Transocean Ltd (RIG) 2001 Q1 法說會逐字稿

TRANSOCEAN SEDCO FOREX EARNINGS CONFERENCE CALL

Good day everyone and welcome to the Transocean Sedco Forex fourth quarter and full-year 2000 earnings release conference call. Just a reminder, this conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Mr. Jeff Chastain. Please go ahead Sir.

Thank you Dianne and good morning. We appreciate your participation and interest in Transocean Sedco Forex. Over the past 12 hours, the company has made two announcements, one pertaining to the company's intentions of closing the pending merger with R&B Falcon tomorrow, January 31st, and in the same announcement disclosing the names of the three new directors who joined the Transocean Sedco Forex Board hinting the close of that merger. A second announcement was issued this morning and it covers the company's fourth quarter and full-year 2000 results along with an update on our new rate construction program and our view of the offshore drilling industry and the company's prospects over the next 12 months. These and other topics will be discussed in more detail by the members of our senior management team participating in this morning's call, and I'd like to take a moment to introduce each of those individuals now. First, Mike Talbert, Mike is President and Chief Executive Officer of the company; Robert L. Long, Executive Vice President and Chief Financial Officer; Jon C. Cole, Executive Vice President of Marketing; Donald R. Ray, Senior Vice President Technical Services; and Ricardo Rosa, Vice President and Controller. Following prepared remarks by Mike Talbert, we will allow each of you to participate in the question and answer format. Before I ask Mike to begin this morning's conference call, I'd like to remind you that during the course of this conference call, the participants may make certain forward-looking statements regarding such matters as the prospects for and development of the drilling business, future earnings, and other financial performances, capital expenditures, debt levels, rate utilization in markets, rate delivery dates, and other aspects of our new built programs, contract revenue and duration, contract backlogs, projected dayrates, various aspects of the pending merger with R&B Falcon Corporation including the timing and potential effect and benefits of the merger, as well as other statements that are not historical facts which involve certain risks, assumptions, and uncertainties. As you know, it is inherently difficult to make predictions in this typical industry since these risks, assumptions, and uncertainties include the prices of and the demand for crude oil and natural gas, the completion of construction projects, risks associated with international operations, risks relating to acquisitions, actions by clients and other third parties, and other operating risks which were identified in the company's 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. Now, I'll ask Mike Talbert to begin this morning's call.

