Noble Plc (NE) Q2 2017 Results - Earnings Call Transcript

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About: Noble Corporation plc (NE)
by: SA Transcripts

Noble Corp. Plc (NYSE:NE) Q2 2017 Earnings Call August 4, 2017 9:00 AM ET

Executives

Jeffrey L. Chastain - Noble Corp. Plc

David W. Williams - Noble Corp. Plc

Adam C. Peakes - Noble Corp. Plc

Robert W. Eifler - Noble Corp. Plc

Analysts

Scott A. Gruber - Citigroup Global Markets, Inc. (Broker)

Ian Macpherson - Simmons & Company International

Haithum Nokta - Clarksons Platou Securities, Inc.

Gregory Lewis - Credit Suisse Securities (NYSE:USA) LLC

Sean C. Meakim - JPMorgan Securities LLC

Jeffrey L. Campbell - Tuohy Brothers Investment Research, Inc.

Kurt Hallead - RBC Capital Markets LLC

Colin Davies - Sanford C. Bernstein & Co. LLC

Operator

Good morning. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Noble Corporation Second Quarter 2017 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

Jeff Chastain, Noble Corporation's Vice President of Investor Relations. Please go ahead, sir.

Jeffrey L. Chastain - Noble Corp. Plc

Okay. Thank you, Christa, and welcome, everyone, to Noble Corporation's Second Quarter 2017 Earnings Call. We, as always, appreciate your interest in the company. In case you missed it, a copy of Noble's earnings report issued last evening along with all the supporting statements and schedules can be found on the Noble website. And, again, that's noblecorp.com

Before I turn the call over to David Williams, I'd like to remind everyone that we may make statements about our operations, opportunities, plans, operational or financial performance, the drilling business or other matters that are not historical facts that are forward-looking statements that are subject to certain risks and uncertainties. And our filings with the U.S. Securities and Exchange Commission, which are posted on our website, discuss the risks and uncertainties in our business and industry and the various factors that could keep outcomes of any forward-looking statements from being realized. This includes the price of oil and gas, customer demand, operational and other risks. Our actual results could differ materially from these forward-looking statements and Noble does not assume any obligation to update these statements.

Also note we are referencing non-GAAP financial measures in the call today. You will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation, on our website.

And then finally, consistent with our quarterly disclosure practices, once our call has concluded, we will post to our website a summary of the financial guidance covered on today's call, which will cover our third quarter and full year 2017 figures.

With that, I'll now turn the call over to David Williams, Chairman, President and Chief Executive of Noble.

David W. Williams - Noble Corp. Plc

All right. Thank you, Jeff, and good morning to everyone. We appreciate your interest in Noble and for the opportunity to review our second quarter results as well as some of other topics, which should be helpful in your evaluation of our company and the offshore industry.

In addition to Jeff, this morning I am joined by Adam Peakes, our Senior Vice President and Chief Financial Officer, also I have the privilege this morning of introducing two individuals who have recently assumed new management roles at Noble. First, Robert Eifler. Robert was recently appointed to the position of Vice President and General Manager of Marketing and Contracts.

Prior to this appointment to his new role, Robert was responsible for our company's marketing and contract activities in Eastern Hemisphere. He's based in London, and that's an area where we have expanded our geographic footprint pretty well over the last couple years. I know that our global commercial efforts are in good hands under Robert's leadership and with the ongoing support of our talented marketing team. So you'll hear from Robert here in just a moment.

Also I'm delighted to welcome Mr. Thomas Sloan to the company as our Vice President-Controller. And he's responsible for our global accounting functions, policies and controls. Thomas began his new role in July and brings many years of broad experience from prior service in the energy and offshore industries. Thomas replaces Dennis Lubojacky, who will retire from the company later this month after 10 years of service. And we appreciate all that Dennis has done for the company and we wish him all the best in his new phase of his life. So, Thomas, welcome and, Dennis, good luck.

So with that out of the way, I'll begin this morning with some brief comments on the second quarter.

First, a review of Noble's second quarter performance shows our success in extending our first quarter accomplishments. We continued to demonstrate exemplary execution and operations with outstanding safety and environmental protection performance, historically low fleet downtime and operating cost at lower than expected levels.

Also, due in part to our solid contract coverage in 2017, which remains among the best in the industry, we've retained a healthy contract drilling margin of 46% despite a challenging offshore environment that has a broad reduction in average daily revenues and fleet operating days.

Finally, our cash position and total liquidity have improved as the company continues to generate positive free cash flow. In all, we've reported another solid quarter that demonstrates our stellar operational focus and consistency along with financial balance that serves Noble well, as we steer a course to better days in the offshore industry.

Now I'll turn our attention to the business. I'm pleased to tell you that we've seen a step-up in contracting activity over the recent weeks. After a rather quiet period, the contract awards that began to appear, primarily in the jackups sector in early 2017, have recently spread to the floating side of the business, and Noble is benefited.

Let me bring up to date on some recent contract developments. Our semisubmersible Noble Paul Romano, which is operating the U.S. Gulf of Mexico for Hess, was awarded a contract extension that should keep the rig active into December of this year. The rig will continue at the current rate of $128,500 into October, with a dayrate for the extension period set at $115,000 a day. The Noble Paul Romano remains one of the few active semisubmersibles in the U.S. Gulf of Mexico with conventional mooring capability, which allows it to execute well at assignments in the mid-water range. The rig has additional contract opportunities both in and outside the region following this current extension.

Also, as we disclosed in our July Fleet Status Report, Total awarded the ultra-deepwater drillship Noble Globetrotter II a one-well drilling program offshore Bulgaria in the Black Sea, which is estimated to last about 100 days. The rig will receive a mobilization fee and a dayrate in excess of operating cost and is expected to commence in late September. In addition to the day rate for this new contract award, the rig will continue to receive its contracted dayrate of $185,000 a day for a period of up to 730 days or into December of 2018 as part of our previously announced agreement with Shell.

