Transocean Ltd (RIG) 2015 Q1 法說會逐字稿

Good day, and welcome to the Transocean Q1 2015 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Thad Vayda. Please go ahead, sir.

Thank you, Alecia. Good day, and welcome to Transocean's first-quarter 2015 earnings conference call. A copy of the press release covering our financial results along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures, are posted on the Company's website at deepwater.com.

Joining me on this morning's call are Jeremy Thigpen, President and Chief Executive Officer; Esa Ikaheimonen, Executive Vice President and Chief Financial Officer; and Terry Bonno, Senior Vice President, Marketing. During the course of this call, participants may make certain forward-looking statements regarding various matters related to our business and Company that are not historical facts. Such statements are based upon the current expectations and certain assumptions of management and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results.

Also, please note that the Company undertakes no duty to update or revise forward-looking statements. Finally, to give more people an opportunity to participate in this call, please limit your questions to one initial question and one follow-up. Thank you. I'll now turn the call over to Jeremy Thigpen. Jeremy?

Thank you, Thad, and a warm welcome to our employees, customers, investors, and analysts who may be participating on today's call. Before we discuss the quarter's results, I'd like to take a moment to thank the Board of Directors of Transocean for entrusting me with this incredible responsibility and Ian Strachan for his leadership as interim CEO. I would also like to thank the employees and customers that I have met thus far for their unbelievably warm reception. I look forward to meeting many more of you in the very near future as I embark on a tour of our operating hubs around the world.

I'll be at my 16th day on my job and I can tell you that I am truly excited and honored to be here. As many of you know, I spent most of my career in various capacities at National Oilwell Varco. And Transocean was one of NOV's top customers, I had the privilege of seeing firsthand the Company's commitment to safety, innovation, and operational excellence, which are values that I fully respect, embrace, and support. Since arriving at Transocean, I have been inspired by the talented and enthusiastic and dedicated team of employees that make up this great Company, and I am delighted that I now have the opportunity to work side-by-side with the best people in the offshore drilling industry.

I fully recognize that market conditions are challenging, however, I will work closely with our customers and the Transocean team to continue to differentiate the Company by efficiently delivering superior customer service and best in class operating performance. Through a heightened focus in these areas, we will reinforce and enhance Transocean's premier position in the offshore drilling industry.

Now to the results. As you saw from our earnings press release, we reported another solid quarter with adjusted net income of $398 million or $1.10 per diluted share. Including asset impairments, some which were related to the scrapping of non-core assets, net loss attributable to controlling interest was $483 million or $1.33 per diluted share. Our first-quarter operational performance demonstrates the Company's significant progress on revenue efficiency, optimization of out of service time and related expenses, and our onshore and offshore cost reduction initiatives.

Our fleet revenue efficiency was 95.9% and ultra-deepwater efficiency was an outstanding 97.2%, the highest since mid-2009. This level of performance results from steps that the Company has taken to improve maintenance and operations policies, procedures, and processes and the work that we have done with our supply partners to reduce equipment related downtime. The Company's operations teams, including our rig crews, are to be commended for their persistence and dedication to minimizing downtime on our rigs, which benefits our customers and our shareholders alike.

In addition to recognizable improvements in revenue efficiency, we continue to manage our onshore and offshore costs through the optimization of overhead and maintenance expenses. As you would expect, we are actively consolidating and better aligning our shore-based infrastructure with our active fleet, which is driving considerable cost out of our business. We are also doing a much better job of planning, organizing, and executing our in-service maintenance as well as our shipyard repairs resulting in reductions in out-of -service time.

And we're continuing to be extremely selective and disciplined when it comes to shipyard expenditures where we are re-phasing and deferring nonessential shipyard projects. It is important to stress that while we continue to be near fanatical in our approach to cost management and waste elimination, under no circumstances will we allow these efforts to adversely impact the safe and environmentally responsible operations of our rigs.

As a direct result of the Company's improved revenue efficiency and cost management efforts, our first-quarter operating margin, which excludes depreciation and G&A expense, ranks among the best in recent quarters at 47%, a 550 basis point sequential improvement. In addition to improving our operating performance, we are also taking tough but sensible decisions to rapidly stack rigs for which we see no appropriate near-term opportunities, and responsibly scrapping rigs that we see as economically and commercially non-viable in this cyclical recovery.

