Noble Corp (Cayman Island)

NYSE:NE

Earnings Call Transcript 2018-Q4

[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 Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise and after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please limit yourself to one question and one follow up. Thank you.

I would now like to turn the call over to Jeff Chastain, Noble Corporation Vice President Investor Relations. You may begin.

[Jeffrey Chastain, Vice President Investor Relations]

Thank you, Christa, and welcome, everyone, to Noble Corporation's Fourth Quarter and Full Year 2018 Earnings Conference Call. We appreciate your interest in the Company. And 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 Julie, I'd like to remind everyone that we may make statements that are not historical facts and are forward-looking. These forward-looking statements that are subject to certain risks and uncertainties.

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 and these include the price of oil and gas, customer demand, operational and other risks. Our actual results could differ materially and Noble does not assume any obligation to update these statements.

Also note that 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 any associated reconciliation on the website.

And finally, consistent with our quarterly disclosure practices, once our call has concluded, we will post to our website a summary of today’s guidance and that will cover both first quarter and full year 2019 figures.

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

[Julie Robertson, Chairman of the Board, President & CEO]

Thank you, Jeff. Good morning, ladies and gentlemen and welcome to our review of fourth 2018 results. I appreciate your participation in today’s call and your continued interest in Noble. In addition to Jeff, I am joined today by Adam Peakes, our Senior Vice President and Chief Financial Officer and Robert Eifler, our Vice President and General Manager of Marketing and Contracts.

Adam will cover in detail the financial results for the fourth quarter and our thoughts regarding the expectations for 2019, and Robert will follow with a review of the Noble fleet and an assessment of global offshore regions and opportunities.

This morning I want to begin with addressing our operational and fleet enhancement success from this past year which holds positive implications for 2019. These achievements were a result of the collective efforts involving focused team work execution from all organizational disciplines within the company.

In 2018, we achieved record safety performance as the company’s Total Reportable Incident Rate or TRIR improved 11% from the prior record set in 2017. Our 2018 safety mark remains superior when compared to the average TRIR results for the offshore drilling industry.

Additionally, from an operating perspective, downtime across the Noble fleet is only 2.7% in 2018 or stated inversely, we registered 97.3% of operational uptime. This achievement also represents a record result for the second consecutive year and it is most impressive that both the safety and fleet downtime results were achieved during a year in which we increased our active rig fleet by four rigs following the reactivation program and expanded our offshore headcount by 10%.

These results demonstrates Noble’s strong culture of excellence as we continued to emphasize strict adherence to best operational practices and maintain our focus on top quartile performance. We are certain that these are the keys to delivering outstanding service across our global operations and the dedication of our worldwide offshore and shore-based employees is what continues to deliver these results.

Also in 2018, we moved decisively to improve the readiness and positioning of our floating and jackup fleet as improving market conditions became increasingly evident. A total of four previously warm stacked units were reactivated over the year with a fifth reactivation project, the Noble Sam Croft expected to be completed next week.

In our floating rig fleet, reactivations were finalized on the Noble Clyde Boudreaux which also includes a significant upgrade to the rig’s drilling capability and the drill ships Noble Tom Madden and Noble Globetrotter II.

In our Jackup fleet, the Noble Sam Hartley completed its reactivation following the relocation of the rig to the North Sea. You will recall that throughout the industry downturn, we elected to warm stack our premium fleet as per our company stacking protocol focusing on continuous maintenance and preservation.

As a result our rigs are returning to work at a lower overall reactivation cost and on a faster schedule in those rigs subjected to the robust stacking methodology. More importantly, three of the five reactivated rigs are currently executing drilling programs in various regions around the world with the fourth and fifth units the Globetrotter II and the Noble Sam Croft expected to commence operations in the Black Sea and the Gulf of Mexico respectively during March.

Because of these efforts, each has advantageously positioned to compete for follow-on programs as operator needs materialize.

Finally, the acquisition of the Noble Johnny Whitstine and the pending purchase of the Noble Joe Knight improves the versatility of our jackup fleet adding two modern fit for purpose drilling solutions with an aggregate of six rig years of contract time at a region of the offshore industry that holds exceptional long-term opportunity.

The Johnny Whitstine is currently mobilized into Saudi Arabia for an expected contract in late March. The Noble Joe Knight is scheduled to arrive at the Sembcorp Marine Shipyard in Singapore following the expected completion of the rig purchase at the end of this month. These rigs will complete a similar commissioning program and client-specific upgrades.

Our expected contract commencement date also for Saudi Aramco in the Kingdom is September 2019. With these two rig additions, our jackup fleet remains at 13 units following the retirement of the standard duty jackup Noble Gene House in the fourth quarter of 2018 as it’s completing 38 years of impeccable service.

Approximately 85% of our jackup fleet is located in the Middle East and North Sea where we see exceptional contract opportunities in 2019 and beyond. I will have more to say about the importance of our global fleet alignment as well as key areas of focus for 2019 in my closing comments.

For now, I will turn the call over to Adam.

[Adam Peakes, SVP & Chief Financial Officer]

Thank you, Julie. Good morning and welcome to everyone. Noble finished 2018 on a strong note with fourth quarter results continuing the steady progress that began earlier in the year. On a quarterly basis, we set high marks for the year in fleet utilization, contract drilling revenues and EBITDA and this despite the persistent challenges our industry faces today.

On a reported basis, the fourth quarter net loss attributable to Noble totaled $33 million or $0.13 per diluted share on revenues of $310 million. Included in the reported results was a again from the retirement of debt and a discrete tax benefit which together totaled $66 million or $0.27 per diluted share net of tax. With regard to the gain from debt retirement, we spent approximately $20 million in cash to purchase $27 million of principal amount senior notes with maturities in 2040, 2041 and 2042. This debt repurchase was done through a couple of small opportunistic open market repurchases during the fourth quarter.

These favorable items were partially offset by a $9 million or $0.04 per diluted share asset impairment charge relating to the standard duty jackups Noble Joe Beall and Noble Gene House. Following the close of the quarter, the Noble Gene House was retired from service reducing the company’s jackup fleet to 12 units before the pending addition of the Noble Joe Knight.

