Transocean Ltd (RIG) 2002 Q4 法說會逐字稿

Welcome to the Transocean fourth quarter and full year 2002 results teleconference presentation. At this time, all participants in are a listen only mode.

Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, press the star followed by the 0 for an operator. As a reminder, this conference is being recorded Thursday, Jan. 30, 2003.

At this time, I would like to turn the conference to Jeffrey Chastain, Vice President of investor relations.

Good morning and welcome To the review of fourth quarter and full year 2002 results of Transocean.

The press release covering results for the fourth quarter and full year of 2002 is posted on the company's Web site and that's at www.deepwater.com and includes a income statement balance sheet, cash flow statement and selected operating results or statistics.

Also issued this morning and available on the company's Web site is the monthly feet update dated January 30th and covering the current contract status of the Transocean mobile offshore devil fleet. This morning's call includes participation from the following Transocean senior managers, Bob Long, President and Chief Executive Officer.

Jean Cahuzac, Vice President and chief operating officer. Yan Ross, Chief Executive Officer of the company shallow and inland drilling operations in the U.S and Gulf of Mexico. Greg Cauthen, senior vice President, Chief Financial Officer and Treasurer. RickRicardo Rosa Vice President and Controller, and Mike Unsworth, Vice President of marketing.

Robert Long will provide opening comments followed by a question-and-answer period. Before I turn the call over to Bob, issued remind you that during the course of this conference call, participants may make certain forward looking statements regarding various matters relating to our business and company that are not historical facts, including future financial performance, operating results, the prospects for the contract drilling business, and certain matters relating to the initial public offering of our shallow and inland water business.

As you know, it is inherently difficult to make projections in a cyclical industry since the risks, assumptions and uncertainties involved in these forward-looking statements include the level of crude oil and natural gas prices, rig demand and operational and other risks which are described in the company's most recent form 10-K and other filings with the U.S. Securities and Exchange Commission.

Should one or more of these risks and uncertainties materialize or under line assumptions proved incorrect, actual results may vary materially from those indicated. That concludes the preliminary details of this conference call for the opening remarks, I'll now turn the call over to Bob Long.

Thanks, Jeff. Good morning, thanks for joining us, everyone. Well, what I want to do is make comments first on the financial results for the quarter in the year, then comment on the near- near-term outlook for some of the key markets and then provide some background on earnings guidance for the first quarter of '03. I don't feel we have enough visibility on full year 2003 earnings to give any guidance for the year, so I will not be commenting on that.

After I cover these items, we'll open it up for questions. On the results for the quarter, as we told you in our last conference call, we were required to do a good will impairment test as of October 1 1st.

That test resulted in noncash charge of almost $2.9b, which in turn resulted in a net loss for the quarter of $2.8b or $8.71 a share. Excluding that noncash charge and excluding the 2 cent loss on impairment of assets previously held for sale, we reported earnings of 32 cents a share. This is above the consensus expectation of 26 cents a share.

The good will impairment eliminated all of the good will for the shallow and the water group and leaves 2.2b of good will on the balance sheet related to the deep water and international segment. I want to remind you that this was a noncash charge and has no impact on debt covenants or anything else of significance.

It's a result after mechanical rule and is primarily driven by our stock price on October 1st. There is not a lot to comment on on the individual line items in the financials. Revenues were down $30 m from the prior quarter.

And you can see from the fleet statistics that were included in the press release, that was primarily from the continued deterioration in the mid-water floater market which we list call " "other floaters" in the statistics sheets. Costs came in at $366m.

It was a little under the guidance we had given you, but as we continue to see some benefit from a strong focus on cost control, and we also didn't see quite as much pick-up in the shallow and water business as we had anticipated when we gave that guidance.

Looking at the results for the year, if you cut through the charges related to good will, as asset impairments and the re restructuring tax benefit we had this year, we are at $1.14 per share versus a comparable $1.31 last year.

Revenues are down $150m from last year, but we also brought costs down by over $100m. We did that by responding rapidly to reduce costs when rig rigs were stacked.

