Diamond Offshore Drilling Inc (DO) 2013 Q4 法說會逐字稿

Good morning. My name is Maria and I will be your conference operator today. At this time I would like to welcome everyone to the Diamond Offshore fourth quarter 2013 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

Thank you. It is now my pleasure to turn the call over to Darren Daugherty, Director of Investor Relations. Please go ahead, sir.

Thank you, Maria. Good morning, everyone, and thank you for joining us. With me on the call today are Larry Dickerson, President and Chief Executive Officer; John Vecchio, Executive Vice President; Gary Kreneck, Senior Vice President and Chief Financial Officer; and Kane Liddelow, Director of Contracts and Marketing.

Following our prepared remarks this morning, we will have a question and answer session. Before we begin our remarks, I should remind you that statements made during this conference call may constitute forward-looking statements, which are inherently subject to a variety of risks and uncertainties. Actual results achieved by the Company may differ materially from projections made in any forward-looking statements.

Forward-looking statements may include, but are not limited to discussions about future revenues and earnings, capital expenditures, industry conditions and competition, dates the drilling rigs will enter service, as well as management's plans and objectives for the future.

A discussion of the risk factors that could impact these areas of the Company's overall business and financial performance can be found in the Company's 10-K and 10-Q filings with the SEC.

Given these factors, investors and analysts should not place undue reliance on forward-looking statements. Forward-looking statements reflect circumstances at the time they are made and the Company expressly disclaims any obligation to update or revise any forward-looking statements.

And with that, I will turn the call over to Larry.

Thank you, Darren. Good morning and welcome to the Diamond Offshore fourth quarter 2013 conference call. 2014 -- 2013 -- excuse me.

I trust that you've seen our earnings press release. I would like to start off by discussing the delivery of our first new build drill ship.

Last week we completed our commissioning procedures on the Ocean BlackHawk and accepted the rig from the shipyard and the rig will soon mobilize the US Gulf of Mexico where it will begin a five year job for Anadarko. We're expecting its sister ship, the Ocean BlackHornet to be close behind with a scheduled shipyard completion in April followed by commissioning and mobilization to the US Gulf. Also to work on a five year contract for Anadarko.

Our third ship, the Ocean BlackRhino is scheduled to be completed by the shipyard this summer. And the Ocean BlackLion is right on schedule with a shipyard delivery in early 2015. We have not yet signed contracts on the Rhino or the Lion but we are in customer discussions regarding a potential number of opportunities around the world.

Clearly the Ultra-Deepwater market reflects some concern over the supply and demand balance for 2014. Day rates have been under some pressure after what has been a prolonged period of market strength. We're seeing more perspective contracts in the range of 2 to 4 years and fewer 5 year opportunities.

While we are down from the peak, we still see market rates that continue to be in a range that we are comfortable will generate ample returns on our new build projects. Additionally, we have taken delivery of our 6,000 foot semi, the Ocean Onyx, which is now on location and working in the US Gulf on a one year job for Apache.

Our other deepwater semi under construction, the Ocean Apex is scheduled to be delivered and on day rate by year end. And we've signed a one well contract with Exxon Mobil at a rate of $485,000 per day. We have a number of potential opportunities for follow-on term work.

With respect to our mid water and deepwater fleet, investor sentiment has been negative. I will point out, however, that five of our mid water units are contracted in the North Sea, including the Ocean Patriot, which is currently undergoing upgrades before beginning a three year term with Shell.

Additionally, a number of our deepwater rigs such as the Victory and the Star have had substantial enhancements and are very competitive in terms of performance for standard wells. Additionally, we can work these units for considerably lower operating costs than fifth and sixth generation rigs. In our fleet, we see just a handful of rigs that may have limited prospects after completing their current assignments. However, there are potential markets even for these rigs.

While we are not seeing many term contracts in mid water outside of the North Sea, this market has usually been characterized by well to well jobs rather than term commitments. Our idle rigs include the Ocean Quest and the Ocean Monarch, which released following customer credit issues, which we've previously disclosed. The Far East market is not likely, as we said, to provide work until the second quarter due to lead times. Although we have interest in the rigs, this timeline is still our best estimate.