Excluding the net favorable outcome of all of these items, the net loss attributable to Noble for the fourth quarter would have been $90 million or $0.36 per diluted share. We have included a non-GAAP supporting schedule with our press release and the schedule can also be found on the Noble website at noblecorp.com. That schedule provides a reconciliation of non-GAAP numbers to net loss attributable to Noble Corporation to income tax provision, and to diluted earnings per share for the fourth quarter of 2018 fourth quarter 2017 and full years 2018 and 2017.

Contract drilling services revenues increased to $292 million in the fourth quarter, up 9% when compared to the previous quarter. In addition to a meaningful quarter-over-quarter reduction in fleet downtime, the growth in revenues was driven by an 8% rise in operating days across the fleet with the floating rig side of our business experiencing a 23% improvement in activity.

We saw more operating days for the Noble Clyde Boudreaux and Noble Tom Madden following the completion of reactivation projects in the third and fourth quarters respectively. In addition to the contribution from these rigs, revenues from the Noble Globetrotter II and Noble Don Taylor improved in the quarter with both rigs benefiting from the commencement of contract awards from third parties while continuing to collect special idle dayrates associated with previously amended legacy contracts.

The special idle rate on the Noble Globetrotter II concluded in early January 2019 and the dayrate has transitioned to the previously defined four dayrate of $275,000 a day. However, for the entire first quarter of 2019, the Globetrotter II will operate at an 80% of the four dayrate or $220,000 per day while a managed pressure drilling system is installed ahead of commencement of its next drilling program in the Black Sea.

The Noble Don Taylor continues to collect an idle dayrate until February 25, 2019 plus the dayrate from a third-party contract assigned. Contract drilling services cost in the fourth quarter totaled $179 million compared to $163 million in the preceding quarter. The 10% increase which was within our guidance range was largely due to the additional operating days for the Madden who drove and for the jackup Noble Sam Hartley which in mid-October commenced a program in the North Sea following relocation of the rig from Southeast Asia.

Also, rig reactivations and other steps to improve the overall readiness of our fleet contributed to the rise in costs. Of note, the reactivation of the Noble Sam Croft continued through the fourth quarter with the project responsible for approximately $3 million of incremental cost in the quarter when compared to the previous quarter.

This project will be completed later this month with the rig expected to commence a contract in the U.S. Gulf of Mexico in March.

Earnings before interest taxes, depreciation and amortization or EBITDA improved in to $102 million in the fourth quarter compared to $92 million in the preceding quarter. In addition to the previously mentioned activity uptick seen predominantly in our floating fleet, and the concurrent special idle and third-party dayrates for the Noble Don Taylor and Noble Globetrotter II, we continued to collect revenues in excess of the stated floor rate on the Noble Globetrotter I while operating in the Eastern Mediterranean.

Since other line items from the P&L were largely in line with guidance offered in November, I don’t think there is a need for further comments here. Therefore, I will move directly to our fourth quarter capital expenditures.

At $61 million, capital expenditures in the fourth quarter compared to $76 million in the previous quarter of the year, with capital exp for 2018 totaling $221 million including the following major components. $83 million of sustaining capital, $75 million related to major projects which included rig reactivations, and the upgrade for the Noble Clyde Boudreaux, certain contract-specific requests for various rigs and the installation of our MPV system. $34 million for the upfront purchase price on the Noble Johnny Whitstine and $29 million for Subsea Capital spares and other related projects.

For the year, our net cash provided by operating activities totaled $172 million and we ended $2018 with unrestricted cash and cash equivalents of $375 million, up from the $326 million at the conclusion of the third quarter. Our revolving credit facilities remained undrawn.

We do not have any debt maturities in 2019 and only $315 million of maturities between now and 2024 including the shipyard financing associated with the Noble Johnny Whitstine and the pending financed portion of the Noble Joe Knight purchase.

Next I will offer some comments regarding financial guidance for the full year and first quarter of 2019. In addition to the usual line items from our P&L, my guidance comments will also include thoughts on contract drilling services revenues.

Beginning with fleet performance, we start the year with an assumed downtime factor of 4%, up from the outstanding actual downtime performance in 2018 of 2.7%. The higher estimate is driven largely by expected changes in our fleet mix given an expected increase in operating days from our floating fleet. Contract drilling services revenues in 2019 are expected to be essentially flat when compared to 2018 results or reaching just over an estimated $1 billion.

Although fleet operating days in 2019 should increase by 10% to 15% from 2018 levels driven largely by contracts already in hand, average daily revenues in 2019 are expected to trend lower as the Noble Don Taylor reprices to market rates that continue to reflect a highly competitive industry dynamic.

Revenues from client reimbursables should range from $25 million to $30 million in 2019. For the first quarter of 2019, revenues are expected to range from $255 million to $270 million, compared to $292 million in the fourth quarter of 2018. The decline is due primarily to lower average daily revenues in the floating fleet led by the conclusion of a legacy contract on t he Noble Don Taylor in late February. Revenues from client reimbursables should range from $5 million to $10 million in the first quarter.

Moving now to contract drilling services cost, we expect a range of $705 million to $725 million in 2019 compared to 2018 actual contract drilling services cost of $630 million. The expected higher fleet activity is a primary driver of the increase. Rigs such as the Noble Tom Madden, Noble Sam Croft and Noble Clyde Boudreaux are expected to drive higher activity on the floating side of our business.

In our jackup fleet, higher activity is expected to result from increased operating days on the Noble Johnny Whitstine, the Noble Joe Knight, the Noble Sam Hartley, Noble Mick O'Brien and Noble Hans Deul.

Client reimbursables for 2019 are expected to range from $15 million to $20 million. For the first quarter of 2019, contract drilling services costs are expected to range between $168 million and $183 million compared to actual results of $179 million in the fourth quarter of 2018.

The expected flat outcome is due impart to a decline in rig reactivation cost and the retirement of the Noble Gene House. Cost associated with client reimbursables in the first quarter are expected to be in a range of $3 million to $5 million.