We also had some good success in our efforts to standardize our purchasing which I think we've talked about before. We're now up to in December, we purchased over 40% of what we buy worldwide through negotiated purchasing agreements. That's up from 20% at the start of the year.

We also saved almost $3m during the year by transferring inventory between rigs as opposed to having to having purchase new. We nationalized over 90 positions around the world and we continue to focus on reducing headcount on our rigs and reduce headcount worldwide by well over 100 people.

We also -- we were also successful in improving operating performance on 5th generation rigs. We reduced down time from 8.8% in 2001 to 4.9% in 2002. In the process, we generated a lot of cash and brought our net debt down from 4.2b at the end of 2001 to $3.3b at the end of 2002.

We have $1.2b cash on the balance sheet which is enough to meet the $1.1b of debt maturities coming due this year. Let me turn now for a quick look at the markets and the shallow and inland business we have not seen the pickup in activity that we would have expected, certainly not what we would have expected with gas price were they were.

Yan Ross is here and he can answer questions that we have when we open up for questions. We are proceeding with plans to be prepared for shallow inland water business segment when market conditions warrant. We have filed with the SEC and have received comments which we are responding to, but given the market conditions right now, it looks like we will not proceed with the IPO before refreshing refilling with year-end financials which means we won't be in a position, really, to consider the IPO probably until late march or early April. At that point, we'll just continue to monitor the market until we think conditions are right.

We'll look at the international jack up market. That continues to be good. Despite some softness developing in Nigeria, India is continuing to preserve what they requirements for additional jack up's [Inaudible] continues to plan for more jack ups and there are indication that is [PMEX] may need 300 foot jack ups in Malaysia. Looking at that market I would expect rates for the international jack up to remain in the mid-50s to low 60s, given these conditions.

The mid-water floater market continues to look pretty poor. We've seen a few opportunities to bid our stacked units in the Gulf of Mexico, but the programs weren't long enough to convince us to bring rigs out of cold stat.

In the North Sea, we've got nine rigs stacked including two in Norway. Five of six of these rigs may not work all year.

We do expect to bring at least three and maybe four of the other rigs back to work by late first or sometime in the second quarter.

In the Far East, we continue to work on short-term contracts with our five floaters, two of them right now are currently idle, but expected to go back to work very shortly.

However, I do expect to see intimate and down time on some or all of this rigs throughout the year. It's not clear to me when the market for these mid-water floaters is going to turn around or what's going to be the catalyst to drive the turnaround turn around turn around.

There are some positive developments with PMEX's plan to add additional semis and some of the majors starting [Inaudible] of properties to independents who may be more active.

However long it takes for this to have a significant impact is difficult to say. In deepwater, the deep market is starting to see a little bit of softening.

We've been successful to date in keeping the Cajun express and millennium working in short-term contracts in the $1665 to $180,000 range. We're now seeing potential that maybe those rates on the short-term contracts will come down to the $135,000 to $140,000, to $150,000 range. The market for the 5,000 foot plus or minus deep water rigs re remains soft with most of the rates continuing to work but rates in and around the $75,000 range.

Longer term we're optimistic on the outlook for deepwater with significant prospects in west Africa and some continued developments with deepwater opportunities in the far east and India.

Looking at our earnings guidance guidance, we only have 51% of our deep water and international rig time committed for 2003 and virtually none on for the shallow and inland water. That's why we're not really able to give meaningful guidance for a full year. Looking at the first quarter, we've indicated in the press release that we expect earnings to come in somewhere in the 11 to 16 cents range.

That's substantially down from the fourth quarter of last year, and there are a number of things that contribute to that. As we indicated, we see some potential for reduced rates in the millennium and Cajun.

We also have the rather either stack stacked or mobilizing so essentially not earning revenue during the first quarter. Seven seas is idle in Brazil, undergoing a major refurbishment refurbishment, and we're seeing reduced rates on the sovereign explorer in west Africa and most people know that Sedco Energy is on a stand by rate in west Africa, so we're receiving a lower rate there.

