Steven Newman – President, Chief Executive Officer
Transocean Ltd. (RIG) BAML 2011 Global Energy Conference November 15, 2011 9:15 AM ET
Transocean – it is the largest provider of ultra deepwater rigs, and that’s created many opportunities but also some challenges. Presenting today we have Steven Newman, President and CEO. To his right, we have (inaudible). Steven?
Thanks, Doug. We appreciate the opportunity to participate today and to—one more chance for us to tell the Transocean story, which is a very good story. Standard forward-looking disclaimer. The lawyers tell me there are a couple of comments I have to make regarding this particular slide. Over the course of today’s discussion, I will make certain forward-looking statements about things like the prospects for the Company, revenues, operating costs, results of operations – things like that. Our most recent 10-K filed with the SEC and other public documents filed with the SEC do a good job of fully describing the risks and contingencies, and should any of those underlying assumptions or risks materialize, it could result in actual results being different from our current forecast.
A few introductory comments highlighting the value and the investment thesis of Transocean. First of all, as Doug said in his opening comments, in his introduction, we are the largest offshore contract driller. We’re the largest in every asset class. We participate in most of the major markets around the world, and typically in those markets we have a leadership position, and our relationships with the customer community span the spectrum from integrated oils to NOCs to independents. So as you look at the Company, we are diversified across our asset classes, we are diversified geographically, and we are diversified across the customer base.
The Company long ago developed an early leadership position in deepwater and ultra deepwater drilling, and we have built upon that leadership position to the extent that today we have a premier position in high specification floating assets. That’s positioned the Company extremely well to benefit from what is clearly today an improving and strengthening market. And in addition to that, the Company has tremendous organization capability, the kinds of capabilities, both technical and operational, that our customers look to when it comes to addressing the challenges that face the industry today, and that unique organization capability creates an advantage and really puts us in a unique position to benefit from opportunities to grow and reinvest in our business.
A few more comments about the investment highlights of the Company. First of all, we are committed to the three key stakeholder groups we service – our customers, our employees, and our shareholders. Our strategy is really focused on delivering value to those three groups. The backlog that the Company has today – just over $23 billion of contracted backlog – provides visibility and flexibility, so in the context of a macro economic uncertain background, the Company’s portfolio of contracts, a strong portfolio of contracts, creates visibility and stability in the Company’s financial performance.
We’re committed to maintaining an investment-grade quality balance sheet for the long term benefit of the corporation that provides for financial flexibility. It allows us to take advantage of opportunities when they materialize, and in a cyclical business it provides the Company with the sustainability through the cycle.
We have a well articulated fleet strategy revolving around increasing our exposure to high specification assets, both floaters and jack-ups, and decreasing our exposure to low spec or commodity assets, and over the last several months, you’ve seen the Company take concrete actions in pursuit of that asset strategy.
We’ve leveraged to the opportunities that will materialize in an improving market, significant upside in our fleet and in the market as we look forward to an improving day rate environment, to increasing demand, and to improving utilization statistics across the assets classes. And we’re committed and disciplined about returning excess cash to our shareholders. Over the last several years, the Company has delivered nearly $20 billion in terms of return of cash to our shareholders. I think that demonstrates discipline and a strong track record about returning the excess cash to the shareholders.
Our strategy that’s depicted here is relatively straightforward. If you look at the bottom elements of this particular chart, it talks about organizational capability. On the upper right, we’ve talked about applying that organizational capability on a global basis, and on the upper left all of that is focused on meeting the needs of our customers.
Technical expertise in Transocean is unmatched in our business. From building the first jack-up drilling rig about 60 years ago to all of the challenges and opportunities that our industry has faced, Transocean has accumulated more firsts that anybody else in our business. That stands us apart from anybody else who participates in offshore drilling. Our operating people have done some amazing things in the history of this company. We have set more of the records as we have progressed into deeper and deeper water, and today the Company holds most of those deepwater and offshore drilling records. The technical expertise and the operating experience create real advantages for Transocean, and we apply those advantages on a global scale.
The Company has critical mass presence in most of the major markets around the world. That allows us to have a unique capability to recruit and develop local talent. It provides us a unique capability to access and assess local market intelligence, and it allows us a unique opportunity to develop strong relationships with our customers locally in the market. And it’s that focus on developing strong customer relationships that puts us in a unique position to understand the customers’ needs, to work closely with the customers in addressing those needs and to support them in achieving their success. Organizational capability applied on a global basis with the intent and objective of meeting our customers’ needs.