DD&A expense for 2019 is expected to range from $445 million to $460 million, compared to actual DD&A for 2018 of $487 million. The minor reduction from 2018 is due to the impact of rig impairments recognized in the previous year which were partially offset by the purchase of two jackups one of which is pending and then expected to close in the next two weeks.

In the first quarter of 2019, we expect DD&A to range from $110 million to $115 million, compared to actual expense in the fourth quarter of $114 million. SG&A expense for 2019 is expected to fall into a range of $65 million to $75 million compared to actual expense in 2018 of $73 million.

Our SG&A expense for the first quarter is expected to total between $16 million and $20 million compared to actual expense of $15 million in the preceding quarter with higher professional fee is the primary driver of the increase.

Interest expense in 2019 is expected to range from $295 million to $300 million or basically flat with 2018 expense of $298 million. Although we will experience incremental interest expense in 2019, resulting from the third-party financing from the Noble Johnny Whitstine and the Noble Joe Knight, this expense will be largely offset by an estimated $5 million in capitalized interest associated with projects for the two rig additions.

Interest expense for the first quarter is expected to total $72 million to $74 million net of an expected $2 million in capitalized interest. Non-controlling interest on our P&L represented the Bully I and Bully II 50%/50% joint ventures with Shell are expected to total $5 million to $10 million of expense in 2019, compared to $5 million of expense in 2018 excluding the impairment charge for the Noble Bully I, recognized in the third quarter of 2018. We expect $1 million of expense from non-controlling interest for the first quarter.

Capital expenditures for 2019 are expected to total $250 million and include the following major components. $90 million for sustaining capital, $97 million for major projects including reactivations, $30 million relating to the purchase of the Noble Joe Knight, and $33 million related to Subsea spares and other related projects.

Almost 40% of our expected full year capital spend should occur in the first quarter when capital expenditures are planned to total $96 million including sustaining capital of $19 million, $30 million for the Noble Joe Knight rig purchase, $47 million for major projects and reactivations including projects associated with the two rig purchases.

Finally, we expect the full year 2019 tax benefit to range from 10% to 15%. Cash taxes to be paid in 2019 are expected to total $20 million and relate entirely to our international operations.

In summary, we entered 2019 in excellent position to extend fleet activity gains from the previous year. Although a decline in average daily revenues across the fleet is likely, eight out of nine actively marketed floating rigs are currently under contract along with all twelve of our jackups. Actually, 13 jackups in the contract if you include the pending purchase of the Noble Joe Knight driving an expected 10% to 15% growth in fleet activity when compared to 2018.

Our recent reactivation of four rigs along with the subsequent contract awards for each supports our fleet activity projections and concludes for now all reactivation programs. Our premium floating and jackup fleets are at a higher state of readiness with excellent alignment in key geographic regions. As a result, we possess a strong competitive posture in what remains a challenging business environment.

Finally, steps taken in 2018 to address debt maturities and an extend liquidity have proven to be well timed and highly supportive as we direct our operating and growth strategies beyond 2019.

I will now turn the call over to Robert for further perspective on the offshore market.

[Robert Eifler, VP Marketing & Contracts]

Thank you, Adam and good morning to everyone. I’ll open today with some observations on the current state of the offshore drilling industry, provide an update on the status of the Noble fleet which continues to show meaningful improvement in activity and finally, close with an overview of regional developments and opportunities.

Beginning in the fourth quarter of 2018, the effect of the drop in oil price has featured prominently in most discussions on the state of the offshore drilling industry. Following this short duration break down in price levels, some operators, primarily smaller ones indicated they would undertake reassessments of their 2019 upstream spending assumptions during the first quarter.

As a result, we have seen some cancellations and delays in 2019 well programmed primarily in the floating sector. However, it’s our belief that while these changes will have some negative effects, they won’t be significant, especially in relationship to our own fleet marketing efforts.

In fact, jackup contracting activity is continuing at a very strong pace and floater activity remains active as evidenced by the numerous tenders outstanding to fill floating rig needs across the globe. Noble’s experience has also been encouraging with contract days added in January for our floating rate fleet and important opportunities emerging for our jackups. I’ll have more to say on our fleet in a moment.

We believe our industry remains in early stages of recovery and any adverse impact stemming from the late 2018 crude oil price volatility should prove to be short-term in nature. We have already witnessed a swift recovery in the price of Brent office December 2018 low of $51 per barrel. The international benchmark rose to an average price of $60 per barrel in January 2019 that has remained above this average through February.

The return to a sustained trading range that is above the breakeven prices associated with many of our customers’ offshore projects is likely to support greater activity over the near to intermediate term. We also view the actions taken by global exploration and production companies as excellent indicators of future offshore activity.

For example, customer interest in emerging basins of low risk and high resource potential is rapidly building due in part to improving offshore access and successful exploration results. Basins such as Guyana, Suriname, Brazil and Mexico are good examples of regions for drilling activity in 2019 is expected to be higher when compared to the previous year.

Also , activity in mature offshore basins such as the North Sea is expected to expand due to a combination of changes in the ownership of producing an undeveloped acreage, exploration success and the presence of established offshore infrastructure to provide the quicker path to commercialization.

Finally, customers are using technological advances that drive the cost of doing business offshore lower through improved exploration results and superior field recovery. Enhanced seismic acquisition and expedited image technologies are creating value for our customers and seismic activity which is forward indicator is showing positive signs.

We believe a prolonged period of underinvestment in offshore basins has contributed to operators’ poor production and reserve replacement results in recent years, but that this trend has bottomed and offshore investments will continue to improve going forward. Evidence of an increased offshore focus by operators is encouraging.

The jackup market has been steadily improving for over a year and we see this trend continuing especially for the higher-end segment. The fourth quarter brought an impressive 76 fixtures in the jackup space which was an 81% improvement over the first quarter of last year. In the floating sector, we expect to see modest improvement in utilization this year, but believe pricing will remain challenged for any work that begins in 2019.

Fleet positioning and contractual cover continued to be a paramount importance and I believe Noble is well placed in both areas.

I now want to update you on the status of the Noble fleet beginning with our floating rigs. Among our eight drill ships, we entered 2019 with a markedly improved competitive position relative to one year ago. The utilization in the fourth quarter improved to 72% compared to 60% in the same quarter of 2017.