Thanks Jeff and let me add my welcome to all of you for joining us for this fourth quarter and full-year 2000 conference call. I want to focus my comments this morning in two primary areas. First, I want to talk about the year just ended and the results of old Transocean Sedco Forex, and then I want to talk about the company going forward, new Transocean Sedco Forex post the closing of the transaction with R&B Falcon tomorrow. Regarding the year 2000 and the results for old Transocean Sedco Forex, we announce today our net income for the fourth quarter was $33 million or 16 cents a share before unusual items compared to as treated about 12 cents a share. We did add about $42 million of unusual items all related to legal issues and most of it related to the previously announced inventory settlement of slightly over $37 million. As we said in our conference call in early December, we did have an unusual amount of both planned and unplanned downtime in the fourth quarter and as expected, our utilization rate was down from the third quarter rate of 81% to just 75% in the fourth quarter. Also, as we indicated in our conference call for the third quarter, our fleet weighted average dayrate did bottom the third quarter and have begun to increase. We reported that our fourth quarter average dayrate for our floater fleet was 87,800 a day compared to 81,400 in the third quarter, an increase of almost 8%. Therefore our total floater fleet in the fourth quarter average rate was 71,500 a day compared to 67,200, an increase of a little over 6%. So, I think, the equity weighted average dayrate of the fleet is definitely turned and we'll continue up. For the total year 2000, we also report today that our net income before unusual items was a $126 million or 59 cents a share, I'll come back to that number later. But now, let me turn to the company going forward. I believe our stock prices suffered over the last couple of months due to a number of uncertainties in the outlook for the company. First, how bad would our fourth quarter be following our conference call in early December, and then the continued uncertainty as to the exact timing and potential conditions associated with closing the R&B Falcon transaction. Third, the continued uncertainty regarding our new bills and when will they be finished, and finally exactly what the earnings outlook for the new Transocean Sedco Forex would really look like, as my perception is very few people have really tried to model the new company. I want to address each of these areas separately. Regarding the fourth quarter, in our early December call, we said that we thought we would report earnings for the fourth quarter of 10 to 15 cents a share, the street came down to 12 cents a share. We reported 16 cents a share, so that should be behind us. Regarding the R&B Falcon transaction, as Jeff mentioned, and as you probably had seen previously, we announced yesterday that we're planning to close that transaction tomorrow, January 31st. As we said in that announcement, this is prior to our final approval by the Office of Fair Trading in UK, but it does follow a number of meetings and discussions we've had with officials at the OFT, and through that process, we become comfortable that the OFT has no objections to this closing tomorrow and we've become comfortable that the range of possible outcomes to this process will not materially impact our operations. And in fact, our belief is still that the most proper outcome will be no change at all and we'll simply be able to close. But that process could continue for several more months. When we announced the R&B Falcon transaction in August of last year, I mentioned that the key benefit to be achieved would be, first, the expansion and enhancing of our mobile offshore fleet especially with the water fleet and that would allow us to better serve the increasingly technically challenging needs of our customers. I said the transaction would increase our infrastructure of equipment, employees, and customer relationships, and all the key markets of the world which allow us to better provide our customers with consistently high quality operations and would allow us to achieve efficiency to scale, and I also said that the transaction would give us an exposure to North American gas market which Transocean Sedco Forex previously had very little exposure to. I can tell you that nothing has occurred in the last five months that would cause me to alter that view of the benefits we will derive. In fact, when I looked at where we are today, I am not sure our timing could have been much better. Most surveys are projecting significant increases in E&P spending this year in the range of 15% to 20%, and most important for us is the projected increase spending by the majors who are the primary customers of our premier assets and who had almost no increase in spending in 2000 versus 1999 and a lot of this increased spending by the majors is expected to be in deep water where we excel. But, also those survey show expected significant increases in spending in the shallow water Gulf of Mexico and inland barge areas for gas drilling due to the North American natural gas situation. The R&B Falcon transaction has clearly positioned us and we will benefit from this trend. Now, let me turn to the new bills. The Discoverer Deep seas, I'm pleased to announce, has being conditionally accepted by Chevron, in fact, it was accepted back around the 18th to 20th of January. The rig is currently on its first well drilling for Chevron. This is the third of the enterprise class drillships. We do have one final commissioning activity to perform, but the decision was made to perform and in conjunction with drilling the first well rather than going to an abandoned well to perform this test, and I would say that we've not had any problems with the other enterprise rigs with this particular test. So, we see no problem there. And so, basically the rig is on contract and that's good news. The enterprise class rig construction program is behind us. On the Express rigs, all three Express rigs were at similar place in their final commissioning. In all three, we continued to have delays, but all three, I think, are actually, we can start to see the light at the end of the tunnel. Let me talk about them individually. The Sedco Express is currently offshore in the Canary Islands. It's doing a final operational testing of the pipe handling equipment and the BOP in deep-water. The rig over the last week or so has picked up and racked back 6000 feet of riser, has run that riser in stack in 6000 feet of water and so far all the pipe handling procedures have performed as were supposed to, and that's good news, as you know, that's been a real problem for us. We're currently doing this testing of the BOP. With that set completed successfully, we'll come back to the dock. We have a few minor items to finish, and somewhere around the middle of February, we should be prepared to mobilize to the first location. Now, as you know, this particular contract with Elf has passed the date in the contract where Elf has the right to cancel, that date was the end of 2000. So, Elf does have the right to cancel this contract. We are in conversations with Elf discussing possible adjustments to the contract so that we would continue with Elf. Those discussions are moving along, they've been productive, but we don't know how this will end up for sure and clearly that will create some uncertainty as to the near-term use of the Sedco Express. Turning to the Sedco Energy, the Energy is also in the Canary Islands. It's preparing to go offshore to perform the same final deep-water operational testing as you expressed. Following that, the rig would be ready to leave for Brazil to go on contract with Texaco in the second quarter of the year and we expect it would be on that schedule. As you know, there is no drop-dead date on this Sedco Energy contract. We do lose one day for each day the rig is delayed, and based on our current outlook for when the rig would go on contract with Texaco, this would end up being about a 3-1/2 year contract. And finally, turning to the Cajun Express, the Cajun Express is offshore Louisiana. It's also preparing to go offshore for a similar final deep-water operational testing of the pipe handling equipment in the BOP. We expect to go offshore somewhere around the middle of February, and we should be prepared to go on contract by mid to late March. This contract with Marathon also has a drop-dead date of March 31st. You know, we think that could end up being very close. We are currently having discussions with Marathon. Both parties would like to make some changes to the contract, and hopefully we'll work out something here which will reduce our risks and also improve on some of the contract terms that Marathon would like to see done. But again, there is clearly some uncertainty there regarding exactly what the final result will be on the Cajun contract. So, I think, if I was going to summarize the new bills, it's good to have the last of the enterprise rigs to work. All three Express rigs are basically at the same stage. The pipe-handling problem on the Express, which also affects the other rigs, seems to be solved. It seems to be operating pretty well, and we expect the rigs to be ready to go on contract by somewhere around the end of the first quarter or early part of the second quarter. Now, let me turn to the earnings outlook for the new Transocean Sedco Forex. At first, I'd like to give you, kind of, an overall view of the year and then come back and talk about some specific drivers and uncertainties. The year is going to start weak. The first quarter will be very weak, but we've projected the earnings will be in the range of breakeven to a nickel a share. The second quarter will start to see significant strengthening. In the second half of the year, it should be very strong, we would expect earnings to exceed a dollar a share in the second half. For the total year 2001, we would expect earnings to be somewhere between a 125% and a 200% improvement over Transocean Sedco Forex standalone 2000, which was 59 cents. If you do the math, that's a band of $1.33 to $1.78 per share. Now, let me touch on the drivers and the uncertainties that lead me to give you this type of advice. First of all, because of our antitrust issues, we've been very careful not to collaborate with R&B Falcon in any way in developing their 2001 budget. Accordingly, we are just now in the process of putting together a combined budget for the new Transocean Sedco Forex, and obviously, that gives us a certain amount of uncertainty in our projections. Also, you may recall that in our December call, early December, I had mentioned that a lot of the old Transocean Sedco Forex planned shipyard projects for 2001 were scheduled for early in the year. Our initial look at R&B Falcon's budget showed basically the same plan, and in fact, for the combined companies, it appears right now that we would expect more than a thousand days in the shipyard next year, and more than 40% of that will be in the first quarter. So that obviously will have a big impact on utilization rate and in revenues and costs in the first quarter, that's a big contributor to the poor performance in Q1. Also, as we have just talked about the new bills, clearly the timing and any possible contract renegotiations on the new bills are still an uncertainty and those again will impact, probably, particularly Q1 and Q2. Another factor that affects us, and it really affects probably the first half of the year, is the moderate rate at which offshore drilling markets are improving. The seasonal weakness in the UK, a soft floater market in Asia, and continued weak midwater market in the Gulf of Mexico have left us with a number of rigs without contracts as we near the year 2001. We fully expect to see go back to work as operators begin to spend their 2001 budgets. We expect those markets to improve notably as we move through the year, and in fact, we believe, we're well positioned for benefit in this improving market. In fact, when you look at our combined fleet, we have quite a bit of available rig time. I think, we have mentioned in the past that old Transocean Sedco Forex had 54% of its rig time contracted for the year 2001. For the new Transocean Sedco Forex, we have roughly 40% of our rig time contracted for 2001 and only about 16% or 17% contracted for 2002. That means we have almost 60% of our rig days available in 2001 and more than 80% of the rig days available in 2002. We think that positions us well and take advantage and what we see is definitely improving worldwide markets. And as you consider all these other rating cost uncertainties, you have to keep in mind that with our new fleet, a change in margin on the fleet of simply $1000 per day per rig translates into about 13 cents per share in earnings. So, while this range of $33 to $78 is probably wider than you would like, it's what I feel comfortable telling you today. I should be able to give you a better view when we have our first quarter call because the budget issues, the new bills, and the rate of market development will be much clear, and while we do expect the first quarter to be weak, we expect a significant improvement in earnings performance as we move through the year. With that what I'd like to do is let Jon Cole give you a brief overview of what we see going on in markets around the world and then we'll go to the Q&A. Jon?

