SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 29, 2003
TRANSOCEAN INC.
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS 333-75899 66-0587307
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or File Number) Identification No.)
organization)
4 GREENWAY PLAZA
HOUSTON, TEXAS 77046
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (713) 232-7500
ITEM 7. Financial Statements and Exhibits.
(c) Exhibits
The following exhibits are furnished pursuant to Item 12:
99.1 Transocean Inc. Report of First Quarter 2003 Financial Results.
99.2 Transcript of Earnings Call.
ITEM 9. Regulation FD Disclosure.
The following information is furnished under Item 12 of Form 8-K (Results of
Operations and Financial Condition) in accordance with Securities and Exchange
Commission Release No. 33-8216.
Our news release dated April 29, 2003, concerning first quarter 2003 financial
results, furnished as Exhibit 99.1 to this report, is incorporated by reference
herein. The news release contains certain measures (discussed below) which may
be deemed "non-GAAP financial measures" as defined in Item 10 of Regulation S-K
of the Securities Exchange Act of 1934, as amended.
In the attached news release, we discuss net income, excluding a non-cash charge
for impairment of goodwill, on a total and per share basis for the quarter ended
March 31, 2002. This information is provided because management believes
exclusion of the impairment will help investors compare results between two
periods and identify operating trends that could otherwise be masked by the
impairment. The most directly comparable GAAP financial measure, net income,
and information reconciling the GAAP and non-GAAP measures are included in the
news release.
In the news release, we also discuss field operating income for each of our
business segments for the quarters ended December 31, 2002 and March 31, 2003.
Management believes field operating income is a useful measure of the operating
results of a particular segment since the measure only deducts expenses directly
related to a segment's operations from that segment's revenues. The most
directly comparable GAAP financial measure, operating income before general and
administrative expenses, and information reconciling the GAAP and non-GAAP
measures are included in the news release.
In the news release, we also discuss net debt at December 31, 2002 and March 31,
2003. This information is provided because management believes net debt
provides useful information regarding the level of our indebtedness by
reflecting cash and investments that could be used to repay debt. The most
directly comparable GAAP financial measure, total debt, and information
reconciling the GAAP and non-GAAP measures are included in the news release.
In addition, on April 29, 2003, we conducted our quarterly earnings conference
call for the period ended March 31, 2003. A transcript of the call is furnished
as Exhibit 99.2 to this report and is incorporated by reference herein.
-1-
Statements in the transcript of the call and in this Form 8-K regarding future
market conditions (including market conditions in the North Sea), dayrates
(including dayrates for fourth generation rigs and dayrates in West Africa and
India), activity levels (including exercise of rig contract options), operating
costs (including amounts), cost increases associated with shipyard work,
resolution of the strike in Nigeria, timing and amount of increase and
subsequent downward trend in interest expense, the exercise of the put option by
holders of Zero Coupon Convertible Debentures, potential repurchase of the
Nautilus Class A2 Notes, plans for cash reserves, future debt repayments and
share repurchases, targeted debt levels, reimbursables (including amounts),
anticipated loss associated with debt retirement, depreciation, effective tax
rate, financial results, estimated contract duration (including terms in India),
contract commencement dates and locations, prospects for unstacking cold stacked
rigs and for term contracts in the Gulf of Mexico, downtime, shipyard and rig
reactivation programs, prospects for additional deepwater rigs in India, timing
and results of independents moving in and majors moving out of the North Sea,
prospects for fourth generation rigs, participation in drilling opportunities in
Mexico, as well as any other statements that are not historical facts in the
transcript of the call or in this Form 8-K are forward-looking statements that
involve certain risks, uncertainties and assumptions. These include but are not
limited to the future price of oil and gas, demand for rigs, operating hazards
and delays, risks associated with international operations, actions by customers
and other third parties, competition, risks of drilling, contract terminations
or suspensions and other factors detailed in the company's most recent Form 10-K
for the year ended December 31, 2002 and other filings with the Securities and
Exchange Commission. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those indicated.
The information furnished pursuant to this Item 9, including Exhibit 99.1 and
Exhibit 99.2, shall not be deemed to be "filed" for the purposes of Section 18
of the Securities Exchange Act of 1934, nor will it be incorporated by reference
into any registration statement filed by Transocean Inc. under the Securities
Act of 1933, as amended, unless specifically identified therein as being
incorporated therein by reference. The furnishing of the information in this
report is not intended to, and does not, constitute a determination or admission
by Transocean Inc., that the information in this report is material or complete,
or that investors should consider this information before making an investment
decision with respect to any security of Transocean Inc.
-2-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSOCEAN INC.
Date: May 5, 2003 By: /s/ Eric B. Brown
-----------------------------------
Eric B. Brown
Senior Vice President, General
Counsel and Corporate Secretary
-3-
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
99.1 Transocean Inc. Report of First Quarter 2003 Financial
Results.
99.2 Transcript of Earnings Call.
-1-
*********************
[GRAPHIC OMMITED] TRANSOCEAN INC.
Post Office Box 2765
Transocean Houston TX 77252 2765
********************************************************************************
ANALYST CONTACT: Jeffrey L. Chastain NEWS RELEASE
713-232-7551
MEDIA CONTACT: Guy A. Cantwell FOR RELEASE: April 29, 2003
713-232-7647
TRANSOCEAN INC. REPORTS
FIRST QUARTER 2003 RESULTS
HOUSTON--Transocean Inc. (NYSE: RIG) today announced that net income for
the three months ended March 31, 2003 was $47.2 million, or $0.15 per diluted
share, on revenues of $616.0 million. The first quarter 2003 results compare to
a net loss of $1,286.4 million, or $3.98 per diluted share on revenues of $667.9
for the three months ended March 31, 2002. Results for the first three months of
2002 included a non-cash charge of $1,363.7 million, or $4.22 per diluted share,
to reflect the impairment of goodwill associated with the company's Gulf of
Mexico Shallow and Inland Water reporting unit following the January 2002
adoption of Statement of Financial Accounting Standards 142, Goodwill and Other
Intangible Assets. Excluding the non-cash charge for impairment of goodwill, net
income for the three months ended March 31, 2002 was $77.3 million, or $0.24 per
diluted share.
Operating revenues from the company's International and U.S. Floater
Contract Drilling Services business segment totaled $562.7 million during the
three months ended March 31, 2003, an 8% decline from revenues of $612.6 million
recorded for the three months ended December 31, 2002. Operating revenues for
the first quarter of 2003 included $21.6 million related to costs incurred and
billed to customers on a reimbursable basis. Prior to 2003, similar items were
reflected as a reduction of operating and maintenance expense. The decline in
segment revenues was due primarily to lower semisubmersible dayrates in the
North Sea, reduced activity in Southeast Asia and planned downtime and contract
preparation on two of our deepwater rigs. Operating income before general and
administrative expense for this segment was $144.0 million for the three months
ended March 31, 2003 as compared to a $2,309.8 million loss for the fourth
quarter of 2002, which included a non-cash charge of $2,494.1 million pertaining
to the impairment of goodwill. Field operating income (defined as revenues less
operating and maintenance expenses) of $247.2 million declined 16% during the
three months ended March 31, 2003, compared to field operating income of $295.8
million achieved in the fourth quarter of 2002. The reduction in field operating
income was caused primarily by declining revenues, while operating and
maintenance expenses remained essentially unchanged from levels in the fourth
quarter of 2002 due in part to the change noted above on reimbursable costs. At
April 29, 2003, the company had 58% of the remaining fleet days in 2003
associated with this business segment committed to firm contracts, up from 51%
at January 30, 2003.
