Transocean Ltd (RIG) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Transocean third quarter 2003 financial review conference call.

At this time, all participants in 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, please press the star followed by the zero. As a reminder, this conference is being recorded today, Tuesday, October 28th of 2003.

I would now like to turn the call over to Mr. Jeffrey Chistien, VP of Investor Relations. Please go ahead, sir.

Thank you, Erica.

Good morning and welcome to the review of Transocean third quarter 2003 results.

If have you not received a copy of the press release covering the third quarter results, you will find it along with the supporting statements and schedules posted on the company's web site at deepwater.com. Also issued this morning and available on the company's web site is the monthly fleet update, covering the current contract status of the Transocean mobile offshore drilling fleet at October 28th. In addition you will find schedules covering cash operating costs by rig type.

Both the monthly fleet update and cash operating cost schedules are posted in the investor relations segment of the web site. That's under financial reports.

Participating this morning on the call is -- are the following Transocean senior managers Bob Long, President and Chief Executive Officer, Jean, Executive Vice President and Chief Financial Officer, Jan Rask, President and Chief Executive Officer of TODCO, the company's Gulf of Mexico shallow and inland water business segment, Greg Cauthen, Senior Vice President and Chief Financial Officer, Brenda Masters, Vice President and Controller and Rob Softiel, Vice President of Marketing. Bob Long will provide opening comments followed by a question and answer period.

Before I turn the call over to Bob, I will remind you once again 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 segment.

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

Should one or more of these risks and uncertainties materialize or underlying assumptions prove incorrect, actual results may vary materially from those indicated. Also note that we will use various numerical measures in the call today, which may or may -- which may be considered non-GAAP financial measures under Regulation G.

You will find the required supplemental financial disclosure for these measures, including the mostly directly comparable GAAP measure and associated reconciliation, on our web site at deepwater.com and you will find that under the non-GAAP link.

That concludes the preliminary matters of this conference call.

I will now turn the call over to Bob Long.

Thank you, Jeff, and my thanks to all of you for joining us on the call.

I'm going to comment on the items we mentioned in the press release and then discuss the contract status of several specific rigs and our view of the market in general. Jan will then give you his view of what's happening in the shallow water Gulf and then I will ask Greg to comment briefly on our goodwill before opening it up to questions.

Looking first at the financials, we are earned $11 million, or 3 cents per share on revenue of $622 million, in the their quarter. Adjusting for an $8 million charge related to the pending IPO of TODCO, most of which has been previously deferred, we earned 6 cents per share which is in line I think with the consensus expectations. We also continue to generate good cash flow and have net debt under $2.9 billion.

Revenues were up $19 million from Q2. This was primarily the result of having the strike in Nigeria in Q2 which we did not have in Q3 and the consolidation of the frontier for the full quarter in Q3. Other than that, lower day rates and a number of rates were offset by higher utilization on other rigs.

On the cost side, we came in at $403 million for the quarter, which is right in the middle of the range we gave you of 400 to 410. If it hadn't been for some unexpected costs related to the Enterprise, we would have come in under the range.

We are continuing our focus on costs and had some particular success in the national efforts both in Brazil and India. In addition we're restructuring our shore-based support organizations, eliminating one of six region offices and consolidating two other region offices into one so that by the first of next year, we'll be organized with four regions plus TODCO instead of six. We also downsized our operations support group here in Houston significantly, within the last month.

With respect to third quarter events, I want to amplify on the charges related to the TODCO IPO. You saw in the press release that we expensed $8 million of cost related to the IPO. $6.3 million of that had been deferred over the last year.

The fact that we expensed the costs now does not mean we've changed our mind about an IPO. It's simply a technical requirement regarding how long you can defer the cost if the IPO is delayed.

We're hopeful the time will be ripe for the IPO going into the fourth quarter with strong commodity prices and increasing day rates in the shallow water. But although we're not convinced that valuations are where they should be, so we'll continue to monitor and wait until we think the situation is right. It does not mean that our clear intent to proceed with the IPO has changed.