Thank you Mike. I think today we'll start in Southeast Asia and review the various rig types there. As Mike just mentioned, probably the weakest part of the entire world market is the floater market in Southeast Asia. The midwater rigs have a low utilization and rates are very low out there, tending to be in the mid 40s range. The deep-water market is very small in Southeast Asia, but what is there, we're experiencing rates in the 70s almost to a 100,000 range. So, it indicates when the business is available, the rates are reasonable. The strong point in Southeast Asia remains jackups. The market continues to improve as we go along. Rates are in the upper 40s right now for standard 300-feet rigs. The rigs capable of working above that will command significant premiums to that as well. Another weak part in Southeast Asia is the swamp barge market; all the barges are idle right now. As we move westward to the Middle East, we've finally starting to experience the long expected upturn in jackup demand, both in the Arabian Gulf and in the Gulf of Suez in Egypt as well. We're seeing rates there up into the 40s starting to mere the international rates. Utilization is climbing and the one weak part probably in that market remains the very shallow water rigs of which there is significant demand in the Arabian Gulf, but it tends to be dominated by the nationally owned companies. Accordingly, our Jupiter still remains idle in the Arabian Gulf, but we're starting to see prospects forward both in Saudi Arabia and Egypt as well. Moving to West Africa, I think we have a real bright story there. All three markets are extremely busy, and I'd say, all three markets I'm talking that deep-water, midwater, and shallow water. The deep-water market, it looks to us that we'll see a shortage of rigs as the year progresses; all deep-water rigs are working in that market right now. Rates are improving and then strengthening. There are 125 for the older deep-water fleet and moving above 150 for the newer ones. The jackup market is extremely strong. We're starting to see rates move to the mid-fifties and we expect it will not be long before rates move into the 60s for the 300-feet plus cantilever jackups. The midwater fleet, although rates have not been particularly strong, utilization has been good in West Africa. We are seeing rates in the 55 to 60 range today and we expect, as the year goes on and additional programs are added to the market of West Africa, that those rates will begin climbing and I would say that the 60 to 70 in the near future is not unreasonable. Moving north from West Africa to the North Sea, once again we're seeing a market that's been really beset by seasonal problems, which is [_______________] what it will be a very strong market for the year. For some reason, almost all operators shut down their drilling programs in the first quarter of 2001. Obviously, there was a season once, due to poor weather, but the impending market looks like there'll be a shortage of both deep-water, midwater, and jackups in the North Sea as well, and we're seeing evidence of this in rate structures that have improved from the low 30s in early 2000 up through the 60s and now we're talking about in the 80s and possibly 90s for the midwater fleet. The deep-water fleet is 150 and above and that's west of Shetlands in the current market. Unfortunately, that remains basically a summertime market and so it's sporadic, but nevertheless it's indicative of if deep-water demand exists, we can command significantly higher rates in the rest of the market. Norway is also growing. As you know, that's a fairly protected market. I don't see a lot of growth in Norway, but just the addition of one or two additional rigs demand should improve the situation there. The last rigs were contracted in 120 to 140 range, so that market rates are very strong. We will have a few coming up at the end of the year and hopefully be able to take advantage of the stronger market conditions. I think a real positive for the Norwegian market was the Agip discovery in the Beirut sea, although there has been news that the size is not as great as originally anticipated, that would open a new market as it would represent the first liquids production in the very far north of Norway. Going across the Atlantic to the Gulf of Mexico, I think we're really experiencing one of the better markets in the world. There's really no available capacity in the deep-water fleet right now. We've seen fourth generation semi-submersibles improve from $60,000 in early 2000 and it doubled by the end of the year to $120,000. That trend continues now. We've just recently contracted the Richardson at 120 and we really expect in the later part of the year that that market will continue, and it would not surprise me to see rates go up to 150 for the 5000 feet plus water depth rigs. The jackup fleet is virtually fully bumped. It's very hard to find a jackup. The 350-feet plus rigs on the 60 to 70 range already, the 350-feet cantilevers are in the 50s, and even the less than 300-feet jackups are in the $35,000 to $45,000 per day range and these were extremely good rates for this market, so obviously reflective of the very high natural gas prices. I think the one weak point we have is the midwater fleet as we referred to it. The upper end of that fleet, the 3000-feet, plus or minus, is staring to show significant signs of recovery. We expect to take our Amirante out, which has been idle all year. We expect rates in the 50s range, but I think that's something that should be climbing to the 60s and 70s by the middle of the year. I think the one part of the market that we're not very optimistic about is the 2000 feet and below. We've seen rates improved to $40,000 a day, but that's not a very attractive rate. We've one rig, the DF 97, which remains idle in that market. Moving south to Brazil, I think there is no real new story there. There is pretty much equal supply-demand with possible shortage for deep-water floaters. All the rigs there are working. The international oil companies are starting to drill their programs. The first two international companies have announced results, nothing specific, but both Shell and Total Fina Elf have discoveries in the Campos basin. I think this is a very positive sign for the future of the Brazilian market. And we think that demand will continue to grow there. The jackup market in Brazil is actually growing. The rates there are expanding from the 30s to the 50s, so it's a small market but improving. And even the midwater market looks like it's going to be picking up in Brazil. We had some midwater rates roll over last year and they were from rates significantly in the 100s down to the low 50s. We think the trend will start picking up on those as Petrobras begins its Barracuda and Caratinga development, as well as some of the international companies who are exploring at the mid water range. So, overall, I think, I'd have to summarize as we have a very positive market with some weakness in the shallow floaters in the Gulf of Mexico and the floaters in South East Asia. Other than that, all rig types seem to be doing quite well.

