Thad Vayda - IR Steven Newman - President and CEO Esa Ikaheimonen - EVP and CFO Terry Bonno - SVP, Marketing

Angie Sedita - UBS Greg Lewis - Credit Suisse Ian MacPherson - Simmons Byron Pope - Tudor, Pickering, Holt David Smith - Heikkinen Advisors Mike Urban - Deutsche Bank David Batty - Plateau Bank Jason Gilbert - Goldman Sachs Darren Gacicia - Guggenheim Harry Mateer - Barclays Shyam Kumar - TT International Dominick Frantius - Dubrose

Good day, and welcome to the Transocean Q2 2014 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Thad Vayda. Please go ahead, sir.

Thank you, Chanel. Good day to everyone and welcome to Transocean’s second quarter 2014 earnings conference call. A copy of the press release covering our financial results, along with supporting statements and schedules, are posted on the Company’s Web site at deepwater.com. We’ve also posted supplemental materials that you may find helpful as you update your financial models. These materials can be found on the Company’s Web site by selecting Financial Reports under the Investor Relations tab. Joining me on this morning’s call are Steven Newman, Chief Executive Officer; Esa Ikaheimonen, Executive Vice President and Chief Financial Officer; and Terry Bonno, Senior Vice President, Marketing. Before I turn the call over to Steven, I’d like to point out that during the course of this call participants may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Among others, these include future financial performance, operating results, estimated contingencies associated with the Macondo well incident, anticipated results of our cost savings initiatives, strategic projects and corporate financing activities, capital allocation and strategy, new build projects and the prospects for the contract drilling business in general. Such statements are based on the current expectations and certain assumptions of management and are therefore subject to certain risks and uncertainties. As you know, it is inherently difficult to make projections or other forward-looking statements in a cyclical industry, since the risks, assumptions and uncertainties involved in these forward-looking statements include the level of crude oil and natural gas prices, rig demand, the effects and results of litigation, assessments and contingencies, and operational and other risks, which are described in the Company’s most recent Form 10-K and other filings with the U.S. Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or underlying assumptions prove incorrect, actual results may vary materially from those indicated. Transocean neither intent to nor assumes any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated. Also pleased to note that we may use various numerical measures on the call today that are or may be considered to be non-GAAP financial measures under Regulation G. You’ll find the required supplemental financial disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation, on our Web site at www.deepwater.com under Investor Relations, Financial Reports, Non-GAAP Financial Measures. Finally, to give more people an opportunity to participate in this call, please limit your questions to one initial question and one follow-up. Thank you for your attention and I’ll now turn the call over to Steven Newman. Steven?

Thanks, Thad, and welcome to all of our employees, customers, investors and analysts. Thank you for joining us on the call today. As you saw from our second quarter press release last night, we reported both net income attributable to controlling interest and adjusted earnings from continuing operations of $587 million or a $1.61 per diluted share. Revenue efficiency for the second quarter was 95%, compared with 95.7% in the first quarter with revenue efficiency for the first half of 2014 of 95.4%. While we have experienced a few extended downtime events recently, we continue to make solid progress in our efforts to improve the operating performance of the Company and I thank the operating and support teams around the world for the results they are delivering. Second quarter financial results also reflected our continued focus on controlling costs and improving margins and I am similarly pleased with the progress in these areas. Esa will provide a bit more color on our progress when he reviews the numbers. While the market remains challenging, which I will comment on in a moment, our second quarter financial results and the progress we are making in other strategic areas demonstrate the Company’s continued focus on executing our strategy and improving the elements of our business that are within our control. As further evidence of this, we recently closed a highly successful IPO of Transocean Partners. There was strong investor demand for the offering and the IPO was significantly oversubscribed which is a testament to the quality of the structure, the Company and the team. The implementation of this element of our strategy is consistent with our capital allocation philosophy enhances our financial flexibility and as a result will contribute to our fleet renewal efforts. To the latter point, I am pleased to report…