In regards to the Enterprise, I want to briefly comment on the situation regarding our customer and the rise and failure which occurred last May. As we stated several months ago, we resumed operations on the well in July after the repair of the riser and we remain on the well conducting operations as directed by our customer.

We stated when we resumed operations that we were in discussion with our customer regarding the appropriate day rate. That discussion has become a business disagreement.

We do to the believe it is appropriate to discuss the particulars of that disagreement, other than to say that we remain in discussions with our customer. Until the issue is resolved there does remain the possibility additional charges could be incurred in the future.

Now, let's talk a little bit about the market.

The deepwater market continues to be characterized by weakness in the low end of the market and uncertainty in the high end. We presently have the Marianas Island in the Gulf of Mexico. It's been down about a month now and we haven't bid on a number of jobs that hopefully will start up in November.

Rates for rigs like this competing in the 3,000- to 5,000-foot water depth market in the Gulf are in the $80,000 to $90,000 range. The Cajun Express, which is an ultra deep capable rig in the Gulf of Mexico, is currently working and we hope to extend it on its existing contract. We're also in discussions with another operator for follow-on work. Rates for rigs for this capability are in the $125,000 to $160,000 plus range, depending on the actual water depth of the well that it's contracted for.

In Brazil, we succeeded in extending the (inaudible)1 which is the lowest spec deepwater drill ship for a year (inaudible). We're in discussions now with (inaudible) regarding and extension of the 707 for a multi-year contract. We've had preliminary discussions with them regarding both the Frontier and the Sedco Express, both of which are ultra deep capable rigs. At this point we're pretty confident that all of these rigs will continue to operate in Brazil.

In West Africa the Discovery and the Energy, both fifth generation rigs continue to work on term contracts. The Discovery contract is up in December, though we expect the well and progress to keep the rig busy into January and there's a possibility of an additional well. The Energy contract goes into Q4 of next year. We see a lot of opportunities for the Discovery to continue in West Africa, but there's some risk of idle time between contracts as we'll be competing in the short-term market.

In the Far East, the 534 is currently idle in Singapore after completing a contract with Murphy in Malaysia. We're currently trying to finalize a contract with a new operator and right now expect the rig to go back to work in December. The rate on that contract will probably be in the $120,000, plus or minus, range.

We also have the Seven Seas which should leave Brazil in about a month to go to India for its three-year contract with ONGC. We expect that that contract should commence about February.

In the North Sea, it's currently a difficult market for the high-end rigs there. There we have the bates competing in the mid-water market, getting rates in the mid-40s, and that's down with rates closer to 140. And there also do not appear to be any good opportunities during the winter months for the Leader, which is going to be potentially available in November.

Looking a little longer term for the deepwater we see the first half of '04 to be one of good activity levels but with a lot of competition. We have four fifth-generation rigs coming off term contracts at the end of the year. As we mentioned, we feel pretty comfortable with the Frontier prospects in Brazil and the Discovery in West Africa.

In the Gulf of Mexico we have the Pathfinder and the Millennium which will end contracts in December and January. Again, we see a lot of activity in the deepwater of Gulf of Mexico in '04, but generally short term work, which leaves the risk of idle time between contracts.

I think a number of deepwater rigs will leave the Gulf for West Africa next year and I think that's what we need to (inaudible) to develop a backlog of work for the rigs that remain in the Gulf and eliminate the risk of idle time between contracts.

Switching to the mid-water market, there's really not a lot to say here.

It remains depressed in the Gulf of Mexico, where we now have the Falcon 100 cold stack and in the North Sea we have seven rigs stacked and expect them to stay idle through the winter season. In addition, the John Shaw, which will be available in November, does not have very many good prospects. We have been successful in keeping a few more rigs working than I thought we would at the time of our last call, but I don't think we'll see any new movement in this market until the independents get active next summer.