Thank you Jon, and now we'll open it up to questions.

Thank you. So your question and answer session will be conducted electronically. If you'd like to ask a question today, please press the * or asterisk key followed by the digit 1 on your touchtone telephone. We will take the questions in the order that you signal us and we'll take as many question as time permits. And our first question comes from Scott Gill with Simmons & Company.

Yes, good morning gentlemen. Mike, I was wondering if you could maybe go back and talk a little bit of the Cajun express, you're talking like you're currently negotiating or renegotiating with your customer Marathon there, can you maybe outline for us, you know, what are the potential outcomes of a new contract with Marathon?

Well no, I don't want to outline for you what our negotiations are all about, but I'd simply say that it does have a drop-dead date, the end of March. Our current schedule is that we'd be there and ready to go before that date. However, you know our experiences told us that our forecast are not always accurate and things are going to happen and cause delay, so we would obviously like to change that drop-dead date. There are some other things in the contract that Marathon would like to change and we are having ongoing discussions with them about seeing if we can come up with something that makes good sense for both of us.

Okay. And, Mike, you gave us some very broad guidance for the year for your earnings, I think the numbers were $33 to $78, that's kind of, I remember the number you've talked about, could you, kind of, compare that to a Transocean's standalone number?

Well, I think, Transocean's standalone, if I were doing that today, you have seen that would have been in that range. I think the street today is about $1.82 for Transocean's standalone in 2001, and I'm not sure how good a number that is because I don't know how many people are really paying much attention to either Transocean's standalone in 2001 or what the new Transocean would look like in 2001 because of the uncertainty of the timing of the merger and all that. But, you know, in the market today the street is $1.82 for Transocean's standalone. I'd say for a lot of reasons I've gone over today that's higher than I think is probably the right number for Transocean's standalone. As I said in our call in December, Transocean's standalone would have had probably almost 50% of its rig downtime in the first quarter for its shipyard and over 50% of shipyard time would have been in the first quarter. Transocean's standalone would still have these uncertainties over the new wells that we talked about, and Transocean's standalone would still be the one suffering primarily by the seasonal slowdown in markets in the North Sea and by the softness for the floater markets in Asia that would affect the Transocean's standalone more so than it would affect the new company. So, you know, if I were sitting here today giving you an outlook for Transocean's standalone 2001, I would have probably told you that your number for the $82 is, maybe, high by at least 10%.

Okay, thanks Michael. And one last question, given your experience with Transocean and here recently with Sedco, if you could kind of compare the integration of those two with what your facing with R&B Falcon and in particular, what should investors be looking for in terms of the bringing together of these companies, in other words, kind of, what are your benchmarks for success here?

Well, every merger has got unique challenges. In many ways, this merger will be the easiest of the three. In some ways, it will probably be more challenging, but let me talk about why I think it could be easier than the other two. First of all, we have done it twice before already, so this is the third time in the last four or five years that we worried about integration. There are fewer cultural issues here, you know, Transocean ASA was a Norwegian company, very much a Norwegian company, Sedco Forex was a French-American company with very multicultural work force, which was actually easier from a cultural standpoint than Transocean ASA, but R&B Falcon basically is a US company. So, culturally there are probably a lot of similarities. Also, with the other mergers, there were significant changes in accommodations at the senior management level of the company. In this particular merger, the entire senior management team is the same one that's been in place for the last year. So, there are no major changes at the senior management ranks, so you have a group of people that have been working together for the last year since the Transocean Sedco Forex merger, and I think that also provides stability. In addition, in the case of the Transocean ASA and also Sedco Forex, with the mergers, the company added operations in new places in the world. Significant operations in places in the world that we didn't have them at the time and again, I think that creates challenges. In this particular merger, basically all of the R&B assets are in areas where we already have a major presence as Transocean Sedco Forex and so the integration of the operations of the company in that regard, I believe, will be easier. Having said all that, we've also gone through a lot of integration planning. We have basically announced the management team of the company all the way down to the regional level, and so, I think, everybody in both companies, kind of, knows what their role is as of tomorrow, and we ought to be able to hit the ground running. There has been a lot of plannings already occurred.

Okay, and just, what do you think, kind of, benchmark your success here?

Well, in terms of benchmarking my success, I guess, it would be how quickly all that actually happens and we start meeting the earnings estimates that we're actually setting for ourselves and, in fact, if we can put together a budget and that budget makes a lot of good sense and we're hitting those estimates.

Okay, thanks Mike.

We will now move on to Ken Sill with Credit Suisse First Boston.

Good morning. A couple of things, one, you said that you'll have a lot better idea what's going on with the Falcon numbers in the merger when you do your next conference call, will you be giving us any kind of interim update on what the fleet status is with the contract status of Falcons rigs for them?

Ken, Jeff here. We'll provide an updated fleet status report similar to what you've been receiving on the Transocean fleet alone as quickly as we can close together, my guess is that will be about mid-February.

Okay, and as of now you guys don't really have any good feel for what's going on with the barge business or some of the other operations of Falcon?