Additionally, the Ocean Valiant has just completed its special survey in the Canary Islands, but it does not currently have a contract. We had expected this rig to work in West Africa, but it is now being marketed in the Mediterranean and North Sea.

Not included in our rig status report issued last night is that we are in detailed discussions regarding extensions for two of our jack up rigs working in Mexico, the Titan and the Scepter. While jack ups represent a small segment in our overall results, I think these opportunities are representative of our general optimism on the Mexican market. We anticipate some tenders later this year that could potentially absorb incremental mid water capacity; and an energy reform that is currently underway, might ultimately lead to additional opportunities there.

Turning to our results, I will say that an otherwise good quarter was marred by a tax issue. In December we received notification from the Egyptian government of an income tax audit for the period from 2006 to 2008. We disagree with the audit findings and feel that large portions of the potential assessment and penalties reflect the desire of the Egyptian government to increase revenue and are not in line with tax treaties and accepted practices.

We intend to vigorously pursue all legal remedies available to refute this tax assessment; but because of the inherent uncertainties associated with Egyptian income tax law, we recorded a $57 million income tax liability, including potential penalties during the fourth quarter.

We've had as many as four rigs working in Egypt; but with the recent departure of the Ocean Endeavor, we do not currently have business operations there. In a moment Gary will give more color on our results for the quarter and the full year.

Offsetting this negative development is our favorable settlement with Niko Resources. I'm very pleased that we were able to come to a resolution where we received $25 million cash and the potential to receive up to $55 million in future additional payments.

One final item I'd like to mention is that during the quarter, Diamond was upgraded to A from A- by the Standard & Poor's rating agency highlighting our strong balance sheet. Along with our A3 rating from Moody's, we remain the only A rated Company among the ultra drillers. And with that, I will turn it over to Gary.

Thanks, Larry.

As always, I'll give a little color on this past quarter's results and then cover what is to be expected for the upcoming quarter. In addition, as is our custom with our fourth quarter earnings call, I'll spend some time providing additional information on what we expect for the entire year of 2014 with regards to various line items on the income statement, expected capital expenditures, downtime, et cetera.

For the quarter just ended, we had after tax net income of $93 million or $0.67 per share. That was based on contract drilling revenues of $708 million. This is a slight decrease in EPS from $0.68 in the third quarter and reflects the $57 million in tax expense booked in Q4 related to our Egyptian operations for the period 2006 through 2012, which Larry has already discussed.

As highlighted in the press release and as Larry just said, the current quarter was also helped when we recorded as revenue in Q4 the $25 million received from Niko Resources as part of the settlement of the Monarch and Ocean Lexington contracts.

I will now address some of the additional line items on our fourth quarter income statement. First, contract drilling expenses for the quarter came in at $409 million, $10 million less than the prior quarter and at the low end of our Q4 guidance of $405 million to $425 million, demonstrating that cost control remains one of our top priorities.

Depreciation expense of $97 million and G&A costs of $16 million also came in either at the low end or just below our prior guidance, while interest expense of $7 million came in above our guidance of $1 million to $2 million. The increase in interest was primarily due to the $1 billion of 10 and 30 year senior notes that we issued in early November of the year just ended.

Our tax rate for the fourth quarter was, of course, higher than expected due to the Egyptian tax adjustment. Had it not been for that, the rate would have come in lower than our original guidance of 27% to 29%. The difference is primarily our normal year-end true up of geography difference of where we earn our pre-tax income and foreign tax rates at the different locations where we earn it.

And, finally, we incurred some $229 million in capital expenditures during the quarter, almost exactly split 50/50 between maintenance CapEx and new build projects.

Before moving on to what we see coming up for the year of 2014 and in the first quarter of this coming year, I'd like to point out that during our fourth quarter conference call last year, we said that we expected to incur some $1.6 billion to $1.7 billion in rig operating costs during 2013. While there were a number of pluses and minuses during the year, those costs actually came in just under that range at $1.572 billion, again a testament to our cost control programs that are in place.

Also, we said that we expected our 2013 yearly tax rate to be between 27% to 30%. Again a number of pluses and minuses during the year, but our final 2013 tax rate was 29%, within guidance despite the Egyptian tax adjustment in Q4. Other income statement line items for the year, such as G&A, interest expense, and depreciation also came within or slightly under our original guidance.