There's no real change in West Africa where the 700 and 701 continue to work, or in the Far East where we have only two of our five semi's working.

The international jackup market continues to do very good. We do have some softness in West Africa where we have one rig idle currently but with three additional bids out in Mexico and with ONGC coming up with what we think will be five additional rigs around year-end, we expect the international jackup market to remain solid for the foreseeable future.

With that, I will ask Jan to give you a few comments on what he sees going on in the shallow water Gulf.

Thank you, Bob.

In our segment, it's very much more of the same.

On the jackup side, we have supply continuing to go down. And demand is pretty much going sideways. The total supply of jackups is now down to 115. That's a reduction of over 40 rigs in two years. And the marketed supply is 102, as we speak. The band is currently at 86 so we have a utilization of 84%.

We have, for a while, been marketing 15 offshore rigs, 14 jackups and one submersible. We're now moving two jackups to Mexico for term contracts and one jackup to Venezuela for Conoco Philips without reducing the active U.S. Gulf of Mexico fleet to 12.

We can bring out more rigs, but we'll wait for the market to improve. We need three to six month contract, plus a positive outlook, making it very probable that we can expect full utilization going forward for those rigs.

Leading edge day rates for jackups are $24,000 to $28,000 per day now, 24 for the mats(inaudible) and 28 for the mat(inaudible) units and the independent rigs are right in between the 150-footers.

On the inland barge side, we have supply of drilling barges at 50. But we have taken more rigs out of service, so currently we are marketing only 12. The total supply is now at 29 and demand stands at 26. So we're getting close to full utilization of the marketed fleet.

The day rates are in the 17 to 20,000 range. And Venezuela, we now have three land rigs out of nine working. We have an agreement now with (inaudible) concerning the (inaudible) fleet which means we are getting paid in U.S. dollars and local currency and we hope to be able to negotiate term contracts for most of our land rigs over the next several months. And as I've said, the rig 156 has a three-plus-three well contract with Conoco Philips. The firm period should be 140 to 160 days plus preparation time, (inaudible).

In Mexico, we're starting our operation on rig 206 imminently. It's a two-year contract with a day rate of approximately $42,000 per day. And in early December we should start the operation on rig 205 for three years with a day rate of approximately $39,000.

Bob?

Thanks, Jan.

With all that's going on in the market, it continues to be a problem to give any earnings guidance at all, even one quarter out so we're not going to try. In making your estimates, however, do you need to keep in mind that a number of the bigger rigs that worked in the third quarter are experiencing some idle time in the fourth quarter.

The ones that we have in mind are the Marinas and the 534 which we've already mentioned. In addition, the Tridan 20 which is the big (inaudible) in the Caspian. That's been on a standby for quite some time now. Its now off contract, and while we are in the stages of finalizing a new contract for the rig, that new contract won't commence until sometime next year. So the rig will essentially will operate on the fourth quarter.

In addition, I would remind you about the Bates and the fact that it's now working in the mid-40s instead of at 140 plus and general decrease of activity in the North Sea. You need to keep that in mind when you're making your quarter-to-quarter comparisons.

Now before we open it up for questions, I would like ask Greg to comment briefly on our requirement to test goodwill for any possible impairment under FAS 142 I think it is. Right?

Thanks, Bob.

As we've discussed previously when we adopted FAS 142 in 2002, it's -- it requires an annual test of impairment of our goodwill. We've performed this test every October 1st and we actually have to do a valuation of our two business segments, the shallow and inland water segment, and our international and U.S. floater segment.

All of our $2.2 billion of goodwill relates to our international and U.S. floater segment, so our primary focus will be on the valuation of that segment. It is a complicated test. We have to look at the relative values of the two segments. We have to determine the values of all of our (inaudible) assets of our rigs, and actually value the segment as if it was a stand-alone public entity. So right now, we're in the process of doing that but we haven't completed it.