Following the completion of reactivation programs on the Noble Tom Madden and Noble San Croft, we are able to meaningfully expand our contract days in 2019. Five of our eight drill ships are committed through 2019 following the recent one year contract award for the Noble Tom Madden that places the rig on the assignment offshore Guyana into the first quarter of 2020.

With the Noble Bully I likely to remain cold stacked, the Noble Don Taylor and Noble San Croft are the only units with 2019 availability. Both rigs are currently under contract into April and the second half of 2019 respectively and we are encouraged by an expanding number of follow-on opportunities for each rig.

In our semi submersible fleet, the Noble Clyde Boudreaux has performed well for our client and opportunities for follow-on work in the region remains strong including option wells available to our clients.

Also, the Noble Paul Romano remains warm stacked in the U.S. Gulf of Mexico while we evaluate several opportunities for the rig both in and outside of the region. All of the programs under evaluation would have a commencement date in 2019.

Finally, our two remaining semisubmersible, the Noble Jim Day and Noble Danny Adkins remain idle as we continue to evaluate suitable contract opportunities.

In our jackup fleet, we entered 2019 in the enviable position of having all of our units under contract with only an estimated 25% of days available for the year. Fleet utilization ended 2018 at 94% compared to 75% at the end of 2017.

We continue to benefit from growing customer demand in the North Sea, the Middle East and offshore Australia, where the Noble Tom Prosser recently secured a series of contracts that will employ the rig into the first half of 2020.

These three regions are currently or will soon be home to 12 of our 13 units including our recent impending fleet additions, the Noble Johnny Whitstine and the Noble Joe Knight. Both rigs are expected to commence operations offshore Saudi Arabia in the first and third quarters of 2019, respectively.

The Noble Mick O'Brien is the only jackup with clear availability in 2019 beginning in August, while the Noble Hans Deul and Noble Sam Hartley each have options available to their current clients for the uncontracted remainder of 2019. We believe all three rigs are well placed to capture additional days under contract in their respective regions.

I now want to provide a review of regional market developments and opportunities beginning in the Western Hemisphere. In the U.S. Gulf of Mexico, the marketed supply of floating rigs was down 21% over the last year from 33 rigs in January 2018 to 26 at present.

The number of contracted floaters has remained stable, especially over the past eight months at approximately 20 rigs resulting in a current marketed utilization of 77%.

Higher exploration activity could be seen in 2019 leading to tighter utilization. The expected increase in exploration activity is driven in part by drilling success. Over the past three years, announced deepwater discoveries in the U.S. Gulf totaled 17 including three discoveries in 2018. Also, the customer base has become more diversified in recent years with representation from majors and large and small independents.

In Mexico, the PMX 2019 capital budget was recently increased 23% with an estimated 45% of the $23 billion total budget earmarked for exploration and production initiatives. The majority of the offshore activity is expected to address shallow and mid-water projects as evidenced by a recent award for up to 16 wells in shallow water depths.

A new administration began in December 2018 and has thus far announced no further licensing rounds until 2021.Although all offshore licenses and contracts already awarded will be honored allowing operators to proceed with their planned programs.

Operator interest in South America continues to build in response to the continent’s exceptional resource potential. In Brazil, Petrobras has tenders outstanding for six rigs covering one to two years each. Once awarded, these contracts are expected to commence in 2019. The rigs are expected to be allocated to new programs and for the replacement of incumbent capacity.

Looking out to 2020 and beyond, an additional source of rig demand is likely come from a growing list of international oil companies that are poised to commence offshore programs in Brazilian waters following the signing of production sharing agreements.

Guyana continues to establish its reputation as the Western Hemisphere’s most prolific exploration play with mounting exploration successes driving higher recoverable resource estimates. The exceptional geologic achievement in offshore Guyana continues to drive more interest in the region. So, several operators planning new exploration campaigns offshore Guyana, Suriname, and French Guyana during 2019.

Noble has emerged as a leading service provider in the region, with the drillships Noble Bob Douglas and Noble Tom Madden providing development and exploration drilling services offshore Guyana, while the Noble Sam Croft is due to arrive in mid-2019 to commence an exploration campaign in the region.

Turning to the Eastern Hemisphere, premium jackup capacity in the UK North Sea is expected to experience further tightening in 2019 following some seasonal weakness during the fourth quarter of 2018. Dayrates experienced meaningful appreciation in 2018 and are expected to move higher in 2019.

Utilization of the region’s premium jackup fleet is approaching 100%. Also, asset transactions among operators continue at a healthy pace as existing larger IOCs exit the region and smaller and more nimble operators enter creating a more diversified ownership base.

The Middle East remains a significant source of incremental demand for both standard and high specification jackups. More than 50 rig years of work have been awarded since the beginning of the fourth quarter of 2018 with Noble securing over six years.

In 2019, an additional 50 plus rig years remain under evaluation including jackup needs in Saudi Arabia, Kuwait and Qatar and more will emerge as the year progresses.

In West Africa, we expect a modestly better environment in 2019. The marketed jackups supply and the region currently stands at just under 80% while floating rigs remain oversupplied with marketed utilization currently at 41%. The majority of visible programs are short-term in nature although a few notable longer term opportunities have emerged along with some welcome exploration success.

The Mediterranean region could address a portion of the idle floating capacity in the Africa region. Several tenders are outstanding for multiple operators for programs primarily offshore Egypt and in the Black Sea.

Finally, floating and jackup opportunities in the Far East and Oceana are on the rise. With regard to floating rigs the supply of available semi-submersibles is declining following the award of several mid-water programs for work offshore Myanmar, Indonesia, Vietnam and Australia. In addition to incremental customer needs, program extensions are increasingly likely and we could see an improving dayrate environment as the year progresses.

In the jackup segment, customer enquiries are healthy and tenders are numerous across Southeast Asia and we expect the contracted jackup count to show improvement throughout 2019.

In summary, despite the negative effects of short-term uncertainty regarding the price of crude, actions by our customers suggest a focus on offshore programs is intensifying. Jackup activity and pricing has steadily improved and floater utilization is improving as well.

