Good day everyone, and welcome to Ensco plc's Fourth Quarter and Full Year 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I will now turn the call over to Mr. Nick Georgas, Senior Director of Investor Relations, who will moderate the call. Please go ahead, sir.

Welcome everyone to Ensco's fourth quarter 2018 conference call. With me today are Carl Trowell, CEO; Carey Lowe, our Chief Operating Officer; Jon Baksht, CFO, 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 from our expectations. 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. During this call, we will refer to GAAP and non-GAAP financial measures. Please see the earnings release on our website for additional information. As a reminder, we issued our most recent Fleet Status Report on February 20. An updated investor presentation is also available on our website. Now, let me turn the call over to Carl Trowell, CEO and President.

Thanks Nick, and good morning everyone. I will start today's call with an update of our planned merger with Rowan before providing an overview of current market conditions and the evolution of the offshore market recovery. Carey, will then comment on our operational achievements and summarize recent contract awards. Finally, Jon, will conclude with an overview of our financial results and outlook along with some commentary on the financial implications of the pending Rowan merger. Last week we received overwhelming shareholder approval to merge with Rowan, a significant milestone on our path to closing the transaction. We've also received clearance from the U.S. and UK regulatory authorities and are working toward obtaining approval from Saudi authorities. As a result, we expect the transaction will close in the coming months as planned. By bringing Ensco and Rowan together, we will solidify the combined company's position as a key offshore service provider. This transaction will create an industry-leading offshore driller with an expanded geographic footprint, a broader customer base and a modern high quality rig fleet that is well positioned to meet customer demand across all water depths. A combined company will have 28 floating rigs including 25 ultra-deepwater capable assets with an average age of just six years. Making this fleet, one of the youngest and most capable in the industry. Floater fleet will contain 11 of the 44 highest specification seventh generation drillships in the global fleet, which is a segment of the market that has experienced increasing utilization over the past 12 months. The 54-rig jackup fleet will include 38 units that are equipped with many of the advanced features requested by clients with shallow-water drilling programs, such as increased leg length, expanded cantilever reach and greater hoisting capacity. Within this jackup fleet, 16 modern harsh environment rigs that…

Thanks, Carl. Our offshore crews delivered another year of strong operational and safety performance in 2018. They continued to achieve high levels of operational utilization, with 99% uptime for jackups and 98% uptime for floaters during the year. In terms of safety performance, our total recordable incident rate of 0.25, was approximately 30% better than the industry average. These results are a testament to the exceptional safety culture we developed over three decades and we'll continue to promote going forward. Our operational results benefit from the investments we have made in proprietary systems, processes and technologies over the past several years. These focused investments helped to differentiate Ensco's assets from their competition through better performance and reliability and lower offshore project cost for our customers. One example of these efforts is our recently launched Continuous Tripping Technology. This groundbreaking technology is a patented system, that fully automates the pipe tripping process, without stopping to make or break connections, allowing us to achieve continuous movement of the drill string into or out of the well at a constant controlled speed. We expect that this technology will lead to pipe tripping times that are up to three times faster than current conventional stand-by-stand methods. Continuous Tripping Technology was recently installed on new build jackup, ENSCO 123. And commissioning of this system is currently under way, ahead of the rig's maiden contract, which is expected to begin in the third quarter. While several customers have expressed interest in this technology, we plan to use ENSCO 123 as a way to test customer demand for this enhanced service offering before evaluating upgrades to other rigs in the fleet. By maintaining a high-quality rig fleet with differentiated technology and delivering outstanding operational and safety performance, we are well positioned to capitalize on increasing customer demand,…

Thanks, Carey, and good morning everyone. Today, I'm going to cover fourth quarter 2018 financial results, our outlook for first quarter 2019, full-year 2019 CapEx guidance, summary of our financial position and finally, I will provide an update on our planned merger with Rowan. Our fourth quarter 2018 financial results were in line with the outlook from our prior conference call with adjusted EBITDA of $45 million for this quarter. On a sequential quarter basis, total fourth quarter revenue was $399 million versus $431 million in the prior quarter. In the Floater segment, revenue declined to $228 million from $242 million in the third quarter, primarily due to idle periods for ENSCO 8503, ENSCO 8505 and ENSCO DS-12 between completing contracts and commencing new works. As a consequence, marketed utilization decreased by six percentage points to 64%. Operational utilization for the Floater segment, which adjusts for uncontracted days and planned downtime, was 97% and consistent with the prior quarter. In the Jackup segment, revenue declined to $156 million from $173 million in the prior quarter. This is due in part to a seven percentage point decline in marketed utilization, which was driven by idle time for ENSCO 72, ENSCO 100 and ENSCO 115, after completing contracts during the fourth quarter and an increase in shipyard days, due to a planned inspection for ENSCO 54. These declines were partially offset by ENSCO 141 and ENSCO 108, which commenced new three-year contracts in the Middle East in the third and fourth quarters, respectively. Operational utilization for the jackup fleet during the fourth quarter was 97%, compared with 98% in the third quarter. Moving now to costs. Excluding transaction costs, contract drilling expense declined sequentially by $3 million to $322 million. This is $2 million higher than our prior conference call guidance, due…

Thanks, Jon. Gary, at this time, please open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from James West with Evercore ISI. Please go ahead.