However, we would say that one indicator of value of the segments is our own stock price. And when we did this test a year ago, on October 1st, our stock price was over $21, and on October 1st of this year, it was just over $20. So we've seen a $1 decline in our stock price, so absent doing all the actual mechanical tests, it -- it would not be unexpected for to us have an impairment of the goodwill. But as I said, at this time we're not able to valuate exactly how much that impairment could be and in fact, it could result in that we don't have an impairment. But in all probability we would expect an impairment and that impairment would be reported in the fourth quarter. And we'll be able to quantify that when we release fourth quarter earnings in January.

Thanks, Greg. And with that, we'll open it up for questions.

Thank you, sir.

Ladies and gentlemen at this time we'll begin the question and answer session. If you have a question, please the star followed by the 1 on your push button phone. If you would like to decline from the polling process, press the star followed by the 2. You will hear a three-tone prompt acknowledging your selection. If you are using speaker phone equipment, you need to lift the handset before pressing the numbers. One moment, please, for the first question.

Our first question comes from Scott Gill with Simmons and Company. Please go ahead with your question.

Yes, thank you. Bob, I actually I have two questions.

The first one is with respect to the Marinas, you said there's some prospect that it could go back to work sometime in November. The Gulf of Mexico, you mentioned a right range for that type of asset between $80,000 and $90,000 a day. There's also been some leading edge fixtures that are considerably less than that.

Your guidance on the Marinas would indicate that you're expecting 80 to 90. Can you talk about what you're seeing in that market and why that rig would get a higher rate than the leading edge fixtures?

I will ask Rob Softile to answer that for you, Scott.

Yes, Scott, you're referring to some of our competitor rigs in the -- maybe the mid-50s and that's right. I think that if you look at the Marinas in particular with its -- it's actual equipment, pump capabilities, and ability to drill in deeper water, we think that numbers that are north of the kind of numbers we're seeing on -- on our competitor rates are justified.

Obviously, until we get these contracts firmed up, it's a bit -- a bit prospective, but we're comfortable with the rate guidance that Bob just provided.

Okay.

Thank you.

My second question, Bob, if we can go over to West Africa, we've heard several people talk about why we've seen a delay in deepwater activity in that part of the world.

I would just kind of like to get your perspective on why we're seeing a delay in West Africa activity and then, more importantly, I know your marketing folks and your operations folks are talking to the E&P companies this that part of the world.

What are those companies saying about their drilling plans in terms of when they actually think they'll put rigs back to work?

Yeah, Scott, Rob again.

Regarding the first question, I think some of the delays that you're seeing in West Africa due to the approval processes required. It's principally in the leading companies -- countries where we're seeing a lot of rig activity light Nigeria and Angola. There's a lot of bureaucracy involved in some of those decisions that require approvals that sometimes cause delays. And that's just part of it doing business in West Africa and something that we have to monitor as we go forward.

I just returned from a conference in Cape Town last week, and I have to say that the reports from all over the five major players there, the super majors, were very positive with regard to expected activity in 2004 and 2005. The actual timing, again, is going to be subject to approval processes and things of that nature but we are seeing increases in activity in some of the less traditional markets as well.

Places like Mortania, Morocco and we think even places like (inaudible) with their joint development zone, the licensing round is complete and some separate licensing round for (inaudible) and (inaudible) coming up that we'll see new emerging West African markets developing over the next year.

If I can squeak one more quick one in here.

What type of day rates are you anticipating as you get into the latter part of '04 and into '05 for assets such as the Discovery?

Scott, I'm not sure that we can guess that far ahead.

Right now, depending on the term of the job, and the -- and the capabilities of the rigs, we're anticipating that rates are in the $150,000 to $190,000 dollar range, but, you know, if you asking about short-term jobs that come up a year from now, or depending when we bid them, that -- that view could change. But right now, I would guess it's in that $150,000 to $190,000 range.

Okay.

Thank you.

Thank you.

Our next question comes from Mike Urban with Deutsche Banc. Please go ahead with your question.

Thanks.

Good morning.

