Seadrill Ltd SDRL
Q1 2013 Earnings Call Transcript
Transcript Call Date 05/28/2013

Operator: Good day and welcome to the Q1 2013 Seadrill Limited Earnings Conference Call. Today's conference is being recoded.

At this time, I'd like to turn the conference over to Mr. (indiscernible), Director of Investor Relations. Please go ahead, sir.

Unidentified Company Speaker - IR: Thanks Sarah. Thank you all, and welcome to Seadrill's first quarter 2013 earnings conference call. Please note that this conference call also includes comments on the first quarter 2013, and accounts for, our majority-owned subsidiary North Atlantic Drilling. Quarterly reports and other supporting materials are available on seadrill.com and nadlcorp.com.

Together with me on this call, I have our Chief Executive Officer, Mr. Fredrik Halvorsen; our CFO and Senior Vice President, Mr. Rune Magnus Lundetrae; Robert Hingley-Wilson, our Senior Vice President and Chief Accounting Officer; and also with me Mr. Alf Ragnar, the CEO of NADL.

But before I give the microphone over to Fredrick, I would like to remind everyone that during the course of this call, we may make certain forward-looking statements regarding matters related to our business and Company that are not based on historical facts. Please note that such statements in addition to other information discussed here within the Safe Harbor provisions provided by the Federal Securities Regulations. For further and more detailed description of other risks associated with our Company and industry, please see our most recent Annual Report on Form 20-F and other filings with the SEC.

If we all turn to Page 2, I trust we all have read the disclaimer. With that I would like to turn over the microphone to Fredrik.

Fredrik Halvorsen - CEO and President: Good morning and good afternoon to all of you and thank you for joining us on the call today. I will start by going through the highlights for the first quarter. Thereafter we will go through the market outlook for the business and the contract backlog. I will then go through our dividend policy before ending on some summary comments. I will then hand the call over to Rune Magnus to take you through the financials for both Seadrill and North Atlantic in some more detail. Then in the usual fashion we will finish on a combined Q&A session for both companies.

So let me start with some highlights. I am very pleased to share a record quarter of US$652 million in operational EBITDA. Now in addition, we executed the sale of the West Janus, which gave a solid gain of US$61 million bringing the overall EBITDA for the quarter to US$713 million, the net income for the quarter was US$440 million corresponding to an earnings per share of US$0.87. The quarter was marked by a significant improvement in utilization for our Floaters. The economic utilization for the quarter came in at 92%, which is up from 86% in the previous quarter. As discussed in our last conference call, the first half of the quarter in Q1 was affected by the change out of the connector bolts in our subsea well control equipment.

I'm happy to say that we were able to take care of these issues, both on cost and on time, and since then, we've seen a sequential pickup in utilization month-over-month.

On a positive note, technical utilization quarter-to-date and now talking about Q2, is at 97% for our Floaters. So I’d say we're quite proud to have reverted to our historic norm, and we will work very hard to make sure the Company now continues this trend in the quarters to come. As such, we resolve to increase our regular cash dividend by US$0.03 to US$0.88 for the quarter.

In terms of the first quarter highlights, we continue to believe strongly in the Jack-up markets, and we see both rates increasing and terms lengthening. Now, acting on this, we ordered four high specification Jack-ups at Dalian. The all-in price per rig is US$230 million with delivery scheduled for 2015.

We also completed the acquisition of the Eclipse for US$590 million in January. We've been quite satisfied with the rigs since the acquisition. The Eclipse has performed very well with utilizations in the high 90s, and even now receiving a bonus from our client. I'd like to also point out, that I think most of the operations team, as well as our regional team in Middle East and Africa has done a terrific job in making the handover of the operation of the rig very smooth.

Furthermore, we did the rest of our 1985 built Jack-up, the West Janus. This was the last in our fleet from the five original rigs that were in our portfolio from inception, May 2005. After the sale of our benign environment Jack-ups, they are all high specification units, built after 2006, with an average age of 2.8 years.

We're also very pleased to have concluded the sale of the Tender rig fleet to our partner SapuraKencana. The proceeds from this transaction gives us financial strength for further growth. We're currently looking at several attractive investment opportunities.

