Rowan Companies Management Discusses Q4 2012 Results - Earnings Call Transcript

| About: Rowan Companies (RDC)

Rowan Companies (NYSE:RDC)

Q4 2012 Earnings Call

February 28, 2013 11:00 am ET


Suzanne M. Spera - Director of Investor Relations

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

Thomas P. Burke - Chief Operating Officer

Mark A. Keller - Executive Vice President of Business Development

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


Gregory Lewis - Crédit Suisse AG, Research Division

Eduardo Royes - Jefferies & Company, Inc., Research Division

Ian Macpherson - Simmons & Company International, Research Division

Jeffrey Healy


Greetings, and welcome to the Rowan Companies Fourth Quarter and Full Year 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is my pleasure to introduce your host, Suzanne Spera, Director of Investor Relations for Rowan Companies. Thank you, Suzanne. You may begin.

Suzanne M. Spera

Thank you, Brenda, and good morning. Welcome to Rowan's Fourth Quarter and Full Year 2012 Earnings Conference Call. Joining me on the call this morning are Matt Ralls, President and Chief Executive Officer; Tom Burke, Chief Operating Officer; Mark Keller, Executive Vice President, Business Development; and Kevin Bartol, Executive Vice President, 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. Good morning, everyone, and thanks for joining our call. We're pleased overall with the results of 2012, which reflected delivery in February of last year of the final jack-up in our $3 billion jack-up newbuild program and a full year contribution of 6 others delivered throughout 2011.

We had many operational achievements during the year and a few setbacks, some of which Tom will discuss in his remarks, and we'll take the learnings from all of these events and build on them in 2013 as we prepare for the delivery and operation of our 4 new all ultra-deepwater drillships.

We'll be focused in 2013 on operational and project management execution, including our expanding operations in Norway, contractual upgrades on several jack-ups and delivery and startup of our first drillship toward the end of this year. Mark will update you in a minute on our view of the rig markets but I'll say, generally, that we see continued strength in demand in both jack-up and ultra-deepwater segments.

We remain optimistic about opportunities to contract our remaining 3 drillships on attractive terms and believe that we will see follow-on work at higher day rates for our jack-ups with contract expirations later this year and in 2014.

With no new rigs being added to our fleet until the end of this year, our earnings growth in 2013 will be moderate compared to the substantial increases in revenues and earnings that we expect for 2014.

On a related note, we ended the year with a contract backlog of $3.5 billion, down slightly from our all-time high of $3.8 billion at the end of the third quarter and expect our backlog to grow significantly in 2013 as we contract our 3 uncontracted newbuild drillships.

And with that, I'll turn it over to Tom to make some operational comments.

Thomas P. Burke

Thanks, Matt, and good morning. Rowan's operations had a strong safety performance in 2012, with a 14% reduction in our incident rates against 2011, making 2012 Rowan's safest year ever. We still have a ways to go to achieve our injury-free goal. But to all those Rowan employees listening to this call, very well done.

Operational highlights in the fourth quarter of 2012 included the following: the award of the expectance of compliance, or AoC, for the Rowan Norway, allowing the rig to move into the Norwegian sector of the North Sea at the start of its 3.5-year contract for ConocoPhillips. Unfortunately, the yard stay to achieve the AoC was somewhat longer than expected.

The EXL I began operations in Indonesia following a tanker collision in early 2012. The rig's yard stay in Singapore was a month shorter than estimated. And additionally, the Gorilla VI shipyard period were also reduced as we executed a spud can inspection in much less time than planned.

In the fourth quarter, our unbillable downtime was 2.5%. By unbillable downtime, I mean off rate time when our rigs are on contract and available to earn day rates but we will off rate due to operational issues, such as equipment failure. This 2.5% last quarter compares well to 3.3% in the third quarter of 2012 and to 3.9% in the fourth quarter of 2011. All together, our unbillable downtime was 2.3% for the full year 2012, which compares favorably to 3.2% for the full year 2011.

While 2012 was an improvement over 2011 and represents a high level of uptime by industry standards, our technical services and field support teams continue to focus on putting improved systems in place to drive our operational downtime even lower.

I should also mention a couple of setbacks that impacted results in the fourth quarter. We experienced a pass-through on the J.P. Bussell while working offshore Malaysia, which required that the rig be moved back to Singapore for leg repairs. However, the rig was back on location early this week, ready to drill. There was also a pipe handling system problem on the Rowan Stavanger that caused it to collide with the top drive, resulting in significant downtime for repairs.