Operating revenues from the company's Gulf of Mexico Shallow and Inland
Water business segment were $53.3 million during the three months ended March
31, 2003, up 3% from levels experienced in the fourth quarter of 2002. Operating
revenues for the first quarter of 2003 included $4.8 million related to costs
incurred and billed to customers on a reimbursable basis. Operating loss before
general and administrative expense for this segment was $28.5 million for the
first quarter of 2003 compared to an
operating loss of $403.5 million for the fourth quarter of 2002, which included
a non-cash charge of $381.9 million pertaining to impairment of goodwill. A
field operating loss of $5.3 million was recorded during the first quarter of
2003, compared to field operating income of $2.3 million during the fourth
quarter of 2002. The field operating loss in the first quarter of 2003 was due
chiefly to higher operating and maintenance expenses associated with jackup rigs
being activated for service.
Cash flow from operations was $190.8 million during the three months ended
March 31, 2003 and cash and cash equivalents increased to $1,520.4 million, from
$1,214.2 million at December 31, 2002. Long-term debt plus debt due within one
year (total debt) at March 31, 2003 equaled $4,619.8 million compared to total
debt of $4,678.0 million at December 31, 2002. Net Debt (defined as total debt
less cash and cash equivalents and swap receivables) declined to $3,099.4
million at March 31, 2003, from $3,282.5 million at December 31, 2002.
Robert L. Long, President and Chief Executive Officer of Transocean Inc.,
stated, "Mid-water semisubmersible dayrates in the North Sea and activity in
Southeast Asia have deteriorated and these lower levels could persist through
the balance of the year. Also, the Gulf of Mexico market segment for deepwater
rigs continues to be over-supplied, resulting in periodic downtime on some
units. Furthermore, while we have seen some signs of increased activity in our
Gulf of Mexico Shallow and Inland Water business segment, the recovery to date
has been limited. As a result of the uncertainty in the market, along with
scheduled shipyard and rig reactivation programs, the previously announced labor
dispute in Nigeria and an anticipated loss associated with the early retirement
of debt, the company expects a deterioration in its financial results for the
second quarter of 2003. Due to the number of jurisdictions where we operate
which impose taxes that are effectively based on revenue rather than on net
profits, these results are expected to lead to a higher effective tax rate. In
summary, the remainder of 2003 continues to develop as a difficult year for our
business."
Conference Call Information
-----------------------------
The company will conduct a teleconference call at 10:00 a.m. EDT on April
29, 2003. Individuals who wish to participate in the teleconference call should
dial 212-329-1454 approximately five to 10 minutes prior to the scheduled start
time of the call.
In addition, the conference call will be simultaneously broadcast over the
Internet in a listen-only mode and can be accessed by logging onto the company's
website at www.deepwater.com and selecting "Investor Relations." It may also be
-----------------
accessed via the internet at www.CompanyBoardroom.com by typing in the company's
------------------------
New York Stock Exchange trading symbol, "RIG."
A telephonic replay of the conference call should be available after 1:00
p.m. EDT on April 29 and can be accessed by dialing 303-590-3000 and referring
to the passcode 533691. Also, a replay will be available through the internet
and can be accessed by visiting either of the above-websites. Both replay
options will be available for approximately 30 days.
Monthly Fleet Update Information
-----------------------------------
Drilling rig status and contract information on Transocean Inc.'s offshore
drilling fleet has been condensed into two reports titled "Monthly Fleet Update"
and "Monthly Fleet Update - Jackups and Barges," which are available through the
company's website at www.deepwater.com. The reports are located in the
-----------------
"Investor Relations/Financial Reports" section of the website. By subscribing
--------------------------------------
to the Transocean Financial Report Alert, you will be immediately notified when
---------------------------------
new postings are made to this
page by an automated e-mail that will provide a link directly to the page that
has been updated. Shareholders and other interested parties are invited to sign
up for this service.
Statements regarding future market conditions, dayrates, activity levels,
downtime, shipyard and rig reactivation programs, anticipated loss associated
with debt retirement, effective tax rate, financial results, estimated contract
duration, contract commencement dates and locations, as well as any other
statements that are not historical facts in this release or our monthly fleet
update, are forward-looking statements that involve certain risks, uncertainties
and assumptions. These include but are not limited to the future price of oil
and gas, demand for rigs, operating hazards and delays, risks associated with
international operations, actions by customers and other third parties,
competition, risks of drilling, contract terminations or suspensions and other
factors detailed in the company's most recent Form 10-K for the year ended
December 31, 2002 and other filings with the Securities and Exchange Commission.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those indicated.
Transocean Inc. is the world's largest offshore drilling contractor with
more than 170 full or partially owned and managed mobile offshore drilling
units, inland drilling barges and other assets utilized in the support of
offshore drilling activities worldwide. The company's mobile offshore drilling
fleet is considered one of the most modern and versatile in the world with 13
fifth-generation semisubmersibles and drillships, 15 other deepwater
semisubmersibles and drillships, 32 mid-water semisubmersibles and drillships
and 55 jackup drilling rigs. Transocean Inc. specializes in technically
demanding segments of the offshore drilling business, including industry-leading
positions in deepwater and harsh environment drilling services. With a current
equity market capitalization in excess of $6 billion, the company's ordinary
shares are traded on the New York Stock Exchange under the symbol "RIG."