Now looking forward into 2014 and some of the items that will affect our financial performance for the coming year. We had a significant number of downtime days in 2013 due to 11 rigs being out of service for surveys. In 2014, we are projecting only six rigs to undergo the regulatory surveys along with the completion of surveys for the Ambassador, Scepter, and Valiant, which were in the shipyard on December 31st. In addition, the Patriot and the Endeavor will spend the first part of the year in shipyards preparing for long-term contracts. The Patriot for a three-year contract with Shell in the North Sea; and the Endeavor, an 18 month contract in the Black Sea with Exxon Mobil.

The final significant downtime to be incurred will be down days for the Ocean Confidence, which as previously forecasted, will be in the shipyard undergoing a service life extension. For the exact number of down days expected in 2014 and the timing of these projects, I'll refer you to our rig status report that we filed last night.

I would now like to focus on our guidance for individual income statement line items for the full year 2014 and then for the first quarter of the year. Contract drilling expense, not including reimbursable expenses, is expected to be in the range of $1.7 billion to $1.8 billion for the year. That's approximately $175 million to $200 million above the $1.572 billion that we reported in 2013 that I spoke about earlier.

The largest portion of the increase will be to normal operating cost associated with our new build rigs that will be delivered this year; the BlackHawk, the BlackHornet, the Onyx, and the Apex. Rig operating costs on these rigs are expected to be just under $150 million.

We also expect additional cost to come from inflation, which we expect will be in the range of 5% to 7%. These increases will be somewhat offset by capitalization rather than expensing of operating cost while the Patriot, Endeavor, and Confidence are in the shipyard undergoing their projects.

I want to add just a little bit more color on our rig operating costs. In addition to normal daily operating costs, rigs undergoing surveys incur additional costs for inspections, [mobes] to and from the shipyard, and additional repair cost. We're expecting most of these rigs to incur between $8 million and $10 million of survey costs during the year.

The exceptions will be the Ocean Alliance, which we expect will incur additional costs somewhere between $15 million to $18 million and the jack up Titan, which should incur less than the average at about $4 million to $5 million.

We will also incur amortized mobe and contract preparation expenses for the year of about $40 million. That will be broken down into $8 million for the first quarter and then approximately $10 million to $12 million in the second, third, and fourth quarters. Those costs, however, will be offset by amortized revenues which should total about the same $40 million.

As always, I remind everyone that I've been talking about the line on our income statement contract drilling expenses. The numbers that I've just given you do not include costs incurred in the line, reimbursable expenses. Reimbursable expenses, as always, whatever the amount incurred, will be offset almost dollar for dollar with additional reimbursable revenues.

Looking at just the first quarter of 2014, our guidance for contract drilling expenses remains the same as last quarter, $405 million to $425 million. That will consist of our normal operating expenses, survey cost associated with the completion of the Ambassador, Valiant, and Scepter surveys, along with survey costs for the Yatzy and Alliance down in Brazil.

Depreciation expense for the full year is estimated to be in the range of $460 million to $465 million. As with rig operating expenses, the increase over 2013 DD&A is due to the delivery of the BlackHawk, BlackHornet, Onyx, and the Apex. We expect Q1 depreciation costs to come in at $100 million to $105 million with that increasing in future quarters as new rigs begin working.

G&A costs are expected to total $75 million to $80 million for the year with approximately $18 million to $20 million to incur during the first quarter and then remaining at that level for the subsequent quarters. Interest expense, net of capitalized interest, is also expected to total $75 million to $80 million or about $50 million above the total for 2013. This as a result of lower capitalized interest during the year and the addition of the $1 billion of new debt.

Net interest in each of the quarters one through three should run $15 million to $20 million with the fourth quarter interest expense to come in at slightly above $20 million. We are looking at an effective tax rate for the year to be in the range of 25% to 28%. As always, any changes in the geographic mix and the source of earnings, as well as tax assessments or settlements, or movements in exchange rates will impact this effective tax rate.

And, finally, our capital expenditures guidance. We believe that we'll spend maintenance capital of approximately $285 million for the full year 2014, which is down slightly from our 2013 maintenance CapEx spend of $310 million.