Despite these operational difficulties, we are seeing the fruits of Rowan's focus and emphasis on planning and project management as we execute our shipyard projects to higher standards.

Shipyard, transit and inspection time consumed 10% of our available days in the fourth quarter of 2012. By comparison, in the third quarter of 2012, this number was 14% and year-over-year, it was 17%. For the whole of 2012, our shipyard, transit and inspection time was 12% against 22% for the whole of 2011.

In addition to our project management focus, this significant reduction in off rate days is also attributed to the strategic positioning -- repositioning of the Rowan fleet, which is now mostly complete. We estimate our 2013 shipyard, transit and inspection time to be approximately 10%.

Looking forward into Q1 2013 and beyond, the Rowan California has arrived at the Lamprell shipyard in Hamriyah in preparation for a 3-year contract with Maersk Qatar, and we expect the Gilbert Rowe to go on rate with Saudi Aramco in April.

Two significant life enhancement events that are currently planned for 2013 are the drilling equipment upgrades of the Gorilla VI and the Gorilla VII that will take place later this year. While we don't like to take any of our rigs off rate, especially our Super Gorillas, these upgrades are necessary to keep the rigs competitive and within class requirement. It goes without saying that we have a significant focus on minimizing these yard stays.

Our deepwater preparation is proceeding as planned, with emphasis on staffing, systems and competency assurance. We have begun our West Africa entry prospects for the Rowan Renaissance in preparation for operations there in Q1 2014.

I will now turn the call over to Mark, who will give a marketing update and discuss the drillship market in more depth.

Mark A. Keller

Thanks, Tom, and good morning, everyone. We have an optimistic outlook for Rowan in 2013 as the jack-up market continues to strengthen and we enter the optimal contracting window for our newbuild ultra-deepwater drillships. This morning, I will review the worldwide jack-up market, provide a regional overview of our fleet and conclude with comments on the ultra-deepwater market.

According to IHS Petrodata, there are currently 486 jack-ups worldwide. Demand is 412 rigs with total utilization of 85%. However, we also analyze competitive demand, which strips out jack-ups that are cold stacked or out of service and removes the units that operate in noncompetitive countries. On that basis, we see competitive demand as 385 jack-ups with utilization of 94%. This strong utilization indicates a promising position for drilling contractors in 2013.

As we look out beyond 2013, consider that 62% of that competitive fleet is older than 25 years, and that many of those will likely be retired or cold stacked in the coming years. Our expectation is that despite the addition of 86 scheduled newbuild jack-ups in the next 2 years, the continued bifurcation of the market, along with the retirement of many older units in the global fleet, will keep the oversupply demand relationship in balance, especially for the more capable units.

As a result of the high utilization projected over the next couple of years, we are expecting our day rates to continue to increase. With 10 of our contracts rolling over in 2013, Rowan should be in good position to achieve higher day rates.

International tender activity remains solid. Considering submitted tenders and inquiries, bids in-house and anticipated activity, we currently see opportunities for Rowan jack-ups for approximately 35 projects, with the majority of the demand in Southeast Asia, the Middle East and the North Sea.

Excluding cold rig -- cold-stacked rigs, given that 73% of our remaining available days are already contracted for 2013, this looks favorable for the continued strong utilization and rising day rates for our jack-up fleet.

I would now like to talk to you briefly about the regions of the world where we currently operate our jack-up fleet. Rowan has 10 active jack-ups contracted in the Middle East. We are pleased with our recent contract announcement that the Rowan California will commence operations for a 3-year term with Maersk Oil Qatar in the low 140s, following approximately 150 days in the shipyard for upgrades. We have 7 outstanding tenders in the region and additional projects are expected in Qatar and the U.A.E. The Saudi Aramco aims to increase its rig count by 5 to 10 units. We anticipate new tenders in the near term as well.

While an oversupply still exists for the less capable jack-ups in the region, as a whole, we believe that recent tender announcements from ONGC in India may absorb some of that excess capacity.

Now turning to the North Sea. 44% of our total contract backlog is in this region, and all 6 of Rowan's jack-ups are currently contracted. For large high-spec jack-up units, we believe that a supply deficit of approximately 4 rigs exists for 2013. We anticipate the North Sea to be a target market for many of the upcoming newbuilds.