The Noble Globetrotter II, with its Huisman Multi Purpose Tower, has proven to be an exceptional drilling rig solution for the Black Sea. With this unique design and capabilities, the rig can transit the Bosphorus Strait to the Black Sea in significantly less time than other rigs and we believe it's well placed to take advantage of the region's expanding opportunities. Noble is currently the only drilling contractor operating rigs with a Huisman Tower. Including this latest award, this will be the rig's third well in the Black Sea since 2015, following previous programs with Shell and Total.

Finally, as we reported in July, the ultra-deepwater drillship, the Noble Bob Douglas, has been awarded two short assignments that will keep the rig active for portions of the third and fourth quarters. The rig is currently engaged in the first program, which is located in the U.S. Gulf of Mexico. A second program is expected to commence in October following the rig's return to Suriname for the second time in 2017, with this latest well to be drilled for Tullow. Although these programs are of short duration, they provide an opportunity to demonstrate the excellent performance capability of the Noble Bob Douglas while establishing a solid competitive position for future work, especially in the area in and around Suriname, where we are once again providing offshore drilling service and what is arguably the offshore industry's best example of an emerging and potentially high-impact region. Bob will have more to say about our global contracting opportunities in just a moment.

Before I close my opening remarks this morning, I want to take a minute to once again address the Paragon Offshore issue and help frame the matter for our stakeholders. As you know, Paragon recently emerged from bankruptcy with a reorganization plan that, among other things, created a litigation for us to be utilized – to analyze and pursue claims against Noble relating to the 2014 spin-off of Paragon. No suits have been filed, but, of course, we are preparing for a potential fraudulent conveyance claim.

So what does that all this mean? Well, I want to start by emphasizing once again that we do not believe a fraudulent conveyance claim has any merit, and we are fully prepared to defend ourselves should one be brought. But, more importantly, I want to take the opportunity to reiterate why. The spin-off was a carefully conceived strategy executed with capable advisors designed for Paragon to succeed.

At the time of the spin-off, Paragon was properly funded, solvent and had appropriate liquidity, approximately $2 billion in backlog, a well-maintained fleet, $200 million of working capital and an undrawn $800 million revolver. Paragon had a very solid business to go along with its financial flexibility. Of course, the market was also far different than what we see today.

Paragon decided to chart its own course after the spin and then, importantly, our world changed, as we all know. However, that does not change the fact that we set Paragon up with full expectations that it would succeed and we wanted nothing but that. If the claim does come, we'll be ready, and we're quite comfortable with our position.

With that, I'll turn the call over to Adam to cover our financial update.

Adam C. Peakes - Noble Corp. Plc

Thank you, David, and good morning to all. As David touched on, our second quarter results were another example of excellent operational performance. Fleet downtime remained at a historically low level of just 2.2% and operating costs of $148 million once again settled below the low end of our guidance range when adjusted for a special charge that I will review in just a moment. Also, we generated $112 million in cash flow from operations, improving our year-to-date total to $254 million, which added to our cash position and pushed total liquidity to just over $3 billion. Finally, our capital needs continued to trend below expectations, leading us to adjust lower our full year spending plan.

I'll begin this morning by providing some clarity with respect to our reported results in the quarter. As noted in our press release, we recognized net charges in the quarter totaling $16 million, or $0.06 per diluted share, resulting from the bankruptcy filing of Paragon Offshore. I'll provide more color on these charges in just a moment.

I'll also comment on contract drilling revenues for the second quarter and provide an explanation on contract drilling costs, SG&A expenses and capital expenditures, as all three items deviated from our guided range. I'll close with updated guidance for full year 2017, including some thoughts on the third quarter, and comment on the revised 2017 capital expenditure plan, our balance sheet and liquidity position.

For the second quarter, Noble reported a net loss attributable to the company of $93 million, or $0.38 per diluted share. Net charges of $16 million, or $0.06 per diluted share, are reflected in the results. The net charges are composed of approximately $1 million, or less than $0.01 per diluted share, in discontinued operations resulting from the confirmation on June 7 of Paragon's final Plan of Reorganization.

In its final version, the Plan rejected all Separation Agreements established with Noble at the time of the spin-off of Paragon in August of 2014. The Separation Agreements, including certain indemnifications and obligations, included factors that provide both benefit and detriment to Noble from a financial perspective. Since the agreements are now terminated, the net financial impact is reflected in the discontinued operations line for the quarter.

The remainder of the net charge was due to the write-off of $14 million, or $0.06 per diluted share, in uncollectible receivables and taken against contract drilling services costs for the quarter. The receivables related to a lawsuit in Mexico involving the semisubmersible Noble Max Smith, which was retired in December of 2016. As part of the spin-off, Noble retained the right to receive amounts from the losses. However, the claim is being prosecuted by a Mexican entity of Paragon, which is expected to be liquidated as part of Paragon's final Plan of Reorganization, leading to our decision to write off the receivables balance. If the receivables write-off is excluded from results in the second quarter, the net loss attributable to Noble becomes $79 million, or $0.32 per diluted share.

A non-GAAP supporting schedule was included in the press release issued last evening and can be found on the Noble website, at noblecorp.com. The schedule provides a reconciliation of total revenues, net income or loss attributable to Noble Corporation income tax and diluted earnings per share for the second quarters of 2017 and 2016.

Contract Drilling Services revenue in the second quarter of $272 million compared to $355 million in the first quarter. The majority of the sequential decline was due to fewer fleet operating days and lower average daily revenues, largely pertaining to the floating rig fleet.

Also, revenues in the second quarter were reduced by a further $6 million following the write-off of a derivative instrument relating to the 2016 contract settlement with Freeport-McMoRan. The derivative instrument, which related to contingent payments to be determined by the average price of crude oil over a one-year period beginning June 30, 2016, expired at the conclusion of the second quarter of 2017 with no additional revenues collected. Contract drilling services costs excluding the $14 million charge related to Paragon Offshore were $148 million in the second quarter, or 7% below the midpoint of our range of guidance.

In addition to a decline in fleet operating days, we benefited from lower costs associated with certain stacked rigs and lower insurance costs. These favorable items were partially offset by higher repair and maintenance costs, driven by planned maintenance and regulatory programs in our jackup rig fleet and costs associated with the reactivation of the Noble Globetrotter II and Noble Tom Prosser. Both rigs are scheduled to commence new contracts during the second half of this year.