Two elements of that prior chart really talked about our people and our customers, and this chart talks about the third key element of our strategy, which is driving shareholder return. If you start in the upper right quadrant of this chart, the Company is really focused on identifying opportunities to reinvest in our business at attractive rates of return. You saw a recent example of that with our acquisition of Aker Drilling. Lower right quadrant, we focus on increasing the profitability of our existing business, focusing on margins, driving day rates and controlling costs. Lower left-hand segment of this chart reflects our focus on our balance sheet, on maintaining an investment-grade quality balance sheet; and the in the upper left quadrant, we get to the point of returning excess cash to our shareholders.
So the right-hand part of this chart really talks about profitably growing our business and growing the profitability of our business. The left-hand chart really talks about the quality and taking care of our balance sheet and returning excess cash to our shareholders – a program that is focused ultimately on delivering returns to our shareholders.
Coming through the disappointing results of the third quarter, I think it’s important for me to offer a few comments in respect of that. Three issues that we are really focused on to continue to improve the financial and operational performance of the Company. The first one of those is revenue efficiency, continually focusing on improving the reliability and the performance of our equipment through thorough inspections, standardized maintenance, rigorous testing, and I think we’re making good progress in that regard.
The second element is addressing rig out-of-service time, and here the focus really is on developing a very collaborative relationship with our vendor community, getting more involved in their business and getting them more involved in our business. Today, frequently the critical path to returning a rig to service once we take it out of service is heavily reliant on the support and the performance of the vendor community, and we’re doing a good job in collaborating closely with them to improve their timeliness and their performance.
The third key element is a regular focus on operating costs and the structure of our costs, and there are really two elements to that that are important. The first element is ensuring that we make the investments we need to make to drive the long-term performance and health of the organization, and the second element is making those investments while we are regularly challenging the structure of our costs - so spending the money we need to spend while challenging the structural aspects of our costs.
I’ve talked a couple of times and made reference to the size of the Company. This chart highlights the makeup of our fleet relative to the peer companies, and it shows you clearly that Transocean leads in every asset class. Our position in high specification floaters, harsh environment, deepwater and ultra deepwater significantly leads the peer group. Our participation in mid-water floaters leads the peer group, and our leadership in the size of our jack-up fleet is clear. So as you look forward to an improving market across all asset classes, you see that Transocean has significant leverage to the upside.
Talked about the diversification across asset class, and this pie chart on the left-hand side of this chart highlights that. Nearly 80% of our revenues through the first three quarters of 2011 come from our floater fleet and well more than half come from the high spec floater fleet. There is a small contribution – about 12% - from our jack-up fleet and a few other bits and pieces of the Company, but the vast majority of the revenue comes from the floater fleet. On the right-hand side, you see the diversification by customers and an even split between NOCs and IOCs, and 30% coming from the independent. Over the course of the last couple of years, we have seen that component of that pie chart that is comprised of revenues from the NOCs grow, and my anticipation—my expectation going forward is that that will continue to grow. The NOCs are becoming more and more active in their own markets. They’re transitioning from simple sovereign spenders to actual operators domestically, and those that have been operating domestically are expanding internationally and we expect that that will continue.
That’s an important element of Transocean’s approach to managing our business on a global scale, ensuring that we have deep relationships in the local markets with the NOCs such that as they become operators, they are already well familiar with us. They understand our capabilities and they’ve seen our focus on developing local talent, and when they expand internationally they’ve got a comfortable name that they can pursue that expansion with.
The Company’s portfolio of contracts is strong – over $23 billion extending well into the future, and while the vast majority of that contract backlog comes from our high spec floater fleet, the further out you go the more capacity and availability we have. So as it relates to 2012, we’ve only got a couple of high spec ultra deepwater floaters remaining available, but in ’13 and beyond the availability increases and as our customers look further and further out to secure the capacity they need to pursue their plans, the Company stands to benefit from that. We will participate in an improving market. We’ll benefit from increasing day rates and improving fundamentals.