Hey, good morning guys.

Good morning, James.

Good morning, James.

Carl, good to hear about the fourth quarter volatility didn’t really change much in terms of planning for offshore projects. I’m curious, though, of the tenders that you’re working on or working through, and the activity levels or the activity, which you see out there for late this year and 2020, how much of that remains, kind of development type of work versus exploration and really I guess the key is – are we starting to see exploration, kind of show a rebirth at this point?

I would say that at the moment, the majority is still tilted towards development. Exploration spending and planning seems to still be subdued, certainly versus where it was in the 2013, 2014 time period. But we are seeing a few areas begin to pick up on the exploration side, particularly around existing petroleum basins and things like that. So, we’re seeing a bit in the North Sea, you’re seeing some come in West – sorry, South America around Brazil. Of course, the new – the area that’s really quite hot at the moment is the new frontier around the Northern Atlantic margins of French Guyana and the contingent coastline on Mauritania and Senegal. And of course, the one place that has really taken off is Mexico on the back of the recent license rounds. So, it’s there – it’s looking better than it did, but a lot of the tenders we have are still biased towards development project.

Right. Okay, fair enough. And then with respect to the pending transaction with Rowan, it’s obviously been out there for a while now. Are your customers already coming to you and asking about some of the Rowan assets or asking you to – how much you can actually do this, but to use those assets when you tender for – when you’re bidding for projects?

No. James, we absolutely can’t until we close the deal. From a competition’s regulation point of view, we have to continue to remain completely independent. But actually, we have a full Chinese wall in the two companies between the marketing, pricing, selection, some tactical issues around rig and fleet placement. So, while we’ve been working on integration planning around structure, synergies and things like that, we’ve absolutely stayed remote on that and we won’t do until we close.

Okay. got you. Okay. thanks guys.

[Operator Instructions] The next question comes from Greg Lewis with BTIG. Please go ahead.

Yes. thank you and good morning everyone.

Good morning

Good morning, Greg. Welcome back.

Thanks. Could you – can we talk a little bit about the tripping technology and just sort of how you’re thinking about introducing that to the market, i.e., is this something where we think – I mean is the goal to sort of start to generate a positive margin on this? Do we think – is it just, hey, we want to get the payback for the installation, which based on some of the CapEx was, it sounded like it was significant, just sort of – how we should think about rolling this out and potentially, how we think this could actually help drive some pricing?

Okay. Maybe, I’ll take it first and then see if Carey wants to add anything. First of all, Greg, in the commentary that Carey made, he mentioned – it was actually Jon on the CapEx. There is a figure in there for new builds and technology of around about $60 million. That’s actually spread across several things. That’s not all CTT. CTT costs a lot less than that to actually install even for the first version, which we put out. And we expect the cost to come down over time. We are working on that already. But that $60 million that you saw was actually some of the final integration testing, mobilization, crewing up of ENSCO 123, plus the finalization of continuous stripping. And it’s actually some of the bits and bobs in that for some of the other rigs that we brought out recently and sort of closing out for those. So, don’t take that as a guideline figure. But that said, what we – we are actually going to reserve a little bit of judgment on how we’re going to treat this and do the financial model for the technology until we run it in anger. ENSCO 123 is going to be going to the North Sea. It has a maiden contract there, but we’re in pretty advanced negotiations with a couple of customers to take it after that. And those programs are specifically aimed at utilizing the Continuous Tripping Technology, because the development programs were some pretty extended reach wells, where this really has a meaningful cost reduction on the overall well cost. In the early stages, we will shake down the technology. But our intention on the first contract is to actually run it as a – maybe, probably an upgrade, as an optional extra that the client pays as if they use it. So, we do see it as an enhanced service at this point. But once we have run it on these maiden contracts, we will reassess how we intend to price it. But we absolutely intend this is a premium service that gives higher return on the day rate.