SG&A expenses of $19 million ran 12% ahead of guidance for the quarter, due primarily to outside professional fees. The operating margin for Contract Drilling Services, excluding the $14 million charge relating to Paragon Offshore, declined to 46% in the second quarter compared to 55% in the first quarter, due largely to the reduced activity and lower average daily revenues in the floating rig fleet.

Our solid contract coverage continued to support cash flow from operations which totaled $112 million in the second quarter and $254 million through the first six months of the year. Capital expenditures in the second quarter totaled $30 million compared to an expected spend of $39 million. With capital expenditures for the first six months of 2017 totaling $49 million, we under-spent our guided level by one-third.

Liquidity at June 30 was just above $3 billion, as cash on the balance sheet grew from $520 million at the conclusion of the first quarter to $603 million at June 30. Our revolving credit facility with $2.445 billion of capacity remains completely undrawn. Finally, total debt at June 30 of approximately $4 billion was unchanged from March 31. Our next senior note maturity, which totals $250 million, is due in March 2018.

Now I want to review our guidance for full year 2017 and share our thoughts on the third quarter. With regard to the impressive year-to-date fleet downtime result of only 2.5%, we have operated well below our guidance of 4% throughout the first half of 2017. Therefore, our full year 2017 downtime guidance has been revised lower to 3.5%, which we believe adequately compensates for our premium fleet mix. As for the third quarter guidance, we will remain at 4%.

Our guidance for full year Contract Drilling Services costs is adjusted slightly to $610 million to $630 million, which reflects the addition of the $14 million charge taken in the second quarter relating to Paragon. If the charge is excluded, our cost guidance becomes $595 million to $615 million and compares to the guidance provided in May of $585 million to $625 million.

Evidence continues to emerge suggesting a gradual improvement in offshore rig demand and we recognize the potential for an increase in our jackup and floating rig fleet operating days over the near to intermediate term. We believe it is prudent to reflect the potential for higher activity in our cost guidance. Costs associated with client reimbursables remain unchanged for the year, at $15 million to $20 million, resulting in expected total operating cost of $625 million to $650 million when the $14 million charge is included.

Contract Drilling Services costs in the third quarter are expected to range from $145 million to $155 million, driven in part by costs associated with the reactivation of the Noble Globetrotter II, Noble Tom Prosser and contract-based preparation on the Noble Regina Allen. These events are expected to be partially offset by lower operating days in our jackup fleet, as we expect two units to transition during the third quarter from working to idle status.

Costs associated with client reimbursables are expected to be in a range of $3 million to $5 million in the third quarter. DD&A expense in 2017 remains unchanged, with a range of $535 million to $550 million with the third quarter range set at $135 million to $140 million, also stable with last quarter. SG&A expenses in 2017 are being increased to a range of $67 million to $72 million to reflect an expected increase in professional and legal fees. Third quarter SG&A expenses are expected to total approximately $17 million and remain at that level through the balance of 2017.

We are also maintaining our full year guidance range for interest expense at $285 million to $295 million, with the range for the third quarter set at $72 million to $75 million. Non-controlling interest expense on our P&L representing the Bully I and Bully II 50/50 joint ventures with Shell is now expected to range from $7 million to $12 million of expense to Noble in 2017. As was the case in the second quarter, we expect the line item to reflect income to Noble of approximately $3 million for the third quarter and $2 million in the fourth quarter.

As a reminder, both of the joint venture rigs are currently idle. The Noble Bully I is cold stacked in the Southern Caribbean at a daily stacking cost of approximately $10,000 to $12,000. The Noble Bully II is idle in Malaysia while collecting a day rate of $200,000 over an idle period of up to 365 days as part of the amended contract agreement with Shell. The rig is warm stacked at a cost of $40,000 per day. As with the Noble Globetrotter II, we continue to market the Noble Bully II for possible contracts that could supplement the dayrate during this idle period.

As I noted earlier, a more moderate pace of spending through the first six months of 2017 has led us to revise lower our full year CapEx guidance from a total $115 million to $105 million, with an estimated $67 million of the revised level devoted to sustaining capital. A material deviation from this new guidance would be driven predominantly by additional rig reactivations and by a rise in the actual level of operating days experienced over the remainder of 2017.

Capital expenditures in the third quarter are expected to range from $25 million to $35 million. And with respect to our internal reorganization efforts, we are beginning to witness the effective tax outcome that we discussed in January as the plan was being implemented. In the second quarter, we recognized a tax benefit of approximately 16%. Exclusive of the $260 million non-cash discrete tax item presented in our first quarter 2017 results, the expected effective tax outcome for the full year 2017 remains at a benefit of approximately 20%.

In the summary, our focus will remain on delivering strong operational performance characterized by minimal fleet downtime, alignment of operating costs with the prevailing level of offshore drilling activity and extracting as much cash as possible from operating margins. Noble will generate positive free cash flow in 2017 before the repayment of debt maturities and we will continue to evaluate the best alternatives for improving our capital structure.

That concludes my financial remarks. And I will now turn the call over to Robert for commentary on the offshore drilling markets.

Robert W. Eifler - Noble Corp. Plc

Thank you, Adam, and good morning to all. I'm pleased to be with you on the call today to provide a perspective on the global offshore market, and I look forward to meeting each of you in the months ahead. I'm honored to direct an effort that has yielded some impressive contracting success to-date. Our strong team of marketing professionals remain focused, as bidding activity levels are as high as at any time since the downturn began.

Given our strategic emphasis on fleet quality, we are well-placed to capitalize on opportunities as positive trends emerge. In keeping with the company's past practice, I would like provide a brief overview of our fleet status and then take some time to review developments in offshore activity across the globe.

Though the offshore market remains challenging, 19 of the 28 rigs in our worldwide fleet are currently contracted, while others remain well-positioned to secure pending opportunities. Eight of the 19 rigs are contracted into or beyond 2019 and contribute to our solid base of revenues for 2018 and 2019. Included in the 19 contracted rigs are the Noble Tom Prosser, which will begin a contract in Australia in September 2017, and the Noble Regina Allen, which we anticipate will be mobilized into Eastern Canada in the fourth quarter of this year. And David has already mention the Nobel Globetrotter II program in the Black Sea.