### 03-12
TRANSOCEAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended March 31,
------------------------------
2003 2002
-------------- --------------
Operating Revenues
Contract Drilling Revenues $ 589.6 $ 667.9
Client Reimbursable Revenues 26.4 -
616.0 667.9
Costs and Expenses
Operating and maintenance 374.1 381.0
Depreciation 126.8 125.6
General and administrative 13.9 19.8
Impairment loss on long-lived assets 1.0 1.1
Gain from sale of assets, net (1.4) (1.9)
514.4 525.6
Operating Income 101.6 142.3
Other Income (Expense), net
Equity in earnings of joint ventures 3.6 1.9
Interest income 6.9 4.2
Interest expense (52.6) (55.9)
Other, net (0.6) (0.7)
(42.7) (50.5)
Income Before Income Taxes, Minority Interest and Cumulative Effect
of a Change in Accounting Principle 58.9 91.8
Income Tax Expense 11.8 13.8
Minority Interest (0.1) 0.7
Net Income Before Cumulative Effect of a Change in Accounting Principle 47.2 77.3
Cumulative Effect of a Change in Accounting Principle - (1,363.7)
Net Income (Loss) $ 47.2 $ (1,286.4)
Basic Earnings (Loss) Per Share
Income Before Cumulative Effect of a Change in Accounting Principle $ 0.15 $ 0.24
Loss on Cumulative Effect of a Change in Accounting Principle - (4.27)
Net Income (Loss) $ 0.15 $ (4.03)
Diluted Earnings (Loss) Per Share
Income Before Cumulative Effect of a Change in Accounting Principle $ 0.15 $ 0.24
Loss on Cumulative Effect of a Change in Accounting Principle - (4.22)
Net Income (Loss) $ 0.15 $ (3.98)
Weighted Average Shares Outstanding
Basic 319.7 319.1
Diluted 321.6 323.1
TRANSOCEAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
March 31, December 31,
------------ --------------
2003 2002
------------ --------------
(Unaudited)
ASSETS
Cash and Cash Equivalents $ 1,520.4 $ 1,214.2
Accounts Receivable
Trade 417.3 437.6
Other 64.4 61.7
Materials and Supplies 157.1 155.8
Deferred Income Taxes 17.1 21.9
Other Current Assets 53.7 20.5
Total Current Assets 2,230.0 1,911.7
Property and Equipment 10,201.6 10,198.0
Less Accumulated Depreciation 2,290.2 2,168.2
Property and Equipment, net 7,911.4 8,029.8
Goodwill, net 2,190.6 2,218.2
Investments in and Advances to Joint Ventures 110.7 108.5
Deferred Income Taxes 26.2 26.2
Other Assets 193.5 370.7
Total Assets $ 12,662.4 $ 12,665.1
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable $ 132.6 $ 134.1
Accrued Income Taxes 18.8 59.5
Debt Due Within One Year 1,051.7 1,048.1
Other Current Liabilities 295.2 262.2
Total Current Liabilities 1,498.3 1,503.9
Long-Term Debt 3,568.1 3,629.9
Deferred Income Taxes 102.4 107.2
Other Long-Term Liabilities 291.9 282.7
Total Long-Term Liabilities 3,962.4 4,019.8
Commitments and Contingencies
Preference Shares, $0.10 par value; 50,000,000 shares authorized,
none issued and outstanding - -
Ordinary Shares, $0.01 par value; 800,000,000 shares authorized,
319,768,212 and 319,219,072 shares issued and outstanding at
March 31, 2003 and December 31, 2002, respectively 3.2 3.2
Additional Paid-in Capital 10,635.8 10,623.1
Accumulated Other Comprehensive Loss (31.1) (31.5)
Retained Deficit (3,406.2) (3,453.4)
Total Shareholders' Equity 7,201.7 7,141.4
Total Liabilities and Shareholders' Equity $ 12,662.4 $ 12,665.1
TRANSOCEAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended March 31,
----------------------------
2003 2002
--------- ----------
Cash Flows from Operating Activities
Net income (loss) $ 47.2 $(1,286.4)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation 126.8 125.6
Impairment loss on goodwill - 1,363.7
Stock-based compensation expense 1.5 0.2
Deferred income taxes 27.6 (23.3)
Equity in earnings of joint ventures (3.6) (1.9)
Net gain from disposal of assets (0.7) -
Impairment loss on long-lived assets 1.0 1.1
Amortization of debt-related discounts/premiums, fair value adjustments
and issue costs, net (1.8) 1.3
Deferred income, net 7.0 (5.4)
Deferred expenses, net (4.8) 7.4
Other, net 5.8 5.0
Changes in operating assets and liabilities
Accounts receivable 17.6 (8.9)
Accounts payable and other current liabilities 42.4 (4.6)
Income taxes receivable/payable, net (40.7) 15.8
Other current assets (34.5) (27.6)
Net Cash Provided by Operating Activities 190.8 162.0
Cash Flows from Investing Activities
Capital expenditures (24.4) (47.7)
Proceeds from disposal of assets, net 2.2 43.4
Joint ventures and other investments, net 1.4 (3.6)
Net Cash Used in Investing Activities (20.8) (7.9)
Cash Flows from Financing Activities
Repayments under commercial paper program - (326.4)
Repayments on other debt instruments (47.8) (85.0)
Cash from termination of interest rate swaps 173.5 -
Net proceeds from issuance of ordinary shares under
stock-based compensation plans 10.9 9.1
Dividends paid - (9.6)
Financing costs - (8.2)
Other, net (0.4) 0.7
Net Cash Provided by (Used in) Financing Activities 136.2 (419.4)
Net Increase (Decrease) in Cash and Cash Equivalents 306.2 (265.3)
Cash and Cash Equivalents at Beginning of Period 1,214.2 853.4
Cash and Cash Equivalents at End of Period $1,520.4 $ 588.1
Transocean Inc.
Fleet Operating Statistics
Operating Revenues ($Millions) (1)
-------------------------------------
Three Months Ended
-------------------------------------
INTERNATIONAL AND U.S. FLOATER CONTRACT DRILLING March 31, December 31, March 31,
SERVICES SEGMENT: 2003 2002 2002
---------- ------------- ----------
Contract Drilling Revenues
Deepwater:
5th Generation $ 175.7 $ 182.6 $ 149.5
Other Deepwater $ 116.2 $ 159.0 $ 133.9
Total Deepwater $ 291.9 $ 341.6 $ 283.4
Mid-Water $ 115.1 $ 137.5 $ 190.7
Jackups - Non-U.S. $ 115.3 $ 114.5 $ 124.1
Other Rigs $ 18.8 $ 19.0 $ 25.0
Subtotal $ 541.1 $ 612.6 $ 632.2
Client Reimbursables $ 21.6 - -
Segment Total $ 562.7 $ 612.6 $ 623.2
GULF OF MEXICO SHALLOW AND INLAND WATER SEGMENT:
Contract Drilling Revenues
Jackups and Submersibles $ 18.7 $ 20.8 $ 13.4
Inland Barges $ 23.0 $ 24.8 $ 21.7
Other $ 6.8 $ 6.4 $ 9.6
Subtotal $ 48.5 $ 52.0 $ 44.7
Client Reimbursables $ 4.8 - -
Segment Total $ 53.3 $ 52.0 $ 44.7
Total Company $ 616.0 $ 664.6 $ 667.9
Average Dayrates (1) (2)
-------------------------------------
Three Months Ended
-------------------------------------
INTERNATIONAL AND U.S. FLOATER CONTRACT DRILLING March 31, December 31, March 31,
SERVICES SEGMENT: 2003 2002 2002
---------- ------------- ----------
Deepwater:
5th Generation $ 183,800 $ 188,700 $ 185,800
Other Deepwater $ 113,600 $ 120,400 $ 120,800
Total Deepwater $ 147,500 $ 149,300 $ 148,100
Mid-Water $ 77,200 $ 84,400 $ 81,500
Jackups - Non-U.S. $ 56,900 $ 57,700 $ 58,700
Other Rigs $ 43,200 $ 36,200 $ 42,500
Segment Total $ 91,600 $ 96,100 $ 90,100
GULF OF MEXICO SHALLOW AND INLAND WATER SEGMENT:
Jackups and Submersibles $ 20,100 $ 21,900 $ 22,200
Inland Barges $ 17,600 $ 19,600 $ 19,200
Other Rigs $ 18,100 $ 18,700 $ 17,500
Segment Total $ 18,500 $ 20,300 $ 19,600
Total Mobile Offshore Drilling Fleet $ 69,100 $ 74,300 $ 72,500
Utilization (1) (2)
-------------------------------------
Three Months Ended
-------------------------------------
INTERNATIONAL AND U.S. FLOATER CONTRACT DRILLING March 31, December 31, March 31,
SERVICES SEGMENT: 2003 2002 2002
---------- ------------- ----------
Deepwater:
5th Generation 97% 96% 81%
Other Deepwater 76% 96% 82%
Total Deepwater 85% 96% 82%
Mid-Water 53% 57% 81%
Jackups - Non-U.S. 87% 83% 90%
Other Rigs 36% 48% 61%
Segment Total 69% 74% 82%
GULF OF MEXICO SHALLOW AND INLAND WATER SEGMENT:
Jackups and Submersibles 32% 33% 22%
Inland Barges 47% 44% 40%
Other Rigs 32% 29% 55%
Segment Total 38% 37% 35%
Total Mobile Offshore Drilling Fleet 55% 58% 61%
(1) Certain reclassifications have been made to prior periods to conform to
current quarter presentation.