In addition we have several jack ups that have mobilized into new jobs. The Shelf Explorer are moving to new jobs in Egypt and Africa, so they won't be earning revenue during the first quarter.

We have one jack up in Egypt that is out of service for -- repairing some equipment damage and probably be down most of the first quarter.

In addition to that, the north sea obviously has shown significantly weaker results with the jack rates down and the lower rates on the 714. We have an SBS plan on the searcher which will probably get done in the first quarter which could increase our cost by $6 or $7m. As for guidance on costs, we guided last time to a $370-380m range for the quarter.

Going forward, due to an accounting change that requires us to recognize as costs items that we charge the customer on a reimbursable basis, and that won't have any impact on the bottom line because it increases revenue at the same amount of increase as cost, we think that the guidance for the costs going forward will be in the $385-395m range, assuming no significant change in activity. In giving you that range, I have taken into consideration the potential increase in our insurance costs.

We have finalized a new insurance program on the majority of it, and we did so with flat premiums, no increase in premiums, but we did have to assume significantly higher self-insured retentions. If we have the same loss record in 2003 as we had in 2002, we expected our insurance costs for year to will be up $10-15m dollars over what we saw in 2002.

Over all, what looks like a difficult start to the year, we are optimistic about the deep water market longer term, and we're obviously very pleased with the outlook for international jack ups.

In 2003, we plan to continue our focus on improving operational efficiency and reducing our costs and paying down debt and waiting for the right conditions in the market to proceed with the IPO of the shallow and inland water business. With that, that's all of the prepared comments I had. We'll open it up for questions.

Ladies and gentlemen, at this time, we will begin with the question and answer session. If you would like to ask a question, please press the star, followed by the 1. If you would like to decline from the polling process, press the star, followed by the 2, when you hear a prompt acknowledging your selection. The questions will be polled in the order they are received, if you are using speaker equipment we do ask that you reach the handset before pressing the numbers. One moment for our first question. Our first question comes from Ken Sill, please state your company

Ken Sill from Credit Suisse First Boston. Good morning, gentlemen. You guys are doing a really good job on controlling operating costs. And I have got a couple questions there. You said your are going to have the pass-through revenues will gross up the expense line. And I guess that looks like it's kind of a a -- what would you say, $10-15m?

$15-20m a quarter for that reimbursable gross-up.

That'll grows up revenue as well, won't it?

Yes.

Are you going to allocate that to the segments or will that be like some of the other guys reporting pass-through revenue, pass-through expense?

We will allocate it to the segments.

Okay, so we'll have to gross that up a little bit. But, you know, a little further digging on the operating costs. How much of the savings is deferred maintenance items that will come back if activity picks up, and how much of it is kind of a permanent reduction through through, you know, better purchasing, better allocation stuff and personnel reductions? Can you quantify that?

I don't think we can quantify that, Ken. I think that there is some deferred maintenance in there, but not really very much on the rigs that are continuing to operate.

We deferred a little bit of maintenance of rigs that we anticipated were going to go stack and didn't see a very good prospect for them working. For the most part, we're not really deferring significant maintenance on any of the rigs that are continuing to work and have prospects for continuing to work.

Okay, but, if you start unstacking some of this stuff, there may be a little bit of increase and would it be similar the special survey you have it on the searchers will add $6-$7m in costs, that's actually the typical number, isn't it?

That's a normal number for a special survey on a rig in the north sea.

All right, I'll let somebody else ask questions. Thanks.

Our next question comes from James Stone, please state your company affiliation followed by your question.

UBS Warburg.

Bob can you just talk a little bit about, when you look at the deep water and kind of ultra ultra deep water market which appears to be softening right now, can you give us a sense perhaps as how far out of balance you think that market is?

I mean, we've been going along here for about a year where the market has been Petering and kind of moving downward and do you think -- how far out of balance are we? Are we overbuilt and when do you think that will come back into balance? What will at that take to bring that market back into balance.