In terms of the short-term impact of the transaction, this will result of approximately $100 million of EBITDA per quarter subtraction. However, as we see newbuilds entering operation this year, this EBITDA should be regained. Now, I'd also like to point out the stress of this story continues and that we remain a shareholder in SapuraKencana and committed to their success and the successful operation of the tender fleet.

Now, a smaller, but just as important, transaction was a dropdown of the T15 into Seadrill Partners. We expect to gain seasoned issuer status in October this year, and have identified several attractive assets that can be dropped down in short order.

On the contracting side, we firmed up a three-year contract for the West Neptune and we'll refer to the contract status later in the presentation.

So, looking at some of the highlights for our geographies. In the Asia-Pacific region, having now completed SapuraKencana, our presence is of course somewhat diminished. We have, however, still our strong newbuilding teams based in the regions and they have so far taken delivery of three units this year. We have taken delivery of two Jack-ups, the AOD I and AOD II. The first rig already commences contract with Saudi Aramco on May 1st and the second rig is in transit.

A little further north, we have also taken delivery of the drillship of West Auriga from Samsung, and that rig is currently en route to Gulf of Mexico where it is expected to arrive late August. Now for this year we have a further two drillships that we will take delivery of. Again, I am happy to say that they are both proceeding on time and budget.

In terms of a headquarter move, I won't spend a lot of time on that. We have completed the corporate transition from Stavanger to London and I must say I am very happy with how smooth the process has gone and the positivism in the people involved.

So moving on to look at the contract backlog; our Floater backlog remains quite strong at US$15.4 billion. We recently fixed the West Neptune for three years with LLOG for operations in the U.S. Gulf of Mexico at a rate of US$570,000 per day. That means for 2013 we only have the West Tellus that is currently without a contract. In 2014 we have four rigs that we need to secure contracts for. Now we have discussions with clients on all these units and we do expect to announce new contracts for most of these units within the next six months.

Looking at the Jack-ups, the order backlog there stands at US$3.2 billion. We recently extended the contracts for the West Prospero and West Ariel, variably to March 2014 at an agreed daily rate of US$163,000 a day. Let me see, we have two on contracted newbuilds that will be delivered in the third and fourth quarter 2013. However, the market for premium Jack-ups remains very strong with utilization of market and supply above 95% for the past year. With a strong Jack-up market, we do expect to have contracts for these units at or above current market rates.

So, in total, as of May 21st, our backlog and this is following the sale of the Tender rig fleet stands at US$19.1 billion. This is a decrease of US$1.9 billion from February, largely related to US$1.3 billion of revenue for the quarter recognized, as well as the sale of the Tender rig fleet, which accounted for US$1.8 billion of the backlog. Our order backlog provides clarity for future earnings, as well as generating good visibility for the rig capacity.

Looking at some of the market trends, I guess it comes as no surprise that we like this market and also we really like where we are in the cycle. Oil companies keep increasing offshore CapEx and notwithstanding unconventional resources ultra-deepwater drilling is expected to more than quadruple in terms of barrels per day by 2020. This will drive development drilling and I think it's fair to say that the – we do not intend to give up any market share. For 2015 delivery there is only about 11 newbuilds currently on the order book.

So with that in mind, we see day rates holding firm in the US$550,000 to US$650,000 range with Africa and the Gulf of Mexico being the predominant drivers for demand. Supply here is also helped by operators now moving away from the fourth and fifth generation rigs more aggressively. So, large development programs are causing good visibility. This is now also augmented by a number of smaller independent players moving quite aggressively on their expiration programs. So, all in, we're quite comfortable with how our fleet is positioned.

On the Jack-up side, we're committed having ordered another four units in Q1. The market is tight and combined with an aging fleet, we see rates moving upwards.

Lately demand has been driven from Asia and the Middle East. We are however, very positive that we're seeing Mexico and West Africa, emerging with additional demand.

So, looking at that in terms of dividend. We have increased our quarterly dividend by $0.03 to $0.88. We believe this is a very sustainable level from which to increase. This however far from precludes growth and we maintain our target of $4 billion of EBITDA in 2015 on an annualized basis.