(2) Average dayrates are defined as contract drilling revenue earned per
revenue earning day and utilization is defined as the percentage of revenue
earning days to days available. Effective January 1, 2003, the calculation
of average dayrates and utilization has changed to include all active
assets. Prior periods have been restated to reflect the change.
TRANSOCEAN INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
(IN US$ MILLIONS)
FOR THE QUARTER ENDED
------------------------------
MARCH 31, DECEMBER 31,
2003 2002
-------------- --------------
OPERATING INCOME (LOSS) BEFORE GENERAL AND ADMINISTRATIVE EXPENSES TO
FIELD OPERATING INCOME (LOSS) BY SEGMENT RECONCILIATION
International and U.S. Floater Contract Drilling Services Segment
Operating income (loss) before general and administrative expense $ 144.0 $ (2,309.8)
Add back: Depreciation 103.6 103.1
Impairment loss on long-lived assets 1.0 2,502.4
(Gain) loss from sale of assets, net (1.4) 0.1
-------------- --------------
Field operating income $ 247.2 $ 295.8
-------------- --------------
Gulf of Mexico Shallow and Inland Water Segment
Operating loss before general and administrative expense $ (28.5) $ (403.5)
Add back: Depreciation 23.2 23.1
Impairment loss on long-lived assets - 383.0
(Gain) loss from sale of assets, net - (0.3)
-------------- --------------
Field operating income (loss) $ (5.3) $ 2.3
-------------- --------------
AS OF
------------------------------
MARCH 31, DECEMBER 31,
2003 2002
-------------- --------------
TOTAL DEBT TO NET DEBT RECONCILIATION
Total Debt $ 4,619.8 $ 4,678.0
Less: Cash and cash equivalents 1,520.4 1,214.2
Swap Receivables - 181.3
-------------- --------------
Net Debt $ 3,099.4 $ 3,282.5
-------------- --------------
TOTAL CAPITAL
Total Shareholders' Equity $ 7,201.7 $ 7,141.4
Add Back: Total Debt 4,619.8 4,678.0
-------------- --------------
Total Capital $ 11,821.5 $ 11,819.4
-------------- --------------
TOTAL CAPITAL TO TANGIBLE CAPITAL RECONCILIATION
Total Shareholders' Equity $ 7,201.7 $ 7,141.4
Add Back: Net Debt (see calculation above) 3,099.4 3,282.5
Less: Goodwill, net (2,190.6) (2,218.2)
-------------- --------------
Tangible Capital $ 8,110.5 $ 8,205.7
-------------- --------------
Debt/Total Capital 39.1% 39.6%
Net Debt/Tangible Capital 38.2% 40.0%
- --------------------------------------------------------------------------------
OPERATOR
Good morning, ladies and gentlemen and thank you for standing by. Welcome to the
Transocean First Quarter 2003 results conference call. At this time all
participants are in listen-only mode. Following today's presentation
instructions will be given for the question and answer session. If anyone
requires assistance at any time during the conference, please press the star
followed by the zero for an operator. As a reminder this conference is being
recorded Tuesday, April 29 2003.
I would now like to turn the conference over to Jeffrey Chastain, Vice President
of Investor Relations.
- --------------------------------------------------------------------------------
JEFFREY CHASTAIN - TRANSOCEAN INC - VP INVESTOR RELATIONS
Thank you, Andrew. Good morning and welcome to the review of the first quarter
2003 results of Transocean. The press release covering results for the first
quarter is published on the company's web site located at deepwater.com. This
includes an income statement, balance sheet, cash flow statement and selected
operating statistics.
Also issued this morning and available on the company's web site is the monthly
fleet update, dated April 29th and covering the current contract status of the
Transocean mobile offshore drilling fleet.
This morning's call includes participation from the following Transocean senior
managers: Bob Long, President and Chief Executive Officer, Jean Cahuzac,
Executive Vice President and Chief Operating Officer, Greg Cauthen, Senior Vice
President, Chief Financial Officer and Treasurer, and Brenda Masters, Vice
President and Controller, and Mike Unsworth, Vice President of Marketing.
Bob Long will provide opening comments, followed by a question and answer
period.
Before I turn the call over to Bob, I must remind you that during the course of
this conference call, participants may make certain forward-looking statements
regarding various matters relating our business and company that are not
historical facts, including future financial performance, operating results, the
prospects for the contract drilling business and certain matters related to the
initial public offering of our shallow and inland water business.
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, 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 and uncertainties materialize or underlying assumptions prove incorrect,
actual results may vary materially from those indicated.
Also, please note that we will use various numerical measures in the call today
which are or may be considered non-GAAP financial measures under Regulation G.
You will 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 deepwater.com and you'll find that under the
label of Non-GAAP Financial Measures.
At this time, I will turn the call over to Bob Long.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Thanks Jeff. Good morning, everyone and welcome to our first quarter conference
call.
I'm going to keep my remarks fairly brief this morning, and then we'll open it
up for your questions. As you saw from the press release, we reported earnings
of 15 cents for the quarter. That was at the higher end of the guidance we had
given in our last call of 11 to 16 cents, and we continue to generate a lot of
cash with a 191 million of cash from operations in the quarter which brought our
net debt down from almost 3.3 billion to about 3.1 billion dollars.
Despite the financial results, it was a difficult quarter. Revenues were down
almost 50 million dollars from Q4 of last year, primarily the result of having
four of our mid water floaters stacked in the North Sea, but also due to a slow
down in the mid water floater business in the Far East where we now have three
of our five floaters cold stacked.
We continue to during the quarter to focus on our costs and came in at 374
million dollars of operating cost which was below the guidance we had given of
385 to 395. Part of that was due to the fact that we have a little bit less
activity in the shallow water Gulf than we had expected.
But I'd caution you not to take that as a run rate. For accounting purposes, we
deferred cost in the first quarter as we either mobilized rigs or prepared for
new contracts, particularly in the North Sea where we have three rigs starting
up this quarter. And we also had the Rather which is mobilizing from the Gulf
of Mexico to West Africa last quarter. While this decreased the cost in Q1, it
will result in higher costs in Q2 as the deferred costs are amortized and the
current costs are realized. We also will see an increase in cost in Q2 on these
rigs that were starting out because we had postponed some maintenance that was
due on the rigs before they were shutdown because we knew that the rigs were
going to be down for an extended period. So that's also going to increase our
cost in Q2.
We have a special survey due on one of our Norwegian rigs in Q2 which going to
cost about 7 million dollars, so with all of that and an assumption that we are
going to see some pickup in activity in the shallow water Gulf in Q2 we think
that our operating costs are probably going to be closer to the 400 to 410
million dollar range in Q2.
Looking quickly at the markets, not really a lot of change to update you on
since the last conference call. The international jackup market remains very
good, and we expect rates there to improve as ONGC and Pemex continue to drive
significant increase in demand for jackups. We have also seen some additional
programs coming up in the Far East so we are pretty optimistic about the outlook
for this market.
The mid water floater market remains depressed despite the prospect for an
increase in activity in Mexico and the summer pickup in the North Sea. We have
been particularly disappointed by floater activity in the Far East where we have
been able in the past to keep our five floaters busy 80 to 85% of the time.