Mike Unsworth can supplement what I'm going to say a little bit, but it's difficult to say how far out of balance it is. My sense is that it's not very far out of balance. Most of the -- and I'm talking about the ultra deepwater segment. Most of the softness right now is to some issues in west Africa with several of the rigs on long-term contracts that have been farmed out for a significant amount of the contract period.

Some of the operators are start to see difficulty. I've seen it with our Sedco Express, Sedco Energy, because of problems getting government approvals so that while I've got some wells lined up, their schedules are getting a little bit complicated. One of the wells that the Energy was planning to drill, they are now unable to do it and they are looking for a -- another well to put the rig on because of government delays.

And my sense is that this is a temporary phenomenon because of some delays in getting programs programs -- a lot of potential drilling is going to go forward, but a number of things are just delaying that. I don't think that we are significantly over supplied in the altitude market, but I couldn't give you any quantitative numbers from that. Mike, can you supplement that?

Only to say both that, you know, the 5,000-foot plus market market, which is the one we're saying is ultra deep for this conversation is pretty much our fleet.

Pretty much occupied for the whole 2003 as far as we can see going forward, and the softness it's a little bit soft in the Gulf of Mexico right now, so we're seeing bigger rigs competing with shallow water depths.

One thing on positive side there is we've just completed with a smaller rig in a 4500 feet project and we've achieved a 50% increase in day rate over the competitor, because the performance of the big rigs. That was one specific project, but -- it is softness, and we're getting pressure on the rigs. As Bob says, West Africa is very encouraging. Programs are starting to move, now specifically in Angola and the issues holding back the business in Nigeria, we're fairly familiar with.

One of these days, that's going to be released and an MPC submitted a budget to the government for $4.66b in spending this year, which is $1b over and above last year year's budget, if that gets accepted that's encouraging news news.

And could I ask a follow-up? Can you -- Bob, you didn't touch upon your outlook in Brazil. Give us some commentary there with the change in management. Are you seeing change in Petro Ross's plans for 2003 or beyond?

Yeah, the directors -- the directors have not yet, as far as I'm aware been appointed in petro brass. The head has been appointed, but right now it's a little bit of of -- we don't know exactly what's going to happen, but our people in Brazil are telling us that they are encouraged by what they see.

Up to now and there have been no significant changes up to this point, but, of course, going forward, we have to see what happens. But we're thinking that the deep water business in Brazil will remain solid. We don't see any case for big increases and we don't see any case for big decreases, but it'll remain solid and we can see that our equipment will stay pretty busy all year.

That's very helpful. Thank you.

Thank you, sir, our next question comes from Jordan Horoschak

Good morning, Jordan Horoschak with CIBC World Markets. I was wondering if you can update us on progress system that you planned asset divestitures, I know you have sold one rig [Inaudible]. It's been a while since some of rig you had planned for sale, you had to eventually cite them for use again. And I was just wondering what's the laid ahead with those plans plans?

Well, that's difficult to say because of the condition of the market right now and we're not disposed to proceed with fire sale prices.

We don't have to, so my instinct will be that you're not going to be very many sales this year. Most of what we might be interested in selling is probably in the mid-water floater and the very low capable jack up rigs and it's not a strong market, obviously for the mid-water floaters right now. The very small jack ups, like the 160, we've got a couple left like the Jupiter and maybe some of the 100 series in the Gulf.

Those rigs don't have a big market either, so my guess right now is that we'll just see perhaps one or two very opportunistic deals that come up in 2003 but not a significant amount of asset divestitures

Maybe that takes a back seat until you get better asset sale prices?

Yes.

Yan, I had a question on [Inaudible] their fleet is a bit different then you ran from the marine drilling. I was wondering how you sort of saw you handling those challenges and also how aggressive you might be in returning some of those cold stack rigs back to service.

