Good day, everyone, and welcome to the Ensco plc's Second Quarter 2014 Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Sean O'Neill, Vice President of Investor Relations, who will moderate the call. Sir, please go ahead.

Welcome, everyone, to Ensco's second quarter 2014 conference call. With me today are Carl Trowell, CEO; Mark Burns, our Chief Operating Officer; Jay Swent, CFO; David Hensel, our Senior Vice President of Marketing; as well as other members of our executive management team. We issued our earnings release, which is available on our website at enscoplc.com. Any comments we make about expectations are forward-looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our earnings release and SEC filings on our website that define forward-looking statements and list risk factors and other events that could impact future results. Also, please note that the company undertakes no duty to update forward-looking statements. As a reminder, we issued our most recent fleet status report on July 16. Now let me turn the call over to Carl Trowell, our new CEO and President.

Thanks, Sean, and good morning, everyone. Since this is my first earnings call as Ensco's CEO, I will start out with some introductory comments, and then, I will cover highlights for the quarter. David will then discuss the state of our markets, and Jay will review our financial results and future outlook. First, let me say that I'm honored to be Ensco's new CEO and President. Many years ago, one of my first jobs in the oil field was working as a well site engineer for Shell on ENSCO 72 and ENSCO 85. And I've watched Ensco's progress under its first 2 CEOs as the company grew to become one of the largest and more importantly, most well-respected offshore drillers. Since I started 8 weeks ago as CEO, many people have asked me what attracted me to the position. And I tell them it's a long list, but foremost amongst them were: an excellent safety and operating record, an ethos and culture that has led it to be ranked #1 in customer satisfaction 4 years running, a quality fleet in both floaters and jackups across a global platform, leading net income margins among the major offshore drillers, the strongest balance sheet with significant capital management flexibility, a dividend yield that is among the top 5% of S&P 500 companies and 7 newbuild rigs under construction that will support future earnings and cash flow growth. But the major attraction is what I believe Ensco can become, given these many strengths and accomplishments. Over the past several weeks, I've been meeting with employees and customers around the world, first, to listen and learn; and secondly, to define my priorities. My expectations walking in have been exceeded. Ensco has an incredibly strong value system and culture, dedicated employees, proven systems and processes and…

Thanks, Carl. This morning, I will present our outlook for the floater and jackup markets and recap some of our contract signings that occurred during the quarter. As Carl mentioned earlier, the fundamental long-term drivers of our business are in place in terms of commodity prices that are well above breakeven levels for our customers to continue drilling; customer investment, both in shallow water and deepwater, in order to achieve their production targets; appraisal and development drilling that will follow successful new discoveries over the past few years; favorable activity in terms of new offshore lease sales; and longer term, the emergence of new markets in terms of deepwater opportunities. The jackup market in general has remained fairly strong as evidenced by near-record contracted revenue backlog for our jackup fleet. However, we have seen the floater market soften this year, particularly for older mid-water assets, including some floaters going idle recently in certain regions as the supply of new rigs coming into those markets and a decline in the number of tenders and inquiries have affected the balance of supply and demand. As we look at specific regions, the West African market continues to show increasing customer demand across several countries, including Angola, Ghana and Nigeria. We signed a 5-year contract with Total in Angola for one of our ultra-deepwater drillships, ENSCO DS-8, that added $1.2 billion to our contracted revenue backlog. We expect ENSCO DS-8 to start work in the second half of 2015 after it has completed acceptance testing. There are currently 3 open deepwater tenders for multiyear terms in West Africa, and we have bid ultra-deepwater drillships and semisubmersibles into these opportunities. We see other opportunities in the coming months that will require 1 or more rigs in mid to late 2015. In addition, several operators have…