Good morning.

Some of your competitors have talked about seeing maybe a little bit of light at the end of the tunnel in the Gulf of Mexico next year, more so, kind of in the 3 to 5 or 3 to 6,000 foot market there. Is there any hope there for you guys in getting any more optimistic?

I think that the issue in the Gulf of Mexico deepwater market really is just one of getting a little bit of capacity out of the market.

I think that's going to happen with all of the activity in West Africa. In particular, I think you're going to see a number of rigs move out of the Gulf, and the reason is a fairly good amount of activity in the deepwater Gulf, it's just that because of the nature of the work being generally shorter term, there are a few long term contracts in the Gulf, but mostly that market is a shorter term contract market. And that means while there's a of activity, there's still a little bit of risk that you can have some down time between wells and that (inaudible) put pressure on rates. If we get a couple of rigs out and start to develop a little bit of backlog for these programs I think that the market is going to be significantly improved and I think that that will happen by the later part of next year.

Any further capacity reductions by the way of retirements on your part or you think on the part of your competitors? Does that help at all?

I certainly don't anticipate any capacity retirement of deepwater business.

Not necessarily deep, just the floater market in general.

In the floater business, I wouldn't be surprised to see a little bit of additional capacity taken off the market but, not significant. I'm talking about a rig or two, and that's about it.

And last question for me was the $17 million as a result of a dispute with your customer. Was that all expensed if the quarter and is in any of the cost deferred that you show in that segment, the $29 million, is that additional costs or is any part in that number?

Greg, do you want to answer that?

No, no, no, none of the costs deferred -- the costs deferred in the quarter all relate to our normal revenue recognition cost, contract prep on new contracts starting. So none of those costs relate to that.

The reserves -- the $17 million reserves that relate to both day rate and expenses were all incurred in the quarter. So none of it relates to previous quarters.

Okay. Great. That's all for me.

Thanks.

Thank you.

Our next question comes from Janice Rigo from Fulcrum. Please go ahead with your question.

Yes, it's Wes Mon, actually.

A housekeeping item, Greg. The IPO costs, are they totally in the general administrative line?

Yes, they are. All $8 million is in the general administrative line.

Okay. All right. You answered that very quickly so I will have a tougher question.

By the way, were there any taxes applied to that or was it 100% after tax?

It's 100% after tax.

Okay.

Tell us what your tax rate is, going forward.

For the year our normalized tax rate in the third quarter is 43% and the way the accounting rules work, that is actually our forecast for the rest of the year. So that would be our forecasted tax rate for the fourth quarter; although, I will tell you these income levels our tax rate is very volatile. So a light change in the fourth quarter results could cause that tax rate to go up or down. So it's very hard to predict our tax rate.

In 2004, I will say what we've said in the past, our tax rate is dependent upon a large number of factors, where we work, and -- but one of the big factors is our income earning levels.

So at very low earnings levels like we're experiencing now, you'll see a tax rate similar to where we are, but if we get back to earnings levels similar to what we were thinking at the beginning of the year, closer to a dollar, you will see our tax rate get down below 20%. So it really is dependent on the earnings levels going forward.

Okay.

In terms of the outlook for the North Sea, I wanted to get a sense about your outlooks for the U.K. and the Norwegian sectors. We have picked up some commentary that it looks like it will be a better year for Norway on top of, you know, a pickup some what in the U.K. sector.

Are you seeing that at this point?

Yeah, I think that's right. You know, of course we're starting from a relatively low base but we are seeing some pickup in strength in Norway.

We've got a couple of tenders that we've -- we are in the process of responding to, or have responded to, in that market. And again, I think as Bob indicated for the rest of the North Sea, it's pretty uncertain as to when the mid-water market will recover and I think the North Sea is -- or the deepwater sector is still not showing a tremendous amount of visibility for '04 yet.

Is there going to be enough demand to potentially get some idle rigs back, working in Norway in '04?

I -- I -- there could be some potential for that, but that's not our going imposition at this point.