Going forward, you'll see us realize the earnings potential latent in our newbuild program, continued investments into deepwater and Jack-up, as well as going after the growth of Seadrill Partners.

Now, all in, in the summary, we feel Q1 was a good quarter. The team came together and delivered. We were, I'll be the first to say, quite disappointed with our operating performance in Q4 and we are now equally proud to be back on track. This essentially closed the SapuraKencana and this has given us the necessary fire power to reinvest in a market with highly attractive economics. We made one move already for Jack-ups during the quarter and looking ahead we are very excited about the prospects of growing Seadrill Partners.

Now we have started our process by dropping down the T15 in May and I'm sure you'll hear more about that in Seadrill Partners' separate call somewhat later on today.

So with that, I would like to turn the call over to Seadrill's CFO, Rune Magnus.

Rune Magnus Lundetrae - CFO and SVP: Thank you Fredrik and good afternoon and good morning everyone. I will start with the financial performance highlights of Seadrill, then move on to some non-financial highlights for the North Atlantic Drilling and then finishing off with a brief review of their financial performance before we open up for Q&A.

Financial performance highlights for Seadrill, as Fredrik said, we achieved an EBITDA of US713 million including the West Janus sale. Earnings per share, was US$0.87 and we declared a dividend of US$0.88 which is an increase of US$0.03 from the previous quarter. The EBITDA contribution increased by US$48 million from the fourth quarter, excluding the US$61 million gain on the sale of West Janus, so a very solid operations performance when compared to the last quarter.

For the Floaters segment the increase amounted to approximately US$21 million and the main drivers were the acquisition of the West Eclipse that operated for 87 days in the quarter and the West Hercules that operated for 60 days versus the mobilization and yard stay that it had in the previous quarter. For Q1 we experienced operational down time mainly due to the connector bolt issue that we have discussed also in other quarterly calls.

The Jack-up units increase of US$31 million was related to units operating into Q1 that were partly in transit in the previous quarter, and increase in utilization across the fleet. The Tender rig performance was relatively flat for the quarter, which is a very good story. The Tender rig segment, have performed with the same high utilization and follow-up operation as we have seen last year.

Operating income for the Floaters, as mentioned in the EBITDA overview, there was an increase in operating profit in the first quarter compared to the last. The Floating segment increase was a net operating profit amounted to US$13 million and the main drivers were the West Eclipse that I mentioned had 87 days in operation, the West Hercules operated for 60 days, and the West Eminence had a full quarter of operation after the BOP issues incurred in the fourth quarter. For Q1, we experienced some reduced operating performance as result of our connector bolt pause for some of our rigs and some downtime on West Capella due to BOP issues.

Operating income Jack-ups, the increase in operating profit of US$32 million excluding the US$61 million from the West Janus sale, it's related to units operating into Q1 that were partly in transit in the previous quarter, together with an increased utilization for the fleet. Operating income for the Tender rig, the Tender rig experienced an increase of US$5 million during the quarter. The main reason for the increase is lower overall operating expenses including lower depreciation due to a majority of our Tender rig fleet is now classified as held for sale.

In total then, we had operating revenue of US$1.265 billion in the first quarter. Total operating expenses was US$774 million, giving us a net operating income of US$552 million in the first quarter.

Net income, total financial items have improved by US$267 million, mainly related to the impairment of Archer in the fourth quarter. Our interest expenses have increased due to the new US$450 million facility for the West Eclipse and also the NOK1.8 billion bond that we did in March.

In addition, we have recorded a non-cash gain of US$25 million related to our equity investment in Asia Offshore Drilling.

Moving over to the balance sheet, and a thought on the asset side. The increase in newbuilds amounted to US$772 million compared to the end of the fourth quarter. The increase is mainly related to the consolidation of Asia Offshore Drilling and the three Jack-up rigs. Also, we have classified US$143 million of our newbuildings as held for sale to reflect the sale to SapuraKencana.

Drilling units have increased with US$643 million throughout the quarter, mainly related to the acquisition of the West Eclipse. The decrease in the drilling units line in the balance sheet is related to the fact that we have classified, all 10 rigs and are now part of the sale to Sapura as held for sale and classified these in a separate line.