Thank you, Steven. And good morning and good afternoon to everyone on the call. As I normally do I’ll discuss the key elements of our results and then I comment on our 2014 guidance. Our second quarter results again demonstrate our ability to improve things that are within our control (audio gap) a strong operation and financial performance even in the context of a challenging market. As Steven already mentioned for the second quarter of 2014 we reported both net income attributable to controlling interest and adjusted earnings from continuing operations of $587 million or $1.61 per diluted share. This compared to similarly adjusted earnings of $1.43 per diluted share in the first quarter of 2014. Consolidated revenues from continuing operations were $2.33 billion, compared with $2.34 for the first quarter. We had another outstanding quarter with the total fleet revenue efficiency at 95%, slightly lower than the 95.7% achieved in the first quarter. Fleet utilization of 78% was unchanged. Second quarter operating and maintenance expenses decrease $56 million sequentially to $1.21 billion. This decline in O&M is mainly associated with lower costs incurred on rigs undergoing shipyard maintenance survey and repair projects. General and administrative expenses increased by $6 million to $63 million. The sequential increase was due to project related legal and professional fees and severance costs associated with the Company’s organizational efficiency initiative. Second quarter annual effective tax rate from continuing operations was 12.6% compared with 58.1% in the prior quarter. This decrease was a result of idle time on certain rigs in high-tax jurisdictions as well as the movement of rigs between jurisdictions. Net cash flow from operations increased $500 million from the first quarter to $636 million. During the first quarter we paid $472 million to the U.S. government related to the Macondo agreement with…

Thanks, Esa and good day to everyone. Year-to-date we generated $1.4 billion of contract backlog, including securing contracts for the KG1, Jack Bates and the Celtic Sea. In addition we recently executed a rig swap agreement between the Sedco Energy and GSF Rig 135. We should be announcing more positive news on the 135 shortly. We increased our contract backlog by 75% over the first quarter, demonstrating the Company’s solid position in this very challenging market. Since our last call, the ultra-deepwater market outlook is largely unchanged. Tendering remains slow during the second quarter and while we see a few opportunities on the horizon in the Golden Triangle, India and Mexico, continuing delays in customer programs and a growing sublet market continue to put pressure on utilization. Thus we will continue to see some idle time on rigs and increasing competition on the few available tenders with the influx of more supply into the market in the near term. Of note we are returning an idle fifth generation rig Sedco Energy to active status in the Congo and relocating the KG1 from India to Brazil. Deepwater and mid-water markets remain weak but largely unchanged and at in previous oversupply cycles most capable rigs will compete down and displace lower specification units. We expect this displacement will result in some units being permanently retired as continued investment in this fleet may not yield the necessary economic returns over the remaining life of the asset. This is an industry-wide issue and this will play an important role in the future supply and demand picture. The premium jackup market remain steady with regards to rates, utilization and tendering, however the large influx of uncontracted newbuilds will challenge the less capable units and we are likely to see pricing pressure in the future from…

Thanks, Terry. With that Chanel, we’re ready to open it up for Q&A.

(Operator instructions) And we will take our first question from Angie Sedita with UBS.

Steven, this is a tough question, but I would really appreciate a thoughtful answer to it. As the CEO of Transocean and if you had to choose between an investment grade rating and maintaining your current dividend, what do you think is more important to you and the Board?

Well, you know by starting out by asking a tough question and asking for thoughtful response you’ve set me up. Fortunately Angie, the decision is never that simple. It’s never binary trade off and so we’ve talked over the last several quarters about the various levers that I think the Company has to pull, before we start thinking about pulling the dividend lever. So we will continue evaluate the Company’s ongoing investment in new build drilling rigs. We’ll evaluate the Company’s investment in our existing fleet. We will evaluate the strength and quality of our balance sheet and the opportunities is available to us. And we’ll put all of that in the context of our outlook for the business and we’ll ask the board to engage in a thoughtful review over the coming months and in anticipation of the May 2015 Annual General Meeting make a decision on the dividend. But as both I and Esa commented in our remarks, we are committed to maintaining a competitive and sustainable dividend. So that’s very important to management and the Board.