Updates to the Fleet Status Report issued in mid-July, include the Noble Houston Colbert, which last week completed a the program offshore Qatar and is currently idle, the Noble Paul Romano, with the already mentioned contract extension into December, and the Noble Hans Deul, which is anticipated to continue work on its current contract until mid-November. While our 14-rig jackup fleet has maintained an industry-leading utilization rate of 93% through the first half of 2017, utilization of our floating fleet exclusive of five cold stacked units has been lower, at 64% over the same period.

We are pursuing contract opportunities for a number of our jackups and floaters, potentially leading to additional working days as we manage through the remainder of 2017 and 2018. Furthermore, we are committed to improving the marketability of our rigs. For example, we have been involved in the development of an advanced integrated deepwater managed pressure drilling system. This new modular design, which can be integrated into any of our high-specification assets, is designed for rapid deployment should an opportunity arise.

That leads me to a discussion of offshore activity by region, starting with the Western Hemisphere. In the U.S. Gulf of Mexico, we are pleased that tenders, direct negotiations and new fixtures for the offshore sector are on the rise. However, we continue to see operators placing available liquidity into onshore plays, and most of the opportunities offshore are currently of a short duration.

In Mexico, market sentiment continues to gain momentum from very positive early results in the blocks awarded during Round 1. Regarding shallow water Round 2.1, which we discussed on our last call, 10 of the 15 blocks offered were awarded, which we see as positive development. Looking ahead, deepwater Round 2.4 will include 30 blocks to be awarded early next year, and the detail the shallow water Round 3.1 will be announced later this month. We expect all of this to lead to additional tendering activity by our customers.

In South America, market sentiment is becoming more positive on the back of tendering activity and a growing appreciation of the geologic potential in Guyana and Suriname, as well increasing interest offshore Trinidad. Brazil, despite recent tendering activity, still lags others in its progress towards higher levels of activity, but we continue to monitor Brazil for potential contract opportunities for our floating fleet given the expanding base of international customers there.

Moving now to the Eastern Hemisphere. We continue to await more robust activity for the North Sea region, with a flat near-term jackup outlook and dayrates that are projected to remain under pressure. We've seen an increase in activity in West Africa, though this is relative to the extended period of near non-existent demand we saw in the previous 12 months.

Along the West Coast, further exploration and development in Senegal, Mauritania, Ghana and the Ivory Coast is expected, while interest in certain locations on the East Coast continues to appear. The Black Sea and Eastern Mediterranean remain bright spots, with several near-term opportunities under evaluation, driving an encouraging outlook with regard to potential for follow-on work for the Noble Globetrotter II.

In the Middle East, we are tracking a number of incremental rig opportunities, as tendering activity continues at a brisk pace following a number of contracts already awarded through the first half of the year. While positive, this has resulted in a number of contractors moving additional rigs into the region on speculation and this excess capacity will likely keep pressure on pricing. We believe high-specification rigs with a demonstrated performance record will compete favorably against the new rig entrants. For this reason, we remain optimistic for new programs for the Noble Houston Colbert and for the Noble Mick O'Brien, which is expected to conclude its current assignment in UAE later this month.

Finally, in the Asia-Pacific region, we see a continued increase in tenders and market surveys for both exploration and development work. Although rates are flat or down in this areas, we have seen an increase in contract term lengths and overall utilization, and we expect this trend to continue.

In closing, we are evaluating a growing list of prospects offered by a variety of customers across the globe, including some prospects with multi-year durations. The Noble fleet is strongly positioned to capture a portion of these opportunities and, in the process, to drive backlog over the near term. I can speak to the premium nature of our fleet having regularly exceeded our clients' expectations and operations performance and the unique and proven technical features of our rigs, such as the Globetrotter-Class design, all of which support our formidable competitive position. I look forward to reporting more progress both from a Noble and industry perspective on our next update.

That concludes my comments and I will turn the call back over to David.

David W. Williams - Noble Corp. Plc

All right. Thanks, Robert. Good job. As a final thought this morning, our industry continues to make steady progress as it rises out of this lengthy recession. Over the past six months, we've seen what appears to be a bottom in the cycle for the jackup rig segment, with the number of contracted units steadily rising.

Also, following a seemingly endless period of inactivity in the floating rig sector, the floating rig sector has begun to respond with approximately 87 contract awards or extensions since February, including 21 in the month of July according to data collected from IHS. In addition, field development decisions are on the rise and customers continue to report a decline in project costs as they successfully re-evaluate field development economics in today's cost environment.

Our customers access to offshore regions is increasing, with new licensing rounds initiated or planned by countries who look to benefit from the large prolific offshore resource base. We take great interest in some of the new emerging offshore regions that continue to reveal their abundant hydrocarbon potential. These regions are expected to drive an increase in rig demand, with several rig needs in the near term.

While the offshore industry requires more time to recover, I'm encouraged by the steady progress now underway. In short, we're very enthusiastic about the prospects for our company. Noble continues to execute at a consistently high level. We are currently securing new contracts in both our jackup and floating rig fleets and we remain well-positioned for other pending opportunities.

Our contract cover, representing $3.2 billion of backlog at the end of the second quarter, should continue to be supported by further contracting opportunities through the remainder of 2017 and into 2018. And our efficient management of capital expenditures, which continue to decline, supports our positive free cash flow position while enhancing our already strong liquidity position. I'm convinced that Noble and the offshore industry are moving in the right direction.

So thank you again for your participation in this morning's call and your continued interest in Noble. And, with that, we'll turn the call back over to Jeff and take some questions.

Jeffrey L. Chastain - Noble Corp. Plc

Okay, David. Thank you. Christa, let's go ahead and move into the Q&A segment of the call. If you would go ahead and assemble the queue, I'll remind everyone if you would limit your questioning to one plus a follow-up so we can take as many calls up to the top of the hour. Christa?

Question-and-Answer Session

Operator

Your first question comes from the line of Scott Gruber with Citigroup. Your line is now open.