Right now, we have three of those five rigs cold stacked and we really don't see
a lot of prospect to bring them out for the rest of the year.
The shallow water Gulf of Mexico continues to surprise with us the lack of
activity there despite high gas prices and the low storage levels. We have seen
some improvement and we presently have 13 jackups and one submersible working
and one more which is contracted and will go to work as soon as we finish some
repairs on the mat. We have seen a small improvement in rates but not a
significant movement yet. The barges continue to move sideways. We generally
keep about 13 plus or minus working at any one time. Right now I believe we have
14 working. We have not seen much change in rates there other than on the
bigger barges. The 3,000 horsepower barges have seen a movement in rates as we
have seen some increase in interest in deep gas drilling.
The deepwater markets we have seen a couple of developments in. On the positive
side, ONGC tenders are finally are out and the bids are due here shortly. They
have tended for two additional deepwater rigs and have also given themselves the
option to pick up two additional deepwater rigs. So we don't know if they'll
exercise those optioned or not, but there's a prospect there for four additional
deepwater rigs to go to work in India for ONGC. We have also seen the Sedco
Energy headed back to Nigeria now to go to work back into the deepwater there.
That's been on stand by in Las Palmas at 90% rate for a while. And we have seen
some pickup in the Far East as TFE is accelerating its efforts in Brunei and we
expect that they will pick up an option on 601 to drill in deep water there. We
have also seen some good success here in the Eastern Gulf of Mexico on the ultra
deepwater leases there. A fair amount of reasonably good news for the deepwater
business.
On the negative side, we have seen the backlog of exploratory wells in the
deepwater gulf continue to dwindle and the outlook for the rigs working in the
spot market has deteriorated. At the present time, we have the Cajun Express
idle. It is actually in the shipyard undergoing some modifications and upgrades,
but we're uncertain as to what its next job will be when that work is finished
in about three weeks. We also have the Richardson which is a 5,000 foot fifth
generation rig here in the Gulf of Mexico working on a shallow water well on a
relatively low rate while we wait until its next deepwater contract which we
hope will start around June.
Before I close, I want to comment briefly on the strike situation which we have
going on in Nigeria. I hope you all appreciate that it's a delicate situation
and we're not going to say very much about it, as there are ongoing
negotiations, and it is too easy to misinterpret anything said publicly. What we
can tell you is that four of our rigs are involved and they have been shut down
now for about ten days, one a few days longer than that. It's unclear when the
strike will be resolved but the situation is calm on all the rigs. The national
union authorities are in agreement with our position and we have the support of
our customers and the Nigerian authorities and we're hopeful that this situation
will be resolved some time within the next week.
Looking at all of the uncertainties that we're facing in the near term, the
strike in Nigeria for instance is costing us about $350,000 a day in lost
revenue. The uncertain outlook for the Cajun Express and the Richardson in the
Gulf of Mexico, the uncertainty in the shallow water Gulf and a number of rigs
that we have which are either due to come out of shipyard and go on contract -
and that start could be delayed - or rigs that are coming off contract and we
don't presently have additional work lined up, with all that uncertainty it's
pretty difficult for us to be comfortable giving you any meaningful earnings
guidance so we are not in a position where we can give you any earnings
guidance, either for the quarter or for the year.
With that, I'll open it up and entertain any questions that anybody has got.
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir. Ladies and gentlemen at this time, we will begin the question
and answer session. If you would like to ask a question, please press the star
followed by the one on your push button phone. If you would like to decline from
the polling process, press star followed by a two. You will hear a three-tone
prompt. Your questions will be polled in the order they are received. If you're
using speaker equipment, please press the handset one moment, please, for first
question.
Our first question comes from Roger Reid. Please state your company affiliation,
followed by your question.
- --------------------------------------------------------------------------------
ROGER REID - SIMMONS AND COMPANY - ANALYST
Roger Reid with Simmons and Company. If we can delve into the Gulf of Mexico
deep water market, what specifically for the Cajun Express in terms of a rig
contract that it could get, what would be a day rate expectation there or for
any of the other deepwater rigs currently searching for contracts in the Gulf?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
I will let Mike Unsworth try to answer that for you.
- --------------------------------------------------------------------------------
MIKE UNSWORTH - TRANSOCEAN INC - VP OF MARKETING
First of all Roger, I would just like to say that you may have noticed from the
rig status report when we talk deepwater now, we are talking of rigs over 4,500
feet. We have rearranged little bit the chart there. So for rigs over 4,500 feet
that would be the Richardson and the Cajun. The Cajun is coming out - the
Richardson is coming out right now, it is moving at the moment to a substitute
job, replacing one of our third generation rigs. And it's coming out for a low
day rate, coming out for 45. But that's not a market rate for a fourth
generation rig.
We are now looking at about ten prospects for the Richardson coming up in May,
June - and I'll say ten - we are not going to win them all, but there are
several prospects for fourth generation rig that we anticipate winning on the
back of this AGIP job that we're going to take now.
The Cajun is coming in for a shipyard. It has been planned for some time. It's
very similar work that we have done on the Energy. And we are currently looking
at fifth generation prospects for that rig. Probably two or three at the moment,
two or three wells at the moment. And I don't want to tell you what the day rate
going to be for those prospects. And there are also fall-back prospects in the
fourth-generation market.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
I think Roger, though, to give you some indication, we'd probably guess that
the rates for fourth generation rig would be in the 65 to 85 range. And working
in their water depth and for the fifth generation we would hope that the rates
would stay in the 140 to 150 range. Our last contract with the Cajun was 115
with incentives which got us to about a 140 effective rate. There may be a
little bit of softness around that, depending on the timing and all. But I'm
guessing that we're going to be plus or minus in that range.
- --------------------------------------------------------------------------------
ROGER REID - SIMMONS AND COMPANY - ANALYST
Just sort of a quick look around some other deepwater markets then where you
have some rig availability, its not so much in the second quarter but certainly
in the second half of the year. What are
spot rates for these types of rigs significantly different than what you would
expect in the Gulf of Mexico?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
I think the rates for the deepwater outside of the Gulf of Mexico are a little
bit better. The spot rates in West Africa expect to be better and of course the
term opportunities that we're looking at in India should be significantly
better.
- --------------------------------------------------------------------------------
ROGER REID - SIMMONS AND COMPANY - ANALYST
And just one follow-up on the Gulf. The term on the type of contracts you are
looking at giving the number of prospects are probably fairly broad - what are
you looking, well to well or six-month contracts?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
They're all pretty much well to well or a couple of wells at most. Still in the
Gulf of Mexico it's still short-term business.
- --------------------------------------------------------------------------------
ROGER REID - SIMMONS AND COMPANY - ANALYST
Okay. Then a final question I have, looking at the North Sea, any prospect that
that gets better say 12 months from now or is it looking more like a late '04 or
'05 event?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Mike, do you know how to answer that?
- --------------------------------------------------------------------------------
MIKE UNSWORTH - TRANSOCEAN INC - VP OF MARKETING
Well, Bob mentioned the summer improvement and its improved over the summer
season. We expect next winter currently to be just about like last winter was or
this current past winter. We can't see very far ahead in the North Sea and all
the tax changes that are coming into play in the last few months right now we
can't tell what's going to happen going forward. So right now as far as we can
see is winter and it's looking like this past winter.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
From a macro standpoint, Roger, I would say we're hopeful that this time next
year will be better because of some of the legislation and tax changes and
because of the independents, like Apache, that are moving in there. So far
Apache hasn't had time to really get its program together. I'm not even sure
whether their deal is closed on the North Sea property. But we certainly expect
that the independents coming in and the majors going out will result in some
increased activity. Right now, there's no tangible evidence that that's going to
happen. But that's what we're hopeful of.