We’ve taken a pretty rigorous approach to our asset strategy to the point where we have a well-defined strategy that we have been acting upon for the last several months now. It started a couple of years ago, a year or so following the Transocean-Global Santa Fe merger where we went through the fleet rig by rig and we categorized rigs into three broad classes – core long-term strategic elements of our fleet, workhorse rigs long-term components of our fleet, and the third element would be non-core assets or divestiture candidates. We’re focused on ensuring that the structure of the Company remains flexible to allow us to pursue the opportunities we need to, so flexibility and efficiency in the structure of the organization; the opportunity to buy or build assets that are attractive to us – high specification floaters, high specification jack-ups; and the discipline to divest or spin-off assets that don’t form part of our long-term strategy, so building and buying assets that meet our core long-term strategic objectives and divesting through either sales or spin-off type transactions to reduce our exposure to low spec commodity assets. Long-term objective is to ensure that the Company is focused on high specification drilling – high spec floaters, high spec jack-ups, long-term core workhorse rigs, high quality floaters and jack-ups, and reducing the Company’s exposure to low spec commodity assets.
There’s been a lot of commentary in the marketplace over the last several months about the appetite for spec building and why Transocean has declined to participate in spec building. And for us, the decision and the though process regarding an investment opportunity starts first and foremost with the customer. We all do analytical exercises to evaluate supply and demand, but only when we are seated across the table from a specific customer with a specific opportunity do we start seriously evaluating significant incremental capital. And so we as meet with that customer, the first alternative we’ll pursue is to provide an existing rig from within the Transocean fleet. Do we have something that meets the customer’s technical requirements and timing availability? If we don’t, then we’ll look at the possibility of upgrading something within the Transocean fleet. Can we spend some incremental capital and improve a rig’s efficiency, extend a rig’s water depth capability, enhance the rig’s performance in some way that will meet the customer’s requirements? If we can do that, great. If we can’t, then we’ll look at what might be available in the marketplace. Can we go out and identify an acquisition opportunity that might be available in the marketplace that would meet the customer’s technical and timing requirements and our investment criteria? And only when we’ve exhausted those three alternatives – offering something that already exists within the fleet, upgrading something that exists within the fleet, or acquiring something else outside in the broader fleet – only then will we consider spending incremental capital to add to capacity in the marketplace. We think that disciplined approach to managing supply over the long run will benefit the industry’s fundamentals.
A couple of comments on the Aker Drilling acquisition which closed in the early part of October. There were a number of elements of that opportunity that were particularly attractive to us. First of all, it enhanced our position in Norway and with the recent announcements about the Aldous and Avaldnes discoveries by Statoil, it has brought renewed enthusiasm for the Norwegian continental shelf. We also think there is continuing optimism about the possibilities that exist in the Barents Sea. So it brought two heavy-duty harsh environment, ultra deepwater semi-submersibles to the fleet with about $900 million worth of contract backlog, so two operating assets with great reputations and very, very good contracts.
It also brought to us two ultra deepwater drill ships under construction in Korea, and as we look forward at an improving ultra deepwater market, those two ships add to our leadership position in ultra deepwater, give us opportunities for growth, and the benefits of an improving marketplace.
A few comments on each of the asset classes. First of all in the jack-up space on both standard jack-ups and high specification jack-ups, we see that the indicators across the board are really demonstrating an improving marketplace. Demand is growing that is absorbing the new builds coming out of the shipyard and it is allowing for opportunities to reactivate idle assets. So as you look at things like utilization and the pace of tendering, contract terms and day rates for both standard jack-ups and high specification jack-ups, we see an improving marketplace.
That same level of improvement is also seen in the mid-water market. There’s no supply problem in the mid-water market so it’s purely an issue of demand, and with robust commodity prices and increasing activity on the part of our customers, this market is improving. It is led by improvements in the North Sea but we see indicators of improvement in other parts of the mid-water market as well, again providing for opportunities to contemplate the reactivation of idle equipment.
Deepwater market is starting to show signs of recovery with the strengthening in the ultra deepwater market and the improvements across the offshore drilling space. Deepwater market starting to come around, which we’re seeing increasing demand, particularly in areas like Brazil and the Far East and Australia. Some of the moored floaters that had been idle are going back to work. The day rate environment is improving. The utilization environment is improving, and so it’s providing us with opportunities to contemplate reactivating a couple of our idle deepwater assets.
Ultra deepwater has been strong and remains strong, and is poised to improve on the basis of that strength and continue to be a very attractive market. The limited remaining 2012 availability is being quickly absorbed in the marketplace. The customers are getting a little bit more urgent and anxious about 2012 availability. Consequently, they’re looking a little bit further beyond into 2013 and beyond. The market today is essentially fully utilized, and that’s providing opportunities for the contractors to push day rates, and we’ve now seen multiple fixtures in the ultra deepwater space exceeding $500,000 a day, and so that’s a very positive development.