Ken, this is Bob Long. I think we've got a pretty good idea what's going on with THE barge business and the jackup business in the Gulf, but as Jon indicated activity is pretty strong. We have 22 barges operating right now and R&B Falcon has been on a course to reactivate barges as quickly as they can crew them up. I think they've got all of the jackup floating in six, and had a plan to reactivate some of those jackups also again with people being the biggest constraint.

Well, that's a good update there. And getting into some more housekeeping things, could you guys give us what the numbers are, gross and tax effect, on the special charges you had in the quarter?

You are talking about the 42.2 million?

Yeah, the 42.2 million, what was that pretax so I can...........

Speak up, Ricardo.

Okay, 37.2 with 43.9 gross and 42 net.

Did you hear that?

No, I didn't hear that.

43.9 gross and 42 net after tax.

Did you hear that?

Yeah, I heard that.

Okay.

Okay, great, and could you give us a feel of what your tax rates going to be here in 2001?

Well, it's a little bit difficult to be very precise on this as there is a lot of moving parts and we've got some tax planning efforts that are going to be growing on that will impact this and to some extent, this rate would be a function of how quick we are able to execute some of our tax plans, but at this stage, I think, that the best estimate we'll be able to give you is something in the mid 20s and for modeling purposes I'd say using 25% shouldn't be too far off, if we are able to do what we hope we can do.

And, you know, getting back to the merger, it will be effective after January 31, 2001. So you will have Falcon for two months of this quarter and the rest of the year. Do you have any feel for, kind of, a timeframe for getting some of the consolidation savings and lowering some of the overhead costs of the combined companies?

Well, I think that what we said at the time we announced the merger, we probably will still stand by that statement. I think at the time we said we thought we could achieve $15 million in cost savings in the first year, and we could achieve about $50 million over a two or three year period.

And I'd assume that be a little bit backend loaded this year or where will it be?

I think we will pickup the sale, my guess is that the first quarter as we get into Q1 and Q2, there is always a certain amount of inefficiency associated with the close of the merger. As certainly as we saw last year with the Sedco Forex merger, we reduced our cost through the year, and I would expect that, that would also occur this year.

Okay, thank you.

Moving on, we'll now take a question from Terry Darling with Goldman Sachs.

Thanks, good morning. Wanted to start on the cost side of the business guys, if I could, to try to understand the changes sequentially in pointing out the 43.9 million on the pretax charge, I guess, in coming up with 206.7 million of contract drilling expenses. I guess, the first item is, is that the same way you're looking at it, and secondly, if we look at the sequential change of about 14-15 million, would somebody could just sort of take us through there, I guess I had the startup at the Trident 20 and the startup of the Spirit and I'm wondering if, in fact, you did incur some expenses on the Sedco rigs as well?

Well, I don't have all these numbers in front of me, but actually your number maybe a little bit high when you make everything apples on apples, but actually we came out pretty close to what we said in December. I think at that time, we said our direct operating expenses in Q3, I think, were about 192 million and we said for quite a number of reasons, you should expect it to be about 12 to 15 million higher in Q4, which is about what we turned out, and those reasons included the Trident 20 and the Spirit going to work full time. They included a lot of the planned and unplanned downtime and some of the costs associated with that. It included also, I think, it was, maybe, $1.5 or $2 million worth of expenses on Sedco Express rates that had previously been capitalized that we were expensing in the fourth quarter, and I think that statement is generally what I said is the way it turned out. Now, Ricardo or Jeff, do you have any adjustments to that or that is pretty much it? 0:39:29 EFF CHASTAIN: Well, I think Mike you summarized it very well.

Okay.

And Mike, beneath the surface here, what are your plans in terms of labor increases for 2001?

Well, I think, somebody correct me if I am wrong, I think we also said in the conference call in early December that we thought that across the board, labor increases would probably be in the order of 5%.

Okay, great. Wanted to next shift to some of the larger rigs that you have rolling over and Jon provided a very good color on this. The first one I was curious to get your thoughts on the 534, Jon, I think I heard you say that you thought that rates for 5000 plus feet water-depth capable units might be up in the 150 range by mid second half of the year, I guess, the 534 goes into the yard. Is that a reasonable range for that type of unit coming out of the yard or is that a bit aggressive what do you think?

Terry, we are going to be out of a little bit earlier than, I think, in middle of the year or so. It might be a bit aggressive, but we made 130 last year, so I would say, between those two numbers is the likely outcome.

Okay. And, I guess, the Richardson also rolls in early July, that unit is right out, I guess, 5000 feet and forgive me if my number isn't right, still is that a reasonable place to be there in for the middle of the year for that unit?

Yeah, I think it's reasonable to conservative.

Okay. And the Drill Star, any plans to bring that unit back. You are indicating a nice increase in intermediate water depth dayrates for semis in the North Sea, I guess, I was thinking about that unit in that context.

No, we actually are working on a contract with a major operator for the Drill Star in the North Sea.

Is the dayrate range that you gave for that type of unit not reasonable for that. Are you looking for a longer-term deal and perhaps, make some trade off in the rate there, which you're implying?

The Drill Star is a shorter-term contract. It's in the vicinity of about 67 SFAS.

Okay, and last question, Jon, you didn't talk much about Eastern Canada, I was wondering if you could give us a quick update there?

Well, the reason I didn't tell that it is all about such a small market, my read on it is that the two rigs there are probably more than the market needs. I think, there will be some deep-water activity this summer, and, kind of, the rumors we are hearing around here is that one of the ocean rigs has started, it's going up there. I think for deep-water Eastern Canada, you are looking at a very special rig and I expect to receive very high dayrates, meaning 200 plus type dayrates, but I think the market there is going to be sporadic, Terry, and it wouldn't surprise me even to see one of the grand banks leave that market towards the middle of the year.

Thanks very much guys.

We'll now move on to Asit K. Sen with ABN AMRO.

Thank you. Good morning. Couple of questions, first, on rig downtime days, Mike, there were 179 days of planned and unplanned rig downtime in 4Q, I know it's a moving time, but could you quantify for us your best guess with respect to downtime days in Q1 and Q2?