New build CapEx for 2014 is expected to be $1.8 billion, which includes the final 70% shipyard payments for the BlackHawk, BlackHornet, and BlackRhino, which will be made during the year, along with CapEx incurred for the Patriot, Apex, and Confidence. That along with the $285 million in maintenance CapEx means total capital expenditures for 2014 should total approximately $2.1 billion.

Looking even further out, we expect 2015 capital expenditures to be approximately $800 million, primarily made up of the 70% shipyard payment on the BlackLion and maintenance CapEx.

With that I will turn it back to Larry for any further comments.

Okay. I think we'll go straight to questions, Darren.

Operator, we'll open it up for questions now.

Thank you. (Operator Instructions) Our first question comes from the line of Ian Macpherson of Simmons.

Hi, thank you. Larry, you alluded to the fact that some of your rigs are better positioned than others with regard to those which are available.

Could you walk us through just a few of the highlights of which rigs might be under consideration for stacking at this point that aren't currently stacked? And what sort of timeframe and decision parameters you're looking at for those type of rigs?

Well, I don't know that we have any plans specifically to idle rigs. I was just trying to highlight that out of our entire mid water and deepwater fleet many of them are in niches such as the North Sea or in Mexico where they're highly valued and earn decent day rates.

But if you look throughout the fleet, there may be just a handful that have questionable futures. And I certainly we've idled some of those already. We don't have any specific ones.

But some rig may fall out of Brazil and due to its the condition or the amount of money that we feel we have to spend to market it in other areas, as an example, could lead to either being stacked or shifting into a lower speck market, of which there are a few around the world that would provide employment for that type of rig.

Okay. Which markets where you operate do you think are relatively best behaved right now in terms of demand and the opportunity to put rigs back to work that are idle currently?

Well, certainly the North Sea where you see term and rate. And I think a lot of that is due to the premium for North Sea Brent oil. And the fact that there are a number of companies that exist to exploit an area that already has infrastructure, that has a mature regulatory regime, and has targets which absent the weather are actually fairly easy to drill compared to some of the worldwide areas.

Mexico, you've got an area where people are -- the customer [MX] is driven to up production and has not really exploited their semi target areas as much as has been in other areas. Everybody's aware of some of the changes that may be coming to Mexico. So that's an area. And in the Pacific, Asia-Pacific, we are able to employ a number of rigs over there, as well.

Great. Okay. Thank you.

Our next question comes from the line of Dave Wilson of Howard Weil.

Good morning, gentlemen. Thanks for taking my call. Larry, kind of circling back on some of your prepared comments. We're hearing about and seeing some evidence of the softening floater market.

Just wondering here if this softness would be, in your opinion, cured by lower day rates? Meaning that if rates were lower from here, that would simulate demand? Or is this a case kind of what we saw back in 2009, but maybe for different reasons, where demand was soft regardless of what day rates would offer? I just wanted to try to get a sense of your thoughts around the price elasticity of the market right now.

The price does determine supply and demand. We all know that. But I think -- I believe some of the -- like, for instance, if we take the Ocean Valiant that's come out of the shipyard, we've just seen a focus on ultra deepwater prospects in West Africa.

And some of the prospects the deepwater would drill are being deferred with price being a component of it. But I think another part of it is just overall budgets and of the majors and where they're choosing to spend their money or cost overruns, if they exist, that are depriving some funds.

We think to the degree that this is budget issues that we're looking at deferrals rather than stepping away from prospects. We know that there's a number of prospects around the world in deepwater areas where there are already infrastructure and trees and what not ready to go. And so we would expect that there'll be some increase in demand. But to get back to your question, obviously price does have an impact.

Okay. Great. And then just kind of as a follow-up kind of at the other end. Understanding that a couple of your new builds here that are recently coming out of the shipyard are below market rates right now. But in regards to the un-contracted ones, what has been the response from operators in terms of your efforts to maintain high level of day rates?

No doubt there's going to be push back there, as there is with any contractual negotiation. But is there a level of appreciation on the part of operators that they're going to have to a pay higher rates for newer, more capable rig? I am just really trying to gauge how much pricing discipline can be maintained in this type of environment.

Well, I think the way to look at it is historically at the award -- at the contract awards. You've seen those rates decline sequentially by $10,000, $20,000 a day. SO we need to have a [jawbone] and say we need X price but we have to meet the competition. I think it's an open -- it's a bid situation.