Scott A. Gruber - Citigroup Global Markets, Inc. (Broker)

Good morning.

David W. Williams - Noble Corp. Plc

Good morning, Scott.

Scott A. Gruber - Citigroup Global Markets, Inc. (Broker)

Dave, investors have been somewhat surprised by the action of a few your peers with regard to spending some cash to reactivate floating rigs from various states of stacking despite other drillers, such as yourself, having some warm-stacked rigs still available. Can you just provide some color on this trend? Is it temporary? Do you see it continuing? Were there other opportunities for the Tom Madden and Sam Croft that have kept you from bidding at the low end on recent tenders that have concluded?

David W. Williams - Noble Corp. Plc

I'll give you a little bit of color. I think most of those projects that you're referring to are actually fairly long-dated on when they were bid. We would characterize what we've seen more as an anomaly than a trend. I think it doesn't really change our view that the rigs that are warm-stacked are better positioned. Some of those opportunities we availed ourselves of, some we didn't. How contracts view the market is going to be little bit different for each one of us, but it really didn't change our view of the market.

Scott A. Gruber - Citigroup Global Markets, Inc. (Broker)

Got it. And what are the latest estimates, if you can provide them, on the reactivation costs for the two idle Bingos?

David W. Williams - Noble Corp. Plc

We have not given guidance on those and I don't think we will. Both those rigs are cold-stacked. And so the biggest cost of those rigs will be deferred maintenance, then recertification of the BOPs. And with both those rigs, since they're stacked in the U.S. Gulf of Mexico, we removed the thrusters and so there's some time sensitivity from taking them offshore to reinstall the thrusters. So those rigs, if you look at the Croft and the Madden, there's a little bit of deferred maintenance, but not a lot on those rigs. So it's really full crews for a period of time to run the equipment and do a little bit of deferred maintenance.

On the two cold-stacked semis, the Day and the Adkins, it's going to be a little bit more than that. Tens of millions, but not a huge number. So I would say some of the numbers that you've seen for reactivation of these rigs are probably in the ballpark of what we'd expect to spend on those rigs.

Scott A. Gruber - Citigroup Global Markets, Inc. (Broker)

Got it. I appreciate the color.

David W. Williams - Noble Corp. Plc

Yep. Thank you.

Operator

Your next question comes from the line of Ian Macpherson with Simmons. Your line is now open.

Ian Macpherson - Simmons & Company International

Thanks. I appreciate the disclosure of the Paul Romano dayrate. That's a refreshing breath of transparency. And it's also I guess another data point that you're working above cash breakeven on one of your older rigs, notwithstanding the pricing pressure in the market. Given how things are picking up, just from a contracting momentum perspective, where do you think we are overall with regard to pricing pressure?

There has been a preponderance of undisclosed dayrates that we've assumed have been around cash breakeven. Do you sense that we are still above the trough as far as overall floater rates go? Or do you think that this quickening in contract momentum is going to help firm things up as we move into 2018?

David W. Williams - Noble Corp. Plc

It's still a very competitive market. So the way we would expect this to play out is there still to be some pressure on rates for some period of time until we see more contracting activity and more announcements. You'll see pricing power I would say in certain areas. It'll be regional. And the short-term nature of the business right now, I think if there are multiple operators looking for a rig, you'll see them want to steer towards the hottest rigs in those regions. And when they have to deviate from that, you'll see a little bit pricing power. So, again, I think it was described before, it's going to step up in stages. So I think it'll be regional in nature.

The reality is one thing that we're all watching very closely, I'm sure all of our friends and our peers and we are watching it, probably you guys are watching it as well, is what really is the number of active rigs. In spite of the fact there have been some stacked rigs started up, the operators are still going to steer themselves largely towards rigs that are hot. There may be a reason they take a stacked rig, but they're going to steer that way. So this thing is going to step up.

And the number of real live active rigs out there is not as big as you think. In our conversation with operators, we've had calls very recently where they look for opportunities and they're only going to consider a few contractors in these exercises because they're targeting certain rigs. So I think we're in the trough. I think we'll continue to see some pressure for a while, but I think we're headed out of the ditch instead of into the ditch.

Ian Macpherson - Simmons & Company International

That's helpful. Thanks. I'll turn it over.

David W. Williams - Noble Corp. Plc

Thanks, Ian. Thanks.

Operator

Your next question comes from the line of Haithum Nokta with Clarksons Platou. Your line is now open.

Haithum Nokta - Clarksons Platou Securities, Inc.

Hi. Good morning. I heard the mention of multi-year contract durations. And I was curious if that's something that you are seeing more so on jackup side right now, or is that also what you're seeing on the floater side in terms of your opportunity set?

David W. Williams - Noble Corp. Plc

I would say we're seeing some multi-year stuff in both jackups and floaters. The bulk of the work now is denominated wells, not years. There is some multi-year work out there. There's also some work that, when you add up all the wells, it becomes a year or more or even two years. I would say it's a mix. We're seeing some of both, but still pretty short term.

Robert, do you..

Robert W. Eifler - Noble Corp. Plc

No, I agree with that.

David W. Williams - Noble Corp. Plc

Okay. That's the way we're seeing it right now, Haithum.

Haithum Nokta - Clarksons Platou Securities, Inc.

Okay. All right. And I guess some of the peers have talked about rise of riskier contract terms in the industry. And I guess, it seems like I can interpret that as oil companies trying to shift some of the more catastrophic risks or black swan-type events onto the drillers. Are there red lines that Noble is not willing to cross and are there certain opportunities, things you're just not going to consider based on that?

David W. Williams - Noble Corp. Plc

Absolutely. This is not new. Every time the pendulum swings one way or the other, you would like to think that the rate becomes the barometer of the market. But the reality is other commercial terms, other commercial realities come to play in shifting risk to one side of the other, who pays for mob, who pays for this, who pays for everything. How much risk you're willing to take always becomes part of that equation.

But absolutely, there are red lines that we will not cross, and those really don't change from good markets to bad. We have a view of how much risk we want. We largely view these as cash risk and then our risk tolerance doesn't change dramatically. But our ability to get work under certain risk guidelines moves with the pendulum. But absolutely, there are red lines we won't cross.