Well, I know, the numbers I quoted earlier, I was taking about downtime in a shipyard, and I think I said for the combined fleet of the 179 was old Transocean Sedco Forex fourth quarter. When you look at the new Transocean Sedco Forex for next year and we just had additional look at what R&B's budget will apply, but when you add them together, we have over a 1000 days of downtime for the year in shipyards and more than 40% of that occurs in the first quarter.

And any quantification on Q2?

You know, I'd say we are trying to forecast the shipyard time a lot of time. This follows a rig coming off contract and the exact timing of that maybe a little bit unusual. I would tell you that it's probably proportional more than 25%, but right offhand, I don't know what the number is.

Okay. Thank you and a couple of quick ones for Bob. Bob, what was the total debt at the end of the year and where do you see debt level at the completion of the Falcon deal?

Total debts about 1.4 billion at the end of year, and, I think, when we close the deal, we'll pickup about $3 billion worth of Falcon debts and we'll be right around $4.5 billion debt level.

Okay. And with respect to your initial thought on capital spending number for 2001, what do we use for modeling purpose, and what would the mainland's component of that be?

Well, I'll give you some rough numbers here bearing in mind that we haven't got the budget actually finalized for the R&B side on the fleet, but in looking at what we we're budgeting Transocean's standalone, it was about $220 million of which about 150 or 160 is what I call maintenance capital. From the R&B Falcon side, I think, they've got about a 140 million or so to complete their last new growth and then the maintenance capex would be on the order of $50 to $100 million and there might be a few other projects in there that are on a smaller scale, $20 to $30 million type projects, and I think we are going to come out with a capital program in the range of $400 to $500 million for the year.

Okay, and final question Bob, with respect to capitalized interest for Q1 and Q2, if you can provide any guidance?

I don't have a lot of detail on the quarter-by-quarter, but I think, we're estimating something in the order of $25 to $30 million of capitalized interest for the year, all of which would come in the first and second quarter because our construction program will be done, but most of it would be in the first quarter as soon we get these rigs on out and we hope we will.

Great! Thank you.

Okay.

Our next question will come from Yves C. Siegel from the First Union Securities.

Good morning. Jon are you anticipating moving any rigs, specifically when you look at that midwater market in the Gulf of Mexico, are those candidates for movement, number one; and number two, why do you think that market continues to languish as much as it does?

I think the best prospect for movement would be the Amirante, that would be an ideal rig for a market like Brazil or West Africa, but, for the time being, we have a fairly significant prospect for the Gulf of Mexico, we are in the process of finalizing a deal on it, so we'll stay here with that rig. The 97 is not really a rig we would want to take out of the Gulf right now. I think the reason that market is in the doldrums is because the money is going to the shallow water, for the gas plant, and the deep-water right now. I think it's simple as that. There is couple of operators such as Anadarko, for example, that have quite a bullish outlook for the Gulf of Mexico midwater. I think the subsalt market holds a lot of attraction for them, but right now, efforts seem to be going to deep and shallow water.

Okay, and then in terms of the contract and strategy going forward, market is in an up trend, but what is your sense in terms of how you want to contract over this cycle?

Well, I think we're a good ways below the peak, Yeve. So we are cognizant of the fact that there are some good contracts available that are longer terms and we price them accordingly, but we do not want to tie up of all our fleet till we see the markets strengthening significantly. So we try to balance our contract portfolio.

Portfolio, okay. Then finally, Mike, do you have any restrictions in terms of asset dispositions going forward, number one; and number two, can you comment on what your thoughts are in terms of the turnkey business?

Well, in terms of assets dispositions.............

I think, Yves, this is Bob. We don't have any specific restrictions other than there are some of the R&B Falcon assets that like to secure some of the debt until we decide what we are going to do there. There are several assets that we have to be cognizant of and on a grander scale or larger scale, in order to preserve the tax-free nature of the deal, we couldn't dispose off a majority of the assets, but I don't think that's an issue, but essentially we're not going to have too many restrictions to worry about.

I would say, Yves, as I said in December, we do have a plan placed to dispose off a number of assets, but mostly it's, kind of, this and that assets like land rigs and work-over barges and some of the mobile offshore production units and some of the international inland barges. So we have a number of miscellaneous assets that we do plan to invest ourselves on this year, but it's nothing that I'd consider significant and nothing that we valued highly in the transaction.

Turnkey?

Yeah. Regarding turnkey, currently, we plan to continue the turnkey business that R&B Falcon has. They've a pretty good group of folks that have been fairly successful and we plan to continue that activity.

And then lastly Bob, are there any restrictions in terms of when you can start thinking about buying back stock?

Well, the first restriction I'd have is $4.5 billion worth of taxes. But again because of the tax-free nature of the deal, we wouldn't even contemplate for at least a year, but given our dead stocks, I don't think you'll see us contemplating it until we get that debt significantly paid down.

Okay. Thank you.

As a reminder, if you would like to ask a question today, please press *1 or if you find that your question has already been answered, and when you would like to remove yourself from the queue, please press the #sign. Our next question comes from Kevin Simpson with Merrill Lynch.

Thanks. I didn't get to the #sign in time because most of the questions have been answered. But you may have already gone over this, kind of, the math, but could you tell me what the tax rate was on the 16 cents from operations?

Kevin, our overall effective tax rate for the year was 25%. You're asking for the effective rate for the quarter?

Yeah.

In fact, if you ignore the one-time charges, it was 9% on the operating income, if you are recurring on.

9%?

That's correct.

Okay.

And you have to be careful, don't extrapolate that to a 9% rate for the full year going forward because there were some adjustments in terms of when you calculate your effective tax rates throughout the year, you have to lay some estimates of what the outcome for the full year is going to be.

Right.