Thanks, David. Today, I'll start with a discussion of the impairment charge we recorded in the second quarter, and then, I will cover highlights of our second quarter results, our outlook for the third quarter and our financial position. As part of our ongoing review of the fleet and in light of our assessment of market conditions, we identified 9 of our 29 floaters that required action. 5 rigs will be sold and are now classified as held-for-sale assets in discontinued operations. Four of these rigs, ENSCO 5000, 5001, 5002 and 6000, had impairment charges totaling $546 million before tax. The fifth rig, ENSCO 7500, did not have an impairment charge. Only ENSCO 5001 currently has a contract which ends in January of next year. The other rigs are either cold stacked or will be cold stacked soon to reduce expenses as quickly as possible. We also determined that 4 other rigs, ENSCO DS-1 and DS-2 and ENSCO 5004 and 5005, had carrying values that exceeded undiscounted future cash flow projections, and we booked a $992 million impairment charge for these rigs in the second quarter. This charge was recorded in continuing operations because we intend to keep these 4 rigs in our fleet and operate them. As noted in our press release we reported a loss of $5.07 per diluted share. This included a loss of $2.38 per share from discontinued operations, which includes the held-for-sale assets and ENSCO 85 that was sold during the second quarter of 2014. The loss from continuing operations was $2.69 per share, including a $4.27 loss per share from impairment charges. Adjusted for these impairment charges, earnings per share from continuing operations were $1.58 compared to $1.48 since a year ago, as shown in our earnings release. So let me make a couple…

Thanks, Jay. And now operator, please open up the line for questions.

[Operator Instructions] And our first question today comes from Dave Wilson from Howard Weil.

Carl, I want to go back to something you said in your prepared remarks regarding the rigs held for sale and that there's -- I think I heard you say there's no ready buyers for those and there might not be. So a couple of questions around that. How long will you keep them held for sale before you just decide to scrap them? Granted, I guess, the financial impact is kind of off the continuing side of the ledger for now. And then also, on those -- because they're held for sale, are you -- how much effort is going in, in trying to find new contracts for those rigs?

Okay. Dave, so the 5 rigs that we have held for sale, there is quite -- there's a difference between 4 of them, the more aged fleet floaters and the 7500. So yes, it will take us a little bit of time to market these. So we're not going to put any hard and fast time limit on it. But we have, certainly on the aged floaters, written them down accordingly by, basically, 90%. So if we do need to move to scrap, we don't anticipate any major impact from that. Although it's early days, we have had people contact us with interest to have a look at those rigs, especially because now some of them look like they could be reconfigured for other usages. And we expect the 7500 actually will go in and be picked up by someone and taken for drilling. So we will look at this down the line, but we're not going to set a hard and fast time frame. And I'll hand over to Mark, who might have a little bit more to add on this.

Yes. Dave, just a couple of other comments. This is Mark Burns. Obviously, we're going to look at each rig specifically and the location they're in and that type of thing as we look for prospective buyers. But I just want to point out that we have been very successful in divesting some of our jackups over the last 3 years. So we know that market and potential or perspective buyers, so we'll look at that and use some of our past experience.

And Dave, if I come back a little bit on your second part of the question. We have faith in some -- quite a bit of guidance from brokers from the market about what the value of these will be going forward. But on your question about costs is that we have actually moved already very quickly to reduce costs on these. Most of those rigs are already stacked or in the process of being stacked. And we are bringing down costs very quickly on them, and we expect to be able to do that and see impact, certainly, going into next quarter and the quarter after. So even if takes a while, we really think we can bring down the costs of keeping those rigs stacked to a very low level, a minimum level.

Great. And then, Jay, if I could kind of circle back on one of your prepared comments regarding goodwill. I know you guys -- you said you look at it, but I was just, I guess, surprised by the amount of the write-downs and the number of rigs involved that there wasn't something coming out of goodwill as well. Could you kind of go through your thought process there in a little more detail?

Yes. I guess, Dave, just to help you a little bit. We allocate goodwill by segment, not by rig, and so that goodwill and -- that probably explains most of the answer for you. We allocate that across the whole segment. And as we said, I think we feel like all the benefits of the Pride transaction are more than being realized at the moment. And most of that goodwill came about, obviously, as part of the Pride transaction, but that goodwill is over a very large number of rigs.

Our next question comes from Ian from Simmons. Ian Macpherson - Simmons & Company International, Research Division: Really, for Carl or whoever might want to tackle this. One of the more recent and relevant data points in contracting was the BlackRhino for Murphy, where they essentially got a free upgrade on an existing contract. And I wonder if you're seeing customers pushing for that, asking you for essentially free upgrades and rigs replacing other rigs. I assume the 5001 will see out its backlog. I'm not particularly asking about that rig. But more broadly across the fleet, is that something that you see occurring either for Ensco or industry-wide?

So Ian, no, we haven't seen that yet. We've not had any client request for it, and we don't see any coming at the moment. So I think the issue, of course, is the placement of new rigs as they come out, which we're -- now with the delivery of the 120 Series into the North Sea, with DS-8 and DS-9 having good contracts, we actually have had good placement of our new rigs, and we are not having to offer that or proactively do it ourselves at this point. I'll hand over to David to see if he's got anything further to add.

