Transocean Ltd (RIG) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Transocean first quarter 2003 results conference call. All participants are in listen-only mode. Instructions will be given for the question and answer session. If anyone requires assistance at any time during the conference, please press the star followed by the zero for an operator. As a reminder this conference is being recorded Tuesday, April 29 2003.

I would like to turn the conference over to Jeffrey Chastain, Vice President of Investor Relations.

Thank you, Andrew. Welcome to the review of the Transocean first quarter results. The press release covering results for the first quarter is published on the company's web site located at deepwater.com. This is an income statement, balance sheet, cash flow statement and selected operating statistics.

Also issued this morning and available on the company's web site is the monthly fleet update, dated April 29th and covering the current contract status of the Transocean mobile offshore drilling fleet.

This morning's call includes participation from the following Transocean senior managers. Bob Long, President and Chief Executive Officer, John Cahuzac, EVP and COO, Greg Cauthen, Chief Financial Officer and Treasurer, and Brenda Masters, Vice President and Controller and Mike Unsworth, Vice President of Marketing.

Bob Long will provide opening comments, followed by question and answer period.

Before I turn the call over to Bob, I must remind you during the course of this conference call, participants may make certain forward-looking statements regarding various matters relating the our business and company that are not historical facts, including future financial performance, operating results, the prospects for the contract drilling business and certain matters related to the public offerings.

As you know it is difficult to make forward-looking statements in a cyclical industry since the risks, assumptions and uncertainties involved in these forward-looking statements include the level of crude oil and natural gas prices, rig demand, and operational and other risks which are described in the company's most recent form 10 K and other filings with the U.S. securities and exchange commission. Should one or more of the risks materialize or underline assumptions prove incorrect, actual results may vary materially from those indicated.

Also, please note that we will use various numerical measures in the call today which are or may be considered non-GAAP financial measures under regulation G. You will find the supplemental disclosure for the measures including the most directly comparable GAAP measure and an associated reconciliation on our web site at deepwater.com and you'll find that under the label of non-GAAP financial measure.

At this time, I will turn the call over to Bob Long.

Thanks, Jeff. Good morning, everyone. Welcome to our first quarter conference call.

I'm going to keep my remarks fairly brief this morning, and then we'll open it up for your questions. As you saw from the press release, we reported earnings of 15 cents for the quarter. That was at the higher end of the guidance we had given in our last call of 11 to 16 cents, and we continue to generate a lot of cash with 191 million of cash from operations in the quarter which brought our net debt down from almost 3.3 billion to 3.1 billion dollars.

Despite the financial results, it was a difficult quarter. Revenues were down almost 50 million dollars from Q4 of last year, primarily the result of having four of our mid water floaters stacked in the North Sea, but also due to a slow down in the mid water floater business in the Far East where we have three of our five floaters cold stacked.

We continue to during the quarter to focus on the costs and came in at 374 million dollars operating cost which is below the guidance we had given of 385 to 395. Part of that was due to the fact that we have a little bit less activity in the shallow water gulf than we had expected.

But I'd caution you not to take that as a run rate. For accounting purposes, we deferred cost in the first quarter as we either mobilized rigs or prepared for new contract, particularly in the north sea where we have three rigs starting up this quarter.

And we also had the Rather (ph) which is mobilizing from the Gulf of Mexico to West Africa last quarter. While this decreased the cost in Q1, it will result in higher costs in Q2 as the deferred costs are amortized and the current cost realized.

We also will see an increase in cost in Q2 on these rigs that were starting up because we had postponed some maintenance that was due on the rigs before they were shutdown because we knew that the rigs were going to be down for an extended period. So that's also going to increase our cost in Q2.

We have a special survey due on one of the Norwegian rigs in Q2 which going to cost about 7 million dollars. So with all of that and an assumption that we are going to see some pickup in activity in the shallow water Gulf in Q2 we think that our operating costs are probably going to be closer to the 400 to 410 million dollar range in Q2.

Locking quickly at the markets, not really a lot of change to update you on since the last conference call. The international Jackup market remains very good and we expectorates there to improve as ONGC and Premix continue to drive significant increase in demand for Jackups.

We have seen additional programs coming up in the Far East so we are optimistic about the outlook for this market.