On the liability and equity side, the current portion of the long-term debt increased by US$532 million compared to the previous quarter, mainly due to the new short-term West Eclipse facility of US$450 million and the current portion of the NOK1.8 billion bond. The non-current portion of the long-term interest bearing debt decreased by US$812 million compared to fourth quarter. This is mainly due to us classifying US$699 million as noncurrent liabilities associated with the sale to SapuraKencana.

Then some non-financial highlights for North Atlantic Drilling in the first quarter; for the non-financial highlight for the first quarter and subsequent period for North Atlantic Drilling, you may have noted that we have disclosed ours and Seadrill's ongoing discussions with potential partners. Our main objective with this process is to better position NADL for growth in new harsh environment areas. We should announce further details before the end of the second quarter.

Also because the ongoing discussion we have not been in a position to file our third version registration document to the SEC. The Company is however fully committed to resume the listing process in the third quarter whatever the outcome of the old ongoing partnership discussions may be.

On the operational side we had a good quarter with stable operations. We also see that market activity remains high in the region with several oil companies in search for rig capacity through active tenders. We see this in the harsh environment Jack-up market in particular where clients look for high specification modern rigs. Also we expect that Floater capacity will be in demand through new tenders around summer this year as well. We feel the Company is well-positioned with the fleet.

Then moving over to new financials for North Atlantic Drilling; the Company recognized an EBITDA of US$135 million in the first quarter. This is a decrease of US$5 million compared to the fourth quarter mainly due to a yard stay for the West Alpha. This is somewhat offset by increased EBITDA from the West Hercules that commenced operation on January 31. Dividend is maintained at the same level as previous quarters and has been at the same level, since the fourth quarter of 2011.

Total operating revenue for the quarter amounted to US$318 million. This is an increase of US$35 million compared to the previous quarter, and it's mainly impacted by the said 60 days of operation from the West Hercules.

Net income, net loss from financial items amounted to US$30 million, compared to US$19 million in previous quarter. This is mainly related to loss on derivatives in Q1, compared to gains in the Q4.

Tax expenses for the quarter amounted to US$7 million, this compares to US$84 million in the fourth quarter. The Company has revised its financials as of December 31, 2012, compared to previously released Q4 report, due to updated estimates on the potential claim from Norwegian tax authorities. This affects both the balance sheet and the income tax expense, but has no cash effect.

On the balance sheet, the assets, the Company have – other than the mentioned tax effect, there is no significant movement in the balance sheet items during the first quarter of 2013, neither on the asset or the liability side.

With that, I give the word back to John, and we can start the Q&A session.

Unidentified Company Speaker - IR: Sure. Thanks, Rune. Thanks, Fredrik for your comments. With that, I will turn it back over to Sarah to hold the audio for questions.

Transcript Call Date 05/28/2013

Operator: Michael Urban, Deutsche Bank.

Michael Urban - Deutsche Bank: So, you've expressed, obviously, a pretty confident view in the Jack-up market, which you've signaled with ordering some additional newbuilds. I would agree that it's been a very strong market here in the near term. But what gives you the long-term confidence to make those types of investments? I think deepwater, everybody agrees it makes sense, clear tailwind there from all the discoveries that have been made. Just would be interested on your thought process on the longevity and the sustainability of the Jack-up market.

Fredrik Halvorsen - CEO and President: So, I think, first of all, I think we are looking at the overall aging profile of the fleet, with more than 60% of the premium units being 25 years or older. So, we do see now a move towards a lot newer units, and I think that's where a lot of this confidence is coming from. Now, of course, we are also in active discussions and so, with our marketing competence, we do see that a lot of operators are moving quite aggressively to new types of units for operating concerns and for safety concerns. So, taking those two together, we remain quite bullish on this segment.

Michael Urban - Deutsche Bank: In the nearer term, you'd mentioned Mexico as a potential emerging source of strength in the Jack-up market. I think that's been the case for a while. They've expressed a need for additional rigs in the particular newer units, but haven't really been willing to pay for high-spec assets. Is there anything you're seeing that might be changing there or a potential change in their attitude, or is it more just their – discussions that you had with them in terms of their expressing a need for additional units?