Okay. What we have in the Gulf of Mexico is two fleets. Jack up submersible fleet and inland barge fleet. On the inland barge side, we're running 31 rigs out of 48 in the Gulf of Mexico.

And we had -- we were the swing producer in that market until basically the fourth quarter, and we are changing that now and getting more rigs out. On the jack up side, we also want to bring rigs out and the reason is that we anticipate at some point in time whether it's going to be this quarter, next quarter or sometime in the second half of this year, that the market will improve.

And when that market improves, we want to be there. We want to have the equipment workable and we want to have crews on our rigs. And I think we're getting there.

Great, thank you very much.

Our next question comes from Wesley Maat, please state your company affiliation.

It's Wesley Maat with Full Cam Global Partners. Bob can I get you to kind of walk around the world and comment at about the market for various different classes of rigs now in terms of the leading edge day rates. We'll start with the floater market.

You know, in places like Brazil, where you've had -- or where you will have the Legend up in May. The gulf semi market, mid-range and fourth generation. North Sea, third and fourths, and if you want to comment, Southeast Asia.

I'll let Mike Unsworth tackle that for us.

I'll start with the deepwater business and run through quickly on that. We've already commented on Brazil. Our feeling is it's pretty solid and that the deepwater business in Brazil will stay that way. No reason to believe it will change significantly.

Mike, could I get you to comment on day rates where you see the market is? That's the nature of my question question.

Well, you pointed out two rigs. We keep thinking about deep rigs nowadays being over 5,000 feet. So you mentioned the Legend and the Driller. We've gone well to well and tried to find short-term work for those rigs down there. We're comfortable we'll keep them busy. The rates have been as low as 55. You are aware of that. We're negotiating rates above that at the moment.

Okay.

So we're in the middle of discussions, so it's a bit difficult to start giving you -- we're talking mid-water. We're talking about the Driller and the Legend, right?

In terms of Brazil, yes.

So it's not part of the deep water fleet. If you move up to -- is that okay for Brazil for you?

Yeah, I'm to the Gulf, the mid-water and fourth generation market.

Well, the Gulf mid-water business, our -- our two what we call deep water but not ultra ultra deep water rigs are cold stack, Amirante [Inaudible]. We don't feel at the moment feel like the market is ready to bring one of those rigs out. But the visibility in the Gulf of Mexico is pretty short and things can turn around pretty quickly. Of course, the way the commodity prices are right now, we're hopeful as Yan pointed out. That all has impact on the Business. I won't say we wouldn't bring the Amirante out this year, but if business stays as it is, we won't.

On the deeper water rigs, rates are softening a little bit. If you are talking about the business in 4,000 it 5,000 feet, the rates are softening a bit. As I pointed out earlier on, we've been able to secure a premium over one of our competition in that water depth range because of a specific program.

It was a one-well affair. But the specific program and the efficiency we were able to bring to that program with the ring, that was the Millennium. We're getting premiums on the rates there, but I would say rates are softening. Rates could go as low as 130, but we're seeing them somewhere between 130 and 160 at the moment. And they have been higher than that. They will return and we're pretty sure of that.

Wes, to give you a couple of bench marks on the gulf in the shallow or mid-water rigs and in the 5,000 foot, we're seeing opportunities to keep the Richardson working at about the 75,000 range as I mentioned. And the other active rig we've got which is a mid-water rig there we're seeing rigs in the 45 to 50 range, short-term contracts.

That's potential add-on to the Falcon 100 that you had up for renewal in may?

Correct.

In terms of the North Sea market right now, obviously you've got a lot of rigs stacked stacked. Where do you think the third and fourth generation markets are in terms of rates?

Well, we're currently discussing rigs north of $100,000 a day for the fourth generation rigs in the harsh environment with continuing programs.

Okay.

On the shallow side, a lot of capacity has been taken out of the market. We've got six rigs cold stacked up there. The rigs are holding around, I would say 50 at the moment, between 45 -- some people are willing to offer the rigs at 45 in the short short-term, but they are holding around 50 I would say.