So in the fourth quarter, there are some corrections which can go one way or the other.

Right.

So.........

Okay, I promise not to do that. The other, it sounds like the second quarter was a transition quarter, Jon, in terms of contracting rigs out there and some markets like the North Sea, it seems strange to me that no operators and lot of these players, we haven't seen BP, I guess, yet officially or Royal Dutch, but then the indications are pretty strong, Exon was strong. I got to believe there are going to be a lot of intentions suspending in the North Sea as you said, and yet it sounds like things are started out very, very slowly. Do you think that there is an inflection point coming up here where, maybe before the end of the quarter you should get fairly significantly improved visibility or do you think we actually go into the second quarter before operators realize that they just can't pick up the phone and get a rig very, very quickly?

I think the inflection point is April fool's day. I think for some reason, everybody is waiting till April 1st. We just add up the people who've called in and looking for rigs and comparing to rigs available, and it looks like from April 1st through the third quarter, there is going to be shortfall of semis in the UK and if why people can take advantage of the fact that utilizations were up 70% in the first quarter, it is beyond me, but they all know it and they all expect it. A similar situation has developed in Australia, which doesn't have the weather reason, which is quite curious, but all the programs seem to be queuing up for about April 1st.

But this is probably a function of the bigger players, kind of budget cycles, more than anything else?

I think that's exactly what it is.

And so, is it best to build in a little bit of a lag in the second quarter in terms of one utilization and maybe the rate as well or..........

No, I think it will start right about April 1st. You'll see utilization shoot way up and maybe it's April 15, Kevin, but the month of April certainly, you'll see utilization shoot right up and I think rates will significantly improve then and again in the June-July period.

We would also keep in mind, Kevin, that, I mean, to the extent that somebody's going to start a program April 1, we'll probably be negotiating a contract in the first quarter. I mean, there is a lag between the time we actually, typically we would get a contract negotiated and the timing starts and that can vary depending on where you're at and a lot of other factors. So, I think, if the market tightens and things go up, you could still find a rig working in the second quarter, not at as higher rates that are being negotiated in the second quarter, because we negotiated it early in the year.

Right. Okay, thanks Mike.

Thanks, tip for me. I do think your statement about Q2 being a transition quarter though was accurate.

Robin Shoemaker with Bear Stearns has our next question.

Yes, I was wondering when do you expect the credit rating agencies to give an opinion on the combined companies debt?

I think, you should expect to see a press release from both of the agencies either today or tomorrow.

Okay. And assuming that you have good investment credit rating, what kind of refinancing opportunities or windows, do you have any comment on state of the markets now for your purposes of refinancing much of the high cost Falcon debt?

No, not really. In order to refinance the debt, we would have to tend to bring it in and pay a premium so net-net even though we are not going to lower, I'm not sure that we'll windup with much less effect of a total interest dock. So, we haven't really decided exactly what we're going to do with the debt structure at this point.

I see, so no immediate action than we should expect, somewhat, perhaps, later in the year?

Well, we would move pretty fast once we get the focus on things. So I wouldn't think [_______________].

My other question had to do, if you could round out that the new bill in terms of the status of the Deepwater Horizon, I know, that's one other rig under construction, I think the delivery date is May, are you comfortable with that date, is there a drop-dead contract similar to some of your own rigs?

I have been told in the last week that that rig is on schedule.

Actually, I think it's due out before May. I think we expect to deliver in March or April. I'm not aware if there is any contract cancellation possible.

Okay. All right. Thank you very much.

Moving on, we'll take our next question from Jeff [_______________] with SAC Capital.

Hi. Kevin Simpson answered my question. Thanks.

George Castro with CIC.

Hi. Good morning. I'd like to ask the same question I asked last quarter, which is, you continue to have execution problems, I mean, your stock has lagged, your peer group, do you feel that maybe the management team is trying to do too much with trying to do acquisitions, new bills, etc. etc.?

Well, I wouldn't say that, we've done three mergers in the last four years, all pretty major, and at the same time, we initiated a construction program of our own at old Transocean Offshore, and each of the companies we merged with had a pretty significant construction program of their own, thus between Transocean Offshore, Sedco Forex, and R&B Falcon, you're probably looking at $5.5 billion or so in new construction. So, to say, with a lot going on the answer is 'yes'. But I'd also say that most of the people focused in the construction program, where I don't think that the mergers had as big an impact on them as it did on some of the other parts of the company, so, I guess, I wouldn't be naïve enough to say that the three mergers with all the construction going on at the same time didn't create some inefficiencies. I don't think that wasn't the primary reason for the problems we had with the construction program.

But, I'm thinking more along the lines of seeing your management attention. I mean, you started up the call by saying that you had plenty of time to have a big plan for this latest merger that closes tomorrow, and yet, I just heard that there is no financing plan.

How do you want to answer that Bob? To say there is no financing plan, I think, Bob said there is not a final definitive plan. To say there is no financing plan is probably you're over-reacting to what he said.

But what would you be waiting for?

Well, I think there are a number of things that we need to decide whether or not it makes sense to take debt out depending on what we think we would have to pay for, and I guess, that we're a little bit sensitive to the fact that if we broadcast our intends, it could increase the cost to us of taking some of that debt up. So, there are a lot of moving factors here that, I think, we need to be careful with and we have a lot of difficult alternatives in terms of not only what debt to take out, but how to refinance that debt. We have a lot of flexibility in the financial markets and we have the possibility of refinancing with everything from CP to zero-coupon convertibles to long-term debts. So there are a number of different choices we have, and we're going to wait and make the best combination of those choices at the right time.

Thank you.

We'll now take a question from Roderick D. McKenzie with Dain Rauscher.

Hi guys. You made a mention in your press release about the new contracts that you've got and, I guess, during the course of the call you talked about the Amirante and the Richardson, can you give us a little color on what you put up on the Nordic Trident 15 and the Sovereign explorer? Thanks.