Okay. Fair enough. So I'll turn it to Terry. Terry, obviously you outlined what we're seeing in the market today and we're seeing limited tenders and still two years of heavy supply coming into the floater market. I know it's early. But, just in theory and what you're seeing today in the market, when do you think we would have the first opportunity of having a truly balanced market for floaters? Do you think it is in 2016 after the floater deliveries are behind us, or, potentially even later and when you really need to see the IOCs come back?

Angie that’s a really good question and to give you a really crisp answer, I think it depends on a lot of the demand that we are seeing forward in the future to get into the market quickly. And that’s going to predicate when this turnaround occurs. There’s a lot of opportunity as we talked about in numerous calls in West Africa and we’re starting to see a bit more of that being executed, which we find is encouraging, but there’s a lot more opportunities out there that we need to come to the market so that we can see in front of us when that turn is going to happen. Also we believe that we’re going to see some incremental demand coming from Brazil and then we also like the news that we've recently see in India with then coming with four tenders and a deepwater tender. So the conversations are percolating but I think it’s a bit early to say, put your line in the sand and say this is when it's going to happen. But it’s going to happen. So that’s one thing that we know is going to happen. So we like some of the things that we are seeing but again it's a let’s wait and see how this plays out.

And then I guess as a follow-up to that, what level of tenders do you think you really need to see to have confidence that the IOCs are coming back?

I think there is a lot of people are out negotiating right now on their programs. We are in active negotiations too. It’s just taking time for these contracts to conclude, so I think we're going to have some positive news there and in the customer base you will see the folks that are really focused on getting back to drilling. So I think that we certainly can’t talk about it now because everyone is out there trying to undercut each other and step into the shoes of where we are today but we are encouraged by that. So, I think it’s a unit to wait and see how they are behaving but certainly they are improving their cash flows now. So let’s hope that continuing good news and they get back to the market.

And if I could ask one more, is Steven on the Caledonia, more to come but on the 21 mid-water floaters that you have up for sale given current market conditions which are certainly likely to persist in the mid-water [Technical Difficulty]

Next question please, Chanel?

Sure. We will go next to Greg Lewis with Credit Suisse.

So, I was reading in the 10-Q this morning and it was out yesterday in upstream about Petrobras and potential withholding taxes and if you could just sort of explain a little bit about what that is? As I read in the note it looks like it’s just pertaining to 2008 and 2009 and it doesn’t look like it is more like a forward way to -- definitely it’s impacting more recent on future revenue streams. If you could just provide a little bit of color on what’s going on with that and I mean clearly you are denying or are going to fight this vehemently but just a little bit of color around that and what this actually means if anything?

Little bit difficult to comment too specifically, Greg, because this is bit of an evolving situation but I will say that I think the Company has very strong contractual provisions in place. So Terry talked about the strong relationship with Petrobras which I will reiterate but I will say we will resist the efforts to retroactively impose additional cost on us when I think our contract is pretty clear.

Okay but it’s just 2008 and 2009 in the report.

That’s the starting point.

And then just another question, I believe it was mentioned in the past that ideally Transocean wants to have a cash balance of about $1.5 billion sort of to fund the fleet working capital. Is there maneuverability to change that or is that sort of a hard and fast number where that's sort of the cash on the balance sheet that Transocean requires? As I guess that’s for you Esa.

Thanks, Greg. It’s probably for me indeed. That’s not anything other than a comfortable level of cash on balance sheet that allows us to operate the Company in different parts of the world without any short-term funding needs. There is nothing more to it. It’s flexible. It can be less than that. It’s just a comfortable level.

And I imagine that’s a function of the fleet. So depending on the size of the fleet there is maneuverability around that?