Consistent with our asset strategy to date, we have announced our intent to scrap 19 floaters and we will continue to evaluate the composition of our fleet as the market unfolds. While the near-term outlook, which Terry will address a few moments, is certainly challenging, I believe the Company's first-quarter results provide clear evidence of a Transocean team focused on improving those things within its control to best position the Company for the eventual recovery.

I'd like to thank our employees around the world for achieving this notable result. Before handing it over to Esa, I would like to remind shareholders of our annual general meeting to be held next Friday, May 15, in Cham, Switzerland. We recommended that shareholders vote affirmatively for each of the Company's proposals. If you've not already done so, I encourage you to read our proxy and vote your shares.

Esa will now provide you with additional comments on the Company's financial performance after which Terry will provide some further perspective on the market. We will open up to questions thereafter. Esa?

Thank you, Jeremy, and good day to everyone. I will discuss the key elements of our Q1 results and then make some clarifications to our guidance. For the first quarter of 2015, we reported a net loss attributable to controlling interests of $483 million or $1.33 per diluted share. The loss includes $881 million or $2.43 per share in net unfavorable items, including a non-cash charge of $481 million for impairment of the deepwater floater asset class, and as previously announced, a further $393 million impairment of non-core floaters that we intend to scrap.

Excluding these items, our adjusted net income was $398 million or $1.10 per diluted share, a 16% improvement versus the prior quarter. Our first-quarter results reflect our continued success in three areas of intense focus, utilization, revenue efficiency, and cost management. Consolidated revenues decreased by $194 million sequentially to $2.04 billion due mostly to reduced activity associated with asset disposals and stacked and idle rigs. This was mitigated by increased utilization and improved operating performance.

Fleet utilization was 79%, up from 73% in the prior quarter. Revenue efficiency was 95.9% in the period versus 95.3% in Q4. Early second-quarter indications suggest that the operating performance of our rigs continues to be better than our 2015 guidance of 95%. First-quarter operating and maintenance expenses decreased by $226 million or 17% to $1.08 billion demonstrating a further acceleration of our cost management efforts including the optimization of maintenance and out-of-service costs and continued success in reducing the cost of idle rigs as they are released from contracts.

The quarter was also impacted by the disposal of non-core floaters. G&A decreased by $16 million to $46 million primarily due to certain expenses associated with our cost management initiatives and some other items recorded in Q4 that were not repeated in this reporting period. As evidence of our success in management -- managing our costs, we estimate that we have achieved on an annual basis in excess of approximately $900 million in structural improvements due to our efforts over the past couple of years.

The first-quarter annual effective tax rate was 25.8% versus the full year of 2014 annual effective tax rate of 18.7%. Recall that Transocean's annual effective tax rate will vary based on a number of factors, one of which is the overall level of pre-tax income. In other words, as pre-tax earnings decrease, our annual effective tax rate generally increases. We ended the quarter with approximately $2.7 billion in cash and cash equivalents largely in line with Q4. Cash flow from operations declined by $40 million to $526 million. CapEx decreased by $117 million to $201 million due to lower project expenditure on the existing fleet, in line with our ongoing optimization of capital spending.

I will now spend a few moments updating our 2015 outlook, which reflects our confidence in continuing to achieve operational improvements and further reduce our costs. Given favorable fleet operating performance throughout 2014 and so far this year, we still anticipate achieving revenue efficiency of 95%. Other revenues, which primarily include reimbursables, are expected to be between $125 million and $140 million. We now anticipate that our full-year operating and maintenance expenses will be between $3.8 billion and $4.1 billion. This represents a substantial incremental reduction versus our full-year 2014 O&M costs and our initial expectations for this year.

Again, clearly highlighting the success of our cost management efforts across the Company. The decrease in expected 2015 O&M costs is partly due to scrapping of non-core assets and a material reduction in expenses associated with stacked floaters. We will continue to scrap non-core rigs that we conclude are no longer economically viable over the longer term as well as quickly move rigs to stacked condition as soon as it becomes clear that they have limited options for near-term follow-on work. To the latter point, we continue to optimize the cost of stacking ultra-deepwater rigs and have made significant progress in this regard.