In terms of the Baits, which is idle, is that the vehicle you are targeting for the harsh environment work at 100 and would that be seasonally affected, i.e., is it a rate that would be at the summer window, April through September?

We've got visibility on a program that is going to be coming up. It's quite a lot north of a hundred. In the summer, that's when you take advantage of the deeper water equipment. It is seasonal.

Okay.

We have struggled through the winter to keep the rig busy, as you can see. But we're expecting significantly north of 100,000 a day.

And we'll see next winter how things turn around. We -- there's two drill ships heading up to the north sea and they are picking up some work, too. So extra supply is moving to the North Sea.

In West Africa you got the YUN and the Cunningham up in February, March. They are currently anywhere from 55 to 80. Where do you see the market for those type of rigs.

The Cunningham is actually in the Mediterranean, in the Eastern Med. They are pretty much in balance there. I can see the rates in the Eastern Med going up towards 100, given the right conditions and right program. It looks like it's pretty tight over there. West Africa, we're going well to well again, so we're negotiating contracts. It's hard to say what the rates will be because I don't want to say. We've got competition, right?

Yeah.

But there is enough work in West Africa to keep the rigs that out there busy. I'm talking about 4,000 to 5,000 foot rigs. To keep them pretty busy and we're expecting rates to be pretty healthy.

Okay.

In terms of Southeast Asia, you've got 600 series, anywhere from 52 to 82, I believe. You could kick a football through that goal post. Where do you think the market is for new fixtures?

Except Bob mentioned it's a very spotty market. We've got five Semis out there. [Inaudible]. They will be stopping a bit. That's characteristic of that market. When opportunity arise in Australia, Australia is a much higher cost environment. When opportunities pop up in Australia, you could be head towards $90,000 to $100,000 a day. You know their contracts are being negotiated now. Competition is doing the same thing.

In Southeast Asia, you know, you could be as low as 45, 50. So that's the reason why those goal posts are so wide. Again, we're negotiating on a day-to-day basis in southeast Asia. It's very difficult for us to tell what you day rates we're going to sign right now.

I think, Wes, for guidance, look at the 600 series in terms of 55 plus or minus a little bit bit, and if you look at the 700 series out there and think in terms of 80 plus or minus a little bit, you're not going to be too far off, I would hope.

Okay. Very quickly, in terms of the north sea jack up parked market, the west Africa jack up market and Yan, the gulf market, where do you think the fixtures are for jack ups?

I think international jack ups, we're bullish. We've recently had some fixtures in the 60s.

I don't see any reason for those to go down. There is a potential, I think, for them to go up, given the demand developing in Malaysia on top of the OMGC requirements. I think those fixtures are going to stay at least where they are and maybe get a little bit firm firmer. Yan, what do you think about the Gulf?

I think for our kind of jack jack ups, commodity jack up the day rates are in the low 20 20s. If you bring out stacked rigs, you have to give a little bit of discount on that and work that in the high teens. For our inland barges, I would say the day rates are in the high teens today.

If I remember right, Yan, you did sign up some fixtures recently at 17.5 in the gulf market. You are saying shows fixtures are no longer valid?

Those were for initial wells to bring rigs out.

Okay. What's your cash operating cost right now for Gulf jack ups

It really hasn't changed. Our program to reduce costs to be able to run the rigs in a good or bad market is a program that will take 6 to 12 months to implement. So, they are pretty much where they were in the forth quarter.

Which was?

Around 18.

Okay. Would you go to that level or be below that level to get rigs to work?

We're working all of our rigs with positive cash flow.

Thank you very much. Sorry for the extensive questions.

Thank you, sir. Our next question comes from Scott Gill, please state your company affiliation followed by your questions.

Scott Gill with Simmons and Company. Good morning gentlemen. Bob, if you could, just give us an update on your capital spending plans here for 2003, and if you kind of break out what the capital spending is targeted towards.

I think we're estimating a capital expenditure in '03 about the same as what we had here in '02. It would be under $1150m, somewhere in the $130-150m range, I would estimate.

