buy assets really have not materialized over the last 4 years or so since this management team's been intact. But clearly, if we are heading into a downturn of sorts, especially if that becomes prolonged, there may be opportunities to take a look at some distressed assets, even assets that may still be in the shipyard in order to see if those are compelling enough to move away from our model of organic growth. At this point in time though, we're really focused on contracting our 2 uncontracted drillships. We've got pretty significant investment in those 2 rigs, and we want to make sure that we get good contracts for those, and don't get too far out of our skis before pull the trigger on future growth. But I think that the concept of looking at distressed asset is something that may become more of a reality, again, if we do have a prolonged downturn, and if the valuation becomes compelling, we would certainly take a much closer look at those.

David Smith

There has to be a decent discount versus the shipyard price on a Atwood-approved organic design to make it worth looking at, at the consolidation opportunities, I imagine?

Robert J. Saltiel

Yes, I mean, you either have to pick up things at a discount if you're going to make compromises on design or other things, as well as you may have an opportunity with a particular client to put a rig to work right away. And obviously, if you buy assets as opposed to build them, they're more immediately available. So you could take advantage of the market opportunities that may not exist if you wait a couple of years. But those are all possibilities. Again, at this point in time, we're really looking at our own fleet and concentrated our marketing efforts on what we've already made commitments to.

Operator

And our next question comes from Roland Morris of Cowen and Company.

Roland Morris - Cowen and Company, LLC, Research Division

I just wanted to get an idea with everything that's going on with the Advantage and just industry-wide delivery delays on the equipment side in general, should we expect, going forward, on the Admiral and the Archer that you guys might take delivery and mobe[ph] the rig on location before everything is set? Or is that something that you're not going to do in the future, that kind of thing?

Robert J. Saltiel

Well, we certainly don't plan on doing that. We didn't plan on doing it on the Advantage either. I want to be clear about that point. But some of our vendor equipment that was, again, really contracted to the DSME shipyard, it wasn't equipment coming to Atwood but it was coming to the shipyard to be installed on the ship. That vendor equipment was significantly delayed. And so when you're faced with a prospect of waiting in the shipyard for 2 or 3 months versus transiting the rig and taking advantage of that time delay so the equipment can be finished, it becomes pretty compelling to commence the mobilization, and then do some installation in the field. But we certainly don't like doing that, and it certainly contributed significantly to the extended period of downtime we had on the Atwood Advantage before we were able to get on full operating rate. But we think that the supply chain is loosening up a bit. I mean the vendors that are supplying this equipment are clearly also going down the experience curve and getting more efficient at producing the equipment. They're working through their own quality control issues. A lot of those delays are due to quality control issues. They produce the equipment the first time, then they test it. They find that it doesn't test, they have to either amend what they've done or start over, and that really adds to the time. Well, now that they've started to deliver this equipment the first time, the second time and et cetera, they become better at this, and the quality control and the scheduling becomes much more predictable. So we don't see any of those kinds of issues materializing for the Atwood Achiever. and let's face it, we're pretty closed in on that now. That's just 4 months away or so from delivery. So we don't anticipate it happening on the Admiral or the Archer either. The only thing we will install on the Achiever in the field is the second BOP, and that's because we ordered it subsequent to ordering the drillship itself. But then once we get to the Admiral and the Archer, even the second BOP should be installed in the shipyard. So we're going to get out of this business of installing the equipment in the field once we get past the Achiever, and on the Achiever, there will only be the second BOP.

Roland Morris - Cowen and Company, LLC, Research Division

And is there -- can you give us any idea of what it might take in order to install second BOP during delivery or is that -- what should we be expecting there?

Robert J. Saltiel

Well, that's something that took us about a week or so in the Gulf of Mexico and to get that installed, and that's probably something that could materialize on the Achiever. We -- we're still finalizing where we're going to install it and the particulars around that, but it was a very small percentage of the total time. It was less than -- or 15% to 20% of the total time had anything to do with second BOP.

Roland Morris - Cowen and Company, LLC, Research Division

Got you. And then if I could just throw one more in there. On the Hunter, so if you guys are able to get a shorter-term contract here in the back half of 2014, call it after August, ahead of this GEPetrol contract, are you -- what kind of rates should we be forecasting here in terms of -- are you going to take a significant discount there just to get the rig working? Are you -- what are you guys thinking around that?

Robert J. Saltiel

Well, because we're involved in some discussions in competitive situations, we're not going to be able to comment on the rate other than to say that the rate we have with GEPetrol, the $515,000, that was a rate from late last year, and that the rate will be lower than that. But that's all we can say at this point.

Roland Morris - Cowen and Company, LLC, Research Division

Okay. Sorry, and then I actually just -- I missed the 3Q '14 CapEx. Mark, if you wouldn't mind just repeating that.