It’s partially a scale, it’s partially an issue regarding where we operate and how much trapped cash we've got regarding different tax structures and different restrictions on dividend distribution and so on. But generally speaking it’s a scale issue. If the scale goes up, you would expect that to go up a little bit. If the company becomes smaller for whatever reason, at least in theory, that would reduce a little. But $1.5 billion is a very comfortable level of cash and balance sheet and as I said there is flexibility there.

(Operator Instructions). We will go next to Ian MacPherson with Simmons.

Terry, I guess you might have said this but presumably the 135 goes to cold stack here. Can you update us on any other additional stackings that are more likely now than what you were contemplating last quarter or is that the only one?

Ian, I actually said in the prepared notes that we hope to have positive news on the 135 very soon.

So, the rig swap less the prospect for the 135 is additive, got it. Esa, based on the first half and your indication that the fourth quarter cost should look pretty similar to Q1 and Q2, we would probably prefer the lower end, the lower half perhaps of your full year cost guidance. Are you comfortable with that?

Ian that’s a cunning question, I would definitely actually prefer a number below the range but reality is that the rigs is at good range and it actually accommodates for what we see coming our way during the second half of the year. And quite importantly as I try to point out, we do have some incremental contract prep work and other things that actually are adding to our expenses as opposed to our original guidance, but as you heard me say we reconfirm our original guidance and we will absorb through our cost management efforts and any incremental pressure we’ve got regarding those additional activities. So yes, I'm squarely with you on that one. Definitely, lower is better. But we manage this overtime and as you’ve heard from us many times, we have to maintain safe operations and operational integrity whilst we do this and therefore we’ve given ourselves some, I think most people have appreciated that time over a period of a couple of years to really restructure our cost base and that’s work in progress still and you’ll hear more towards the end of the year as well as during next year.

And we will go next to Byron Pope with Tudor, Pickering, Holt.

Just had a question Terry on, perhaps on your outlook with regard to the deepwater Gulf of Mexico, I think I heard you say in the prepared remarks, it felt like there were some opportunities for the development driller one. But as you think about a few rigs that you have there that are rolling off in coming months, coming quarters, do you like the odds of those rigs staying in the gulf? Or, how do you think about the prospects for those three rigs in the gulf in 2015?

Well, Byron I think generally we’re -- again in discussions with our Gulf of Mexico customers and I think you’re going to see a couple of one off exploration wells that are going to come to the market and we’re certainly going to be poised if I can manage with that with the fleet that we have currently in the Gulf of Mexico, but we’re bidding our fleet globally. So any opportunity we have to put these rigs to work and keep our utilization high is what we’re going to do. So that would include relocating these rigs out of the Gulf of Mexico.

Okay. And then, just an unrelated follow-up and looking at the 2015 planned out-of-service days, very little planned for the mid-water fleet. Assuming that relative to prior years and I’m assuming that is just a function of looking at that class of your fleet and not necessarily being a part of the long-term core portfolio, is that a reasonable way to think about it?

I’m not sure that it necessarily reflects the fact that we don’t consider those rigs to be part of our core long term portfolio. The more granular you get with respect to the fleet the more lumpy, the out of service time becomes. And so particular with respect to our North Sea mid-water rigs we’re coming out of the, couple of years of intense shipyard activity on those rigs and the next couple of year don’t have a lot of shipyard activity on the North Sea mid-water float to fleet. So if you extrapolate that to the entirety of the mid-water fleet, you do see a little bit of lumpiness that’s just a normal outcome of managing rigs over the course of a five year inspection cycle.

And we will go next to David Smith with Heikkinen Advisors.

Terry, on prior conference calls, you provided day rate ranges around the marketing outlook. I didn't catch any commentary around rate levels during your remarks, and I was just wondering if those thoughts might be available?

David sorry about that. The rate ranges really hadn’t changed much since we last reported and we really haven’t seen a lot of fixtures. But we had previously reported and certainly in our last presentations on the road, I think the ultra-deepwater ranges reported were 375 to 500, deepwater was around mid-300s to 400s, mid-water was I think around mid-300s to 400s in the harsh environment and below 200 outside of U.K.