Fredrik Halvorsen - CEO and President: I think – we think it's changing, both West Africa and Mexico we see as strong drivers going forward, and that is on top of demand we are seeing out of Saudi and Asia.

Operator: Ryan Kauppila, Citi.

Ryan Kauppila - Citigroup: You mentioned in your press release that you anticipate increasing diversity of contract terms in the ultradeep market. Just wondering, what you think that's driving that? Are the majors now being patient for lower rates on longer-term? As far as your strategy, do you see an opportunity or an environment where you may shift more towards shorter-term higher rate over the near-term?

Fredrik Halvorsen - CEO and President: So I think, we have fairly good visibility at this point and we are very confident that there are some good long-term drilling opportunities out there and we are going after several of them. So I think that the first comment is, I don’t think a lot has changed. I wouldn’t preclude us doing some short-term work for some of the units. But if I were to summarize it, I would say, and being probably a little bit on the aggressive side, as we get to the other side this summer we would probably have only a couple of rigs open for '14.

Ryan Kauppila - Citigroup: With regards to all the newbuilds coming online in '14, as you're hiring out for your vessels, have you noticed an uptick in attrition at Seadrill, and generally how are you finding your ability to source labor?

Fredrik Halvorsen - CEO and President: So, the question is around just being able to attract the best people to run all the newbuilds, yeah?

Ryan Kauppila - Citigroup: Well, yeah. Have you noticed over the last call it six months an increase in your attrition rate?

Fredrik Halvorsen - CEO and President: No, we have not seen an increase in attrition. We have however, I think very proactively gone in and installed a lot of extra incentives to make sure we can train people very effectively out on the rigs using simulators and so forth. So, we can utilize some people that are already – old people and couple that with some of the new people we have coming in. So, I think one of the benefits here is having a big fleet with quite a few units, and with sound operations in all geographies. So, we have that scale from which to recruit and train people as we take delivery of new rigs.

Operator: Greg Lewis, Credit Suisse.

Greg Lewis - Credit Suisse: In the press release, you pointed to beyond the Sevan transaction, there are other alternatives for growth and/or expansion at Seadrill, when we think about those types of alternatives, is that primarily newbuilds of offshore Floaters and Jack-ups or is that potential additional opportunities to maybe acquire rigs from companies and/or companies, and if so could maybe provide a little bit color around that?

Rune Magnus Lundetrae - CFO and SVP: Right, we're not against acquiring single assets or even companies. I think what we found though is that the yard prices have been coming down and are at very attractive levels. So, the economics in a newbuild has just been superior. We did of course buy the Eclipse, which was also a single asset and that is working out very well. So, I did not rule out us buying single assets, both in the Jack-up and the deepwater space. At the same time, I think the yard rates are probably not going to run away from you either in the next six months. In that sense, there's no rush. So, over the next six months, we'll figure out probably a combination of newbuilds and single asset purchases.

Greg Lewis - Credit Suisse: Then just real quick, clearly you have the Jack-up rigs under construction at Jurong and Dalian, has there been any delays? Is everything running smoothly on all this? Clearly there's multiple rigs at both yards. If you could just maybe provide an update on the performance of both of those yards?

Fredrik Halvorsen - CEO and President: Right, sure. I think one of the things in the industry events was an issue with the pinion gears for the Jack-ups built, both out of Jurong and at Dalian and I think this has been discussed quite a bit before. I think we, in connection, with our last quarter, said that is probably a six month delay related to the pinion gear failure. We are now on track and we're on that schedule to get them delevered and I think the fortunate thing is that we've also had our AOD Jack-ups and have successfully been able to discuss and agree with clients to substitute units. So, this has not caused anything but, of course a later delivery. I think we also took a very cautious choice not to go for the hybrid model of planning to have the rigs delivered and then try to modify them once on the field, jack with less load and so forth. So, a decision was made, let's keep them there until they are done and dusted from yard and let's rather fulfill the contract obligations with the Asia Offshore drilling units.

Operator: Thijs Berkelder, ABN AMRO.