Indeed, cost-effective stacking of these highly capable ultra-deepwater rigs is a key near-term issue for the industry. We will also maintain a disciplined approach to shipyard expenditures deferring discretionary projects associated with rigs that do not have firm backlog. As Jeremy already mentioned, we are performing an increasing amount of project work scope while rigs are in service reducing the frequency of shipyards and other planned out-of-service time.

A very good example of this is the recent five-year SPS on the Discoverer Luanda, which was completed in an industry leading out-of-service time of nine days, avoiding up to several weeks of additional out-of-service time. We expect that cost management initiatives to lower activity lower levels will each contribute approximately 50% to the estimated total year-over-year reduction in O&M costs and will continue to improve profitability and underlying cash flows all else equal. Due to seasonality as well as the number of planned shipyard days as noted in our recent fleet status report, we continue to expect O&M costs in the first half of 2015 to comprise up to 55% of the total for the year.

Regarding 2016, the Company's currently committed to only 48 days of planned out-of-service time. We remain focused on a reduced cost structure that aligns with lower anticipated activity levels. We expect depreciation expense to be between $1.1 billion and $1.2 billion, a slight increase in the low end of our prior expectation, that reflects the reduction in the salvage value of certain drilling rigs. We forecast our G&A expenses in 2015 to decline to between $175 million and $195 million, a further reduction of some 12% compared with our earlier guidance.

This reflects our continuous focus on overheads across our organization to align with a smaller fleet. We expect interest expense, net of interest income and capitalized interest, to be between $430 million and $450 million. Capitalized interest and interest income are expected to be approximately $130 million and $20 million respectively. Our 2015 annual effective tax rate from continuing operations is expected to be within the range of 23% to 27%. This expectation reflects an updated forecast for each of our rigs as well as includes known changes in legislation. As a further reminder, as pre-tax income decreases, the annual effective tax rate will generally increase.

We now expect our 2015 capital expenditures to be slightly lower at about $1.7 billion including $1.3 billion associated with our newbuild program. There is no change in our long-term objective of reducing gross debt levels to below $9 billion. We will, however, take steps as when necessary to ensure appropriate liquidity and balance sheet flexibility for an uncertain market. Our targeted liquidity range of $3.25 billion to $4.25 billion is unchanged and includes our undrawn $3 billion revolving credit facility. At the end of the first quarter, out total liquidity was approximately $5.7 billion.

We are also taking incremental measures to optimize our medium-term capital obligations. As you know, our Board of Directors proposed a significantly reduced dividend of $0.60 per share for shareholder consideration at the upcoming AGM. Additionally, we have further deferred the delivery of our five newbuild high-specification jackups by 18 to 20 months each. This is in addition to the six-month delay announced previously. This re-phasing reduces our 2016 and 2017 capital obligations by approximately $210 million and $360 million respectively. And as I already said, we will take more steps as necessary to ensure that we retain adequate balance sheet flexibility.

Transocean Partners remains an important component of Transocean's financial structure and balance sheet flexibility. However, as you know, the value of the company's units have, along with those of other similar companies, declined with oil pricing. This in conjunction with an increase in the cost of debt capital presents obvious albeit likely short-term challenges to the execution of drops that enhance the value of both Transocean and Partners. We will keep you up-to-date on our plans in this regard.

To conclude, we are very pleased with our recent successes but are mitigating the reduced activity. Even so, you should expect us to continue to aggressively manage our costs, improve our operating performance, and optimize our capital expenditures to increase our free cash flow. This finally concludes my comments, and I will now hand over to Terry to provide you with an update on market conditions. Terry?

Thanks, Esa, and good day to everyone. The market continues to be very challenging. The low commodity price environment, corresponding reductions in customer budgets, and overcapacity in the global floater and jackup fleet are negatively impacting utilization and pricing in every market around the world. There is currently very little visible 2015 demand, and over the last quarter only a few fixtures have been executed in all asset classes.