Okay, we've seen several of your competitors increase maintenance capital for -- it sounds like you obviously don't need to do that. Any commentary as to why competition is increasing maintenance capital and Transocean is not?

No, I don't really know. I think some of them have some strategic plans to upgrade some their equipment during idle time time, particularly, I think that's true in some of the premium jack up operations. All of our jack ups are working. We don't see all of our deep rigs working, and we don't see any sense in trying to upgrade or modify any of the mid-water floaters. So I suspect it's more a function of the distribution of assets versus what we have.

My only question remaining for you, Yan is, you talked about the barge fleet, putting more barge rigs to work. Is that a function of bidding the rigs lower and taking market share or are you seeing that market actually improving as well?

Yeah, I think it will improve as the market in general improves. It hasn't really improved if we look back over the past six months.

In fact, we had higher utilization in the market for the barge rigs in July/August than we do have today. It's currently below 60%. So we have bought utilization. That is correct. I want to get rigs out so they are ready to go to work and they have crews, once the market does improve, because this market will improve.

Right. And can you give us any sense as to how many more of these rigs you plan to put in the market over the next three months?

Over the next three months, it's a function of the market development. But if we look out a year or so, we could go from 20 that can work today to approximately 27.

Okay. And capital requirements to do that, Yan?

Some, yes, but on the barge fleet, it is not as much as on the jack up fleet.

Any sense as to like a million dollars per rig?

Well, I would say it's going to be marginal. The last rig, the 27th rig might be four, five million, but the first rigs might be less than $1m.

Okay, thank you.

Thank you, sir. Our next question comes from Pierre Conner. Please state your company affiliation, followed by your question.

Pierre Conner, Hibernis Southcoast Capital. A follow-on to that Yan, on the Jack up side with the 15 [Inaudible] rigs there, what would you say you could put to work in what kind of the same perspective as you just gave on the barges in terms of capital requirements and how much you would put to work in that environment.

Okay, we have 27 jack ups in the U.S. gulf of Mexico. We have three submersibles. I'll put those together. 30 rigs and 15 of those can work today. I think within the same time frame approximately about a year year, we could go to 23 or so. How much higher we can go depends on what conclusion we are drawing on the technical study we're going through right now, concerns concerning those rigs that have been stacked for a very long period of time. It's conceivable that we will take three or four rigs out of service.

Permanently?

Permanently.

I see. And Yan, what again, same question related to the jack ups. Is it an opportunity you've gain gained some market share or have you created additional jobs by pushing some rigs out and making them attractive to drill?

No, I mean, six months ago we had approximately 100 jack ups in demand in the U.S. gulf of Mexico. Today 88 are working. So, the demand has shrunk and we have been able to sustain our position and sometimes had almost all of the jack ups working that can go to work right now.

So we have -- we have increased market share and it's a our policy to bring the rigs out because it's easier to get good crews now than it will be when the market is here and we want to have the equipment operative.

Okay. And could you tell us sort of on the margin, you know, people are giving their perspective of inquiries. What do you sense here in the last month or so relative to what you felt when you first got there from your customers?

In terms of what the customers expect?

Yes, or interest. Their interest levels.

Yeah. That's an interesting question. Because about two months ago, I was pretty optimistic about January, and obviously, I was wrong. I do, however, get the sense that a lot of people are at least putting the keys in the ignition. And whether they are turning it or not, remains to be seen, but a lot of people are telling us that they will start programs in the March/April time frame.

With 88 rigs working and 75% utilization in the use Gulf of Maxico jack up market, we need 10 more rigs to go to work and then we should see day rate pressure. I want to remind you that two years ago, we had 156 jack ups in the gulf of Mexico, 145 working. We have 117 that can work today. So, if the cylinder starts to fire up here, it could be real interesting.

It won't take long to tighten up.

Yan, thank you. If I could indulge a little bit, Bob, on the deep water side, are you seeing any new areas that might be developing, for instance, Australia, that could potentially generate some demand demand? Longer term.