Haithum Nokta - Clarksons Platou Securities, Inc.

Thank you. I'll turn it back.

David W. Williams - Noble Corp. Plc

Certainly. Thank you.

Operator

Your next question comes from the line of Gregory Lewis with Credit Suisse. Your line is now open.

Gregory Lewis - Credit Suisse Securities (USA) LLC

Yes, thank you and good morning.

David W. Williams - Noble Corp. Plc

Good morning, Greg.

Gregory Lewis - Credit Suisse Securities (USA) LLC

Could we talk a little bit about the decision by Noble to move forward with AFGlobal and start looking at putting MPD on a couple rigs and what was the driver of that? And was that customer-driven? And really how should we be thinking about that?

David W. Williams - Noble Corp. Plc

Thanks for the question. It was an opportunity set. Managed pressure drilling is a technology that's been under development in many veins for a while. We certainly have a good understanding and have the equipment to be able to manage it. It's an expensive prospect for the operator to rent that equipment or for the contractor to install it on one rig. So what we undertook to do was to work with the manufacturer to design basically a skid-mounted unit that we can deploy on any of our rigs if we had the opportunity.

There are a number of prospects out there that may require that technology at a later date. And if you look at what it costs to rent that equipment from the providers and have it, we thought it was an opportunity for us to build the unit that that we can deploy on virtually any of our deepwater rigs, or frankly any rig. So it was an opportunity for us to do it in advance of other contracting opportunities where we thought it might be necessary for us.

Gregory Lewis - Credit Suisse Securities (USA) LLC

Okay. Great. And then just, Adam, as we think about the balance sheet, and obviously you guys have the undrawn revolver in place, are there any restrictions around that which would maybe prohibit you from going out and looking at buying some of your debt that's trading at a discount?

Adam C. Peakes - Noble Corp. Plc

No, Greg. in terms of restrictions or our ability to access that, I think we have complete access to it. And that's why when we talk about our liquidity position, we include that. We think that's a tool that we have. We look at the balance sheet and look at opportunities including some of the debt we have and some of the debt that's trading at a discount and figure out if there are opportunities to retire some of that.

So in terms of using that, no restrictions. The equation we look at is just balancing the near-term liquidity picture with our desires to chip away the leverage. So I think as you put yourself on our shoes, you should very much consider that revolver as a tool we have available and that in the right circumstance we would use.

Gregory Lewis - Credit Suisse Securities (USA) LLC

Okay. Perfect. Thank you very much, gentlemen. Have a good weekend.

David W. Williams - Noble Corp. Plc

Thanks again, Greg. You, too.

Operator

Your next question comes from the line of Sean Meakim with JPMorgan. Your line is now open.

Sean C. Meakim - JPMorgan Securities LLC

Hey. Good morning.

David W. Williams - Noble Corp. Plc

Good morning.

Sean C. Meakim - JPMorgan Securities LLC

So I was hoping maybe if you could just drill in a little more on the Middle East prospects, thinking about the Colbert and Mick O'Brien. Just maybe a sense of what the opportunity set could look like into 2018 and just how the changes underway in the KSA influence how you think about that market over time.

David W. Williams - Noble Corp. Plc

Well, I'll just say we have opportunities for both of those rigs this year, which is before 2018. So we're pursuing opportunities for those rigs in the region this year and next year. And we feel as we've had recently all of our jackups under contract. So we think that the technical capabilities the rigs lend themselves very well those opportunities and we feel very good about our positioning there.

I'll let Robert comment on some specific targets, if he's got any comments.

Robert W. Eifler - Noble Corp. Plc

Well, first, the rigs have performed really, really well. And the Noble Houston Colbert come off of JX, the customer has been really pleased with it, and that helps in the region, of course. We're bidding that rig in certain occasions outside the region. But we do anticipate that there's a fair amount of incremental demand, some of it in 2017 and then a bigger portion of it in 2018. So we anticipate that we'll find some good work for those rigs.

I would say, on the KSA question, I don't think we see our dynamic or our relationship with Aramco changing on account of the recent announcements from our competitor. We have a great relationship with the company and we hold a somewhat unique position in the wells we drill in Kingdom there, and we expect that to continue.

Sean C. Meakim - JPMorgan Securities LLC

Okay. Got it. Yeah, that makes sense. And then just thinking about the Bob Douglas and potential for some follow-on work there, just how do you think about – given Noble's position, you've got this nice backlog into 2019, so relative to some of your peers, you got good line of sight on a portion of the fleet, how does that play into how you strategically prioritize well-to-well contracts versus taking perhaps lower dayrate term in a region like that?

David W. Williams - Noble Corp. Plc

Well, look, we have rigs available and we're in the business of drilling wells, not stacking rigs. So we can price anything. Certainly, we want to balance what our term opportunities are versus what we think how the market may respond during the life of that term. But the beauty of term work is you don't have a payroll every day. And even in the climbing market work, in short term there could be periods where you may have idle time between wells. So you don't want to tie them all up at the current rates for long term.

But certainly the opportunities to put some rigs to work with some longevity and give you chance to reach back, the Croft and the Maiden are both very high performing rigs with good track records. And we think that they have good utility going forward. So if there's an opportunity where we believe we could price it, and, again, we don't want to go too long and we don't want to do them all, but to have a mix, that's what we'd like to see.

Sean C. Meakim - JPMorgan Securities LLC

That's fair enough. Okay. Thanks a lot.

David W. Williams - Noble Corp. Plc

Thank you.

Operator

Your next question comes from the line of Jeffrey Campbell with Tuohy Brothers. Your line is now open.

Jeffrey L. Campbell - Tuohy Brothers Investment Research, Inc.

Good morning.

David W. Williams - Noble Corp. Plc

Good morning.

Jeffrey L. Campbell - Tuohy Brothers Investment Research, Inc.

My first question is, do you feel that the worst of the contract revisions are over with now as you look toward 2018?

David W. Williams - Noble Corp. Plc

Contract revisions, you mean in terms of the terms and conditions that we're asked to take? Or...