Thijs Berkelder - ABN AMRO: Three basic questions. One looking at the OpEx in the Floater segment, can you explain why the, first of all, OpEx is so large compared to previous quarter? Of course, partly it's the Eclipse, but what explains the rest? Secondly, were there in Q1 any let's say movement costs for moving from Stavanger to London and how large were they? Thirdly, maybe can we still expect to book profit on the sale of 10 rigs to SapuraKencana and what size can we expect there?

Fredrik Halvorsen - CEO and President: First question, can you just repeat the first question?

Thijs Berkelder - ABN AMRO: The vessel OpEx for the Floaters.

Fredrik Halvorsen - CEO and President: I will rely a little bit on my – we have both the Chief Accountant and the CFO in the room as well. The main event during Q1 that would have driven up costs and obviously the margin on the incremental revenue to expect was the connector bolt issue, where we had to pull the BOP on three units to get that rectified. So if Rune or Rob would have anything to add?

Robert Hingley-Wilson - Chief Accounting Officer and SVP: No. We don’t comment specifically in our OpEx generally, but I think it's, like Fredrik says, mostly related to the connector bolt issue and also the Eclipse, and of course we are getting close to some newbuilds coming into operation.

Thijs Berkelder - ABN AMRO: But underlying OpEx should be then something like US$260 million to US$270 million per quarter?

Rune Magnus Lundetrae - CFO and SVP: We also have some costs related to the preparation for five year classes and that's also being expensed, but I think the expectation is a margin between 55% and 60% EBITDA margin on our Floaters. Then accounting gain on the Sapura, without being too specific, I think somewhere between US$1 billion and US$1.3 billion is the accounting gain that one can expect, but of course we haven't finalized the books yet for the second quarter, but that's the range that you can expect. That would be on a separate line as other financial items.

Fredrik Halvorsen - CEO and President: Your question about the G&A and the moving costs, yes. There were some costs associated with the move, but equally there were some costs associated with the move in Q4 when we announced the transition. I think what we can say is that's been a fair degree of focus for the management team on control of G&A, and I think that the benefit of that are being seeing a little sooner than maybe we would have expected, and I think the number that's in there this quarter is probably the right indicative level certainly for the rest of '13.

Operator: Darren Gacicia, Guggenheim.

Darren Gacicia - Guggenheim Securities, LLC: I was curious, with the dropdown of the T15, it seems to me that the Seadrill Partners will be doing most of that and raising debt, not units, out of gate, but the tender was dropped down for US$210 million and it was originally paid for the end of last year for I think US$112 million. How does the mechanics of that work? Is it basically the mark-to-market of what that asset's worth, and then Seadrill Partners will acquire, is that kind of how we're looking at dropping down in the future, where you pretty much get kind of the yield base rate on the sale, kind of going towards Seadrill parent versus the MLP structure?

Rune Magnus Lundetrae - CFO and SVP: You're luck, because we have Graham Robjohns here, of course, the CEO of Seadrill Partners. So, he will take that question. Of course we have a separate call after this on Seadrill Partners, but Graham, please?

Graham Robjohns - CEO and President, Seadrill Partners: I think, basically what you have to remember is the rigs are sold down to Seadrill Partners at the point in time that they are built – delivered, de-risked and ready to go. So, there's obviously a big premium. I think the US$112 million number is probably a bit low from the actual total all-in cost. So, the way that we would arrive at that valuation is relatively simply looking at a discounted cash flow for the contract term and putting sort of a risked value – residual value after the initial contract term. I'm working that out on Seadrill Partners. So, weighted average cost of capitals come up with the US$210 million purchase price which is around about 9 times EBITDA multiple, which I think is – for a rig, that's about to commence operations is reasonable.

Darren Gacicia - Guggenheim Securities, LLC: Because it's very good and accretive for Seadrill to kind of work that as a financing vehicle but I'm imagining that at a certain point in terms of doing things at an all debt basis you eventually have to do this on a unit basis. Obviously you are seeing units to finance that growth. I mean how do we sort of – how are we looking the balance kind of where the premium that the Seadrill Partners trades to NAV against acquisitions and prices? Then what's kind of a logic of how we should be thinking about drop downs coming from Seadrill in the future. We should be looking at kind of similar premiums in line with the premium that Seadrill Partners probably trades to its breakup value or is it again maybe just more or like thinking about things on the DCF basis that you have spoken?