Certainly. The Nordic is, we're in the final stages of talking to BP to take it over in Norway, rich by a $1000,000 a day for 9 months and they do have options which will dependent on upgrading the rig to take it to 26 months. The Sovereign explorer, I think, we've announced that before. The new one is Amerada Hass and that rate is about 175 a day. Keep in mind that it's just a one well program, prime 17 is with Arco which is now BP, of course, and that's at 47.5.

Okay, and on the Nordic, when you take it over to Norway would your operating cost going to run over there?

Probably somewhere in the neighborhood of 50-55.

Okay, I guess, one last question. If you look at one of the other competitors that are out there with the harsh environment jackups, it would appear that rigs with that class [_______________] these things from a kind of spotty demand out there, are you seeing a stronger market for that class of rig as far as strengthening up as the year progresses?

North Sea looks pretty good right now for those. I know Santa Fe has signed up a few of theirs recently and the Nordic is not quite up to that class and so we kind of slip in below them. BP didn't quite need that big a rig, but the reason they took us is because there is developing a shortage of the big rigs.

I guess, one final question more on Falcon part, as we listened to Globe Marine conference call, they talked about margin pressure they had seen in the turnkey business in the Gulf of Mexico, do you expect to see the same kind of problems come out of Falcon this quarter and are they in the process of pulling out of the ER, margin pressure if they're having as we move into Q2?

I can't answer that question, but my guess is that Global Marine is seeing margin pressures that aren't and these probably have seen similar results, but I'm not aware of that personally right now.

Fine. Thanks a lot.

Gracin Murphy with [_______________] Associates has our next question.

Good morning. Recently there was an article in the Wall Street Journal that was very negative about the deep-water growing business and has implied that they were of a more than normal. We expected technical and upriding problems that were making it not very economic now. I assume that since we've been operating for quite some time successfully that they are not overwhelming, but could you comment on the general tenure of this article? You may not have seen it, but the fact that it is a profitable business and obviously we're moving ahead with it?

Well, yeah, I did the see the article and I guess my read of the article would be that we've all found out that the cost of the cycle and expansion in deep-water drilling assets and beyond the drilling assets a lot of components, there was also lot of that articles diverted to Cooper [_______________] and quotes from their CEO, but, I think, there was a lot of comments about a lot of the equipments that's being built is to operate under conditions that people haven't done a lot of in the past and they were finding a lot of challenges in doing that for a cost they originally thought it would be. I think from a technical standpoint, those issues are being solved and certainly the reserved opportunities in deep-water, to my understanding, as I talked to our major customers most of being old companies, they certainly see their future in terms of opportunities both in reserves and production. They see deep-water as being a very, very important component of that, so, I think I'd say that where the deep-water market is probably seeing some of the growing pains that you are always going to see when you start doing something new and technically more challenging, but I think those problems are going to be overcome and the operation will be profitable and the old companies are going to final out the reserves out there.

Thank you.

Our next question comes from Scott Gill with Simmons & Co.

Yes, just a couple of quick questions. Bob, maybe you can help us. Can you give us any firm guidance on what the DDNA is going to look like performing here?

Scott, you already asked one question. You're not allowed to come back, I am keeping track.

Can I get a credit on that Mike?

Okay, you got a credit, you always.

Scott, we're estimating to fall apart $630 million in DDNA and that's got a subject to little bit of change as we finalize our purchase price accounting, but something in that order.

Okay, and then lastly to help modeling, can you tell us how my shares are going to be issued and so we can have a good estimate of what the share count looks like in that pro forma?

I think that the total number of shares outstanding post-transaction will be 315.5 million, give or take. We cannot exactly how many that means we'll issue.

About a 105.

Arvind Sanger with Deutsche Bank has our next question.

Yes, yes.

Mr. Sanger do you have a question? Hearing no response, we'll go to Fred Mutalibov from Southwest Securities.

Good morning. Just one quick question on, there was gain item on the statement of operations for Q4 4.2 million, can you quickly tell me what it was?

I think that was a sale of couple of the office buildings that were redundant in the UK.

Okay.

Okay, I am sorry I just couldn't crack it, one was in the UK and one was in Channel View here in Houston.

Okay, and then the second one, I know you don't want to talk much about Amirante because you're in the process of negotiations, but what kind of dayrate maybe the range we should expect for this rig when it finally goes out?

Fifty.

Fifty?

Yeah.

Okay, and a last one on 2 rigs in 2 midrange semis in the North Sea Sedco 714 and Transocean explorer, but why is it that they are going out in June-July timeframe? What kind of dayrates range maybe we should look for them?

I think for the Sedco explorer, we'll probably see something in around 70 for its first work and I think for the 714, because it has significantly enhanced capabilities over those rigs, probably somewhere in the neighborhood of mid 80s.

Mid 80s, alright. Thank you very much.

And our final question is also a followup question Ken Sill from Suisse First Boston.

Yeah, I guess I am in the penalty box on too many question too.

[_______________] like you guys [_______________] me.

Quick questions on housekeeping. What was the capitalized interest amount for Q4?

Twenty million dollars.

It was 20, okay, and what was the tax rate on the gain on sale of assets?

Well, I think that on the UK sales, we would be zero rate applied in on the Channel View sale it would be a 35% rate applied. I don't remember the exact closings in detail and so I can't give you an average there.

So we don't have a net tax number on that one? 3:2?

Well, guessing the [_______________] of tax would be a best guess.

That will be close enough. Thank-you.

And Mr. Chastain there are no further questions at this time. We'll turn the call back over to you for any additional or closing remarks.

Well, I simply again I'd like to thank all of you for joining us, and as I said its going to be slow start, but the year is going to get a lot better, and the second half is going to be very strong, and we'll give you another update on our outlook with our first quarter call. Thank-you. Have a good day.

And that does conclude today's Transocean call. Thank-you for using...