The mid water floater market remains depressed despite the prospect for an increase in activity in Mexico and the summer pickup in the North Sea. We have been particularly disappointed by floater activity in the Far East where we have been able to in past to keep five floaters busy 80 to 85% of the time. Right now, we have three of the five rigs cold stacked and we really don't see a lot of prospect to bring them out for the rest of the year.

The shallow water Gulf of Mexico continues to surprise with us the lack of activity there despite high gas prices and the low storage levels. We have seen some improvement and we presently have 13 Jackups and one submersible working and one more which is contracted and will go to work as soon as we finish some repairs on the mat.

We see not as significant movement yet on the rates.

The barges continue to move sideways. We generally keep about 13 plus or minus working at any one time. Right now I believe we have 14 working. We have not seen much change in rates there other than on the bigger barges. The 3,000 horsepower barges have seen a movement in rates as we have seen some increase in interest in deep gas drilling.

The deep water markets we have seen a couple of developments in. On the positive side, ONGC tenders finally are out and the bids are due here shortly. They have tended for two additional deep water rigs and have also given themselves the option to pick up two additional deep water rigs.

So we don't know if the exercise was optioned or not, but there's a prospect there for four additional deep water rigs to go to work in India for ONGC. We have also seen the Seiko energy headed back to Nigeria now to go to work back into the deep water there. That's been on stand by in Las Palmas at 90% rate for a while.

We have seen some pickup in the Far East as TFE is accelerating the efforts in Brunei and we expect to pick up an auction to drill in deep water there. We have also seen some good success here in the East and Gulf of Mexico on the deep water leases there. A fair amount of good news for the deep water business.

On the native side, we have seen the backlog of exploratory wells begin to dwindle and the outlook for the rigs working in the stock market has deteriorated. At the present time, we have the Cajun express isle undergoing some modifications and upgrades, but we're uncertain as to what it's next job will be when that work is finished in about three weeks.

We also have the Richardson which is a 5,000 foot fifth generation rig here in the Gulf of Mexico working an shallow water well on a relatively low rate while we wait until the next deep water contract which we hope will start around June.

Before I close, I want to comment briefly on the strike situation which we have going on in Nigeria. I hope you all appreciate that it's delicate situation and we're not going to say very much about it as there are ongoing negotiations. And too easy to misinterpret anything said publicly. What we can tell you is that four of our rigs are involve and they have been shut down now for ten days, one a few days longer than that. It's unclear when the strike will be resolved but the situation is common on all the rigs. The national union authorities are in agreement with our position and we have the support of our customers and the Nigerian authorities and we're hopeful that this situation will be resolved some time within the next week.

Looking at all of the uncertainties that we're facing near term, the strike in Nigeria is costing us about 350,000 a day in lost revenue. The uncertain outlook for the Cajun express and the Richardson in the Gulf of Mexico, the uncertainty in the shallow water Gulf and a number of rigs that we have which are -- either due to commodity (inaudible) shipyard, and that could be -- that start could be delayed or rigs that are running -- coming off contract that we don't presently have additional work lined up, with all that uncertainty it's pretty difficult for us to be comfortable giving you meaningful earnings guidance so we are not in a position where we can give you earnings guidance, either for the quarter or for the year.

With that, I'll open it up and entertain any questions that anybody has got.

Thank you, sir. Ladies and gentlemen at this time, we will begin the question and answer session. If you would like to ask a question, please press the star followed by a one on your push button phone. If you would like to decline from the polling question, press star followed by a two. You will hear a three-tone prompt. Your questions will be polled in the order they are received. If you're using speaker equipment, please press the handset one moment, please, for first question.

Our first question comes from Roger Reid. Please state your company affiliation, followed your question.

Roger Reid with Simmons and Company. If we can delve into the Gulf of Mexico deep water market, what specifically for the Cajun Express in terms of a rig contract that it could get, what would be a day rate expectation there or for any of the other deep water rigs currently searching for contracts in the Gulf?

I will let Mike Unsworth try to answer that for you.

First of all you may have noticed from the rig status report when we talk deep water, we are talking of rigs over 4500 feet. We have rearranged the chart there. So the rigs over 4500 feet that's the Richardson and the Cajun. The Cajun is coming out for the Richardson is coming out right now, it moving at the moment to a substitute job, replacing one of our third generation rigs. And it's coming out for a low day rate, coming out for 45. But that's not a market rate for a fourth generation rig.

We are now looking at about ten prospects for the Richardson coming up in May or June and I'll say ten. Not going to win them all, but there are several prospects for fourth generation rig that we anticipate winning on the back of this job that we're going take now.