We're currently in discussions to extend existing contracts in the region. Our Super Gorilla Class and N-Class jack-ups are well positioned to take advantage of potential day rate increases in this predominantly ultra high-spec area of the world.

In Southeast Asia, the HPHT trend continues to gain momentum, and operators are extending the duration of contracts to attract the higher-spec equipment that is required to drill these more demanding wells. Rowan's 4 jack-ups are fully utilized, and we are currently in discussions with several operators in the region for contract extensions.

And finally, in the U.S. Gulf of Mexico, our active fleet of 5 jack-ups is fully utilized. As reported in the fleet status released last week, we announced contracts for the Rowan Louisiana and the EXL III with Pisces and Nexen, respectively.

In Trinidad, we're encouraged by ongoing discussions for additional projects that could extend the contracts of our 2 rigs in the region. Also, we believe this increase in demand could warrant an additional jack-up in Trinidad sometime in 2013.

I'll conclude my comments with a brief discussion of the ultra-deepwater market. Record-setting deepwater discoveries in 2012, coupled with 2013 capacity virtually absorbed, indicates continued strength in the ultra-deepwater sector. More than 50 discoveries were announced in 2012, spanning 14 countries. Frontier markets, such as East Africa, Southeast Asia and Australia, are broadening the ultra-deepwater horizon previously limited to the U.S. Gulf of Mexico, Brazil and West Africa.

The market is transitioning to the 2014 contract window, and we are currently tracking active requirements for 22 ultra-deepwater projects. Recent day rate fixtures range from the high 500s to the mid-600s depending on region and term, and we are seeing contracts from 2 to 7 years in duration. We have a positive outlook our 3 uncontracted ultra-deepwater drillships, and we'll keep you updated on our progress in securing contracts.

I will now turn the call over to Kevin.

J. Kevin Bartol

Thank you, Mark, and good morning, everyone. Our fourth quarter revenues were $354 million, up by 29% over last year due to fleet additions and higher utilization for existing rigs. Our collective shipyard, inspection and transit time, as Tom mentioned, was approximately 10% of our available rig days, including our 3 cold-stacked rigs during the fourth quarter, which was higher than our previous guidance primarily due to the delayed customer acceptance of the Rowan Norway prior to its 3.5 year contract in Norway.

Shipyard, inspection and transit time was down significantly from last year's level as fleet repositioning declined. We currently expect our shipyard, inspection and transit time in 2013 to be approximately 10% of our available rig days, again, including our 3 cold-stacked rigs, slightly higher than our previous preliminary guidance. We also expect shipyard, transit and inspection time to be approximately 10% in the first quarter of 2013.

As a reminder, our monthly fleet status report contains planned off rate days by quarter. Planned off rate days include forecasted shipyard, inspection and transit time, but do not include either forecasted or unplanned operational downtime.

Our backlog of drilling commitments is approximately $3.6 billion, up from $3.1 billion at this time last year. We estimate that 31% of our contract backlog will be realized as revenue during 2013, 29% will be realized in 2014, 20% in 2015 and the balance in 2016 and beyond. Excluding the 3 cold-stacked rigs, we have 73% of our available rig days under contract in 2013, 47% under contract in 2014 and 20% under contract in 2015.

Our fourth quarter operating expense of $194 million was slightly higher than our previous guidance as a result of higher-than-anticipated reimbursable expenses, which are fully offset by incremental revenues. Please note that we have provided additional supplemental information for reimbursement -- for reimbursables in our earnings press release. Excluding these incremental reimbursable expenses, our operating expenses were lower than our previous guidance.

Operating expenses in the fourth quarter were 19% above last year's level, primarily due to the impact of fleet additions, rig relocations and startups, higher reimbursables and costs associated with the ongoing geographic expansion of our drilling operations.

Looking at 2013, we estimate operating expenses will be in the range of $795 million to $805 million, which is in line with our previous preliminary guidance. Our first quarter 2013 operating expenses are expected to be in the range of $205 million to $207 million. The increases over 200,000 -- excuse me, the increases over 2012 levels are a result of incremental rig activity and continued geographic expansion, as well as hiring and transitioning personnel for our deepwater operation. We are currently estimating worldwide labor rate increases to be approximately 6% in 2013.

Additionally, we expect our average gross margin as a percentage of revenue to slightly improve in 2013 over the 2012 level.