Mark L. Mey

Sure. I said the CapEx for the third quarter would be between $55 million and $65 million.

Operator

And our next question comes from Darren Gacicia of Guggenheim.

Darren Gacicia - Guggenheim Securities, LLC, Research Division

I just wanted to ask, I realize that the markets basically kind of realized, I think, discounted the fact that floater rates have been pretty sloppily through 2014. But what's been interesting this earnings season, if you think about some of your competitors, some of the equipment suppliers, there's been some green shoots in the commentary by way of talking about reworking some of the CapEx plans and improving the economics of projects and potentially points and demand forward. With regard to your commentary and your outlook, what's the time frame you're sort of looking at when you have -- when you're kind of talking about the negative slide? And what do you see in '15, and how does that apply to how you're thinking about sort of lead times on contracts for the Admiral and how -- just how do you sort of reconcile all these things?

Robert J. Saltiel

Well, the fact is we've been marketing the Admiral for quite some time now because it's an identical drillship to the predecessors, Advantage and Achiever. So we've been identifying programs that line up well both technically and from a calendar basis for quite some time. And we certainly feel that the opportunity to get a contract in advance -- significantly advance of delivery is a very nice thing to have because then you can work closely with your client to develop the rig in terms of the third-party equipment and then you kind of monitor things that they might want to talk about with regard to the asset going through safety and operational procedures and that sort of thing. So we certainly had that opportunity with the Advantage and the Achiever, getting really more than a year's worth of lead time on both of those contracts to work with our clients and deliver the rigs with full collaboration. Now there's no question with the market having softened with lead times, having shrunk between contract signing and delivery of rigs, we're not likely to have a year's worth of notice. And frankly, we're probably within about a year right now of when that rig would leave the yard and come around to, let's say, West Africa or the Gulf Mexico, if you had 2 or 3 months for transit time. So we're already going to be inside of a year on the Admiral. And then it's our job to try to find the right contract and sign it up as soon as we can so that we can have that time working with our client. But it's very difficult at this point to make a prediction on that because we certainly don't feel any sense of desperation at this point to get a contract for that rig, given the lead time that we do have. By the same token, once we find the right job and the right client, we want to sign them as soon as we can. So that's what our marketing team is working to do, and we'll just ask the investor base to stay tuned on that.

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Well, the -- obviously, 6 months can make a big difference in terms of where the market's mentality is. If you think back to maybe where we were 6 months ago to where we are now, if you end up sort of in the new year, as clients are trying to -- your customers are trying to execute on a new kind of capital -- 2015 budgeting slate and the rest, is there a chance that you may be actually negotiating in a better environment, and so the shorter duration may be helpful to you?

Robert J. Saltiel

Well, again, this market has a tendency to move quickly in both directions, and it certainly tended to move down pretty quickly at the end of last year, early part of this year. There's no question that we could see the market strengthen as we get through the slug of uncontracted newbuilds slated to come out for the remainder of 2014. So the scenario you've laid out is certainly plausible. Again, I don't think that we're necessarily going to direct our contracting opportunities around a scenario. It's really more focusing on what opportunities are there and trying to be able to bring those in as and when we can.

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Got you. And if I could ask just one more thing unrelated. Mark, you have mentioned about the credit rating potentially having an uptick in the back half. If I remember correctly and just remind me, does that -- with regard to dividends and covenants, does that put you in a positive place for optionality on the dividend side?

Mark L. Mey

It does increase optionality, yes.

Operator

And our next question comes from of Haithum Nokta of Clarkson Capital.

Haithum Nokta - Clarkson Capital Markets, Research Division

I just had a question on the jack-up market. Given your cautious outlook, how do you think about your concentration in Southeast Asia? Are you looking to move any rigs outside of that market or do you like your competitive position and your customer relationships there?

Robert J. Saltiel

Well, we've been able to extend each of the 3 Pacific Class drillship -- sorry, jack-ups that we've delivered in the last, call it, year and a half, and so there's clearly been a good market acceptance and contracting of those rigs. So we don't look to move those rigs as long as we feel that there's a market that's going to be there for them. And with 3 customers that we've got, we think each of those has got some run room ahead of them for further extensions. Obviously, if we get into a situation where clients don't have an opportunity to renew or the change in the particular market in which we're operating, then you start looking further afield. But your first quarter call in this business is to try to keep your rigs where they are to minimize mobilization, cost and timing and minimize disruption to the operations with regard to the local crews and even the expatriate crews that are used to working in a particular market. So at this point in time, we have no plans to relocate any of our rigs out of their current markets.

Operator

And at this time, we have no further questions.

Robert J. Saltiel

Okay, if there are no further questions, we thank everybody for your interest in Atwood, and we look forward to talking on our next call.

Operator

And this concludes your conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

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