Jeffrey L. Campbell - Tuohy Brothers Investment Research, Inc.

Or day rate revisions, downward revision of day rates, any of this...

David W. Williams - Noble Corp. Plc

I would say that, yeah, I think that I would hope that we're at the trough or at the bottom. Whether or not the pace of play continues, which, at this point, it looks like it's not just continuing, it's improving, we would expect this to be close to the trough. Now, one or two contracts doesn't make a trend, so that doesn't prohibit somebody from going low on a job they think that makes sense or somebody who's able to price one contract above where everybody else is. That doesn't necessarily mean that all rigs are picking stuff up. When you see repeated behaviors that will be more clear.

But, again, I think we're headed out of the tunnel instead into the tunnel. So there may be still some pricing pressure and you may still see some rates come down, but marginally speaking, I'm not uncomfortable with where we are pricing things going forward.

Jeffrey L. Campbell - Tuohy Brothers Investment Research, Inc.

Okay. And the other one is, I thought I was understating when the press release talked about the Globetrotter II's advantages and going in and out of the Bosphorus. So I just wondered if you could provide a little color on that.

David W. Williams - Noble Corp. Plc

Sure. The Globetrotter II is one of two rigs of that class and four rigs that we have that have the Huisman Multi Purpose Tower. The Globetrotters are a little bit unique in that they've got, on the drilling side, they've got a 2.4 million-pound hook load. On the backside, on the construction side, they've got about a 2 million-pound hook load. But we can take the top part of the Tower down with the rig crane and sail under the bridge, whereas if you've got a conventional derrick, even if you have a planned breakaway part, you've got to rig it down and basically reassemble it and put it back up.

So I think our last transit under the Bridge was seven days, eight days, maybe a little longer, maybe 10 days, something like that. But I know from past experience and what some of our competitors have done, looking at three months to get a rig under the Bridge and put back together, we can do it in under two weeks.

So this will be our third well in the Black Sea and also our third transit into the Black Sea. So I mean, we pull up, we take it off, sail under the Bridge, put it back on and it go back to work in a matter of days, where somebody else, one of our peers, without this kind of technology is looking at months.

So it doesn't preclude us from moving in or out. And if somebody's got a short-term program in, we can get in and out that very easily and very quickly. The two Globetrotters are really the only ones that have that capability.

Jeffrey L. Campbell - Tuohy Brothers Investment Research, Inc.

Okay. Great. Thanks for the color.

David W. Williams - Noble Corp. Plc

Sure.

Operator

Your next question comes from the line of Kurt Hallead with RBC. Your line is now open.

Kurt Hallead - RBC Capital Markets LLC

Good morning.

David W. Williams - Noble Corp. Plc

Good morning, Kurt.

Kurt Hallead - RBC Capital Markets LLC

It's been a long time coming, but finally good to see some consistent positive news on the demand front, that's for sure.

David W. Williams - Noble Corp. Plc

Yep. And we agree.

Kurt Hallead - RBC Capital Markets LLC

So, Dave, I and to shift from going into a trough to coming out of the trough. I want to gauge from where you sit the economics of some of these offshore projects. There's been a lot of discussion around $50 breakeven, $40 breakeven. And I think semantics – we need to delve into semantics a little bit, because $50 breakeven doesn't mean it's economically incentivized for an oil company to go after an offshore project. So can you just talk through some of that dynamic and is there a significant amount of pent-up demand, is it a limited amount of pent-up demand? And I just want to start gauging the momentum that you think we have coming out of this trough.

David W. Williams - Noble Corp. Plc

Well, so I would say at this point in terms of pent-up demand, I wouldn't say there's a lot because of the appetite of our customers, they've been in a cash flow hold for the last couple of years. We would, based on the information we see, be coming out of that this year and next year and give them an opportunity.

The reality I think is that while shale plays and onshore plays are very short-cycle returns, the ability of these or the majors and some of the other companies that have a large portfolio offshore, their ability to replace reserves and replenish their capital base is going to require offshore exploration. And the longer this goes, the weirder it's going to be when it turns around. I mean, we've seen virtually no activity by these guys other than what they have to do to maintain to some kind of base-level production, we've see no real activity in the last three years.

So if you look at any kind of growth scenario overlaid with natural decline curves around the world with the numbers that you see, you can't beat that with shale. So, offshore is just is another piece of the pie. We think it's a large piece of the pie. Our customers tell us the same thing. And so the longer this period of inactivity by our customers goes, it's going to be when it turns around. We would much prefer to see more of a steady state. But the reality is, it's a volatile commodity and it's a volatile business. But we will see it return.

You talk about $40 or $50 barrel oil to be buyable. I think that's a good marginal number. We've certainly heard numbers much lower than that on certain field development scenarios. When you see markets that have a good bit of infrastructure, I would say that that marginal field development in those areas is possible at numbers much lower than that. It's interesting, you look at a satellite photo of U.S. Gulf of Mexico, and there's basically a line at the Border between the U.S. and Mexico. The amount of exploration and development opportunities in Mexico is huge, and we haven't even started it yet.

So we think offshore, shallow water and deepwater, is a big part of the future. We continue to believe that market obsolescence or the cash constraints that many contractors are operating under is going to continue to drive the fleet size down. We think that operating efficiency and technologies are going to continue to be what drives our customers' decisions. And we think that our fleet of new and highly capable rigs puts us in a very good spot going forward.

Kurt Hallead - RBC Capital Markets LLC

Thanks. Thanks for that detail. Now, another question for you is you've been through, lived through and have the scars to prove you've lived through, many cycles in this business. And I know that we've gone through a period of significant rig attrition over the last couple of years. So how do you think, as optimism improves, as demand dynamics start to improve, have we seen the bulk of rig attrition at this point and these rigs that people thought would never come back will again likely find yet another life?

David W. Williams - Noble Corp. Plc

No, I don't think that we've seen much of the rig attrition at all, frankly. There's a lot of good reasons why contractors don't want to announce and officially retire assets. But the reality is that their ability to spend money to maintain those assets in some kind of condition that the operator is going to want to use those rigs has been limited. And so even though they may not have announced retirements, steel, saltwater and air don't mix.