There are a number of opportunities around the world for continued incremental growth and demand in ultra deepwater. You’ve got the golden triangle of the U.S. Gulf of Mexico, conventional West Africa – and by conventional, I mean Angola and Nigeria and Brazil. You’re seeing increased attention and focus and opportunity in the Transform Margin in West Africa – Ghana, equatorial Guinea, Ivory Coast, Liberia, areas like that. The recent discoveries by Anadarko and Total in the Mozambique area add a lot of enthusiasm to East Africa. Noble Energy’s continued success in Israel, a lot of focus on the exploration campaigns going on in the Black Sea, and a number of exploration campaigns that are providing success and a portfolio of development opportunities in the Far East. So as we look across the globe, we can identify a number of areas that will provide incremental activity and growth in demand for ultra deepwater.
A few comments on Macondo – we issued our report on June 22 after a year’s worth of deep investigation into the incident that ultimately concluded that a series of decisions by the operator associated with design, construction and abandonment of the well compromised the well’s integrity. We continue to maintain our position with respect to the indemnity. We have a clear indemnity in the contract, and it’s important to put that indemnity in context. That indemnity is a part of the contractual agreement between Transocean and BP. It reflects the bargain that the companies arrived at with respect to the risks and rewards. It underpins how we price our services and it reflects what risk we re-price in the marketplace, and many of those points we’ve made in our filing for partial summary judgment, which we submitted to the court on November 1.
If BP fails to honor its promises, it doesn’t live up to its obligations, if the service community can no longer rely on the contract, it will have an overnight impact on offshore E&P. The cost structure will increase dramatically and only the largest companies will participate if we cannot quantify the risks, and I don’t think anybody wants that to happen.
A few closing comments on the investment thesis for Transocean. We are focused on delivering value to our customers, our employees and our shareholders. The Company’s backlog provides visibility and stability, particularly in the context of an uncertain macroeconomic background. We’re committed to maintaining an investment-grade quality balance sheet for the long term benefit of the organization. It provides financial flexibility, provides a lower cost of capital. It allows us to withstand the challenges of a cyclical industry. We’ve got a well articulated fleet strategy and we’re making concrete steps to execute that strategy. The market is improving across the asset classes - standard jack-ups, high spec jack-ups, mid-water floaters, deepwater floaters and ultra deepwater floaters, and the Company has tremendous exposure and leverage to an improving marketplace. We are committed to returning excess cash to our shareholders. We’ve got a track record over several years of returning nearly $20 billion to our shareholders. We’re committed to that and we’re disciplined about it.
I appreciate the time and I’m happy to take any questions.
Question and Answer Session
Maybe to rehash an issue, if you could just go over what went wrong in the third quarter. I think there’s a high level understanding of recertification issues, zero-tolerant issues from operators, but how does this translate to Transocean specifically, especially given that it doesn’t seem to be having as big an impact on some of the peers?
I think there are three issues affecting the industry in general, and Transocean in particular. The first of those is kind of the industrial context – that’s the post-Macondo environment: higher standards in the contractors themselves, more scrutiny on the part of the customers, more demands on the part of the regulatory agencies. That’s affecting everybody. It is here to stay, but it is evolving over time. And the Company—Transocean is playing the role you’d expect an industry leader to play. As those conversations take place with customers and with regulators, Transocean’s subject matter experts are an integral part of those discussions. So as the rules and the expectations evolve, Transocean will do whatever we can to help shape those such that at the end of the day, we end up with a set of requirements and expectations that are reasonable, that are representative and reflective of the environment and the objectives that everybody has in mind, but they are eminently achievable by Transocean. So I think we’ll do everything we can to shape that environment—the post-Macondo environment, and I have no doubts or concerns about our ability to compete in a post-Macondo environment.
Second element is one of continually improving the reliability and the performance of the equipment, and this is one that is not necessarily unique to Transocean, but as it relates to Transocean it is largely under our control. We’re doing a couple of things to address that, and one is a more aggressive approach to development and assessment of the competency of our people. We have a world-class training program and an industry-leading recruiting and development program. I think we do a better job than anybody else in our business in recruiting and developing talent, so we’re taking an aggressive approach to competency development and competency assessment.
The other element of that relates to how we actually operate and maintain our equipment, and that is just the continuous process of regularly improving our maintenance standards, our operating procedures, and the policies that our people use when they operate the equipment. I think we’re making good progress in that.