Our fourth quarter depreciation expense totaled $65 million, which was in line with our previous guidance, and up by 2% over last quarter and by 18% over last year, primarily due to fleet additions between periods. We estimate 2013 depreciation expense will be in the range of $270 million to $275 million, including approximately $64 million to $65 million in the first quarter, which is in line with our previous preliminary guidance.

Our fourth quarter SG&A expenses totaled $26 million, which was slightly lower than our previous guidance, in line with last quarter and up by 12% over last year, primarily due to the company's expansion. We estimate 2013 SG&A expenses will be in the range of $115 million to $117 million, which is slightly higher than our previous preliminary guidance, primarily as a result of growth in our support functions for deepwater operations. Our first quarter 2013 SG&A expenses are expected to be in the range of $29 million to $30 million.

Material charges and other operating expenses in the fourth quarter included approximately $5 million for noncash asset impairment charge; $3 million for the remaining repairs to the EXL I; $2 million of transactional costs associated with our corporate restructuring; and $4 million for charges related to settlement costs associated with the accelerated benefit payments for the company's frozen manufacturing pension plan, which we continued to administer following the sale of LeTourneau. These amounts were partially offset by approximately $5 million of proceeds received from a legal settlement.

Interest expense, net of interest capitalized, is approximately $13 million during the fourth quarter, which is slightly higher than our previous guidance due to the company's additional bond borrowings in December. We currently estimate 2013 net interest expense to be approximately $65 million to $67 million, including approximately $19 million in the first quarter of 2013.

Our 2012 full year effective tax rate is approximately an 11% benefit, which is lower or better than our previous forecast, primarily as a result of a onetime change in the tax method for the treatment of certain items and changes in the mix of foreign and domestic earnings. Collectively, these items caused a $24 million or $0.19 per share decrease in our fourth quarter tax expense compared to our previous forecast. Our 2013 estimated tax rate is currently expected to be in the single digits.

Property and equipment additions totaled $120 million in the fourth quarter, which is significantly lower than our previous guidance, primarily due to deferrals into 2013 of certain equipment for shipyard projects.

We currently estimate our 2013 capital expenditures to be approximately $1.3 billion, including $826 million for our 4 drillships; $275 million for life enhancement projects and existing fleet maintenance; $190 million for partially reimbursed jack-up fleet contractual modifications; and $54 million for equipment spares, drill pipe and improvements for our shorebase. We estimate approximately $180 million of capital expenditures in the first quarter of 2013.

At December 31, we had approximately $2.3 billion of remaining capital expenditures under our drillship newbuild program, with $826 million acquired in 2013, $1 billion in 2014 and $450 million in 2015. Our drillship commitments will be funded through available cash; cash flow from operations; amounts available under our revolving credit facility, if required; and potential future borrowings.

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

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Greg Lewis with Credit Suisse.

Gregory Lewis - Crédit Suisse AG, Research Division

Mark, you touched on some of the strength in the Middle East, and you mentioned ONGC. I believe earlier this week, ONGC put out a tender for 10 rigs. From what I gather, there was a lack of rigs being bid on that contract. Could you talk a little bit to what's going on in India? And also, I know you have the Paris in the Middle East. Is there any chance that we could either see that rig be reactivated by Rowan or potentially sold to maybe somebody else?

Mark A. Keller

I will address the India part of it, and I'll let Kevin talk to you about the Paris. Obviously, if we got a contract that would warrant bringing the rig out, had enough term and the day rate was high enough, we would certainly look at it, but I'll let Kevin talk to you about our alternatives -- position on selling the unit possibly. As far as India goes, they -- Greg, their plans are initially were to tender for a total 17 rigs. I know they've had some resistance to their last round of tenders. I think a lot of that is the reason that we don't tender there, so I can't really give you a lot of detail. But I think part of the challenge with working with ONGC is the onerous contract terms that they make you sign. And with the market increasing like it is, I think they're meeting some resistance and they may have to rethink some of the liabilities that their forcing on drilling contractors today. But they are trying to high grade that fleet is what they're trying to do.

J. Kevin Bartol

Greg, I can comment briefly on the Paris. We -- as Mark mentioned, we would consider opportunities to bring that out and put it on contract as we did with the Gilbert Rowe, its sister rig for Aramco. The Paris does require some hull replacement and some jacking system repairs, so there would be some money that would have to be invested into the rig to get it ready to go to a contract. We also would consider an offer for the rig and on an as-is, where-is basis. So we're considering both options there.