- --------------------------------------------------------------------------------
ROGER REID - SIMMONS AND COMPANY - ANALYST
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir. Our next question comes from Thomas Rinaldi. Please state your
company affiliation, followed by your question.
- --------------------------------------------------------------------------------
THOMAS RINALDI - DEUTSCHE BANK SECURITIES INC - ANALYST
Deutsche Bank. On the second quarter operating expenses, is that -- does that
include a similar amount of reimbursables to this quarter?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
We're estimating that it would include slightly more reimbursables, not a lot,
but maybe a few million dollars more because we'll have a number of additional
rigs working and the higher activity. And if we do get higher activity in the
Gulf, all of that would generate a bit higher reimbursable. I think our
reimbursables ran around 20 million dollars, 25 million dollars here for our Q1.
And you might see that, if we're right in our activity guess, that may go up by
maybe 3 or 4 million dollars.
- --------------------------------------------------------------------------------
THOMAS RINALDI - DEUTSCHE BANK SECURITIES INC - ANALYST
What sort of magnitude and timing of that, you know, running off whenever you
moved into the second quarter and sort of a running rate as you're approaching
the end of the year?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
You mean the amortization of the deferred cost?
- --------------------------------------------------------------------------------
THOMAS RINALDI - DEUTSCHE BANK SECURITIES INC - ANALYST
Well, the amortization of the deferred cost and also is there any sort of lump
sums that you moved from first quarter to the second quarter by deferring or is
it all amortization and that run rate goes ahead?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Well, it's combination of both. The amortization actually occurs over the term
of the contract that we were preparing for. So that varies. And some of the
maintenance that was deferred when you say lump sum, there would be some -- some
significant maintenance issues on some of the rigs that could be a million
dollars or something like that. But no -- no big chunks of money like the 7
million dollar special survey type of thing.
- --------------------------------------------------------------------------------
THOMAS RINALDI - DEUTSCHE BANK SECURITIES INC - ANALYST
Okay, a starting point would be Q2 to Q3 would drop by about that much and then
you adjust for sort of activity continuing to increase, things like that?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Yeah. There's a lot of moving parts on these costs. So it's difficult to be
very precise with you. And we will have a number of shipyards going on in the
second quarter that had gone -- are going to have an impact. We mentioned the
Cajun Express is having a lot of modification upgrades which is a three-week
process. That's going to take some money. The Seven Seas which we had told you
last quarter was -- like down in Brazil it is a deepwater rig. The Trident 17 is
probably going to - it's one of one of the rigs that I mentioned will be coming
off the contract this quarter - we're going to the shipyard when it's done. And
then we have the Cunningham which is in the shipyard now, preparing for its next
contract. That should come out here fairly shortly. So as a fair amount of
shipyard work that we're incurring in the second quarter too, which going to
increase the costs.
- --------------------------------------------------------------------------------
THOMAS RINALDI - DEUTSCHE BANK SECURITIES INC - ANALYST
Okay. That's fine. I don't want to get you bogged down in the details of that.
I noticed in the cash flow statement there's a termination of the swap -- of a
swap agreement and I know by virtue that in 2002 there was a reduction of
interest expense every quarter. With that termination in the second quarter and
the rest of the year, is that going to increase interest expense at all?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Yes, it will. Greg can tell you how much.
- --------------------------------------------------------------------------------
GREG CAUTHEN - TRANSOCEAN INC - SVP, CFO AND TREASURER
Yes, it will. We terminated in the first quarter all of our fixed to floating
interest rate swap. About 1.6 billion dollars of notional amount of swaps. In --
last year, those swaps were saving us about 15 million dollars a quarter at the
current low interest rate environment. When we terminate them, we lose that 15
million in savings, but the gain, the cash you saw - the 173 million dollars -
is actually amortized over the remaining life of the swap. And so that gain will
lock in about half that savings. So the reduction is, you know, the reduction is
not the full 15 million dollars in any one quarter.
Now, offsetting that increase in interest rate expense starting now in the
second quarter we're retiring significant amounts of debt. So we just retired
240 million dollars of the 6.5% debt, and we're expecting to have the zero
coupon converts that are amortizing at over 275 when you look at the cost
amortization and those will get put to us in the second quarter.
So debt will -- interest expense we would expect to go up in the second quarter
because of the swap termination, but then start coming back down and trend down
eventually to around 45 million dollars by the end of the year because of debt
retirement.
- --------------------------------------------------------------------------------
THOMAS RINALDI - DEUTSCHE BANK SECURITIES INC - ANALYST
Okay. So assuming I could do this stuff right with you retiring various debt
instruments, the effect of the swap termination is about a 7.5 million increase?
- --------------------------------------------------------------------------------
GREG CAUTHEN - TRANSOCEAN INC - SVP, CFO AND TREASURER
That's right. That's right.
- --------------------------------------------------------------------------------
THOMAS RINALDI - DEUTSCHE BANK SECURITIES INC - ANALYST
Okay. One more. Sorry. Anything in first quarter in terms of large drilling
bonuses for any of rigs that we should think about possibly coming down next
quarter? I know that's a sort of tough thing to, you know, to predict. But take
a shot I guess.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
You mean revenue bonuses paid by the customer?
- --------------------------------------------------------------------------------
THOMAS RINALDI - DEUTSCHE BANK SECURITIES INC - ANALYST
Yes.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
No, nothing unusual or out of the ordinary.
- --------------------------------------------------------------------------------
THOMAS RINALDI - DEUTSCHE BANK SECURITIES INC - ANALYST
Okay. Great. That's all I have. Thanks.
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir. Our next question comes from Pierre Connor. Please state your
company affiliation followed by your question.
- --------------------------------------------------------------------------------
MIKE TRICKMORE - HIBERNIA SOUTHEAST CAPITAL - ANALYST
Hi, guys. This is actually Mike Trickmore, Hibernia Southeast Capital. Wanted
to see if I get your interest into bidding too many rigs into Mexico. I know the
rigs got some mid water floaters coming up and they got some commodity type rigs
that you might be interested in.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
We're very interested in the possibility that obviously Mexico and PEMEX is
turning into a big area of activity. We are continuing to look at --I think it's
been fairly well known that we have not participated in the past because of
concerns about some of the contract issues. We have continued to try and
research that and get comfortable with how we could either structure or insure
around the risks. And we're hopeful that we will get to a point where we could
convince ourselves to participate in the future, but at this point we're kind of
looking at each bid as they come out and then we'll make our decision.
- --------------------------------------------------------------------------------
MIKE TRICKMORE - HIBERNIA SOUTHEAST CAPITAL - ANALYST
Okay. Great. Can you also in your press release you mentioned about higher
effective tax rate, in the future, do you have any guidance for that?
- --------------------------------------------------------------------------------
GREG CAUTHEN - TRANSOCEAN INC - SVP, CFO AND TREASURER
Well, the way the accounting rules work, the effective tax rate we showed in
first quarter of about 20% is our current estimate for what the effective tax
rate will be for the rest of the year on what is called ordinary income under
the income tax rules. So our current guidance is about 20%.