Okay.

In terms of the Trident 20, I know that you're in negotiations right now. But I was wondering if you could give us a sense I mean your day rate was pretty strong, if I remember right, it was about 120 under your former contract when you were working.

Is there any guidance about the type of rate that you could be looking at when it goes back to work? What is the timing next year for start-up?

Well, as I think the day rate is between 90 and 100, and start-up date is Q2, early Q2.

Great.

Thank you very much.

Thank you.

Our next question comes from James Foley from UBS Investor Bank. Please go ahead with your question.

Good morning, guys.

Good morning.

Just come back and talk a little bit about -- Jan, about the demand in the Gulf of Mexico that you're seeing and with that rate coming back up towards the high 20s on some of your equipment. You know, why you're continuing to kind of take a different view than you took, say a year ago when you were a little bit more aggressive in reactivating assets.

Well, it isn't a demand story, really in the Gulf of Mexico jackup market. It's a surprise story.

You know, the number rates come down dramatically and we only have a marketed supply now the of 102. And if we look out another 12 months, it's possible that that could be down to 90 or thereabouts because we expect (inaudible) in Mexico to continue to take on 9 to 12 rigs and most of them would probably be taken out of the Gulf of Mexico.

We also have expected demand next year in Trinidad, two to three rigs, so we could be down to marketed rigs of approximately 90. Now, remember, we have 10 non-drilling rigs. They are really workover rigs out of those 102. So we are already in the low 90s in terms of drilling rigs.

The jackup demand has been hovering around 85 to 95 most of the time in the last 12 months so there's really not been a trend one way or the other. Personally, I'm convinced, as I was 12 months ago, that we are going to see a demand improvement at some point in time.

I might be slightly more humble now as to when, though. [ LAUGHTER ]

But -- I guess my point would be that if you -- you really believe you are going to have -- would you consider reactivating rigs without the six-month type commitments?

No.

I think we're going to -- we're going to see three to six months commitment from our customers, simply because the number of rigs are being reduced. And if we wait long enough, we might even get some customers willing to help us reactivate them for us. So I don't think we need to be in a hurry.

Okay.

And then, Greg, could you just tell us what your debt targets are for the end of the year and perhaps give maybe middle of next year?

Well, as Bob mentioned, our net debt was down below $3 billion, $2.9 billion. We continue to generate good operating cash flows.

So we'd expect that to come down, you know, every quarter a little over $100 to $150 million a quarter, depending on activity levels, because we're bringing that down with precash from operations.

If we were to launch the IPO next year, the proceeds from that would also get targeted to bring down our debt so you would see debt come down even further with that event.

Okay.

And then just -- I realize given how low utilization is in some of the floating business that the CapEx isn't a big priority on those assets but what would you think your kind of normalized maintenance CapEx would be going forward? Just, you know, if you were continuing to maintain the fleet, with all the stacked rigs getting their appropriate amounts of maintenance CapEx.

Our maintenance CapEx at these activity levels is probably under $100 million. I mean, we're -- we really have been very disciplined on CapEx, but right now, we believe we can maintain the active fleet at a good standard for less than $100 million.

I guess I was kind of going -- looking at it from the perspective of the fleet in total, under a more normal -- normal activity and scenario. Because don't think you guys think that this is a normal activity environment.

I think that we've -- we've said for a while that it was something like $150 million in a reasonable market is about right. And, you know, if we really get into a boom market that has everything working, that may trend up closer to $200 million, depending on exactly how much activity we have.

But in a good market, I say $150 million a year in today's market, it should be under $100 million.

Thank you, Bob.

Appreciate it.

Thank you.

Your next question comes from Robin Shoemaker with Bear Stearns. Please go ahead with your question.

Yes.

Thank you.

I was wanting to explore with you a little further the forecast that you had given us back in May, which sort of described a repositioning of the deepwater fleet. You had 70 rigs that you categorized as deepwater rigs currently. Twenty-four in the Gulf of Mexico. And in any case, you showed us a kind of repositioning of the fleet that you would expect to create a balanced market.