Importantly, Noble's fleet has excellent contract coverage in 2019 and strategically positioned in the right markets. I believe our premium and versatile fleet, strong operational execution and excellent geographic presence position Noble for success as offshore activity expands.

I’ll now turn the call back over to Julie.

[Julie Robertson, Chairman of the Board, President & CEO]

Thank you, Robert, and Adam for your insights. As we work through the early days of 2019, I am encouraged by what Noble can accomplish in this New Year. I agree with Robert’s conclusion that in 2019 we will continue to see a competitive environment, but as I noted earlier, I believe, actions taken by Noble in 2018 places us in a truly favorable position to compete in 2019 and beyond.

Our rig reactivation projects have gone well with each of the five reactivated units currently contracted, even better, new contract opportunities are becoming increasingly visible keeping a number of these rigs contractually engaged well into or beyond 2019 as evidenced by the recent contract award to the Noble Tom Madden in Guyana and expected contract extension for the Noble Clyde Boudreaux offshore Myanmar.

I also believe our global rig fleet distribution advantageously positions us for a growing number of contract opportunities in key regional pockets of strength. As we noted earlier, our jackup fleet is highly consolidated into the North Sea and Middle East regions or 11 to 12 units will operate following the deployment of the Noble Johnny Whitstine and the Noble Joe Knight.

Both regions have numerous customer needs outstanding that define the prospects for visible work into 2019 and beyond. Availability and our marketed premium floating fleet is concentrated in the Western Hemisphere where enormous resource potential is driving heightened exploration interest and multi-year development opportunities.

We have already established a leading presence in some regions such as Guyana with other attractive locations including Mexico, Brazil and Suriname. We began this year with a higher percentage of operating days into contract. On January 1 of this year, 75% of our jackup days and 49% of our floating rig days were under contracts as compared to 53% for jackups and 36% for floaters at the same time in 2018.

More importantly, for all the reasons noted previously, we are increasingly confident of improving these figures as we progress throughout the year.

Finally, success in 2019 will be driven in part by our ability to improve total fleet utilization and we are focused on identifying securing the best contracting opportunities and matching our rigs’ technical capabilities with our customers' needs. This focus pertains especially to our recently reactivated rigs where we look to assemble a continuum of visible work.

Also we will continue to position an appropriate number of our premium rigs in regions that present attractive long-term opportunities allowing us to maximize value creation. Another way to create value is by growing our fleet as we have recently demonstrated.

We believe attractive premium rig acquisition candidates remain available and we are committed to a thorough evaluation process as we look to opportunistically grow.

As always, I would like to recognize and thank the entire Noble team for your dedication and service to our company.

The strong culture that sets Noble apart from others is based upon the commitment of all team members to delivering superior performance for our shareholders and our customers each and every day. With our continued focus on safety, the environment, operational excellence, and steadfast customer service, we are well positioned as we enter into our 99th year of business.

Thank you again, for your interest in Noble. I'll turn the call back over to Jeff.

[Jeffrey Chastain, Vice President Investor Relations]

Okay. Thank you, Julie. Chris, we're ready to go ahead and begin the Q&A session of the call. So if you would assemble the queue and identify the first caller please?

[Operator]

Certainly. [Operator Instructions] Your first question comes from the line of Kurt Hallead from RBC. Please go ahead.

[Kurt Hallead, RBC Capital Markets]

Hey, good morning.

[Julie Robertson, Chairman of the Board, President & CEO]

Good morning, Kurt.

[Kurt Hallead, RBC Capital Markets]

Okay, thanks for all that detail and color. So I am going to – my question kind of focus on the floater market here. So, when you look out into 2019 and even beyond 2019, and you assess the new demand that’s out there in terms of contracts. Can you give us some general sense on what the mix is between exploration and development?

[Robert Eifler, VP Marketing & Contracts]

Sure. Kurt, this is Robert. So, we are seeing most of the longer term demand that’s out there which pretty focused on is development work. There have been a few fairly notable exploration successes here, last year, especially in the last part of last year. So we’ll have a percentage break down in front of me.

I think that the important trend is that exploration focus has steadily improved over the last year-and-a-half or so on the floating side.

[Kurt Hallead, RBC Capital Markets]

Okay. I appreciate that color. Now second - the follow-up question I had then for you was given the backdrop with respect to improving demand, can you give us some general sense on how you are thinking about the rigs that you have that are idle in terms of do you think, how many of those rigs do you think that could be activated in 2019? And what the potential costs are to activate those rigs?

[Julie Robertson, Chairman of the Board, President & CEO]

Well, Kurt, we’ll start with the floaters, just we will pick those first. We would love to reactivate obviously the Danny Atkins are very capable units, lot of foot load capacity, lot of size, those are unique drilling assets which customers are willing to work. Reactivation cost for those would be somewhere between $50 million and $100 million.

We could easily add more and as you know, those are BP 3 units, but we could easily add more into those units to make them attractive in certain regions. But we think those have a great potential to get back to work in the right markets. The Paul Romano is currently warm stacked. It came on contract not long, but all we think that rig has a lot of potential of going back to work soon. We are bidding that on lot of opportunities also.

[Robert Eifler, VP Marketing & Contracts]

Just add the Bully I.

[Julie Robertson, Chairman of the Board, President & CEO]

The Bully I.

[Robert Eifler, VP Marketing & Contracts]

We are in probably – well, certainly not a 2019 event for that rig. But we are focused with Shell on discussing what sort of long-term opportunities may exist putting that rig into either a different region or into a slightly different usage. And so, we are in lot of communication with the,

[Adam Peakes, SVP & Chief Financial Officer]

Yes. Kurt, this is Adam. In addition to Julie and Robert’s comments, I think it’s important to point out that the guidance that we provided for 2019 does not contemplate any reactivation around the Danny Atkins or the Bully.

As Julie said, we continue to think those are strategic assets that are going to have a nice future, but we are going to be really disciplined in how we think about bringing those out of stack and I think as we – Julie outlined the cost profile to bring those back, as we sit here today, that’s not contemplated for 2019. I think we continued it to need to see an improving market to feel compelled to do that and specifically, anticipating a follow-on question.