The third element that’s facing us and the industry is the performance, the capability, and the capacity of the vendor community. If you look at the change in workload post-Macondo, particularly as it relates to pressure control equipment, it’s been dramatic; and so we’re working closely with the vendor community as they add capacity and manage their existing capacity, as they recruit and train and develop their people, as they plan demand, as they assess QA, QC. Again, we’re doing whatever we can to assist the vendor community in responding to the dramatic increase in demand that results from the post-Macondo environment.
So the first issue is the post-Macondo environment, and we’re helping to shape that. Second issue is our approach to assessing and developing the competency of our people and regularly improving the operating and maintenance standards, and the third element is working closely with the vendor community to assist them in responding to the changes in their business.
The Aker Drilling acquisition was shocking on a few levels. First, it seemed like it was about a 100% premium to the closing share price. It’s difficult to understand why a negotiated agreement wouldn’t result in a somewhat smaller premium. Second, compared to the alternative of purchasing Transocean shares where the NAV discount was so substantial. Third, there are people who are questioning whether you will remain investment grade and maintain your dividend at the same time, and this acquisition appears to have made that more challenging. And to do this at the same time that you say you have a competitive advantage in reinvestment, and we’re not seeing anybody step up to the plate making three to five-year contracts that you’re able to make new builds with, and I’m wondering how all of this ties together to have a competitive advantage in reinvestment and to go out onto the public market and make an acquisition at such a very significant premium.
So if I could take the second part of your question first, which is the competitive advantage regarding reinvestment, I don’t think there’s any other company out there today that is building jack-ups to a contract, and with the amount of jack-up capacity that’s available, for Chevron to have stepped up with three-year contracts to enable Transocean to build high spec jack-ups, I think is reflective of our competitive advantage. So it maybe hasn’t manifested itself recently regarding reinvestment in high spec floaters, but it is clear and present in our ability to secure contracts that justify significant investment in high spec jack-ups. So I do believe we have a competitive advantage.
Now, the other part of your question all relates to the Aker Drilling acquisition. It was a negotiated deal. We went into those negotiations with a value we were willing to pay. They obviously came with a value they were willing to accept. The resulting price is more a reflection of those relative views on valuation than it was necessarily on what the shares were trading on the Oslo stock exchange. So the premium is more an outcome of those negotiations than it is necessarily a criteria that they set or an objective that we were willing to meet. It reflects the relative valuation between a willing seller and a willing buyer.
I think it is important for us to continue to identify opportunities to reinvest in our business at attractive rates of return, and I think the Aker Drilling acquisition is a fine reflection of that. We’re going to continue to look for opportunities to do that.
Now, does that in and of itself put the ability to remain investment grade and continue the dividend at risk? In isolation, I have a hard time identifying any particular aspect of that that is associated specifically with the Aker Drilling acquisition. There is a lot going on right now. We’ve got to improve our operating performance. We’ve got to return to historical levels of revenue efficiency so that we can generate the cash that is embedded in our portfolio of contracts, and at the same time we’ve got some balance sheet issues to continue to focus on and the disciplined follow through on our historical track record of returning cash to our shareholders. There’s a lot of aspects to all of that that are going to represent some challenges for the Company to manage through, and all I can do is tell you we’re going to do the best at managing through those challenges.
Could you just talk a little more about those balance sheet issues you just mentioned? I know you’ve got the acquisition to pay for and then you’re got to convert. It could be put to you guys in December, and Moody’s just put you on review for downgrade. So could you just talk about what the plan is there a little bit more?
Yes. So we’re looking at the obligations that are likely to be presented to the Company in the fourth quarter, either in the form of the third installment of the dividend - $250 million to be paid on December 21. The Series B converts, which is about $1.7 billion, we fully expect to be put to the Company in the fourth quarter, and so we’re evaluating the alternatives that are available to us in terms of meeting those obligations in the context of having received the announcement earlier last week from Moody’s regarding the review that we’re undergoing. So these are all considerations that the Company is evaluating and we will respond. We are focused on remaining investment grade and so we’ll put in place the measures that we consider necessary to remain investment grade.
When we think about (inaudible) ultra deepwater market, obviously 2012 looks pretty tight; but when we come to 2013, there are another 20-plus or so rigs that will be delivered to the market. What needs to happen for 2013 also to remain tight on the supply? Is it more of exploration (inaudible) or is it something else?