Since our last call, we added firm term on the Sedco Express, Transocean Prospect, and Galaxy II, and are in discussions to conclude more contracts shortly. Our backlog as of April 16 was $19.9 billion, which provides a foundation to help us weather the storm until commodity prices are at levels that better support our customers, offshore programs and demand for our rigs. In the near to medium term, we expect alternate deepwater day rates and utilization to remain under pressure. Customers are keenly focused on cost cutting efforts and are searching for opportunities to further reduce their 2015 and 2016 spending.

As we mentioned in February, we continue to advance discussions with multiple customers to capitalize on incremental term and maximize utilization of, particularly, our higher-specification rigs. We expect these mutually beneficial arrangements will deliver more efficient performance at an optimized cost to our customers. Overall, our entire fleet continues to deliver top-tier drilling performance but the revenue efficiency of our higher-specification units has been particularly strong.

We congratulate our operations teams for their first-class efforts in affording us the opportunity to showcase their successes. Two notable examples are the Transocean Spitsbergen and the Deepwater Invictus. The Spitsbergen beat the drilling curve on the last well by over 25% for Statoil in Norway. And the Invictus is delivering newbuild best-in-class for initial well drilled per days per thousand foot by a significant margin in the US Gulf of Mexico. The differentiating performance provides value to our customers.

Safe and efficient operations result in more wells in earlier production, all else equal. Despite the unfavorable market conditions, we do see green shoot opportunities emerging for 2016 and 2017 programs in the US Gulf of Mexico, South America, West Africa, the Black Sea, and India. Indeed, recent discoveries in Romania, US Gulf of Mexico, and India are increasing the likelihood that we may see incremental rig demand emerge from these regions in the medium term. Industry overcapacity continues to be a problem, however, there has been some good news.

In addition to the recent announcement that seven newbuild [Sete] rigs will be canceled, we expect that half of the announced 28 rigs are unlikely to be built and the remainder will probably be constructed over a longer timeframe than originally anticipated. In addition, ultra-deepwater newbuild deliveries are being delayed, and the financial challenges of some of the drilling contractors has led and may lead to rigs being indefinitely stacked, and it also represents in our view, an additional indication of a gradual correcting trend in the global rig oversupply situation.

These developments reinforce our comments of last quarter suggesting that the growth and supply of ultra-deepwater drilling units will likely slow in the near term. Marketing utilization for the ultra-deepwater global fleet is around 90% largely due to the rapid stacking of rigs as they roll off contract. There are approximately 17 ultra-deepwater rigs idle and available for prompt activity around the world including several of our rigs which we are actively marketing.

We expect to have some positive news soon. As mentioned earlier, there are several opportunities around the globe for programs starting in 2016 and 2017. Although this is not new news, generally challenging market conditions are expected to persist over the next 12 months, and we anticipate extended periods of inter-contract idle time and significant competition for the limited ultra-deepwater tendering opportunities available. Deepwater and midwater markets follow similar trends as the ultra-deepwater and remain weak.

We will continue to see higher-specification units compete for these lower spec jobs, and in term push the older, less-efficient assets to the beach, and in many cases, ultimately to the scrapyard. In this cyclical downturn, we believe it's generally uneconomical to maintain some of the older, less-capable equipment in a long-term cold-stack condition to preserve optionality when the market improves. There has been very little fixture activity in the midwater fleet market since year end but we do continue to participate in tenders in India and Southeast Asia.

The harsh environment of markets are also characterized by slow contracting activity in a few new fixtures. The impact of low oil price continues to pressure customers to execute contract terminations and suspensions in Norway and the UK in addition to canceling and delaying programs. As outlined below, 2015 will be challenging for the UK and Norway, and we expect the market to remain oversupplied in the near term. As we are participating in a few tenders in direct negotiations for harsh environment work starting in 2016 and 2017, that we remain confident in the long-term viability of these markets and the unique assets required to operate in these arenas.

During 2015, we will have five floaters available in the UK and Norway, and as you might expect, we are seeking opportunities globally for our harsh environment units. As noted in our last fleet status report, the Transocean Prospect will now work beyond the end of April for another several months at a rate of $298,000 per day. The premium jackup market is exhibiting signs of pricing pressure with lower rates for newbuilds expected in Asia and West Africa. Day rates on the existing fleet continue to moderate with a large influx of uncontracted newbuilds, challenging the less capable rigs.