Totally appreciate it. And just to confirm, with the backlog transferred from the GSF rig 135 to the Sedco energy, would that be kept at the same day rate that the 135 was at, I think $365,000?

Well, it’s going to be dependent on if it’s in DP mode or if it’s in more -- I mean shallow-water/deepwater mode. So the rate is going to be around the same. But if we do more deepwater work the rate will increase I think about $10,000 a day.

Good, to offset the costs with the fuel? Appreciate it. Thank you. And the real quick follow-up, I know it is an evolving situation, just wanted to ask if you have a strong view on, regarding the potential Petrobras back tax assessments and their attempt to pass those on. I wanted to ask if you have a strong view on which court would have jurisdiction if that was pursued and, whether that would be Brazil or US?

It’s a little bit too early to start thinking about litigation in that context.

We will go next to Mike Urban with Deutsche Bank.

So obviously you've talked repeatedly about continuing to high grade the fleet and moving away from the mid-water market but for the time being you do have those assets and continue to manage them, especially in the context of thinking about potentially monetizing them or selling them, if you do see some of the pressure that you talked about in terms of higher spec grade competing down. How you think about those assets in terms of your ability, your willingness to continue work from that kind of marginal profitability if it comes to that. In the past you might have stacked that kind of asset? Would you keep working there to maintain value for it and just how you think about those assets to the extent you still have them and as we see this market potentially grind lower in the short term?

Probably a really unsatisfactory answer for you Mike but it all depends. We will evaluate it on an asset by asset basis and when think we have an asset that is likely to survive this current downturn and be a productive and profitable asset coming out, we are likely to try and maintain the utilization on that rig. If on the other hand we think the asset truly is approaching the end of its life, we're likely to take a different decision and if the economics don’t support continued operation of the asset in the near term then we will make a decision to either try and scrap the asset ourselves or attract some kind of a third-party offer that would allow us to reduce our exposure to that kind of an asset. So, it all just depends on our long-term view of the asset and the fundamental thesis that this is a cyclical business and we will see some cyclical recovery in the future.

We will go next to David Batty with Plateau Bank.

It’s related to the cost side and it’s obvious that the costs have come down significantly since the level we saw in 2013, quite sharply actually and I was wondering, I think this for you Esa, if you could share some highlights or just your thinking around how the 2015 cost side is going to look, how much more potential there is on the cost cutting strategy? Thanks.

Thanks for the question. First of all you can see and thanks for by the way recognizing that we have done a lot of work in this area and it’s been quite successful. Beyond what we have achieved this year, we basically continue doing more of the same. So as we have guided in the past or outlined in the past, we should have about two-thirds completed with our own short cost initiative in 2014. You remember the original number. The total number was minimum $300 million. This year two-thirds of that will be delivered. So mathematically you've got another 100 million to go in 2015. We are working really hard on our offshore cost structure as well as you heard from the prepared remarks. There is more opportunity there and particularly the optimization of our shipyard execution provides further improvement opportunities going forward. So, there is more to come but we haven’t guided for 2015 and that will take another few months before we do so. But it definitely won’t stop in 2014, it will continue. As a matter of fact actually our optimization efforts and opportunities to further improve our cost structure will carry us beyond 2015 as well. It won’t stop there either. That’s really all I can say in the absence of official guidance on the matter.

And we will go next to Jason Gilbert with Goldman Sachs.

I just wanted to circle back to Andy’s first question about the investment grade rating. You guys have said for a long time that it’s important to you to be IG in-part because NOC customers require it. But number of your competitors like Seadrill are not IG rated or not rated at all and deal with the same customer. So, I was just wondering, has your thinking on this changed at all?