However, that rate is higher this year because of some of the issues Bob talked
about with the deteriorating financial results with uncertain markets and some
of the cost issues.
So because of -- because of around the world a lot of our taxes are effectively
based on revenues - many jurisdictions have what are called deemed profit taxes.
So although they are income taxes, as your profitability declines your effective
tax rate goes up since they're based on revenues. In declining profitability,
our effective tax rate overall goes up. In increasing profitability our
effective tax rate will go back down. So long-term guidance we would still trend
back to the 15%, but this year we would expect to see 20%.
- --------------------------------------------------------------------------------
MIKE TRICKMORE - HIBERNIA SOUTHEAST CAPITAL - ANALYST
Great. Thanks. One more if I can. Do you have any estimate for what the loss
may be in the second quarter that's associated with the early extinguishment of
debt?
- --------------------------------------------------------------------------------
GREG CAUTHEN - TRANSOCEAN INC - SVP, CFO AND TREASURER
Currently, we have two early extinguishments of debt. We are extinguishing, or
expect the zero coupons to get put to us, and there will be an 11 million dollar
loss on that put, and then we are also in the process of buying out 50 million
dollars of the Nautilus A-2 notes and we expect that to be another 6.5 million
dollar loss on that.
- --------------------------------------------------------------------------------
MIKE TRICKMORE - HIBERNIA SOUTHEAST CAPITAL - ANALYST
Great. Thanks a lot. I'll turn it back now.
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir. Our next question comes from Aaron Jahowram please state your
company affiliation, followed with your question.
- --------------------------------------------------------------------------------
AARON JAHOWRAM - CSFB - ANALYST
Credit Suisse First Boston. Can you give us some additional details on the ONGC
tenders, perhaps timing and what type of deepwater rigs are they looking for?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Timing here I guess is next week?
- --------------------------------------------------------------------------------
GREG CAUTHEN - TRANSOCEAN INC - SVP, CFO AND TREASURER
Yeah. Their submission is 5th of May.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
5th of May is the submission, and they have tendered for two rigs. One a ultra
deepwater rig and one a 6,000 foot rig. With the option, if you will, to
contract off of the same tender an additional ultra deep water rig and an
additional 6,000 foot rig.
- --------------------------------------------------------------------------------
AARON JAHOWRAM - CSFB - ANALYST
And these are -- how long would the contract terms of the -
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
The primary -- first two rigs would be three year terms each. If they take the
option of picking up the two additional rigs, they would be for two years.
- --------------------------------------------------------------------------------
AARON JAHOWRAM - CSFB - ANALYST
Okay. Secondly, we have seen some initial programs and success by Anadarko in
the Eastern Gulf. Are you seeing any other operators begin to work the Eastern
Gulf?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Mike?
- --------------------------------------------------------------------------------
MIKE UNSWORTH - TRANSOCEAN INC - VP OF MARKETING
So far Anadarko is the only successful -
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
I think Chevron Texaco have their Tahiti prospect, they had some success on.
Those are the only two off the top of my head I can remember right now.
- --------------------------------------------------------------------------------
AARON JAHOWRAM - CSFB - ANALYST
Okay. A couple of housekeeping items. Can you provide perhaps some depreciation
guidance for the second quarter and the full year and secondly, in terms of
operating costs, they're trending up in the second quarter. Do you think that
they will revert back or decline in the second half of the year or do you expect
that to be a pretty good run rate?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
I'll try and answer the cost question, and then Greg can answer you the
depreciation question. The -- it's tough to give you a run rate on the operating
costs because it's so much a function of the activity, depending on how many
rigs we put to work and what happens in the shallow water Gulf of Mexico. I
would -- I would guess that the run rate would be slightly lower if activity
stays about the same for second -- for third and fourth quarter because of some
of the unusual items. The special survey and we've got a lot of shipyards and
what not. But I wouldn't think that it would be dramatically different going
forward, assuming that the utilization stays about the same.
- --------------------------------------------------------------------------------
AARON JAHOWRAM - CSFB - ANALYST
Okay. And depreciation?
- --------------------------------------------------------------------------------
GREG CAUTHEN - TRANSOCEAN INC - SVP, CFO AND TREASURER
And depreciation is going to run right around 130 million dollars a quarter. It
trends up slightly during the year due to our capex for the year. We would
expect around 520 million of depreciation for the year.
- --------------------------------------------------------------------------------
AARON JAHOWRAM - CSFB - ANALYST
Appreciate it, guys.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Okay.
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir. Our next question comes from Glenn McKenzie. Please state your
company affiliation followed by your question.
- --------------------------------------------------------------------------------
GLENN MCKENZIE - ASSOCIATED PRESS - ANALYST
Hi, this is Glenn McKenzie from the Associated Press calling from Lagos,
Nigeria. My question has to do with the captured facilities offshore here in
Nigeria and whether or not there's been any threats of violence towards the
employees onboard? We understand that there's some between 50 and 100
expatriates on board, including 21 Americans. And the public is interested in
news on the safety of the people on board.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Glenn, you're right. We have about a 100 people, 100 expatriates involved, I
think, on the four rigs combined. Right now, the situation is very calm on all
the rigs and has continued to be calm. We have not had despite - I know there
have been rumors in the press in Europe that there have been threats of violence
and what not but we have not had any threats of violence. The situation has
remained very calm. We're in continuing dialogue with the people on the rig. The
national union officers onshore are supportive of our position. And I think if
you -- I think that we really have to kind of leave it at that because I don't
want to have a lot of comments in the press that if you're in Lagos you know how
easy it is to misinterpret comments, particularly in a culture like the Nigerian
culture. So right now, we are continuing to have dialogue with the union members
and with the authorities and we're really pretty hopeful that we can resolve
this thing within the next week or so.
- --------------------------------------------------------------------------------
GLENN MCKENZIE - ASSOCIATED PRESS - ANALYST
Okay. Just a quick follow-up. I got into the conference a little late, so I
didn't get the name of the speaker.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Me? Bob Long, the CEO.
- --------------------------------------------------------------------------------
GLENN MCKENZIE - ASSOCIATED PRESS - ANALYST
Okay. Thank you very much. I appreciate it.
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir. Ladies and gentlemen if there are additional questions at this
time, please press the star followed by the one. As a reminder if you're using
speaker equipment we do ask that you please lift the handset before pressing the
numbers. One moment, please, for the next question.
Our next question comes from Andrew Starr. Please state your company affiliation
followed by your question.
- --------------------------------------------------------------------------------
ANDREW STARR - INSTITUTIONAL CAPITAL - ANALYST
Yeah, hello, Andrew Starr, Institutional Capital. If my calculations are
correct, you should probably end the year with about a 1 billion dollars in cash
on the balance sheet. And I'm just wondering what you guys are thinking about
doing with this cash and if share repurchases are fitting into the plans?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Our primary focus with our cash has been to pay down debt and we built up a
fair amount of cash to date. But that was in anticipation of the debt paydown
which we had this year. I think coming into the year we had about 1.1 billion
dollars of current debt maturities. So we had built up enough cash on the
balance sheet to more than handle that. Going forward, we'll maintain a
comfortable cash reserve. We will pay down debt as and when it makes sense on an
NPV basis. But right now we're not contemplating any share repurchase, and I
don't think we would contemplate it until we get our debt levels significantly
down.