That said, we expect that the newbuilds being offered by established contractors with a solid operating history will be preferred by our customers, all else being equal. Our customers remain confident in the long-term outlook for offshore oil and gas drilling, citing anticipated increases in global energy consumption, and their ultimate mandate to replace reserves and increase production in a cost effective high return manner. As in past cycles, the lack of drilling by customers is not sustainable, and the inevitable catch-up is likely to result in a surprising rapid and robust increase in demand for rigs.

In summary, we believe the trifecta of rig retirements, delivery delay, and/or cancellation of newbuilds, as well as the various rig supply disruptions in Brazil, could only aid in balancing the rig market. That said, a bit of help is also needed from the commodity pricing and customer demand. We will continue to position our fleet to take advantage of the upturn when it arrives with a focus on high-grading the fleet.

We have the financial flexibility, unmatched operational and engineering strength, and passionate and talented teams that will help ensure we emerge from this downturn in the strongest possible position. This concludes my overview of the market, so I will turn it back to you, Thad.

Thanks, Terry. Now I will open it up to Q&A, and just as a reminder, one question and one follow-up. Alecia, go ahead and take the first caller in queue.

(Operator Instructions)

Ian Macpherson, Simmons.

Thank you. I think first of all, we all need to recalibrate our revenue efficiency modeling. Good quarter there. I was curious if there is anything in the way of early termination settlements reflected in your contract drilling revenues in Q1. If not, will we see those in your revenues going forward?

Good morning. Ian. How are you?

Hi, Terry.

In the first quarter, we didn't have the early termination fee that is due on the -- you're talking about the Sedco Energy. We're still working with the customer to conclude that, and we should have that announced shortly. I would just remind you that we are again in discussions with our customers where we have a larger fleet to be able to do some lending and extending and put together some very interesting packages in order to capitalize on additional terms. I would say that there might be an opportunity where we could capitalize on bits and pieces of the type of backlog that we have remaining available to us.

Okay. Thanks. As a follow-up question, that's an awfully large reduction to your O&M guidance. I wonder if you could provide some context or framework in terms of what that -- what incremental level of stackings or scrappings might be implied from that so we can adjust our revenues in tandem with the cost guidance.

Thanks, Ian. Good question. That will take a while to actually go through that in too much details and it's not part of our disclosable. I'll do some bridging in terms of what generates the $600 million to $700 million or close to 15% reduction in guidance. And you're right, the number one item has to do with the volume of our business. We are now expecting less rigs than we did three or four months ago to get re-contracted this year. It's by no means the only driver here and not necessarily even the dominant one.

Second big item here as part of that bridging is that we've worked really hard and I think we've mentioned that before in the last six months or so, to find ways to reduce the transit period between operations and stacking and subsequently scrapping, if that's required. And that's a big driver as well. Finding more cost-effective solutions and finding ways to accelerate scrapping and stacked rigs at a lower level of cost is a big driver there, and we are starting to master that art and that's taken awhile but we're getting there definitely.

Third sizable driver is some of the choices regarding our periodic maintenance. That's usually flat as CapEx but a lot of our periodic survey activity actually gets expensed, and that's also significant cost driver. And then finally, which is most pleasing element of it all, has to do with the new wave in cost savings. So that includes overheads, that includes better contribution from supply chain, that includes a more scrutiny on the way we do maintenance and what we do in that arena.

It really is a mixed bag that actually adds up to a sizable number. It doesn't stop there. There's just more that we can do and we will do more. That's it for 2015 in terms of our ability to provide guidance right now here

JB Lowe, Cowen and Company.

Good morning, everyone. Jeremy, congratulations, and welcome to the Board. It's going to be fun.

Thanks, JB. Appreciate it.

My first question is about kind of a general question about your overall fleet size. As you guys are paring down your fleet with stacking and retirements, how do you view what your fleet is going to look like on the other end? How are you going to build it back up to what you see it being and what's the breakdown between floaters and jackups that you're seeing?

Good morning, JB. How are you doing?

I'm well. Thanks, Terry.