Gregory Lewis - Crédit Suisse AG, Research Division

Okay, perfect. And then just real quick. I know you mentioned the unbillable downtime and potentially improving systems to maybe bring that number down. The CapEx guidance that you provided, does that provide those sort of improved systems costs potentially? Or is it additional?

Thomas P. Burke

Some of the things that we are doing, which are new projects, would be capitalized and -- but it would be a small amount relative to the numbers that are there.

W. Matt Ralls

Yes, and I do think it's important, Greg, to maintain the context of Tom's remarks here because our unbillable downtime is pretty low by industry standards at only a couple of percent. So I mean, it does get asymptotic from here. It's pretty hard to drive at it at 0, but the main thing we're focusing on is causes -- again, the types of events that cause downtime and making sure that we're doing as much preventive maintenance as possible to catch those before they happen.

Gregory Lewis - Crédit Suisse AG, Research Division

Okay. Yes, perfect. I was wondering how much lower that was going to get, so it didn't seem like there was much room for it to push down. So it didn't really seem like -- so missing costs on that would be that attractive.


[Operator Instructions] Our next question comes from the line of Eduardo Royes with Jefferies.

Eduardo Royes - Jefferies & Company, Inc., Research Division

I'd like to ask a question on the Gulf of Mexico units. I guess, we finally have seen some clarity on the McMoRan side with the Joe Douglas and EXL III both working with other customers and seemingly there's no tie there left with McMoRan. I'm just wondering, obviously, that's a very, very good market, kind of all the way the ladder in terms of specs. But is it still -- are these rigs still more likely than not to go international? Or is there the kind of work that can bring attractive margins, I guess, in the Gulf of Mexico on those rigs as you think about it now?

Mark A. Keller

Sure. Eduardo. First off, I would address the McMoRan part of the question. We still have a very close relationship with McMoRan and their partners and we're in discussions with them all the time. We're talking to them currently about the EXL III and the Joe Douglas and the Rowan Louisiana and what the timeframe will be for projected wells and completions as they go to Davy Jones 2 and go back to Davy Jones 1 with the EXL III. So there are a lot of -- just to make it clear, we still have a very close relationship and are in constant communication with them as they get their plans finalized after they restructure the company. As far as the second part of your question, we are continuing to market those rigs internationally. We're seeing a lot of demand as you mentioned in the U.S. Gulf. We've been able to term up the Cecil Provine and the Gorilla IV. I think that we'll be offered some opportunities on the EXL and the Joe Douglas. However, given the high-spec nature of those rigs, capabilities of those rigs, we are tendering those rigs overseas, and we've done that all along but being respectful of our commitments and our obligations to McMoRan. But we see the market staying strong in the Gulf. As you can see from the fleet status, we have several operators that are willing to walk the rigs along through 2013 in the eventual case, hopefully, that McMoRan will proceed with their ultra-deep gas program.

Eduardo Royes - Jefferies & Company, Inc., Research Division

And then just one unrelated follow-up. I think we've seen now for some time the well equipment upgrade on the Tarzan Class rigs get pushed out. And I guess, as of now, they're still on the fleet status for late in the year type event. I think we had heard at one point that, that might not need to happen. Any sort of latest thoughts or idea on there? I know they're still on the fleet status, but how do you guys think about that?

Thomas P. Burke

Mark -- I'll take that, Mark. I would say, where that is, we're continuously working with our customers in Aramco and all of our customers to help optimize their efficiency and our efficiency. And so we're just working with them regarding their drilling program and looking at what is most efficient for them and for us. And so you'll see in our fleet status that we have -- we've taken the time and kind of split it to do an initial inspection, particularly on the Scooter Yeargain. And then depending on what we find with that, we'll come back on -- later on in the year after going back to work. So it is something that is on the table, but we're continuously working with the customers to see if we can -- to minimize off rate time.

Mark A. Keller

Eduardo, along the lines of what Tom just said, Saudi Aramco is currently at 37 jack-ups and they're trying to increase their fleet up into the mid-40s. There's a big push for gas drilling, which those rigs are capable of doing. And most of the time, that's what their operations are comprised of, is drilling for deep gas. So I think the potential of moving that, I don't think that they want rigs down right now, but that's just my opinion.