And so the longer these rigs sit idle and the condition they were in when they were laid up is a material piece of how that deterioration accelerates. But the way this will work out, we're in a short-term rig environment market. Unless it's a specific rig that has a specific niche capability, most of these rigs are going to be started up or have an opportunity against very short-term contracts, one or two wells, unless the market gets so heated up that they may have some longer-term. And in that case, our rigs will be working, we'll be making a ton of money and I'll be delighted to see it.

But the reality is they're going to have opportunities against short-term startups and the cash to put those rigs back in service to make them competitive is going to be prohibitive. So, no, I don't think that we've seen the level of attrition that we're going to see. And we may not see it, Kurt. It's market obsolescence or material obsolescence just through deterioration is going to drive it. You may not see a number of announcements, but the reality is you not seeing those rigs come back into the market. The fleet size is not nearly what we think it is.

Kurt Hallead - RBC Capital Markets LLC

Okay. And then maybe just to finish up, by the number of companies that may go into bankruptcy, are in bankruptcy and are about to emerge from bankruptcy, and with the improving outlook for the offshore drilling market, what do you think the prospects of some of these companies actually being consolidated are? And do you think that they're going to be emboldened by an improving demand outlook?

David W. Williams - Noble Corp. Plc

Well, I would say it remains to be seen. I would say, based on what we think we hear from bankers and others who are involved in these things, if you go through one of these processes where you exchange equity for debt or debt for equity, however you want to look at it, probably those new equity holders are not as interested in the long-term viability of operating a drilling company is as the guys that owned the equity were. So you would expect there is probably another transaction to come. That's the way I would expect it to play out, but that still remains to be seen. So, we'll see.

Noble certainly has a history of being involved in acquisitions and M&A. We certainly want to be part of that process, if and when we think it's time. We think it's early at this point. There's the market that we're coming out of a hole, but there's still some recovery to be had and there's always a chance that there could be some other inflections in oil. So we want to see the market mature a little bit before we think it's time. We think it's early. But we certainly expect to see out those opportunities and we want to be ready when they're there.

Kurt Hallead - RBC Capital Markets LLC

Okay. Appreciate the color, Dave. Thanks.

David W. Williams - Noble Corp. Plc

Thank you. Have a good weekend.

Jeffrey L. Chastain - Noble Corp. Plc

Christa, let's go ahead and take our final question, please.

Operator

Your final question comes from the line of Colin Davies with Bernstein. Your line is now open.

Colin Davies - Sanford C. Bernstein & Co. LLC

Hello. Good morning.

David W. Williams - Noble Corp. Plc

Good morning.

Colin Davies - Sanford C. Bernstein & Co. LLC

Just noticed there in terms of the slight uptick in recent contracts, it's been a lot of quite long-distance mobilizations for relatively short-term contracts, where people are justifying by strategically positioning the rigs in the more attractive, or potentially more attractive, markets. Maybe give us a little bit more color on that. You've done a couple of big mobs yourselves. Is that a trend we're going to see where certain markets are going to become quite strategic, or the positioning of the rigs are going to become quite strategic, as the market eventually recovers?

David W. Williams - Noble Corp. Plc

I think we all try to get our rigs as close as we can to their highest and best use. And so to the extent there's an opportunity that you can position yourself either for a specific opportunity or for a coming opportunity, yeah, I think we have to take advantage of those. I mean, you look at the Globetrotter opportunity, we are being paid a healthy mob fee to move the rig up there and at a rate that, while we're not disclosing it, we're certainly proud of. So that's an opportunity for a rig that's got a specific capability. We have a great relationship with that customer and we think that that positions the rig very well. The fact that Shell is also paying us just makes it that much better.

But in other opportunities, we have moved some rigs around, but we've been paid for those moves. And I don't necessarily see this as a trend. Ships are mobile, they're very mobile. That's one of the beauties of having a self-propelled vessel that can move itself efficiently. Even semi-submersibles, some are self-propelled. But I think largely it's easier to move them on the heavy lift ship just because of the drag created by two hulls.

But I think all contractors to the extend that they have a rig they think has a niche opportunity will position themselves. I don't view that as necessarily a trend. It's a reality of how contractors view different opportunities in different places.

Colin Davies - Sanford C. Bernstein & Co. LLC

That's great. And then just one follow-up, if I may. As we come out through the summer, we're going to be starting to head into the planning season for 2018, in terms of your customers. Is there anything you're hearing or seeing from the different components of the industry, be it NOCs, majors, independents, that would suggest a differing stance to the offshore as we think about planning for 2018?

David W. Williams - Noble Corp. Plc

I would say that the current oil price view probably is a little more stable than what we've seen. Certainly last year it felt like it was stable. The previous two years was highly volatile going through the budget cycle and made our customers' planning activities extremely treacherous.

But I would say that the current oil price view, to me it doesn't have to be $60 or $70 if they have a view that's going to be stable. At least if it's stable, they have an expectation they can plan accordingly. If it's going to be $50, and they view it at $50 and it's going to be $50, that's good for us.

I would say that the view in the market is, our customers in the offshore arena, particularly in the deepwater, have been on the sidelines for three years. I think they're building up a portfolio of drilling requirements. We're starting to see those. We are getting requests for what I would characterize as price decks for next year for planning purposes, which is good. And more of a steady-state environment is all good for us. So I would just say that when I wouldn't characterize this is overly optimistic or enthusiastic, the level of comfort and just the body language and behavior of customers right now all bodes well for next year.

Colin Davies - Sanford C. Bernstein & Co. LLC

Right. That's extremely helpful. Thanks very much.

David W. Williams - Noble Corp. Plc

Thank you.

Jeffrey L. Chastain - Noble Corp. Plc

Okay. Thanks, everyone, for your participation on today's call. Make a note, please, that we'll expect to report our third quarter 2017 results on November 2 with a call to follow the morning of November 3 and we'll confirm those dates as we get closer. Christa, we appreciate your time in coordinating today's call. Good day and have a great weekend, everyone.

Operator

And this concludes today's conference call. You may now disconnect.