The Cajun is coming in for a shipyard. It has been planned for some time. It very similar work that we have done on the Energy. And we are currently looking at fifth generation prospects for that rig. Probably two or three at the moment, two or three wells at the moment. And I don't want to tell you what the day rate going to be for those prospects. And there are also fall-back prospects (inaudible) market.

I think Roger, to give you some indication we'd probably guess at the rates for fourth generation rig will be in the 65 to 85 range. And working in there and -- and for the fifth generation we would hope that the rates would stay in the 140 to 150 range. The last contract with the Cajun was 115 with incentives which got us to a 140 effective rate. The -- there may be a little bit of softness around that, depending on the timing and all. But I'm guessing that we're going to be plus or minus in the the -- in that range.

Just sort of a quick look around some other deep water markets then where you have some rig availability, not so much in the second quarter but certainly in the second half of the year. What are spot rates for these type of rigs significantly different than what you would expect in the Gulf of Mexico?

I think the rates for the deep water outside of the Gulf of Mexico are a little bit better. The spot rates in West Africa expect to be better and of course the term opportunities that we're looking at in India should be significantly better.

And just one follow-up on the Gulf. The term on the type of contracts, looking at the number of prospects fairly broad, what are you looking, well to well or six-month contracts?

They -- they're pretty much well to well or a couple of wells at most. Still in the Gulf of Mexico which is a still a short-term business.

Caller: Okay. Then a final question I have, looking at the north sea, any prospect that that gets better say 12 months from now or is it looking more like a late '04 or '05 event?

Mike, do you know how to answer that?

Well, Bob mentioned the summer improvement and it improved over the summer season. We expect next winter currently to be just about like last winter was or this current past winter. We can't see very far ahead in the North Sea and all the tax that come into play, we can't tell what's going to happen going forward. We can see that winter it's looking like this past winter.

From a macro standpoint, Roger, I would say we're hopeful that this time next year will be better because of some of the legislation and tax changes and because of the independence, like the Apaches that are moving in there. So far Apache hasn't had time to get its program together. I'm not even sure whether their deal is closed on the North Sea property. But we certainly expect that the independence coming in will result in some increased activity. Right now, there's no tangible evidence that that's going to happen. But that's what we're hopeful of.

Caller: Thank you.

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

Deutsche Bank. On the second quarter operating expenses, is that -- does that include a similar amount of reimbursements to this quarter?

We're estimating that it would include slightly more reimbursables, not a lot. But maybe a few million dollars more because we'll have a number of additional rigs working and the higher activity. If we do have higher activity in the gulf, all of that would generate a bit higher reimbursable. I think our reimburseables ran around 20 million dollar, 25 million dollars here for our Q1. And you might see that, if we're right in our activity guess. That may go up by maybe 3 or 4 million dollars.

What sort of magnitude and timing of that, you know, running up whenever you moved into the second quarter and sort of a run rate as you're approaching the end of the year?

You mean the amortization of the deferred cost?

Well, the amortization of the deferred cost and also is there any sort of lump sums that you moved from first quarter to the second quarter by deferring or is it all amortization and that run rate goes ahead?

Well, it's combination of both. The amortization actually occurs over the term of the contract that we were preparing for. So that varies. And some of the maintenance that was deferred when you say lump sum. There would be some -- some significant maintenance issues on some the rigs that could be a million dollars or something like that. But no -- no big chunks of money like the 7 million survey type of thing.

Okay, a starting point would be Q2 coQ3 would drop by about that much and then you adjust for sort of activity continuing to increase, things like that?

Yeah. There's a lot of moving parts on these costs. So it's difficult to be very precise with you. And we will have a number of shipyards going on in the second quarter that had gone -- are going to have an impact. We mentioned the Cajun express is having a lot of modification upgrades which is a three-week process. That's going to take some money. The Seven Seas which we had told you last quarter was -- like down in Brazil a deep water rig.(inaudible) one of the rigs will be coming off the contract this quarter. We're going into the shipyard when it's done. And then we have the Cunningham which is in the shipyard now. Preparing for its next contract. That should come out here fairly shortly. So as a fair amount of shipyard work that we're incurring in the second quarter too which going to increase the costs.

Okay. That's fine. I don't want to get you bogged down in the details of that. I noticed in the cash flow statement there's a termination of the swap -- of a swap agreement and I know by virtue of that in 2002 there was a reduction of interest expense every quarter. With that termination in the second quarter S that going to increase interest expense at all?