I would tell Jason that as a starting point we believe that financial flexibility in a cyclical industry is a competitive advantage and part of our approach to maintaining and enhancing our financial flexibility is represented by having a strong balance sheet. And we have taken other actions to support and enhance that as well. The recent IPO of Transocean Partners is an integral component of enhancing our financial flexibility. So, we still believe that as a fundamental premise and financial flexibility is reflected in the strength of our balance sheet and the strength of our balance sheet is reflected in our investment grade credit rating.

And then one more, maybe this is for Terry. You had alluded in your comments to some deepwater development sleeping to the right a bit and I am just curious as to what you think is driving this because crude price as we know have been relatively stable. So, what are you hearing on that front?

I think it’s been a lot of public commentary and certainly some of the discussions we have had with our customers is that they just got to prepare their balance sheet and focus on capital allocation and return to shareholders. So, they are taking a pause and its timely pause with the supply coming into the market. So they are going to be able to reduce their cost on their development programs later on. But we think that that comes -- that that the demand is going to come back to the market but that’s what we know they are focused on and we’re seeing it.

Next question, Chanel.

And we will go next to Darren Gacicia with Guggenheim.

I wanted to ask with regard to the cost improvement program. I understand that a large part of its a structural issue with regard to centralizing decision making maybe to a greater degree where formerly things were a bit more regionally controlled, if you will. When I think about that with regard to Caledonia, considering I think kind of, part of the way that may look may include some of the onshore facilities in Aberdeen and the rest. How do we want to think about kind of, the part of the cost structure that maybe goes with the rigs with the Caledonia offering? Can you give us any color on maybe how that looks, so we can think of things going forward?

Well, Darren I tell you that our approach to thinking about and structuring and separating Caledonia will be heavily influenced by what we learned as a result to the shelf transaction. So I think we were pretty successful in establishing the entity and assisting the folks that shelf drilling with creating the kind of infrastructure they needed to be able support fleet the way they want it to operate. We’ll do the same thing with the Caledonia management team. We feel like that’s an extremely strong business today. And so that business is supported by a lot of infrastructure and back office support services there in Aberdeen. And we -- it will be a bit of a process to go through with the Caledonia management team to identify what they need in order to operate the rigs according to their operating philosophy. So it’s a bit difficult to tell you exactly what that’s going to look like until we get fully engaged and embedded in that process with the Caledonia management team.

Understood. Second, for Terry, I'm trying to get a sense here thinking about your comments over the last several quarters where you have been early and right on the pause or kind of push out of activity. Are you starting to get -- relative to kind of, some of the commentary I've heard on recent calls; Are you starting to get more optimistic, or are you, kind of feelings about the same? It seems like in your comments there are a couple of green shoots relative to maybe how you felt before. I don't want to put words in your mouth, but I just wanted to ask you directly so I fully understood sort of the nature of your comments.

Thanks Darren. I think we have a consistent view like nothing has really dramatically changed as far as how we call the market and how we see it today. So I can’t say that -- I like your description of green shoots though, I’ll probably use that again. But we are encouraged I would say because in this very challenged market we’re still able to put our rigs at work and I think that speaks certainly to our operational folks in the field and all the efforts are go into making sure our customers are satisfied. So I think that speaks for itself and we’re going to continue to fight for the green shoots, but again our view of the market really hasn’t changed.

And we’ll go next to Harry Mateer with Barclays.

My first question, Esa, can you give us a sense for how you think working capital is going to flow in the second half of the year, given that it consumed over $1 billion of cash in the first two quarters?

Yes. We don’t necessarily guide on, we don’t normally guide on working capital but end of second quarter working capital level was high about mid, should be and it will be and that’s because of the few things that we actually know quite well and for instance, payables was exceptionally high as a result of certain movement since beginning of the year, particularly on the shipyard side of things. So you should expect that number to go up actually during the coming months. And receivables, there’s nothing, not an awful up their, and then on the inventory side we’ve actually continuously added some critical spaces to our inventory worldwide and that’s something that we continue to optimize towards the end of the year.