I just wonder if given what's happened subsequently, to whether the balanced market is -- time frame has slipped and, specifically, whether the -- you know, the 20 rig deepwater market in West Africa and I guess seven rigs in Asia look like realistic possibilities.

Well, I'm trying to remember exactly what we showed in May, but I think that in general, the West African story remains intact.

It may be having slipped a little bit, but we still think that a late Q4 or really a late '04 or early 2005 that a significant number of deepwater rigs will have to move into West Africa. And most of them will come out of the Gulf of Mexico.

In the Far East, I think that there is still a potential for a number of rigs. The reliance is still going to pick up a deepwater rig for their development project. That has been delayed. We thought they were going to do it by Q1 of next year but now we think it's late next year. Maybe even early '05 they are telling me.

ONGC of course is going to have the two rigs that they've contracted there, and they tell us that depending on the results of the drilling of the first, you know, half a dozen wells or so they may pick up one or two additional rigs there.

So you will have a minimum of three and four rigs in India, because reliance has an exploration program also, and possibly as many as six rigs in India alone. And then there's some additional work out in Malaysia, in that area, and in Australia, so I think seven deepwater rigs in the Far East in '05 is still a possibility.

Okay.

And -- and 20 in West Africa versus a current population of 13 also strikes you as reasonable or even conservative?

Yeah. I think given the number of development projects that is scheduled to commence in '04 and '05, that sounds -- if anything, conservative.

Yeah. Okay.

Thank you.

Thank you.

Our next question comes from Pierre Conner with Hibernia Southcoast Capital. Please go ahead with your question.

Good morning, guys.

Good morning.

Bob, first on operating costs, you mentioned that if not for the one-time costs, would you have come in under the range. Can you quantify that amount? And then maybe expand a little bit more related to that, a couple of things. If somebody -- is there there any ability with the down time, potentially, to save any cost there or is it such that it's intermittent and you can't really save costs?

And then you alluded to some cost saving measures which are great that kind of kick in in the beginning of the year and just, again, just to give a feel for the size of that impact.

Well, I'm trying to comment on specific items, I just say our guidance, I think for costs for Q4 will be in the 390 to 400 range instead of the 400 to 410 range that we gave before. And, hopefully, we come in at the low end of that 390 range next quarter.

Okay.

Any -- you know -- you're not really getting the thing of some of your cost-saving initiative for the fourth quarter then either, is that correct?

Most of the cost saving is a contiguous effort. With we look at what we've done with nationalation. I'm not sure if I remember these numbers right, but India, it's estimated that their nationalation efforts this year results in $3 to $4 million in savings. And between what they've done this year and what we've got scheduled next year, we'll get up to a run rate of something like $6 million a year of savings by sometime next year.

Okay. Great.

Thanks.

And then on -- if I got this right, I think you have sometime that you need to market the Millennium next year; is that correct?

That's correct.

Would you maybe comment on how the market there?

What would be the difference between, say, rates you're getting on the Pathfinder or Expedition now, versus what you think where -- during that marketed period on the Millennium?

Rob, do you want to comment on that?

Sure.

You know, we've got, just to recap, we have six months on the Millennium before it goes back to a final slot with Burlington. But, you know, I think the rates there are going to probably going to be in the 150 to -- let's say 150 to 170 rate.

Okay.

We think that that's still a possibility.

On the other hand, you know, there's potential for -- you know, for some -- for some things to slip in terms of keeping the schedule filled. So you might be looking at some idle time between jobs.

We are seeing a good backlog developing of deepwater exploratory work for the Gulf and we hope to take advantage of that with a Deepwater rig like the Millennium.

Got it. Right.

And Jan, on the U.S. Gulf, I wonder if you wanted to weigh in on this comment or the discussion between leading edge day rates flattening or not flattening. The information you gave would indicate to me that at least on your class of rigs leading into rates, would have been increasing.