Well, Ian, I would just add that each situation is unique, and each contractor and operator have different motivators. But to Carl's point, no, we have not been approached in that fashion. Ian Macpherson - Simmons & Company International, Research Division: Okay. A follow-up question. There's been some talk recently about one of the 8500s having some nibbles for shallow water work that would entail a mooring upgrade. Are there any updates on that prospect?

So I'll start, and I'll let Mark take some of the details on that. But the 8500 Series is proving to be a very versatile rig group, and we have been very carefully looking at the marketplace, which if you like, is for a hybrid that could work in DP and in moored processes. And we have been looking at the conversion of 1 or 2 of the rigs to a moored option. And I'll let Mark take the rest.

Yes. Ian, as you know, the 8500 Series, it is an efficient rig design. It's got good, strong technical capabilities, but it also gives us the flexibility of working in a DP mode or in shallow water in a moored configuration. So we're looking at that, and we're talking and showing this to various customers. So we'll continue to do that, but other than that, we really don't have much to say on that.

Our next question comes from Rob MacKenzie from Iberia Capital.

Carl, I guess, perhaps for you. Give us a little color, if you don't mind, on how you decided where to cut off the rig divestitures here. The ones you chose versus perhaps others that you decided to leave in the fleet that they may not be quite as old, but really, what I'm trying to understand is how you made that decision. Were they more earnings driven in terms of what you could absorb? Or was it more asset life left in the assets? And why wouldn't you have gone further perhaps, in this case, and then got rid of some more of the older rigs, perhaps like the 8500s, which had some contracting difficulty here?

Okay. Look, the actions you've seen us take this quarter -- let me backtrack a little bit and just give you a bit more context. The actions you've seen us take this quarter have been driven by 2 major things. The first is, during the quarter, we did see a weakening in the floater market, particularly in the number of inquiries and the tenders that we have seen come in and also, some trigger events of a few, certainly, of our competitors stacking rigs. And I was looking at the future forecast of some of the rigs that you've seen here, like the 5001, 5002. Now combined with that, we did a real step-back look at the market from a granular level built up from the business units and as a consequence of kind of the world tour that I did. And we did an in-depth review of the fleet, and that led to the decision we had to sell some of the older, particularly the mid-water semis, and triggered the look at the carrying value of the rest of the floater fleet. Now what triggered us to look at some rigs and pick the ones that we have decided to hold for sale versus others was very much a look at not just the short term, but also what we want our go-forward fleet to be 1 -- 2, 3 years down the line. And we looked very carefully at, did they fit with the standardization, which rigs were going to require major upgrades and class recertifications and the balance that we wanted to have between drillships, semis, mid-water semis, et cetera. And so the decision has been very much taken on that, not a short-term reaction to just instant earnings. And if I can -- what I would…

Great. And a quick follow-up, if I may. Once you sell the rigs held for sale, use the proceeds, look to perhaps build more rigs, buy some in the open market or happy with your fleet the way it will stand post divestiture?

So we have 7 newbuilds yet to be delivered over the next couple of years, in addition to the ones that come out this year, so I feel very comfortable with the organic growth on the fleet. So we don't feel at all compelled to go into the market to build anything new at this point. In fact, our option on the DS-11 drillship expired today, and we do not intend to extend it. So the cash that would come in from this, we would basically keep probably within the business, and we would look at, first and foremost, making sure we can fulfill our dividend policy. And we also have, as Jay pointed out, significant stage payments for the newbuild rigs coming in the remainder of 2014 and '15, and it's likely that we will keep them over for that.

Our next question comes from Byron Pope from Tudor, Pickering. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Carl, you had a comment in your prepared remarks about there being different dynamics driving the floater and jackup markets going forward. And since you're coming at it with a fresh set of eyes as it were, I was wondering if you could just elaborate a little bit on that comment.