I think, to make that decision to reactivate any of those rigs, we would need to have a contract with a substantial payback on that reactivation capital. And so, we are ways away from doing that. It will be a high-class problem when we get there. But that’s not contemplated for 2019.

[Kurt Hallead, RBC Capital Markets]

That’s awesome. Thanks. Appreciated.

[Julie Robertson, Chairman of the Board, President & CEO]

Thank you, Kurt.

[Operator]

Your next question comes from the line of Ian MacPherson from Simmons. Please go ahead. Ian, your line is open.

[Ian MacPherson, Simmons]

Sorry for that.

[Adam Peakes, SVP & Chief Financial Officer]

Ian , are you there?

[Ian MacPherson, Simmons]

Yes. I am sorry. I couldn’t hear you called my name and I apologize my extension has been divided with your call So I apologize. But I wanted to ask you, Robert, if you address the outlook for the Boudreaux rollover and what the prospects are there for next work and how we should think about any gaps that $1.2 million after next month?

And then, I separately wanted to ask the Joe Knight contract broadly resembles what you got for the Whitstine. I assume that it does. I just want to confirm that or maybe comment if there is anything materially different about the economics on that deal.

And then, just if there is any scalability or keepability of those two jackup bolt-ons that you are looking at that we should think about? That’s it for me. Thank you.

[Julie Robertson, Chairman of the Board, President & CEO]

Sure.

[Robert Eifler, VP Marketing & Contracts]

Sure, thanks, Ian. On the Boudreaux first, we – the customer does have options on that rig and it’s little too early to talk about the outcome there. But we do anticipate that that rig stays active throughout 2019 and without any gaps in the region.

On the Joe Knight, the contract construct and the economics are very similar as they were with Johnny Whitstine. And in terms of scalability, I would say, we think about market share in the Kingdom and we made those purchases to maintain scale and market share in the Kingdom.

I would not say that we are interested in expanding through similar purchases at this time. But we are very happy with the two we’ve made and that we are able to put those into long-term contracts with an extremely important customer of ours.

[Ian MacPherson, Simmons]

Thanks. And I would say, well done on both of those as well. Thank you, Robert.

[Operator]

Your next question comes from the line of Scott Gruber from Citigroup. Please go ahead.

[Scott Gruber, Citigroup]

Yes, good morning.

[Julie Robertson, Chairman of the Board, President & CEO]

Good morning, Scott.

[Scott Gruber, Citigroup]

Adam, you quoted about a $100 million of spend for projects this year, about $30 million for Subsea spares, no reactivation CapEx. How should we generally think about spending on projects and spares beyond 2019? I realize the project spend can be lumpy and is a good portion of hits reimbursables. But just assuming the current fleet composition, assuming the reactivation, kind of what’s a reasonable figure to these buckets beyond 2019?

[Robert Eifler, VP Marketing & Contracts]

Yes, Scott. Thanks for the question. I think it’s important to frame that. As we think about our needs and what that means from a CapEx budget standpoint, for a fleet our size, regular sustaining capital plus the inevitable projects you have year in and year out would be about $150 million for us annually.

So, I would think about that as a starting point for capital budget. So absent doing anything, reactivations or spend around repurchase – or purchases of rigs et cetera, we’d be kind of right at 150. And so, the increase you see this year is driven of course by the rig purchases and the ready to drill spend associated with that as well as reactivations. So, I would think about as going forward in a regular year by 150.

[Scott Gruber, Citigroup]

Got it. Appreciate it. And then the North Sea market has been tightening for a bit of time now. Are you starting to see any inflation on your North Sea cost and is t here inflation protection in the contracts?

[Robert Eifler, VP Marketing & Contracts]

We do not have inflation protection in any of our current contracts. But we have also not seen any meaningful inflation in the regions either on the labor side or on the equipment side.

[Scott Gruber, Citigroup]

Is that that a risk you see going forward as you starting to push for cost inflation protection in places like the North Sea?

[Robert Eifler, VP Marketing & Contracts]

So, I would say, when we are thinking about longer term contracts, yes. That’s on our list. In the North Sea, I think we are less concerned about inflation there right now. We really haven’t seen it. In fact, I think prices there have surprised – excuse me, cost there have surprised on the low side.

And I just point out of course, we are operating in essentially the non-Norway sectors there. So, I am not at all speaking to the Norwegian sector. But in that sector, Denmark and the UK, we are pretty comfortable with our cost structure there.

[Scott Gruber, Citigroup]

Got it. That’s it for me. Thank you.

[Operator]

Your next question comes from the line of Sasha Sanwal from UBS Securities. Please go ahead.

[Sasha Sanwal, UBS Securities]

Thank you and good morning.

[Julie Robertson, Chairman of the Board, President & CEO]

Morning, Sasha.

[Sasha Sanwal, UBS Securities]

Yes, maybe for the first you kind of touched on this in the commentary. But just wanted to see if you could get some of your thoughts on leading-edge pricing for floaters for programs starting in 2020.

And then, Adam, just with the Danny Atkins, you kind of preempted this question, but would it kind of be fair to say that be really need a dayrate north of kind of $250,000. Would you guys really seriously think about bringing those rigs back?

[Robert Eifler, VP Marketing & Contracts]

Sure. So, on the first piece of that, there isn’t a clean fixture for anything that starts in 2020 just doesn’t exists right now. So we are watching that closely as everyone that follows the industry.

Certainly, in our bidding strategy, we are looking for higher prices for anything that starts out in that time period and at the same time we are analyzing potential for some sort of indexing type mechanism that would help bridge a gap to get us there, because there exists a wide range of opinions on where rates might be a year or more out right now.

So, the market doesn’t exist today on just a clean top-tier drillship fixture in my opinion. And so, I think everyone still wait and see.

[Adam Peakes, SVP & Chief Financial Officer]

Yes, with regard to the Danny Atkins and what kind of environment we need to reactivate those. I wouldn’t want to peg it to a specific dayrate other than to say it needs to be substantially above where rates are today. I wouldn’t have an issue with the $250,000 that you threw out as a good number as any.