Yes, it will. Greg can tell you how much.

Yes, it will. We term nailed in first quarter all of our fixed or floating interest rate swap. About 1.6 billion dollars amount of swap. In -- last year, those swaps were saving us about 15 million dollars a quarter at the current low interest rate environment. When we terminate them, we lose that 15 million in savings, but the gain, the cash you saw the 173 million dollars is actually amortized over the remaining life of the swap. And so that gain will lock in about half that savings. So the reduction is, you know, the reduction is not the full 15 million in any one quarter.

Now, all said that increase in interest rate expense starting now we're retiring significant amounts of debt. So we just retired 240 million dollars of the 6.5% debt, and we're expecting to have the zero coupon converts that are amortizing that are over 275 when you look at the cost amortization and those will get put to us in the second quarter.

So debt will -- interest expense we would expect to go up in the second quarter because of the swap termination, but then start coming back down and trend down eventually to around 45 million dollars by the end of the year. Because of debt retirement.

Okay. So assuming I could do this stuff right with you retiring various debt instruments, the effect of the swap termination is about a 7.5 million increase?

That's right. That's right.

Okay. One more. Sorry. Anything in first quarter in terms of large drilling bonuses for any other rigs that we should think about possibly coming down next quarter? I know that's a sort of tough thing to, you know, to predict. But take a shot I guess.

You mean revenue bonuses paid by the customer?

Yes.

No, nothing unusual or out of the ordinary.

Okay. That's all I have. Thanks.

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

Hi, guys. This is Mike (inaudible) South Coast Capital. (inaudible) I know the rigs got some mid water floaters coming up and they got some commodity rigs that you might be interested in.

We're very interested in the possibility that obviously Mexico and PMEX is turning into a big area of activity. We are continuing to look at --I think it's been fairly well known that we have not participated in the past because of concerns about some of the contract issues. We have continued to try and research that and get comfortable with how we could either structure or insure around the risks. And we're hopeful that we will get to a point where we could convince the sales to participate in the future, but at this point we're kind of looking at each bid as they come out and then we'll make our decision.

Okay. Great. Can you also in your press release you mentioned about higher effective tax rate, in the future, do you have any guidance for that?

Well, the way the accounting rules work, the effective tax rate we showed them in first quarter of about 20% is our current estimate for what the effective tax rate will be for the rest of the year on what is called ordinary income under the income tax rules. So our current guidance is about 20%.

However, that rate is higher this year because of some of the issues Bob talked about with the deteriorating financial results with uncertain markets and some of the cost issues.

So because of -- because of around the world a lot of our taxes are effectively based on revenues, many jurisdictions have what are called profit taxes. So although your income taxes as your profitability declines your effective tax rate goes up since they're based on revenues, in declining profitability our effective tax rate overall goes up. In increasing profitability our effective tax rate will go back down.

So long-term guidance we would still trend back to the 15%, but this year we would expect to see 20%.

Great. Thanks. One more if I can. Do you have any estimate for what the loss may be in the second quarter that's associated with the early extinguishment of debt?

Currently, we have two early extinguishments of debt. We are extinguishing, I expect the zero coupons to get put to us, and there will be an 11 million dollar loss on that, and then we are also in the process of buying out 50 million dollars of the Nautilus A-2 notes and we expect that to be another 6.5 million dollar loss on that.

Great. Thanks a lot. I'll turn it back now.

Thank you, sir. Our next question comes from Aaron Jahowram (ph) please state your company affiliation, followed with your question.

Credit Suisse First Boston. Can you give us some additional details on the OMGC tenders, perhaps timing and what type of deepwater rigs are they looking for?

Timing here I guess is next week?

Yeah. Their submission is 5th of May.

5th of May is the submission, and they have tended for two rigs. One a deepwater rig and one a 6,000 foot rig. With the option, if you will, to contract off of the same tender an additional deep water rig and an additional 6,000 foot rig.

And these are -- how long would the contract terms of the -

The primary -- first two rigs would be three terms each. If they take the option of picking up the two additional rigs, they would be for two years.

Okay. Secondly, we have seen some initial programs and success by Anadarco (ph) in the Eastern Gulf. Are you seeing any other operators begin to work the Eastern Gulf?

Mike?