Rune Magnus Lundetrae - CFO and SVP: You are quite right that, we won't be able to continue Seadrill Partners financing acquisitions on all debt basis, so new equity will come and as was mentioned in the presentation the Seadrill Partners will have its seasoned issue status in October so that will all become a lot easier at that time. Obviously we are still going to prudently use debt to fund our acquisition growth as we can moving forward. In terms of the premiums or the valuations, if you like, it will be done in a similar way moving forward. We expect Seadrill Partners to trade extremely well given the growth profile that we have, which will allow us to continue to acquire rigs at values that are fair to Seadrill and fair to Seadrill Partners and are win-wins.

Darren Gacicia - Guggenheim Securities, LLC: The one – sorry, go ahead.

Rune Magnus Lundetrae - CFO and SVP: I said would be down on a DCF basis which will be dependent upon the contract term and also in terms of where the multiple is.

Darren Gacicia - Guggenheim Securities, LLC: So, the last question and maybe kind of an inherent one. The seasonal status, what does that status change and help out with just because maybe I'm not familiar, how do I want to think about that?

Fredrik Halvorsen - CEO and President: That's where Seadrill Partners slips from being a first year issuer on the Stock Exchange on kind of day 365 assuming all the filings are current and our market cap holds up. You switch to what's known as well-known seasoned issuer status, which means you don't have to go to the drawn out process of filing an advance with the SEC, waiting for comments, and then ultimately having things in the public domain for a quarter well before you can actually pull the trigger on an equity transaction. Think of this, as us becoming akin to any other domestic U.S. company, where we can go to the equity market overnight if we are arranged in a decent fashion.

Operator: (Richard Haydon), Yield Capital.

Richard Haydon - Yield Capital: Is it possible that you could expand upon the potential benefits to North Atlantic from a strategic relationship?

Fredrik Halvorsen - CEO and President: Sure. I am happy to take a first stab. We also have of course the CEO of North Atlantic here Mr. Alf Ragnar Lovdal, I will let him for the second part of the question. I think one of the things that Seadrill has traditionally at least created a lot of value from, is to have quite standardized assets that can be traded in quite broad market across multiple customers. We feel very strongly that the harsh environment units could be such an asset class, but for that to be true, it can be traded only in the North Sea towards, frankly speaking one client. So, in creating a good growth story, I think you need to expand the area of operation, get more harsh environment areas under your wing, and as part of that, we've always had a multitude of initiatives going around, North Atlantic Drilling and we're happy to say that, we've had some discussions now, around JVs or partial buy-ins from parties that could help us gain credibility and gain access to more growth in a broader area of operation.

Operator: Julien Laurent, Natixis.

Julien Laurent - Natixis: I was wondering, why do you consider that Jack-ups are more core business than tender rigs and do you believe that in terms of capital allocation it would make sense to deploy more capital on deep offshore rather than Jack-up?

Fredrik Halvorsen - CEO and President: Sure. I am sure there is more people with opinions in the room. What we feel is that, we have a very strong and a long standing relationship with SapuraKencana of Malaysia. That market was predominantly a Southeast Asia market namely sort of Thailand, Malaysia and so forth with a few international units, and as such, we had a partner that was very capable, especially after the merger also between Sapura and Kencana of running those assets. Just in a good fashion, as us, the main shareholders in that business and that has allowed us to allocate more capital into what we now see are our core, which is the deepwater and the Jack-up units. I think this is partly a decision to concentrate on fewer asset classes as the Company also grows bigger. Again one of the things I think that has traditionally proven very fruitfully for shareholders of the Company is that we build very similar units in very similar markets, make it very standardized allowing for scale within the asset classes and as we now grow both Jack-ups and deepwater units we hope to replicate that. So if you got to grow some segments, some things you got to give and the decision was to therefore exit the Tender class.

Operator: Thank you. There are no further questions in the queue.

Fredrik Halvorsen - CEO and President: Thanks for all the questions and for everyone listening in. We will go ahead and close the call please.

Unidentified Company Speaker - IR: Thanks, Sarah, we can close.

Operator: Thank you. That will conclude today's conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.