Okay. And then, I don't want to beat a dead horse on the dividend or the credit ratings, but I'm sure you guys are aware of the concerns out there and some of these estimates that have been put out there in terms of fairly low EBITDA numbers out over the next couple of years. So I'm just trying to get a sense for -- given that, maybe a firmer comment on the credit rating priority. I think the first couple of answers were mixed and I totally understand the sensitivity around the dividend. But, just give us a sense for, not just I guess to the dividend, but how do you consider the potential real tangible cost of falling to high yield, given your debt maturity schedule, given the fact that you do have coupon steps in some of the bonds. How do you weigh that against all the options the Company can potentially pursue in the next couple of years?

Yes. It’s Esa here. I’ll give Steven a pause because he kind of tried to address this issues already during the previous discussion but --so the immediate impact, if we lose our investment grade rating, isn’t all that dramatic. It adds a little bit of cost story existing debt profile. We’ve got billions of dollars in bonds out there. So it would obviously add a little but it’s not a key driver, access to capital over a longer period of time, strong balance sheet allowing us to benefit from opportunities that is cyclical industry and brings along more important than that. And of course the current market conditions will have an impact on our operating cash flow but at the same time, we are adding financial flexibility, we're improving our operations and we believe that the balance capital allocation that we have outlined and we are committed to, we can actually deliver on it.

Okay and then last. You mentioned a little bit more debt reduction in the fourth quarter, are there any other ways to perhaps accelerate the debt reduction beyond what you have identified so far in the next couple of quarters?

It will be fairly costly if we further accelerate that. So that’s why we have chosen actually this method of optimizing our balance sheet. So, we committed to this $1 billion accelerated reduction. It will be completed by the year end in line with our earlier communication and commitment and thereafter we will continue to reduce our debt level in line with debt maturities as and when they occur and current mathematics will take us to the level around $9 billion or below by the end of next year or beginning the year thereafter. So, we don’t have to do anything magical to deliver on what we have promised to do and the commitment is still there to just continue doing that and delivering it.

We will go next to Shyam Kumar with TT International.

Can I just ask in terms of the ultra-deepwater market and do you think there is scope for pricing to bifurcate between the newbuilds versus the old builds i.e. will newbuilds hold pricing better vis-à-vis older rigs please?

We're currently seeing in the market that there is a bifurcation occurring between higher spec equipment and lower spec equipment. This is nothing really new in how we have experienced the market over historical period. So, there is a bifurcation. When there is an oversupply that bifurcation becomes more pronounced, so that’s really where we are today in the market. So there is definitely is a bifurcation and that will continue until we get back to a market balance in the future.

(Operator Instructions). We will go next to Dominick Frantius with Dubrose.

Just a follow-up question and I understand it’s an evolving issue around the Petrobras tax issue but you said in 2008, ‘09 is just the beginning and put a number to it, $128 million. Now the reports today suggest that it could go back in five years. Could you give us some estimates if that really was to be extended to five years, what the impact would be? And then just a follow-up to Petrobras. And then could I ask I ask you about the cash flow profile going forward? You burned about $1.1 billion in cash in the first half, you benefited from lower tax and lower OpEx and a higher contract coverage. So if this rate continues then within a year’s time you have no cash on the balance sheet left, given that going forward you will pay higher OpEx and higher tax and lower contract coverage. So, how do you think about the cash flow profile of the group in this environment? And then the last question is the risk of asset impairments. We have seen one of your competitor taking quite a sizable impairment on their assets. So how do the current market rates and compare to your assessment and expectations when you do your NAV for the different rigs you employ? Are they still above what you expect rates to be or are we getting to levels where asset impairments become more likely? Thank you.

Dominic, you made this bit of a challenge by asking a three part question. I will take part one because I think it’s the easiest and then Esa can respond a part two and part three. What we have disclosed in our Q with respect to the Brazil tax issue is what we have disclosed and the way I have answered the questions this morning is the way I am going to answer the questions. It’s an evolving situation. We think we have excellent contractual provisions. The amount we have disclosed relates to 2008 and ‘09 because those are the only years that have been assessed against Petrobras. As this situation develops, we will continue to keep the market informed and that’s really all we are going to say about at this point.