We're going through the process of high-grading our fleet and certainly when we see opportunities, for instance on the deepwater and the midwater asset classes of our fleet, our asset strategy originally was to remove these from our fleet, however method that was available to us at the time. But we are going continue to do that and high-grade and obviously I would let Jeremy talk about his plans of being able to put us in a position of new opportunities.

On the other side, I think you're going to see certainly our high-grading fleet continuing and we'll be able to capitalize and when the market does turn on the optionality of certainly our fifth generation fleet, too, that are currently idle at the moment. But we certainly expect that we'll be able to have that fleet all put back to work.

I think, JB, to elaborate on that. We've seen in land and we're certainly seeing it in offshore now that newer more efficient technology wins the day and those are the types of rigs that get the contracts, get the better day rates, and so we have been moving towards that over the last couple of years, and you'll see that continue.

One of the good things about a market like this is it helps to expedite that process by retiring some of the older technology that's no longer in demand, and so I think you'll see over time that you just see much a more technologically advanced and more efficient fleet going forward.

All right. Thanks for that. Just as a quick follow-up. I noticed it's kind of a moving target. Given the venerable demand you're seeing in 2016 on the floater side, what do you think the actual rig count demand would look like to be in 2016 given the drop off we've seen?

I think that around 270 floaters active right now are contracted right now. Where do you think that can kind of shake out next year?

I think that if you look at the projections and you look at all the various research that's going on, the numbers that we're kind of seeing or talking about today, and it's hard to make that projection, right, because it's a moving target and the customers can continue to slide it to the right.

We can see somewhere in the range of between 220 and 230, and that's certainly we're optimistic in those numbers. But if all the demand came out that we currently see or that we know that our customers have on their books, then that kind of would be the range that you would think that they could do but it's going to again depend on how well they are in their cost-cutting efforts and certainly their confidence in the commodity price.

One thing I'd add to that is, we're hopeful but we're not preparing for an uptick in the market. We're kind of preparing for this lower for longer and so while we certainly hope to see contracts surface and opportunities surface next year, we're preparing for some pretty challenging times in front of us. And so upgrading the fleet, right-sizing the fleet, right-sizing the organization to support what we think is going to be lower activity.

Jud Bailey, Wells Fargo.

Thanks. Good morning. You mentioned, Esa, optimizing your stacking costs on your DP rigs. Could you maybe go into a little more detail on, I guess, number one, what you've been able to do to optimize the cost and give you as a frame of reference on where you're able to get those costs down to for a stacked DP asset?

Yes, I can give you a range. That's the best I can give because not all rigs are similar. The low-end of that range is probably somewhere around $50,000, a bit more than that right now, and at that the higher end of that range might be as high as $85,000, $90,000 a day. So you can figure out an average somewhere in between. It's an area where we've made considerable progress in the recent past, and numbers keep coming down, and we keep finding better ways of sort of lukewarm stacking the rig, if that's the right way of describing what we are trying to achieve.

And on a really good day, those numbers are reasonably manageable. But it's still considerable burn, of course, and a big area and a big issue for the entire industry in the near term. And we've put a lot of effort into that, and we will continue optimizing and on a rig-by-rig basis to do everything we absolutely can to keep it as low as possible.

Okay.

What is also is important, and I kind of referred to that already, is the ability to bring the rig down from operations through a period of idleness to a stacking condition as quickly as possible because that does reduce the burn very considerably.

And when you get it down to that, let's say $50,000 or in that low range, the ability to bring -- or an expense required to bring the rig back into service, do you feel like you'll be able to do that in a relatively short and cost efficient manner, or is it going to require more time and expenditure when you get the cost down to those levels?

It depends on a couple of things. One is the length of the period during which the rig is stacked. The longer it is, the more likely it is that the reactivation is actually going to be a relatively costly exercise. But this, generally speaking, is another area of optimization for us, and we are anticipating and we are trying to find the most fit for purpose solutions for every rig that we've got stacked in preparation for the market to recover.

So there's several elements. One is accelerating the downgrading of the status of the rig to a stacked condition. Two is keeping the cost as low as possible and then anticipating and preparing for the reactivation and do it as cost efficiently as anyone ever can. But that varies a lot. The last piece varies a lot.

(Operator Instructions)

David Smith, Heikkinen Energy Advisors.