They have been increasing, yes. Not dramatically, but slightly.

Yeah.

I say from -- from June to now, that's approximately four months, day rates in -- for all of our jackups have increased between 30% and 40%. And they continue to increase particularly for the (inaudible) units.

Right. Great.

And are you -- I know that's a well-to-well will market of course on that class of rig. But are you seeing a, quote, backlog there or indications of interest for a follow on behind its changing one way or the other?

Yes, we are building a little bit more of a backlog right now. So that looks to be increasing.

Okay. Great.

Well, guys thanks very much for the information. I will turn it back.

Thank you.

Our next question comes from Curt Hallead with RBC. Please go ahead with your question.

Yes. Thank you.

I just wanted to clarify one thing.

So, Greg, going back on your goodwill, your comment was there will be some goodwill (inaudible) but the magnitude is yet to be determined. Is that correct?

There may be.

Frankly, the calculation is so complicated, it's possible there won't be, but I think it's probable there will be. But, you know, it -- it's just really hard to quantify. At this point.

Okay. That's it.

Thanks.

Thank you.

Our next question comes from Andy Vietor with Stifel Nicholas. Please go ahead with your question.

Hi. Good morning.

Morning.

Have your priorities with regard for a stock buyback changed at all?

No, I think we said fairly consistently as tempting as it is to do a stock buyback at these prices, until we get our debt down, until our target range, we won't allow ourselves to think about it.

Okay, because I'm surprised even using the low end of, let's say the first call consensus range for next year, should generate roughly $100 to $150 million in a quarter in free cash. And that will still leave you substantial amounts of cash on your balance sheet, why you wouldn't be more aggressive in potentially buying your equity in the current levels.

We've -- we've just made the decision that we're going to be disciplined in terms of getting our debt down and until we get our debt down to our target range of $1 to $2 billion, we're going to not contemplate a stock buyback.

Okay.

And then quick question of clarification on TODCO.

If we've read the S-1 correctly, the management team at TODCO is entitled to voluntarily walk away if an IPO is not completed within 18 months of the effective dates of their employment contracts.

We were just curious, what, if anything, would they be entitled to if they do decide to walk away.

Well, if they do decide to walk away -- at this point there's really only two individuals, I think that have that right, Jan is the key one, obviously, and he's not indicated at this point that that's going to be an issue, but I'm sure there will be some discussions in the coming months.

The exact amount of what he would get, if he did exercise that alternative, I think it to be determined at the time so it's difficult to say what the value would be.

Okay.

Thank you very much.

Thank you.

Our next question comes from Beau McKenzie with Stern Aggie. Please go ahead with your question.

Good morning, guys.

Can you update us on the riser situation with the Enterprise and what is going on in the terms of the inspection of the risers on the other floaters. Thanks.

Well, as far as the Enterprise, we are continuing to operate as directed by the customer on the well, and there's not really much more I can say about the specific operation there. As far as the inspection of the other risers, Jan, do you want to comment on that?

Well, we have completed the inspection on all the rigs and we have now commenced an inspection program based on a six to nine month period.

Until we are in a position to replace the (inaudible) on the riser which caused the problem on the Enterprise, we do not expect significant downtime on the rigs, as we can do that in removing times, et cetera, and we are quite confident that we have the right technical solution to prevent any further incidents.

All right.

Thank you.

Ladies and gentlemen, if there are any additional questions at this time, please press the star, followed by the 1, and as a reminder if you are using speaker phone equipment, you will need to lift the handset before pressing the numbers.

Gentlemen, we appear to have no additional questions at this time. Please continue.

Okay, well, with that, I think then we'll bring this to a close and, I again, thank all of you for spending the time to join us this morning.

Good-bye.

Ladies and gentlemen, this concludes the Transocean third quarter 2003 financial review conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3000 followed by access number 553847.

We thank you for your participation in today's conference and you may now disconnect.