So far -

I think Chevron Texaco have their Tahiti prospect, they had some success on. Those are the only two off the top of my head I can remember right now.

Okay. A couple of housekeeping items. Can you provide perhaps some depreciation guidance for the second quarter and the full year and secondly, in terms of operating costs, they're trending up in the second quarter. Do you think that they will revert back or decline in the second half of the year or do you expect that to be a pretty good run rate?

I'll try and answer the cost question, and then Greg can answer you the depreciation question. The -- it's tough to give you a run rate on the operating costs because it's so much a function of the activity, depending on how many rigs we put to work and what happens in the shallow water Gulf of Mexico. I would -- I would guess that the run rate would be slightly lower if activity stays about the same for second -- for third an fourth quarter. Because of some of the unusual items. The special survey and we've got a lot of shipyards and what not. But I wouldn't think that it would be dramatically different going forward, assuming that the utilization stays about the same.

Okay. And depreciation?

And depreciation going to run right around 130 million dollars a quarter. It trends up slightly during the year due to our capex for the year. We have ex -- we expect around 520 million of depreciation for the year.

Appreciate it, guys.

Okay.

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

Hi, this is Glenn McKenzie from the Associated Press calling from Lagos, Nigeria. My question has to do with the captured facilities offshore here in Nigeria and whether or not there's been any threats of violence towards the employees on board? We understand that there's some between 50 and 100 expatriates on board, including 21 Americans. And the public is interested in news on the safety of the people on board.

Glenn, you're right. We have about a 100, 100 expatriates involved on the four rigs combined. Right now, the situation is very common on all the rigs and have continued to be calm. We have not had despite -- there have been rumors in the press in Europe that there have been threats of violence and what not but we have had any threats of violence. The situation has remained very calm. We're in continuing dialogue with the people on the rig. The national union officers on shore are supportive of our position. And I think if you -- I think that we really have to kind of leave it at that because I don't want to have a lot of comments in the press that if you're in Lagos goes you know how easy it is to misinterpret comments, particularly in a culture like the Nigerian culture. So right now, we are continuing to have dialogue with the union members and with the authorities and we're really pretty hopeful that we can resolve this thing within the next week or so.

Okay. Just a quick follow-up. I got into the conference a little late, so I didn't get the name of the speaker.

Me? Bob Long, the CEO.

Okay. Thank you very much. I appreciate it.

Thank you, sir. Ladies and gentlemen if there are additional questions at this time, please press the star followed by the one. As a reminder if you're using speaker equipment we do ask that you please lift the handset before pressing the numbers. One moment, please, for the next question.

Our next question comes from Andrew Starr (ph). Please state your company affiliation followed by your question.

Yeah, hello, Institutional Capital, Andrew Starr. If my calculations are correct, you should end the year with about $1 billion in cash on the balance sheet. And I'm just wondering what you guys are thinking about doing with this cash and if share repurchases are fitting into the plans?

Our primary focus with our cash has been to pay down debt and we built up a fair amount of cash to date. But that was in anticipation of the debt paydown which we had this year. I think coming into the year we had about 1.1 billion dollars of current debt maturities. So we had built up enough cash on the balance sheet to more than handle that. Going forward, we'll maintain a comfortable cash reserve. We will pay down debt as it makes sense on basis. But right now we're not contemplate anything share repurchase, and I don't think think we would contemplate it until we get our debt levels significantly down.

It would really based upon that maturing debt this year, the billion dollars is not correct. I mean, we had at the end of the first quarter 1.5 billion and then all our debt matures during the rest of the year. So that takes 1.1 billion dollars out right off the top. You know, actual cash position will depend on our cash flow from operations the rest of the year.

Yeah. I'm assuming that you generate about 150 million in free cash in the quarter, which is actually less than we see in this quarter. That's where we get the 1 billion at the end of the year. I guess I'm just wondering why such a low debt to cap is the optimal capture structure and what share price would you be looking for to initiate a share repurchase because the share price is seemingly pretty low right now.

Oh, a low debt to cap is optimal for Transocean for a couple of reasons. One, as a Cayman (ph) company, we get no tax benefit from debt. So we're really -- it doesn't make sense, it doesn't increase our -- or decrease our cost to capital to debt unlike domestic U.S. company. Then given the nature of our industry and the volatility, we really don't think it makes a lot of sense to have debt. We would always maintain some debt for access to capital markets, but that access count -- could be gained with a lot less debt and we have now a target is easily half the level of debt that we have now. So given that, but any excess cash that we generate this year will continue to focus on debt reduction.