Yes, certainly. I can add a little bit more color on that. What I won't do is go into it in a super granular manner, but it is not the time and place. And some of that color has been added in David's comments. The other one is that, I think, we do see a little bit of that granular knowledge as a competitive advantage going forward. But if I raise it to a high level -- let's take the 2 segments. So in the floater segment, at the moment, it's very clear that the market dynamics have been driven by an increase in supply from the new rigs coming to market and quite a marked decline in activity. So it's been driven from both ends. At the same time, a lot of the rigs coming to market are coming and are being operated by established drillers, who have done very good preparation work, the crews are in place, the equipment's in place. So what's driving the floater market is quite different from the jackups, for example. And a number of rigs coming out this year are available to be bid basically anywhere. Now on the jackup side, it's quite different. And if you'll note, in my comments, I actually stated that I thought the jackup market for Ensco in the near term was quite positive. And if you take the world as a whole, the jackup market is quite robust. There are a few pockets, in the short term, where we have some concern. The Gulf of Mexico will be one of them as we go through hurricane season. But in general, globally, the jackup market is robust and in some places, growing. Now so the issue is not a demand one, it's purely the outlook of the new…

Our next question comes from Mike Urban from Deutsche Bank.

I wanted to follow up on the last line of questioning about the differences between the floater and jackup market again, without getting into a huge discussion here. I wonder if there's -- if you do distinguish between the short term and the long term. Longer term, I completely agree, but we still do have this reality of a lot of rigs coming onto the market regardless of who they're owned by. And I just wanted to kind of clarify things. I mean, would you expect some weakness or potential decline in pricing and rates on those rigs as those -- as we figure out what's going to happen with those rigs? Or are you assuming that you do get this pickup in attrition that you do see some of these rigs owned by nontraditional players just not make it into the markets? Again, just trying to distinguish between, I guess, the time frame on the more positive outlook.

Yes. Okay, Mike. Yes, certainly, I do draw a distinction between the short and longer term. And my comments were very clear on saying it was in the short term, and by that I mean the kind of the next 18 months. And it's very much based on our backlog and the success we've had on contracting over the last quarter, particularly. And just to remind you, we've ended this quarter with near-record backlog in the jackups. But that doesn't mean we're complacent on it. And there is, quite clearly, a large amount of new jackups coming to market, and we're already seeing some early indication of some shortening term and some pricing pressure. But I think that were well placed to be able to place the fleet that we have in that marketplace. Now I was just going to add to that there is out there a thesis that the whole jackup market is about to roll over in the next 6, 12 months, and I think the evidence of that, so far, from our side, doesn't support that. There is pressure on pricing, and there will be as the newbuilds are delivered, but a wholesale collapse is not how it looks at all, certainly not from the fleet structure that we've got.

Okay, understood. And then a follow-up question on the accounting and the fleet changes that you've made here. What, if you have it in front of you, did you write the 7500 down to?

Yes. Mike, I think we'd probably prefer not to give you a lot of detail rig by rig because we are actually marketing these rigs to customers. But I would tell you that on the 7500, we didn't take any write-down at all on that rig. We think we'll probably do very well selling that. The write-down that we took was on the other 4 rigs.

Yes. I'm sorry, I was going to ask the book value rather than the write-down. But it sounds like you wanted to keep that close to the vest.

. I hope you don't mind, but yes.

No, I understand why. Don't want to tip off the market.

We'll tell you when we sell each one of them. How's that?

Sounds like a deal.

Our next question comes from Roland Morris from Cowen and Company.

I just wanted to ask, going forward, are there any -- is there a price that you guys would be willing to look at jackups that are being built by first time and nonoperators that might be distressed in the future? I mean, with the cash on hand, would you do that? Is there -- are there certain levels that are distressed? And what areas of the jackup market would you add to your fleet? Obviously, you said every jackup isn't a jackup isn't a jackup isn't a jackup. So if you could just kind of expand on what areas you might be looking to look at in the future and if there's a price or distressed price that you'd be looking to buy.

Yes. I think any pronounced downturn here would throw up opportunities of either asset acquisitions or company acquisition. But with the fleet structure we have, certainly with the newbuild deliveries, we don't feel compelled to do anything. And what the, I think, the 120 Series has taught us is that having rigs that are very, very tailored and engineered to customer and market demand brings a real advantage in how to be able to secure good long-term term contracts and good pricing. So we will be very cautious about buying just speculatively rigs out of speculative developers, especially because the build quality is not always so good. We don't -- we haven't been able to do our own QA, QC on the build in the shipyards, and they don't fit with the standardization. So we will, of course, keep an eye open. But it doesn't really fit with the company's strategy, and also, they wouldn't fit with the standardization that we've been trying to pursue.

Are there any areas of your fleet though that you would find more attractive? Just trying to get an idea of where you're looking to add, obviously, in the future, I know not in the near term.