Dominic, its Esa Ikaheimonen here. The challenging question, particularly the second one, the cash profile one because it really would require a different forum and different discussion maybe it goes pretty close to modeling and a little bit beyond what we have guided the market with. But as I said earlier the market is challenging and that obviously makes the situation a little bit less straight forward. But at the same time if you look further forward through 2015 for instance. We have created a lot of additional flexibility with the MLP. We have got a healthy cash balance at the moment. We’ve got very significant level of liquidity that we can leverage if that’s required. Our operations are improving all the time. Quarter after quarter we do better and we will -- we expect to continue doing it at this way. And so put that all together and there’s a lot of elements that actually will help us to absorb the challenges that the marketplace imposes on our cash flow. And that’s probably all I want to say about it. Furthermore if you really want to study this our 10-Q is actually a pretty good media for us. And it does include fair amount of intelligence around that and I would suggest and I’d like to refer to that for further information. In terms of the impairment that is interesting and that is a thoughtful question as well. I should also refer to the Q. I think its Page 38 of the 10-Q that actually gives you a lot of insight but I’ll give you a summary of that. So as you would expect we test our assets and good foreign impairment on a regular basis. And we will repeat that exercise as and when appropriate. Clearly the market conditions share price appreciations have added some scrutiny to that, but so far we’ve passed all the tests. And I don’t want to call into the technicalities because they are covered by the 10-Q and I would really like you to just have a look at that and perhaps we can have another conversation about those technicalities, if it’s not clear from the Q. It’s quite transparent. You won’t find too many Qs actually explaining impairment better than that one.

Okay. Can you just -- I think you mentioned it before? The minimum cash level you require to run your operations? What was the number there?

The comfortable level of cash on our balance sheet is about $1.5 billion. As I said earlier it’s not magical number. We can go below that periodically. We’ve got $3 billion of liquidity available to us, through a committed revolving credit facility that was very recently put in place with very favorable terms actually. So there's nothing particularly magical about that number and we’ve got a whole of more liquidity than that.

And we will have our follow-up question from David Smith with Heikkinen Advisors.

Thanks much for letting me circle back in. Just wanted to ask, given the large number of the fifth-gen rigs that become available between now and November, I think I count about 10 backing out the Sedco express? Was just wondering what initiatives you could pursue to reduce the daily idle costs for that fleet, if it does experience a prolonged increase in idle days? And, how low could you get that daily idle cost down compared to the in-service costs?

Yes. There are some things you can do with respect to accruing, forcing people to do their training on their off time rather than their on time, sorry, forcing people to do training on-time rather than their off-time. That helps you reduce the cost. The challenge with the fifth gen rigs is they are almost exclusively dynamically positioned. They don’t have very robust mooring systems typically. And so the idea of trying to put a fifth gen rig up into sort of pulled status in sheltered waters is a real challenge, and operational challenge. And so keeping the dynamic positioning system operating so that you can keep the rig somewhere in sheltered water without the benefit of mooring does entail a certain amount of cost. So I think you could do a lot to reduce the cost. The challenge is that the fact the matter that you cannot, you can't put those rigs into cold stack status because of the absence of our robust mooring system.

When you talk about the ability to do a lot to reduce costs, are we talking about a 20% reduction, 50% reduction?

Well, I think immediately we start looking at something like 10% to 15% to 20% reduction pending the award of a new contract. If we really decide that there are, that the rig is going to be long term ideal we think we can get it down to about 50%.

There are no further questions in the queue at this time. I’d like to turn the conference back to Mr. Newman for any additional or closing remarks.

Thanks, Chanel. Thank you all for joining us on the call today. We appreciate your interest in the company and we’ll talk to you on the third quarter results call.

That does conclude today’s conference. Thank you for your participation.