- --------------------------------------------------------------------------------
GREG CAUTHEN - TRANSOCEAN INC - SVP, CFO AND TREASURER
It would really, based upon that maturing debt this year, the billion dollars
is not correct. I mean, we had at the end of the first quarter 1.5 billion and
then all our debt matures during the rest of the year. So that takes 1.1 billion
dollars out right off the top. You know, actual cash position will depend on our
cash flow from operations the rest of the year.
- --------------------------------------------------------------------------------
ANDREW STARR - INSTITUTIONAL CAPITAL - ANALYST
Yeah. I'm assuming that you generate about 150 million in free cash per
quarter, which is actually less than we saw this quarter. That's where I get the
1 billion at the end of the year. And I guess I'm just wondering why such a low
debt to cap is the optimal capture structure and also what share price would you
be looking for to initiate a share repurchase because the share prices are
seemingly pretty low right now.
- --------------------------------------------------------------------------------
GREG CAUTHEN - TRANSOCEAN INC - SVP, CFO AND TREASURER
Oh, a low debt to cap is optimal for Transocean for a couple of reasons. One,
as a Cayman company, we get no tax benefit from debt. So we're really -- it
doesn't make sense, it doesn't increase -- or decrease our cost of capital to
have debt unlike a domestic U.S. company. Then given the nature of our industry
and the volatility, we really don't think it makes a lot of sense to have debt.
We would always maintain some debt for access to capital markets, but that
access could be gained with a lot less debt than we have now. Our target is
easily half the level of debt that we have now. So given that, any excess cash
that we generate this year will continue to focus on debt reduction.
- --------------------------------------------------------------------------------
GLENN MCKENZIE - ASSOCIATED PRESS - ANALYST
Is it possible that you might be looking to purchase the Pathfinder or Frontier
when those options become available?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Well, there really aren't any options to purchase them. But we have had some
conversation with CONOCO off and on really ever since the R&B Falcon merger
about whether or not we would be interested in buying and they'd be interested
in selling. But at this point, I just leave it at that -- we're always
interested in something at the right price and I'm sure they'd be interested in
something at the right price and right now we'll continue to have discussions
one when it's appropriate.
- --------------------------------------------------------------------------------
GLENN MCKENZIE - ASSOCIATED PRESS - ANALYST
Okay. Thanks.
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir. Our next question comes from Angeline Sedita please state your
company affiliation, follow by the question.
- --------------------------------------------------------------------------------
ANGELINE SEDITA - LEHMAN BROTHERS - ANALYST
Thanks, Bob, you mentioned you were seeing some improvements in day rates in
the Gulf of Mexico for your jackups. Are you beginning to focus on pushing
dayrates in the Gulf of Mexico or is utilization still a priority?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Well, Angie, we have got --with the rig that is in having its mat repaired and
- - it has a contract already - that really puts us at full utilization for our --
what we consider our marketed fleet. And we have no intention of bringing out
any of the cold stacked rigs unless it would be for a term contract which so far
we're not seeing much prospect for in the Gulf of Mexico.
So we are into a stage where we would hopefully start pushing rates. We've seen
rates come up -- we were bidding at 16.5 which is basically cash break even in
order to get the rigs out. Those rates now for follow-on work are up a few
thousand a day. But they're kind of stalled there. There's not been a lot of
movement above that, and to say we are going to focus on pushing rates instead
of utilization, I guess at the present time that's probably true. If the market
softens we will continue to try and keep our rigs working. So it's difficult to
say that we've made a transition because the market hasn't got that solid yet.
- --------------------------------------------------------------------------------
ANGELINE SEDITA - LEHMAN BROTHERS - ANALYST
All right. Great. That's very helpful. Are you seeing any backlog though on the
jackups that you do have working or is it really just a status quo situation?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
There's not too much of a backlog, although I would say that the average time
contract time is probably extended out from 30 days closer to 60 days. But it is
still all short-term work. We have seen a significant pickup in bid activity
over the last two or three weeks. And whether or not that gets sustained I don't
know, but we are starting to see some signs of life. But as I say, we haven't
had a lot of success in pushing the rates very high yet.
- --------------------------------------------------------------------------------
ANGELINE SEDITA - LEHMAN BROTHERS - ANALYST
Okay. Then last question, you said you're seeing a significant pickup in bid
activity. Is this from the small E&P's or ADTI, or a mixture?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Well, it's a mixture. There are a lot of different players in the shallow water
Gulf, but mostly they're the smaller independents.
- --------------------------------------------------------------------------------
ANGELINE SEDITA - LEHMAN BROTHERS - ANALYST
Alright, great, thanks, Bob.
- --------------------------------------------------------------------------------
OPERATOR
Thank you. Our next question comes from Gary Nuschler, please state your
company affiliation, followed by your question.
- --------------------------------------------------------------------------------
GARY NUSCHLER - SANDERS MORRIS HARRIS - ANALYST
Yeah, Gary Nuschler with Sanders Morris Harris. I want to make sure I
understand what you guys are saying about operating costs. You expect second
quarter operating costs to be between 400 and 410?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
That's correct.
- --------------------------------------------------------------------------------
GARY NUSCHLER - SANDERS MORRIS HARRIS - ANALYST
How much of what is reimbursables?
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
We would guess somewhere between 25 and 30. It would be the right number.
- --------------------------------------------------------------------------------
GARY NUSCHLER - SANDERS MORRIS HARRIS - ANALYST
So exclusive of that, you expect operating costs to be around 375 and 380.
That's an increase of about 20, 25, to 30 million dollars over the first
quarter. I know you've got a special survey in there. What is the rest of it
too? I know you're pulling rigs out of cold stacks for the Gulf of Mexico.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Part of it is -- one is a special survey. The other is the shipyard work that
we mentioned, the Cajun Express is in. The Cunningham is in. The Seven Seas is
in the shipyard and we're going to be spending some more money on it getting
ready for some prospects. But another big factor is just that we've put three
additional rigs to work in the North Sea. And in the first quarter we had the
Rather, essentially we are deferring most of the costs of the Rather as contract
preparation to mobilization costs.
The accounting rules require us to defer those costs and then amortize them over
the term of the contract for the mobilization. So in effect what you had was a
reduction in cost in Q1 and in Q2 we'll not only have the normal operating cost
but we'll have some of the amortized cost deferred in Q1. So there's a lot of
different moving parts that add up to that 25 million dollar or so increase.
- --------------------------------------------------------------------------------
GARY NUSCHLER - SANDERS MORRIS HARRIS - ANALYST
Great. Thank you.
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir. Ladies and gentlemen if there are additional questions at this
time, please press the star followed by the one. If you're using a speaker
equipment we do ask that you please lift the hand set before pressing the
numbers.
One moment for the next question.
Management, at this time, there are no additional questions. Please continue
with any further statements.
- --------------------------------------------------------------------------------
BOB LONG - TRANSOCEAN INC - PRESIDENT AND CEO
Okay. I don't really have anything else to add, so I'll just thank everyone for
participating with us today and we'll look forward to talking to you again next
quarter.
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir. Ladies and gentlemen, this will conclude today's teleconference
presentation. We would like to thank you for participating on today's conference
call. If you would like to listen to the replay of today's conference, please
dial 303-590-3000, you need to enter 533691. Once again if you'd like to listen
to a replay of today's conference, please dial 303-590-3000. If you need to
enter the access code of 533691. At this time, we will conclude today's
conference. You may now disconnect.