Certainly, we've been very happy with the 120 Series and how they've been able to address the North Sea market, and of course, we have the 123 coming there. And the other -- there's no secret because we've made the order and announced it before. But the 140 Series, which is, we think, in the first place, aimed at Middle East, but other areas of Africa potentially is an area where we felt the structure was light. But we've already placed the orders there. So unless the market has got something additional to add, I don't think we'd see a big gap.

Roland, the only thing I was going to add, as you know, we are the leading provider of independent-legged premium jackups in the industry, and we are very pleased with the fleet spread that we have across the world in each major jackup area we're working in. And we have implemented a number of patented technology on our jackups. It's given us some enhanced improvements. So we're very pleased with the jackup fleet the way it's made today, the technical characteristics of them. So we're going to continue to operate these as they are currently.

[Operator Instructions] Our next question comes from Gregory Lewis from Crédit Suisse. Gregory Lewis - Crédit Suisse AG, Research Division: I just wanted to follow up on one more thing on the jackup fleet. I mean, clearly, Ensco's focus has been on constantly renewing the fleet and not really getting caught with older assets. And as we think about how that pertains to the current jackup fleet, should we expect you guys to continue to prune the fleet over the next 12 to -- 12-plus months? And as we think about that, if that is the case, is it going to be a function of jackups as they come off contract that don't have current work? Would those be the sale candidates? Or is it potentially, "Hey, these assets actually have contracts which makes them better sell candidates?" Because it seems like there's at least 1 or 2 companies out there that are probably going to look to start to consolidate the jackup market.

Okay. Greg, so the -- I think, let me start first by saying that given the company's approach, we didn't approach this in the -- like some of our competitors have done with the wholesale spinout. We actually think the fleet having been a hybrid driller and having the jackups, semisubs and the drillships brings us some key advantages. So the idea of removing big chunks of the jackup fleet in a big-scale spinoff is not something that we've considered at this stage. However, there are pockets of the jackup fleet that we may consider, going forward, on a divestiture, our individual ones as they come up. And actually, there's no hard and fast rule on whether we would do it when they're idle or when they've got contracts. It's much more driven by is it a jackup that we want to have in the fleet going forward. So it's much more driven by the individual characteristics of the jackups rather than whether they're just marketable to someone else.

Yes. Greg, just to echo what Carl said. Obviously, we look at each rig independently. We're constantly analyzing our operations. We look at each market independently, where the rig is operating at, what is the future opportunities for the rig, do we have any major upgrade cost schedule, do we have any major surveys that would cause us to look at things differently? So we look -- mainly look at each rig and market independently.

Greg, I think the thing here is that, first of all, you should consider that we will continue the process of high-grading the fleet, which means we will be looking. The approach to this is much more a kind of medium- to long-term outlook rather than just purely opportunistic, and it's part of an ongoing and considered process. And some of the rigs that we have in the fleet, even though on paper they may look like aged ones, they are actually doing very well and earning us very good cash flows, especially because they've been invested in, over a multiyear period. So the age of the rig in its own right doesn't actually indicate how much -- its potential going forward.

Our next question comes from Grace Hoefig from Franklin Templeton.

Could you give us the total CapEx budget for 2015? You gave us the newbuild CapEx. Can you just give us sustaining and rig enhancement CapEx?

I think, Grace, we're still -- we haven't gotten to the full-blown budget process for 2015. I'd say probably a reasonable way to look at it is we won't have the same level of upgrade CapEx that we had in 2014. We'll probably have a similar level of sustaining CapEx, would be in the $300 million range. So I think you ought to figure that next year we'd be in the $2 billion range, probably not much over that.

Grace, I would just add to that, that we will be drastically reducing the upgrade CapEx, as Jay just said.

The $570 million is basically cut in half or...

I think it's a little too early to tell because we haven't been through the budget process. But it's going to be a very low number would be my guess.

Okay. So sustaining CapEx is around the same and the number -- okay, I can plug it in. All right.

As a working assumption, I think that's fine. But the one that will be different is the upgrade CapEx. We've done a significant amount this year. We feel very comfortable with the fleet structure, and in the current market conditions, that's one of the areas that we'll be very disciplined on.

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over for any closing remarks.

Okay. Operator, thank you. Since there are no more questions in the queue, we just want to thank everyone for their interest in Ensco, and have a great day. Thanks.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.