Well, I think it’s a combination of things. You know, a continuing robust commodity price environment gives our customers the confidence to continue their investments. If you look back over the last several years of the ultra deepwater market, on average the market has absorbed in excess of 20 rigs in terms of incremental additions to the supply – 20-plus rigs a year, and if you go back to the early part of the last new building phase, those incremental 20 rigs were on a very small base to begin with, so it was a near doubling of the industry’s capacity on an annual basis. Given where we are today with the significant ultra deepwater fleet, an additional 20, 22 rigs is a relatively small addition to supply compared to where we have been historically, so as long as the commodity price continues to be robust – so you’ve got to resolve the background of macroeconomic uncertainty – continuing demand for energy, the customers have no choice but to replace the reserves they produce on an annual basis, and the only way to do that is through drilling. And the last areas of significant interest to them are in deeper and deeper waters, more and more remote environments, harsher and harsher environments. So all of that, we think bodes well for the long-term fundamentals of the business - continued demand on the part of the customers for access to available ultra deepwater supply.
As we see 2012 capacity taken off the marketplace, customers will start looking further and further out to ensure that they secure the access they need to carry out their plans. So you start to build this sense of scarcity on the part of the customers that is extremely helpful and beneficial for the negotiating leverage that a contractor has.
Just two quick questions. One is can you assure me that onshore will not be a part of the future for Transocean? And also, are you telling us that you’re not willing to settle with BP, and have you considered the fact that the ongoing process would be hampering the share price and how it is affecting your customer relationship with BP?
Did I understand the first part of your question right? Are you asking for assurance that we will not engage in onshore drilling? Yeah, I suppose I can’t give you an ironclad guarantee because something could always change, but activity on onshore drilling is not something that the Company is currently considering. So you’d have to have a pretty radical change in our strategy for us to contemplate embarking in onshore drilling.
The second part of your question is all about the relationship with BP. I’ll tell you, the operating relationship is very, very good. We’ve got a number of rigs working for BP around the world in the Gulf of Mexico, Brazil, West Africa, the North Sea, the Middle East; and believe me, I regularly interface with our people to ensure that that relationship is healthy. And when I meet with my counterparts at BP, that’s the first thing we talk about – the importance of maintaining a focus on operational execution.
The prospects for a settlement with BP – our focus is on preserving the indemnity, and so any settlement with BP would have to preserve the indemnity. We have an ironclad contract with them with very clear, comprehensive and broad indemnity language, and we’re not about to do anything that would compromise that indemnity, and I think you see that with the recent filing for partial summary judgment as it relates to the indemnity.
Just a quick follow-on there – do you have any sense of the timing of the Department of Justice report?
So there’s two elements of the Department of Justice. One is the civil side, and what the civil side of the Department of Justice has done is they filed a claim – I think it was filed on December 15 of last year – so that’s just a claim against all of the companies that were directly involved in Macondo for fines and penalties under the Clean Water Act and the Oil Pollution Act. I don’t expect a report out of the civil side of the Department of Justice. The criminal side of the Department of Justice has been conducting an investigation into the event. I’m not sure that there’s any definitive sense of timing about when the criminal side of the Department of Justice is going to progress their investigation or release any results of that investigation.
(Inaudible) how important Brazil is for you guys, and Petrobras recently posted a huge option for drilling rigs built in Brazil. I was just wondering—I just wanted to hear your thoughts on the whole challenges of building in Brazil and how interesting, or non-interesting for that matter, you would think about the investment in nationally built rigs.
First of all, to put it in context, we are very pleased with our position in Brazil. We value our relationship with Petrobras and our presence in the Brazilian market, and we would dearly love for opportunities to grow that so we spend a lot of time focused on developing a strategy for participation in the growth that we all anticipate to take place in Brazil.
As it relates to building in Brazil, we think we are pretty good at assessing the risks associated with building – the counterparty risk, the construction risk, the commodity price risk, the availability and performance of vendors. So as we deal with potential shipyard partners, particularly in places like Singapore and Korea, I think the Company does a very good job of assessing those risks, quantifying those risks, and then reaching an acceptable commercial arrangement to share those risks. It’s a bit of a different challenge in Brazil because you’re dealing with an emerging shipyard capability down there where the ability to assess those risks and quantify them and then appropriately share them isn’t as mature as it is in other places. So we’ll continue to participate in the exercise, hopeful that we can grow our presence there but concerned about the ability to assess and share the risk of building in Brazil.
Steven, (inaudible), thank you very much.