And Greg, this is John. I might just add. In terms of – if we’re going to spend capital to upgrade further rigs, we’re absolutely going to be disciplined in that regard and wouldn’t upgrade additional rigs. And this is again, it is something we can retrofit our existing fleet with it at a minimal upfront CapEx. But we wouldn’t do it unless we get a return and a payback on that in pretty short order. But based on some of the math that we’ve worked, ultimately, the average well cost that we’ve seen could come down 10% on average. We back tested this on well that we’ve drilled over very long periods of time. But the real benefit is on the deepest wells, where you can get overall well savings up to 15%. And if you look at the overall savings on our clients’ well program for that type of savings, the savings are very meaningful. And so we will still develop a commercial model for it, but we think the payback on installing this equipment could be pretty short.

Yes. And if you don’t mind. I’m going to achieve a little bit into just our view as we go into 2019 on capital expenditures. Now, I’m definitely talking about Ensco alone at this point and how we viewed the year going into it outside the merger. But I do think that this approach will carry over post closing the transaction. And that is that we are in the mode at the moment, have been very careful on capital allocations and cash outlays. And at this point, we do not envisage putting more cash or CapEx out there, other than what is required to service the contracts that we got any necessary upgrades or sustaining. And we are not in the mode of putting pre-emptive or proactive cash onto additional upgrades, all proactively bringing out additional rigs, other than maybe the one or two Jackups that we drew attention to. And to be clear, on a – certainly, on our own – talking to our own fleet, not the combined fleet, we do not see bringing out any of the drill ships that are in – that we have preservation stacked at this stage and certainly not doing it for short-term contracts at the kind of price – the upgrade costs or the reactivation costs that we’re seeing until we see pricing and utilization pick up. That also carries on a bit to the DS-13, where we have an option on how to finance that. But I think what you can also read through from what we’ve said is that we don’t intend to bring that rig out of the yard and actually market it or putting it into action this year either. On the Jackups, just to reiterate what we said, we do see that broader-base pickup of the Jackup market building. If it continues as it is, then we will probably bring back one or two of our stacked rigs. But as we said, we will – that will be contract specific. And on the back of a contract, we’d only do it if we felt the day rate or the mobilization fee when part way or a significant way towards some of the costs. So that’s more to outline the kind of mode we’re in. And to circle it back to the technology, we don’t intend upgrading an additional rig at this point with continuous tripping. We intend to run the ENSCO 123 with it, really understand it, work on the cost version for Version 2 and then take decisions after that.

Okay, great. And then just one more from – but just one more from me. We’ve seen a lot of rigs have been put on the sidelines. You mentioned – obviously, you guys have your preservation stacked rigs that’s pulled down like I guess hot supply. So, as we think about this and how – what you’re seeing in the markets, are we at a point now where as rigs are being bid and as contracts are getting done, are we back to a point, where the days of the indifference rate are gone and now we’re at a point now, where we’re starting to actually see at least – at least maybe, some positive margin or at a minimum sort of cash OpEx break-even?

Well, I’d draw you back to what we said in the prepared comments. I think in the jackup market, simplistically the answer is yes. We started to see – actually in the jackup market, rates certainly, for our fleet, didn’t bottom out at zero cash impact. In fact the bottom point in the jackup pricing was still cash generative on most contracts and it started to build up as we went through 2018. So as we said, we saw pickup in some key markets in 2018 and we are anticipating based on what we see today that that will broaden. So, I think as we go through 2019, we would be expecting to see certainly in the back half of the year, the margin, particularly, the cash margin element from the Jackup segment starting to build. In the Floater segment, we’re not there yet, certainly not on how I see 2019 pricing, but rates do seem to have bottomed. People are not chasing rates down. People are eager to fill white space on the drillship, particularly, the drillship outlook in 2019. And therefore, rate is still competitive and I would say, marginally above costs – capital costs break-even, depending on how you roll in – you roll in mob costs. But what we do see is that, if you brought forward the number of tenders that we have coming now for 2020 and beyond and then 2021 starts, you start to see that there is a increased utilization, particularly on the very high-end drillships. And we’re seeing people – we’re seeing pricing points been put into tenders and people holding out for future, higher pricing in the back year. So – to rather round that off, if I were you, I wouldn’t expect materially pick up in cash margin on Floaters in 2019. But if we see the pricing points that we see out there at the moment for discussion and intend for 2020 and 2021, then that’s when we’d be looking to start to see that margin increase on the Floater segment.

Okay. thank you very much for the timing. Congratulations on closing the merger.

Thank you, Greg.

Thanks, Greg.

Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Nick Georgas for any closing remarks.

Thank you, Gary. And thank you to everyone on the call today for your interest in Ensco. We look forward to speaking with you again when we report first quarter 2019 results. Please have a great rest of your day.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.