I think more than anything else, we are just trying to make clear that our appetite to take risk there is not there today and we would – whether it’s been rate on a shorter term or a longer term contract, we would need substantial payback and visibility to recovering all of that ultimately in a fairly short period of time before we’d undertake that kind of spend.

[Sasha Sanwal, UBS Securities]

Great. Thank you. That’s helpful And just as a follow-up, I guess, kind of following the purchase of the Joe Knight, just want to think if not on just what – on what further optionality it might be out there for similar acquisitions and just how that might fit into the capital allocation priorities for 2019?

[Julie Robertson, Chairman of the Board, President & CEO]

Sasha, as we said earlier, we will continue to look at every opportunity that’s out there. As Robert noted in his comments or in his response to a question earlier, we are probably not going to look to duplicate exactly what we have done. It’s certainly not in this budget for this year.

But we are continuing to look at every opportunity out there and if there is something that fits an opportunity that a customer is bringing up, so an opportunity that’s out there that we can match up to contracts, we will certainly look earnestly at it and find the way to get it done.

[Sasha Sanwal, UBS Securities]

Okay. Thank you. I’ll turn it over.

[Julie Robertson, Chairman of the Board, President & CEO]

Thank you.

[Operator]

Your next question comes from the line of Sean Meakim from JPMorgan. Please go ahead.

[Sean Meakim, JPMorgan Securities]

Thank you. Good morning.

[Julie Robertson, Chairman of the Board, President & CEO]

Good morning, Sean.

[Sean Meakim, JPMorgan Securities]

So, maybe we could just talk on the drillships, have you been engaging more in direct negotiations versus open tendering? Just curious kind of how that mix is looking in terms of your discussions with your customers and are you getting any more progress in terms of customer willingness to reimburse promote fees? I am just curious if kind of at the margin, kind of those conversations are evolving in the last few months.

[Julie Robertson, Chairman of the Board, President & CEO]

Sean, we’ve been likely to be able to deal with sometime, some operators obviously directly on direct negotiations. Obviously, that’s still improving the performance that we are giving for them. But certainly there are other opportunities, on what Robert add color to that.

[Robert Eifler, VP Marketing & Contracts]

Sure. I think the mix of tendering versus direct negotiations is definitely increased, especially if you look back over the past, call it 18 months, and that’s encouraging. On the mode side, a number of our recent discussions have included some sort of mode.

And as an indicator, I think that’s probably today something closer to cost reimbursement than it is to some sort of recognition of loss revenue like it had been at the market high. But certainly, it’s encouraging to see that operators are now willing to contribute to get the right rigs into the regions where they were.

[Sean Meakim, JPMorgan Securities]

Yes. Thank you. I appreciate that. And then, just the follow-on then would be, thinking about rigs like the Romano, as that – as the market evolves and those opportunities shift a bit, does that begin to change your thinking or do you cast the wider net in terms of where you are willing to potentially send that rig or bidding that for projects or Gulf of Mexico has sufficient in terms of opportunities.

So that seems unlikely you’d be willing to take those types of - you’d be searching for those types of opportunities further away?

[Robert Eifler, VP Marketing & Contracts]

Sure. So, I mentioned in the comments. The Romano is bid outside of the region, but not – I would say, not far outside the region. That rig has had a incredible history. One downside on the designs, as that they don’t turn very quickly and there are not a lot of heavy lifts to move them on.

So, long way of saying that we think, certainly that the most likely future for that rig is in the U.S. or in the Caribbean. I’d note, there are not very many more rigs in the region, right now.

And in fact, more - only rigs I believe were the only available unit in the region right now and so in that mid-water sector there is some demand and we are watching it closely and hopeful that something could produce itself during the year.

[Sean Meakim, JPMorgan Securities]

Fair enough. Thanks for that feedback.

[Julie Robertson, Chairman of the Board, President & CEO]

Thank you Sean.

[Operator]

Your next question comes from the line of Taylor Zurcher from Tudor, Pickering and Holt. Please go ahead.

[Taylor Zurcher, Tudor, Pickering, Holt & Co.]

Hey, good morning.

[Julie Robertson, Chairman of the Board, President & CEO]

Morning, Taylor.

[Taylor Zurcher, Tudor, Pickering, Holt & Co.]

On the jackup side, most of your jackups are positioned in the Middle East, in the North Sea which coincidentally are two of the healthiest markets in the world. And so, the question is, can you compare and contrast for us the different pricing dynamics you are seeing in both of those markets at least as it pertains to 2020 type start dates?

[Robert Eifler, VP Marketing & Contracts]

Yes, sure, Taylor. So, the North Sea has been ahead of the Middle East on pricing in our opinion and we saw and we are able to start moving prices there earlier. The Middle East is a more diverse environment for rigs, because you have a lot more demand for standard spec units in the region than you do in the North Sea right now.

And so, pricing I think is wider in the Middle East. I will say that for a number of reasons, there has been a bunch of high specification jobs that have come up during the past year and specifically now, as we are looking at it. There are number of options for some HPHT work in a lot of the gas drilling in several different countries there.

So, we have tried really hard to position, especially our JU 3000 class rigs into work that requires a higher level rig. And we are extremely pleased that in the Middle East those opportunities seem to be coming forward in great numbers.

So, in those instances, there is a pricing disparity and we are getting some and hopeful to get some higher pricing on some of those more difficult jobs. It remains though especially with the tightening we are expecting in the North Sea in the 2019 that pricing is a little bit ahead in that region still today.

[Taylor Zurcher, Tudor, Pickering, Holt & Co.]

Okay. That’s helpful. On the floater side, I would assume that the full year 2019 revenue and cost guidance would bake in some healthy utilization for the Don Taylor which rolls off its existing contract I think in a couple months here. So, curious if you could just frame for us how you are thinking about following work prospects for that rig and how we should think about potential gaps beyond April for that rig?

[Robert Eifler, VP Marketing & Contracts]

And so we are chasing a number of different opportunities in the region. If you look at when that rig rolls, there really aren’t – I am not sure that there are any comparable rigs in the region available at that time.