Sure. Sure.

It's what everybody bids.

Great. Thanks, Larry. I'll turn the call back over.

Thank you.

Our next question comes from the line of Klayton Kovac of Tudor, Pickering, and Holt.

Thanks, guys, good morning.

Morning.

So on the last conference call you mentioned Ocean Apex as having a 6-month LOI. But in last night's fleet status you showed it as having a 2.5 month contract with Exxon. Could you just kind of reconcile those? I know you'd mentioned something in your prepared remarks but I didn't quite catch all of it.

Sure. That was more of a customer timing issue. I wouldn't read too much into it in terms of the rig's prospects. That really was a unique case of a customer timing issue and commitments in country that two programs couldn't be linked.

Okay. All right. Thank you.

And.

And as a follow-up.

I would just add to that, the Apex and Onyx deepwater units being essentially the only new ones coming to market would enhance quarters and everything that they bring to the table are getting lots of interest in numbers of programs.

The Onyx is working here in the Gulf for a year. And we've got people looking at it hard for jobs to follow on. And the Apex has some -- we thought the initial well in the area close to the Singapore area would be a good place to break the rig in and get it going. And then we've got several opportunities to bid that for longer-term wells around the world.

Okay. Thank you. And then my next question. So I realize you guys have great contract coverage in Brazil for 2014, but as you think about 2015 what's sort of your feeling around Petrobras exercising its options for additional work on these rigs?

I think it's -- I think the prospects are good. Petrobras will not be taking delivery in that time frame of any new constructed rigs. So in order to maintain their programs a number of those rigs would go forward. I think they'll have a preference for the larger ultra deepwater rigs or rigs that have capabilities that match their programs. I think some of the mid water that we have there might be among the rigs that we have to find alternative work or cold stack.

Okay. Thanks, guys. I'll turn it back over.

Our next question comes from the line of Rob McKenzie of Iberia Capital.

Thanks. I actually wanted to follow up a little bit on the last question and answer, if I may. Larry, would you give us the feeling for how you are weighing the decision of to cold stack versus maintain rigs, keep them kind of warm stacked or ready stacked, if you will? And incurring the operating costs versus -- a cold stack decision, I guess, on an older rig that might mean it doesn't work again?

One, I don't think that's a huge factor at play. The primary thing that causes us to cold stack a rig is that the capabilities of that unit put it at the end of the market and that there's a lot of capital required to keep that rig operating and it's only going to operate at the low end of the market.

So if, for instance, a rig does not get renewed in any one particular market and it's at the low end, that's the driver. And in most cases they require quite a bit of capital and we're unable to add additional capability. That's why it's important for us to supplement our fleet with rigs like the Onyx and Apex and deliver more capable rigs.

Great. Thanks. And I believe you mentioned early on in your prepared remarks that you thought rates still supported new construction. Would that apply to you guys thinking about building new rigs, or did I hear you wrong?

I think you heard me wrong. What I wanted to say, that the rates were in the range that we were still comfortable that we would earn an adequate return. I'm not sure -- clearly, other people have made construction orders. So they must be projecting rates that they think are comfortable.

At the moment we've got delivery. We have an inventory of two rigs that are uncommitted. We need to commit those. We think that the rates that we see in the coming year will still be adequate to justify our decision.

Great. Thank you very much. I'll turn it back.

Our next question comes from the line of Gregory Lewis of Credit Suisse.

Yes. Thank you and good morning.

Morning.

Morning.

So it sounds like the Valiant, it's in the yard. It's potentially being marketed to work in the North Sea. I believe you said it could go to the North Sea or the Mediterranean.

In the event that the Valiant were to go to the North Sea, is it North Sea ready or would we have that expected to stay in the yard currently and need be to upgraded? If you could just sort of provide some color around the position of that rig in the North Sea?

Well, the rig has worked in the North Sea previously. But it was some time ago. And so there would be -- we would have to update our safety case. And there's some pieces of kit that would have to be added to the rig. But, in general, it's not a major issue.

So I can't give you an answer. But it's not a significant in either time or money that it would take to prepare it for the North Sea.

Okay. Great. And then just one quick follow-up for me. In thinking about the market, I mean, clearly the customers are having lots of questions and there's lots of concerns about the overall market.