Well, there is a lot of perspective interest developing in a number of different areas, I'm not sure what success operators have had with their programs with the things that exist out there. Drilling 4 to 8 wells, but there have certainly been a lot of interest from people like Murphy and Shell and Unical in Malaysia in various parts of the far east. We know Shell has interest in drilling some deep wells in the Mediterranean, in Egypt, Morocco, and Canada. Those are a lot of different provinces which right now aren't big deep water provinces, which could develop if these people have significant success.

India is looking very interesting with alliance and NGC both. We understand there are couple of majors that may be starting to get interested in looking at that play too,.

Okay. One final and that's on your cost initiatives, fleet wide now, in the progress made nationalize et cetera, give us a percentage completion towards your goal, halfway, 90%, how much have you accomplished relative to what you want to do?

I don't think that I could give you a specific in terms of we -- in terms of our targets for this year, we actually, I think, almost doubled what we had originally set out, particularly in Brazil.

We've more than doubled, and the ultimate goal, I guess, depends on how long we stay there and how steady the rig activity count is. I think this is a long-term program that over the space of maybe four, five years, we hope to see a substantial part of the rig fleet being manned by nationals. But that's going to be a function of stability in the area. Every time you move a rig, things change.

Okay. Fair enough. Thank you very much. And I'll turn it back.

Our next question comes from David Chiaro. Please state your company affiliation, followed by your question.

This is David Chiaro I can't with Goldman Sachs. Good morning. Bob, in your opening remarks, you indicated that your cash on the balance sheet exceeds your near-term debt. Is that your intention to pay off short-term debt with your cash or do you plan to refinance part of that?

We plan to retire all of the maturing debt and we will obviously, since we already have more cash than we need to retire the scheduled maturities, we are going to either build significant cash during the year or start retiring some of the other debt early. What we retire or if we retire is all going to be a function of interest rates and present values and those kinds of calculations.

For your CAPEX plans for 2000 indicated was $130-150m. Could you break that out into [Toddco] and remaining transition.

If my memory say's it right, about $30m of that is probably going to be for the Toddco. That's going to be a function of the activity level if activity picks up like Yan expects and we all expect with these gas prices prices, then the $30m is probably going to be spent and I guess we actually hope that activity got even higher and we may spend more. If activity doesn't pick up, then that $30m won't be spent.

That $30m won't be spent?

If the activity doesn't pick up, then a substantial part of it won't be spent.

Okay. Could you provide some guidance for the tax rate for 2003, maybe with and without Toddco?

Greg will be happy to answer that.

Without an IPO or tax rate guidance should be around 15% this year with an IPO. Probably a little higher around 16% or so. Long term, without Toddco, once it's totally divested and is no long longer part of our reported results, tax rate will still be wrapped right around 15%, realize short term, we would still consolidate Toddco, unless we divest over 50%. We fully expect that in the initial [Inaudible] transaction.

One last question, your tax rate for the fourth quarter was a little under 12%. Was there anything unusual there?

No, if you realize when you do an effective tax rate calculation, each quarter you forecast your expected rate and then sink it up in the current quarter and when you get the year, there is always an adjustment as you sink up your actual to your forecast ,if you carved out the some of the unusual items good will impairment and fixed asset impairment, the actual effective tax rate with all of those items carved out was 14.5%, so close to our expected 15% going forward.

All right, thank you. Thank you, sir.

Ladies and gentlemen, if there are additional questions, please press the star, followed by the 1. As a reminder, if you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment, please. Management, at this time, we have no further questions. Please continue.

Okay. Ladies and gentlemen, we appreciate your participation. If there are no further questions, then I guess we'll call it a day. Thank you for joining us.

Ladies and gentlemen, this concludes the Transocean fourth quarter fourth quarter and full years 2002 results teleconference presentation. If you would like to listen to a conference, please dial 303-590-3000. You will need to enter access code which is 519997. You may now disconnect.