Thank you. Congratulations on the very strong revenue numbers. I was hoping you could remind us about the components of the fleet segment revenue that maybe aren't apparent in the fleet status reported day rates. I think there might be some bonus revenue, maybe how things like demobilization fees would flow through.

I think actually that breakdown of our revenue on a dollars per day per rig class is available on our website. That's the best source of that information in addition to our 10-Q which provides some transparency on that. I don't really have those numbers in front of me here, and I'm not sure whether any of my colleagues do so that's a little bit difficult for us to respond to that.

I guess also I was wondering the follow-up if there was any interest from your side and/or the client side regarding potentially deferring delivery of any of the five contracted drill ships under construction.

Some of our -- and the ones that are contracted, I'm assuming that's what you're talking about, some of our customers have expressed some interest in and we're looking at what does that mean for us, and how could that possibly play out. So there are conversations ongoing but there has been nothing that's been executed to date.

(Operator Instructions)

Vivek Pal, Jefferies.

Yes, good morning, guys. Could you please talk a little bit about your cash burn for 2015 after the first quarter, which was I think, little ahead of expectations? The Street, I believe, has you burning about $750 million in cash this year on top of the $1 billion in debt maturity.

Earlier, you had mentioned that you're going to use cash on hand to fund this. Has that changed and next year is going to be a little more challenging? If you can elaborate on your strategy and how to kind of meet your debt maturities and funding of the cash burn is a possibility of a secured debt or any monetizing of your contracts?

It's Esa Ikaheimonen here. I'm just writing the questions down so that I can cover them all. The current situation is that, obviously, there's some element of lacking visibility as to where the market is headed so we're monitoring that very closely. Our starting point is really strong for 2015, and I would expect that actually the analysts will probably update their liquidity forecasts and cash flow forecasts for this year based on our strong quarter as well as our guidance, so that's an element of the starting point, so that there might be a change that we will see shortly.

That's up to them, of course, and hopefully that will be in line with our thinking as much as possible. Right now, we've got close to $3 billion of cash and our cash generation, cash conversion is obviously improving all the time, so our cash generation throughout 2015 is expected to be quite good. We don't have massive amounts of capital obligations in 2015, and you're right that we've got $900 million of repayments due towards the end of the year. We've also demonstrated our abilities to reschedule yard payments, and we do very little in terms of existing rigs and shipyard expenditure.

So we can and we will defer and eliminate CapEx as and when it makes sense. So there's quite a lot of short-term as well as medium-term flexibility. That's what I'm saying, and that gives us options. So this year, cash flow strong enough, liquidity very strong to start with.

I should mention the $3 billion revolver as well and further flexibility in different areas. So we've got options available and we do have multiple sources of capital readily available as well, if our medium longer-term views will start devolving to a direction where we feel that we need to accelerate some of that capital raising. So, right now we're comfortable. We are confident in saying that options do exist and one of those options is that we simply finance that debt repayment from existing cash reserves.

You asked about secured debt instruments, definitely part the potential funding mix going forward. There's no question about it. The pricing currently is very attractive in comparison with unsecured instruments, so when it comes to management of our debt portfolio, that is an option. And I think, finally, you asked about potential monetization of our existing contracts. There's a reason why we established Transocean Partners and that is a primary vehicle for us to monetize our contracts, but there are other ways of doing that. So we're obviously developing opportunities and options so that we would be in a position where we can optimize those, and as and when needed, pull the right one.

That was very insightful. Just a quick question. You mentioned $3 billion in cash. You had $2.7 billion, so in the 45 days since the end of the first quarter, you have added another $300 million or it was just a rounding from $2.7 billion to $3 billion?

It was rounding from the cash position today to $3 billion. So as I said, we are converting cash pretty effectively as we speak, and therefore we have seen a little improvement since the end of the quarter. But not quite $300 million, I should mention.

This does conclude our Q&A portion for today. I would like to turn the call back over to Mr. Vayda for any additional or closing comments.

Thanks very much for your participation today. We are available for any follow-up questions you might have for the balance of the afternoon. We look forward to chatting with you again when we report our second-quarter results. Have a good day.

That does conclude today's conference. We thank you for your participation.