Have you seen any noticeable uptake or increase in sub letting of either your rigs or rigs from other companies in the market that are actually on longer term contracts? Is this is something that is sort of picked up as we start 2014, or is it kind of just been steady as it's been over the last 6 months, 12 months?

I would say that there has been some activity as it relates to 2014. But what is noticeable is there doesn't seem to be a lot of time on-off for 2015. So we're not seeing it a lot ourselves. But what we're hearing in the market is there might be some short-term availability as the operators have near-term capital constraints.

Okay. Thank you very much.

Our next question comes from the line of Darren Gacicia of Guggenheim Partners.

Hi. Thanks for taking my questions. First, it's one of the things -- the gorilla in the room seems that the stock is really concerns about kind of age of fleet and kind of what has longevity. I know another analyst is going to sort of try to approach this question. I'm going to kind of go right between the eyes on it.

So it seems like your mitigating factor is how much you have to spend on rigs to keep them around. Are there any rigs that scream for needing kind of a greater spend? And is there any way to kind of quantify so you can really get a good feel for this kind of what's built in -- what's built in the numbers of maybe what maybe needs to be retired over the next couple of years?

I'll leave it there.

Well, an example is the Ocean Confidence. We're spending quite a bit of money scheduled on that rig to get it up to snuff and on the market.

But in general, many parts of our fleet, we've these [pick-a-class] rigs which range from the Endeavor, which is going to be working for Exxon in the Black Sea on down through the Ocean Quest, which we just relocated to the Pacific as we released from OGX. And those rigs have had a lot of capital put in them and are quite capable.

And I don't think it's a major number. But certainly as more capable rigs are delivered on the higher end, it does raise customer expectations.

And so that some of the -- if you take, for instance, the rigs that we've already cold stacked and said that we're holding something like the Ocean New Era and the Ocean Whittington, those rigs are much less capable, don't really have room to be upgraded and the amount of money that you would have to put into that we don't think makes sense. We'd rather put the money into something like our new construction rig for BP, the Ocean GreatWhite. So that's -- you can look at that.

And depending upon the way that the market plays out, there could be two to three of those rigs, in my judgment, that might fall in that range going forward. But I think there's been some commentary looking at our entire mid water fleet and our entire deepwater fleet and saying that it is uniformly old.

And we just don't think that's the case. We don't think our customers see that's the case and we're certainly able to work the vast majority of those units at solid returns.

And you think that's over kind of like a five-year to ten-year window? I mean, how do we think about it? I really think that quantifying this issue is really important here. So, I mean, what do you -- do you think they extend out and can survive maybe through 2020 with some of these rigs? Or do you think the window is shorter?

I don't make any projections for 2020. I mean six years in the future, I can't say what's going on. But I would say rigs that we have put substantial capital in, we did that with the expectations that we would last for some period of time. So those would carry forward.

The North Sea is -- those rigs have been maintained and the day rates are not generally high enough to attract new builds into that area. So we think that area continues. And then we think a number of markets, it just does not make sense to use the new ultra deepwater DP units. And those will provide some ongoing capability.

If I could squeeze one last in. When you talk about kind of rigs held for sale, do you think they go to buyers that want to operate the rigs in a drilling capacity? Or do you think we have a probability of production platforms or accommodation? What do you think kind of happens to these assets that are not just a Diamond but probably around the market?

Well, generally, the kind of rigs that we're talking about and we've done this, the industry has done this over the years, very few of them return to drilling capacity. Somebody will occasionally buy it and put a bunch of money, and hang a bunch of scaffolding. You can see one down in Galveston from a couple cycles ago that is sitting there. I just -- I don't see them returning to work as drilling units.

Got you. Well, I very much appreciate your help.

Okay.

Our next question comes from the line of Thomas Curran of FBR Capital Markets.

Good morning, guys.

Good morning.

So your net debt to total cap ratio has shot up to the highest level I think since the second quarter of 2004. Could you maybe take a step back and just give us an update on how you're thinking about leverage these days in terms of what would be the maximum ceiling you'd consider comfortable both heading into the market we're in for the next 12 months and then longer term beyond that?

Well, the net debt ratio hasn't changed yet because we haven't spent any of the money that we raised. We will be spending it as the drill ships are delivered during 2014. So it will certainly increase then.