Our next question comes from the line of Ian McPherson with Simmons.

Ian Macpherson - Simmons & Company International, Research Division

The contract that you got for the California with Maersk Oil was, I think, particularly impressive. And I know that, that the rig received a good amount of capital in the shipyard over the past year. Could you comment as to whether you think that is really an indicative contract strength for years at 144 [ph] , the generic 30-year-old 116-C? Or do you think that the work that you've put into that rig could skew that in terms of how we interpret that as a data point?

Mark A. Keller

Ian, I think that -- okay.

Thomas P. Burke

Sorry. Ian -- I'll give Mark a chance to comment on the rate. I'll just clarify, the California has been working in Qatar for 2 or 3 different customers for some time. It did come into the shipyard a couple of years ago, but it has actually -- it's been operating and it just arrived in the shipyard now. And so we haven't -- that rig has just arrived. The Gilbert Rowe is in the shipyard and is going on -- is having an upgrade. So that rig actually has been working, and it's now coming into the shipyard. And Mark, go ahead and comment on the 116 rate.

Mark A. Keller

Ian, as you know, we've work for Maersk Oil Qatar for several years with the Gilbert Rowe and the Paris, and they like our operation. And we actually were not the low bidder on this particular job. They're still looking at 1 or 2 other rigs. We are making some modifications as per their tender requirements. But I think today for that type of rig with the good operating history and good performance, I think that's an indicative rate, to answer your question.

W. Matt Ralls

But just to be clear too, Ian, I mean, it's not your run-of-the-mill 30-year-old 116-C. I mean, it has been repowered. It's got 3 pumps. We have put capital into it and we'll be putting some more into it in this shipyard stay. So our 116-C as a group -- Paris excluded, as a group, are probably kind of at the top of the class in terms of the way they've been maintained and equipped.

Ian Macpherson - Simmons & Company International, Research Division

Yes, that makes perfect sense. And then can I just ask you 2 quick follow-ups to clarify the cost guidance that you provided, Kevin? It looks like you're expecting your first quarter operating cost to be a little bit above average for the year. Should we expect the remaining quarters of the year to look fairly similar to one another?

J. Kevin Bartol

Yes. Generally, things are front-loaded in the first part of the year for a couple of reasons around compensation issues and that. Yes, and then also at the end of the year, we have some rigs coming into the shipyard. When rigs are in the shipyard, as you know, the costs are capitalized. So we're forecasting when we mentioned the -- when Tom mentioned the super Gorillas, with the VI and the VII, that's forecasted for the fourth -- the third and fourth quarter, I believe. You can see that in our fleet status. And so those will be capitalized. But in general, when we look of the quarters, yes, the third and the fourth quarter will be lower than the first 2.

Ian Macpherson - Simmons & Company International, Research Division

Okay, that's helpful. And then I'm sorry if I missed it, but did you refresh your expectation for income tax rate for this year?

J. Kevin Bartol

Yes, we are guiding to single digits for 2013, which, I believe, is in line with our preliminary guidance that we gave last quarter.

Ian Macpherson - Simmons & Company International, Research Division

Yes, should we just go with 5% then?

J. Kevin Bartol

We're not prepared to say anything more other than that it will be just single digits.


Our next question comes from the line of Jeff Healy with AIG.

Jeffrey Healy

I had a question on the funding for 2013. It looks like you guys are going to be a little short, probably around 700, 750 or so that you're going to need in your short-term or long-term debt. So your -- what are your plans, [indiscernible] Just came in December. Are you looking to come back to long-term market? Or is it something you think you're going to bridge with short-term and start to pay off of as the contract start to hit in '14?

J. Kevin Bartol

Well, Jeff, we don't forecast any need for financing in 2013 and that gets us through the end of the year, including the payment to take the first drillship out of the shipyard. But we think with the $1 billion in cash that we have on the balance sheet, plus cash flow that we will earn this year, that we will end the year still with a healthy cash balance. Now in 2014, we will need either to draw -- according to our projections, either to draw on our revolver significantly or to go and raise additional financing. So we do plan to raise additional financing in 2014.


It seems there are no further questions at this time. I would like to turn the floor back over for closing comments.

Suzanne M. Spera

All right then. Well, thank you to everyone for joining us on Rowan's Fourth Quarter and Full Year 2012 Earnings Conference Call. We look forward to following up with you, and we'll talk to you later. Thank you.


This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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