And so, we are pretty bullish about the prospects for the rig throughout the rest of this year. Now, there could be certain revenue gaps if we need to change customers. But those we are hopeful would be just transition gaps and that we will be successful in securing some good utilization through the remainder of the year. Same cost.

[Taylor Zurcher, Tudor, Pickering, Holt & Co.]

Got it. Thanks.

[Robert Eifler, VP Marketing & Contracts]

That’s probably the same cost Taylor, but I’d just add that rig has some options available to the client afterwards and we are hopeful that we are successful that the operator is successful in extending that contract. So, but that’s yet to be seen.

[Taylor Zurcher, Tudor, Pickering, Holt & Co.]

Thank you. That’s it for me.

[Julie Robertson, Chairman of the Board, President & CEO]

Thanks, Taylor.

[Operator]

Your next question comes from the line of Greg Lewis from BTIG. Please go ahead. Your line is open.

[Greg Lewis]

Yes, hi. Thank you and good morning.

[Julie Robertson, Chairman of the Board, President & CEO]

Good morning, Greg.

[Greg Lewis]

I guess, and this question is for Robert and Robert, I apologize if you have already elaborated on this earlier in the call. But I believe you mentioned that, clearly some of the volatility in oil prices has kind of shifted around some potential opportunities that you were seeing.

But – so I guess, my question is, as you look at the landscape of opportunities out there today, could you sort of segment them out between like, what – how much of that work do you think is – that you are seeing is out there for 2019 versus how much of the work that is out there you are seeing for like 2020 and beyond?

[Robert Eifler, VP Marketing & Contracts]

Sure. The majority of what we – part of this is driven by our fracking test in our fleet, but the majority of what – of the discussions we are having right now are 2019 starts. There are a number of 2020 start opportunities out there. Some of them have existed for a good uptime right now. I am not aware of really conclusion to a lot of that, but certainly what we are chasing right now due to our availability is primarily 2019.

[Greg Lewis]

And that’s equal for both jackups and floaters?

[Robert Eifler, VP Marketing & Contracts]

Well, so, jackups, that’s a little bit different and again, this includes our contracting dynamics. But, we do have a number of 2020 opportunities on the jackup side right now, which I find pretty bullish considering the lead time for jackup contract is normally significantly stronger than on the floater side.

But we don’t have a whole lot of availability – excuse me - during 2019. So, we are passing up a number of jobs that we’ve seen – or tenders, I should say, that we’ve seen. I’d note that kind of through the fourth quarter and 2019 so far on the jackup side, there seems to be a great deal of tending activity and unfortunately we have in the past a number of those just due to availability.

[Greg Lewis]

Okay. Great. And then, just one more on potential opportunities that are out there. At this point, I mean, clearly you guys are very successful in buying those two jackups from the shipyard. It looks like there were a couple other jackups that were sold this week from shipyards.

As you look at the potential opportunities out there, at this point, are they primarily only coming from shipyards? And I guess, what I would ask on follow-up to that is, as you think about potentially doing some of these acquisitions, would Noble be willing to use its stock as currency in potentially acquiring some rigs?

[Julie Robertson, Chairman of the Board, President & CEO]

We are willing, Greg, to look at all options. And yes, certainly if it makes sense for shareholders, we would certainly look at using stock for the right opportunities. To your first question, most of the opportunities are coming from shipyards right now. But, we are also looking everything and we are looking, we are willing to look at things that match up with contracts and looking at various options to be able to pay for those.

[Greg Lewis]

Okay guys. Thank you. Great. Perfect. Great answer, Julie. Thank you.

[Julie Robertson, Chairman of the Board, President & CEO]

Thank you, Greg.

[Operator]

Your next question comes from the line of Eduardo Royes from Jefferies. Please go ahead.

[Eduardo Royes, Jefferies]

Hey guys. Good morning.

[Julie Robertson, Chairman of the Board, President & CEO]

Good morning, Eduardo.

[Eduardo Royes, Jefferies]

Just a quick question. As we see more and more of these kind of very short-term deepwater contracts, maybe it’s one well - multiple wells on the back of that, I am just curious versus 10, 12 a year, or 18 months ago, if you are able to start negotiating firmer pricing increases at least on those option bids.

I know it’s not a whole lot. I am not talking about rates doubling or anything, but some more willingness from the customers to say, yes, okay, if we do that next well, we have no problem paying x percent more or if that hasn’t really changed versus the troughs?

[Robert Eifler, VP Marketing & Contracts]

Sure. So, it’s been - I’ll say, at least one of our current contracts includes pricing increases in the option structure. And that was quite some time ago now. And I think the markets improved since then and our willingness today to consider price options has diminished significantly.

And generally speaking, I think, we are less willing to give any sort of options on the floating space that would take us out into the kind of 2020 especially mid-2020 timeframe right now, as we see and are hopeful that this market firms up.

[Eduardo Royes, Jefferies]

Great. Thank you. And just one quick follow-up for me. I know we are at the hour. Does the OpEx guidance for this year, Adam, include any sort of – is this an above average year I guess, from an SPS perspective or any small-scale stuff that maybe elevates that a lot.

Obviously, there is a lot of rigs coming up on five years, all I know those aren’t huge buckets, but do you see some of your peers have slightly higher guidance and I think a lot of it is you add up a bunch of small things, whether it’s small projects or just SPS things that aren’t necessarily capitalized. Just wondering if that’s at all the case for you guys?

[Adam Peakes, SVP & Chief Financial Officer]

No, it’s really, Eduardo, in this case, nothing is significant to callout there. It’s not driven by that. It’s frankly driven by - we’ve got a whole lot more assets working. So we are going to be up in terms of rig operating days about 800 days year-over-year. So, it’s really that. Not some SPS or other funky stuff that might enter into the equation.

[Eduardo Royes, Jefferies]

Great. Got it. Thank you. I’ll turn it back.

[Jeffrey Chastain, Vice President Investor Relations]

Christa, with that, we are going to go ahead and close today’s call. We appreciate everyone's participation today and your continued interest in Noble. Christa, thank you again for coordinating the call. Good day, everyone.

[Operator]

This concludes today's conference call and you may now disconnect. Have a great day.