But, having said that, we remain the best positioned drilling Company out there as far as leverage. We've always been a very conservative Company and we will remain to be so. I'm not going to speculate as to how much it would potentially will change, but we will continue to safeguard the balance sheet and make sure we don't overreach ourselves in the future.

However, taking into consideration we are still the least levered. Could we do something impossible in the future? I wouldn't rule it out. But again, we will remain conservative.

Okay.

And just to point out we have $500 million of debt that's coming due over the next couple of years. And so to the degree that we don't refinance that but utilize some of the financing we've already had to pay that down, that adjusts our leverage.

All right. Appreciate that. That's -- I guess turning to the CapEx then, could you speak to 2015-2016, how much at this point will be left to spend on the existing new build and upgrade programs?

Well, in 2015 we'll make our final payment on the BlackLion, which will be in order of $400 million, give or take. And then in 2016 the final 70% payment on the GreatWhite, which will be a little bit above that.

Okay. And then turning to the three semis that are held for sale. Just an update on the level of interest you're seeing there? And then when it comes to the secondary market for older generation deepwater and mid water units in general, have you seen any proactive interest in rigs that you haven't made any effort to market on that front but you're now starting to see people reach out to you on in the expectation you might be more open to it?

I think in general there is interest in the jack up market, with people with cash to buy jack ups. And in general it's very difficult to find somebody that wants to buy a semi. Especially semis that have been idle and don't have operating certificates.

And so, I guess I have to ask the obvious follow-on. On the jack-up side, other than the Spartan, are there any other units you're reevaluating whether or not you'd be willing to sell?

Well, in general we've been selling off jack-ups for several years now with the goal of focusing most of our attention on deeper water. We don't expect to raise a whole lot of money there. But we just want to focus the Company as much as anything. So to the degree that there was an attractive offer, we would consider that.

But our jack-up fleet essentially is in Mexico right now, which we view as a long-term market for us and gives us a base there. We've got a rig in the Gulf of Mexico and a rig in Ecuador. And so I would say those two rigs are not a core part of our fleet, but we're working them. And we've got good crews on them and our expectations is that we would go forward that way.

Okay. Thanks for the answers, guys. I'll turn it back.

Our next question comes from the line of Matt Conlin of Wells Fargo.

Hi, guys. So just to dive in a little deeper, what Tom was talking about, do you guys project that you're going to need to take -- hit the debt markets again in order to meet all of your CapEx obligations and the debt retirements?

We -- a lot is going to depend on future cash flows that come in from revenues and where day rates and where the market goes. I can tell you currently in the near future there's no plans to do so and we don't project any need to go back to the debt market.

And we have a revolver in place.

Yes. We have a $750 million revolver that, if we need to utilize that, we certainly could.

Okay. And in those cash flow forecasts going forward, assuming that operations turn out as you expect at this point, how do you feel about your dividend that's -- the dividend's something that you have adjusted during past down cycles to build a war chest to go after rigs that might be available on a un-distressed basis? Is that something -- is it premature to think about such opportunities here?

Well, as you know, we don't give forward guidance on our dividends, the bulk of which is a special dividend, which is declared, as is the regular dividend, by the Board each quarter and we examine all investment opportunities when they're set each quarter.

Okay. [Low] still likes the dividends, though?

I believe they like cash.

Okay. Thanks, guys.

All our shareholders like that. We'll take one more question.

Our question comes from Lance Eddis of Tuohy Brother Investment Research.

I just kind of had a follow-up on the dividend. The bulk of the dividend is the special dividend, and I think it's been paid since mid 2010. I'm thinking you guys don't really get full credit for this, just because it's been divided up into special and regular. I guess, is there any thoughts to changing special? Converting it to an entirely regular dividend?

I think we're comfortable with the structure. I understand what you say, because people often -- you see a stock table that lists us as a pretty low yield. But we think we've attracted people that understand that and that the bulk of our shareholders know the kind of yield that they're actually receiving, including the special dividends.

Okay. Thank you. Thank you. And I appreciate your attention during the quarter. And the Company will speak with you again at the next earnings release. Thank you.

Thank you. This concludes today's fourth quarter 2013 earnings conference call. You may now disconnect.