Is it possible that you might be looking to purchase the Pathfinder or Frontier when those options become available?

Well, there really aren't any options to purchase them. But we have had some conversation with Chronicle (ph) them off and ever since the R&B Falcon merger about whether or not we would be interested in buying and whether or not they'd be interested in selling. But at this point, I just leave it at -- we're always interested in something at the right price and I'm sure they'd be interested in something at the right price and right now we'll continue to have discussions one when when it's appropriate.

Okay. Thanks.

Thank you, sir. Our next question comes from Angeline Sedita please state your company affiliation, follow by the question.

Thanks, Bob, you mentioned you were seeing some improvements in the day rates for the Jackups in the Gulf of Mexico. Are you beginning to push the Jackups or is utilization still a priority?

Well, Angie, we have got --with the rate that is having this mat repaired and go -- it has contract already, that really puts us at full utilization for our -- what we consider our marketed fleet. And we have no intention of bringing out any of the cold stacked rigs unless it would be for a term contract which so far we're not seeing much prospect for in the Gulf of Mexico.

So we are into a stage where we would hopefully start pushing rates. We've seen rates come up -- well we were bidding at 165 which is basically cash break even in order to get the rigs out. Those rates now for follow-on work are up a few thousand a day. But they're kind of stalled there.

There's not been a lot of movement above that, and to say we are focus on rates instead of utilization, I guess at the present time that's probably true. If the market softens we will continue to try and keep our rigs working. So it's difficult to say that we've made a transition because the market hasn't got that solid yet.

All right. Great. Very helpful. Are you see anything backlog though on the Jack Jackups that you have working or is it a status quo situation?

Not too much of a backlog, although I would say that the average time contract time is probably extended out from 30 days closer to 60 days. But still all short-term work. We have seen a significant pickup in bid activity over the last two or three weeks. And whether or not that gets sustained I don't know, but we are starting to see some signs of life. But as I say, we haven't had a lot of success in pushing the rates very high yet.

Okay. Then last question, you said you're seeing a significant pickup in bid activity is this from the small ANT's (ph) or ATTI or mixture?

Well, it's mixture. There are a lot of different players in the shallow water gulf, but I they're the smaller independents.

Great, thanks, Bob.

Thank you. Our next question comes from Gary Nuschler, please state your company affiliation, followed by your question.

Yeah, Gary Nuschler from Sanders Morris Harris. I want to make sure I understand what you guys are saying about operating costs. You expect second quarter operating costs to be between 400 and 410?

That's correct.

How much of what is reimbursables?

We would guess somewhere between 25 and 30. It would be the right number.

So exclusive of that, you expect operating costs to be around 375 and 380. That's an increase of about 20, 25, to 30 million dollars over the first quarter. I know you've got a special survey in there. What is the rest of it too? I know you're pulling rigs out of cold stacks for the Gulf of Mexico.

Part of it is -- one is a special survey. The other is the shipyard work that we mentioned, the Cajun express is in. The Cunningham is in. The seven seas is in the shipyard and we're going to be spending some more money on it getting ready for some prospects. But another big factor is just that we've put three additional rigs to work in the north sea. And in the first quarter we had the Rather essentially we are deferring most the costs is contract preparation, the mobilization costs.

The accounting rules require us to defer those costs and them amortize them over the term of the contract for the mobilization. So in effect what you had was a reduction in cost in Q1 and in Q2 we'll not have only have the normal operating cost but the amortized cost deferred in Q1. So there's a lot of different moving parts that add up to the 25 million or so increase.

Great. Thank you.

Thank you, sir. Ladies and gentlemen if there are additional questions at this time, please press the star followed by the one. If you're using a speaker equipment we do ask that you please lift the hand set before pressing the numbers.

One moment for the next question.

Management, at this time, there are no additional questions. Please continue with any further statements.

Okay. I don't have anything else to add, so I'll just thank everyone for participating with us today and we'll look forward to talking to you again next quarter.

Thank you, sir. Ladies and gentlemen, this will conclude today's teleconference presentation. Thank you for participating on today's conference call. If you would like to listen to the replay, please dial 373-590-000, you need to enter 533691. Once again if you'd like to listen to replay of today's conference, please dial 303-590-3000. If you need to enter the access code of 533691. At this time, we will conclude today's conference.