Earnings call transcript: Shelf Drilling Q4 2024 sees revenue dip, stock rises

Shelf Drilling Ltd (SHLF) reported its fourth-quarter 2024 financial results, revealing a 15% drop in adjusted revenue from the previous quarter, totaling $225 million. Despite this decline, the company’s stock experienced a 4.1% increase, closing at $8.52. According to InvestingPro analysis, the company appears undervalued, trading at just 4x earnings and 0.47x book value. The market reacted positively to the company’s operational efficiency and strategic initiatives, offsetting concerns about the revenue decrease.

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Key Takeaways

• Adjusted revenue for Q4 2024 fell by 15% to $225 million.
• Stock price surged by 4.1% following the earnings announcement.
• Effective utilization improved to 80% in Q4 from 77% in Q3.
• Strategic alliances and new contracts highlight future growth potential.
• 2025 revenue and utilization improvements anticipated in the latter half.

Company Performance

Despite a drop in quarterly revenue, Shelf Drilling demonstrated strong operational performance with an effective utilization increase to 80% from 77% in the previous quarter. The average day rate also rose to $88,000 per day, reflecting the company’s capacity to secure higher-value contracts. With a market capitalization of $194.86 million and trailing twelve-month EBITDA of $268.8 million, the company maintains solid fundamentals. The full-year 2024 adjusted revenue stood at $972 million, with an adjusted EBITDA of $351 million, supported by a healthy current ratio of 1.45.

Financial Highlights

• Q4 2024 Adjusted Revenue: $225 million (15% decrease from Q3)
• Q4 2024 Adjusted EBITDA: $85 million (38% margin)
• Full Year 2024 Adjusted Revenue: $972 million
• Full Year 2024 Adjusted EBITDA: $351 million
• Effective Utilization: 80% in Q4 (up from 77% in Q3)
• Average Day Rate: $88,000 per day (up from $82,000 per day)

Outlook & Guidance

Shelf Drilling provided guidance for 2025, with consolidated adjusted EBITDA expected to range between $330 million and $380 million. The company anticipates improved revenue and utilization in the second half of 2025, driven by strategic mobilization of rigs to West Africa and ongoing demand in emerging markets. InvestingPro data shows strong revenue growth of 17.73% in the last twelve months, with analysts maintaining a positive outlook on the company’s profitability for the coming year.

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Executive Commentary

CEO Greg O’Brien emphasized the company’s positive long-term outlook, stating, "We continue to see strong long-term fundamentals in the jackup market." CFO Douglas Stewart added, "Despite the short-term challenges, the medium to long-term outlook for our industry continues to be very positive."

Risks and Challenges

• Potential rig suspensions in Saudi Arabia could impact future revenue.
• Fluctuating oil prices may affect demand for drilling services.
• Execution risks associated with new strategic alliances.
• Macroeconomic uncertainties in emerging markets.
• Cost management challenges in maintaining operational efficiency.

Q&A

During the earnings call, analysts inquired about the potential impact of rig suspensions in Saudi Arabia and the revenue structure of the partnership with Arabian Drilling. The management also discussed strategies for extending term loans and managing operational costs effectively.

Full transcript - Shelf Drilling Ltd (SHLF) Q4 2024:

Conference Operator: Good day, and thank you for standing by. Welcome to the Shell (LON:SHEL) Drilling Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers’ presentation, there will be the question and answer session. Please be advised that this conference is being recorded.

I would now like to hand the conference over to our first speaker today, Greg O’Brien, CEO. Please go ahead.

Greg O’Brien, CEO, Shelf Drilling: Thank you, and welcome, everyone, to Shoal Drilling’s fourth quarter twenty twenty four earnings call. Joining me on the call today is Douglas Stewart. This morning, we published our Q4 financial results and our latest fleet status report. In addition to our press release and the 2024 financial statements for both Shelf Drilling and Shelf Drilling North Sea, we also published a presentation with highlights from the quarter. A recording of this call will be made available on our website within the next few days.

Before we begin, let me remind everyone that our call will contain forward looking statements. Except for statements of historical facts, all statements that address our outlook for 2025 and beyond, activities, events or developments that we expect, estimate, project, believe or anticipate may or will occur in the future are forward looking statements. Forward looking statements involve substantial risks and uncertainties that could significantly affect expected results. Actual future results could differ materially from those described in such statements. Also note that we may use non GAAP financial measures in the call today.

If we do, you will find supplemental disclosure for these measures and an associated reconciliation in our financial reports. I will provide an overview of the company’s performance for the fourth quarter and touch upon the full year 2024, including some recent developments and achievements and also provide our latest views on the market environment. I will then hand it over to Douglas to walk you through our Q4 financial results and provide guidance for 2025 before we open the call for Q and A. Our number one priority is the health and safety of our employees and contractors. Our safety performance is a key measure of our success and is fundamental to who we are as a company.

We are constantly looking for ways to improve the safety on our rigs and in 2024 rolled out a focused effort to understand and improve on human factors or human behavior to eliminate incidents from our operations, supported by technology, including AI. For full year 2024, our total recordable incident rate was 0.18 with 10 recordable incidents across our fleet. While the incident rate increased slightly year over year, the number of high severity and high potential severity incidents decreased as compared to the previous year. Notably in 2024, ’20 ’8 rigs operated without a recordable incident, including the entire Saudi and India divisions, a clear indication that our vision of incident free operations is achievable. We had another very strong year of operational performance with our fleet wide uptime reaching 99.3%, an outstanding achievement given the increased number of premium rigs in our fleet.

Our Saudi division’s performance was particularly impressive given the challenges faced in 2024 with our two rigs, the Highland five and Highland nine finishing the year with zero downtime. We finished the year on a strong note with the Shelldrilling Vars commencing its contract with Equinor Norway in mid November. The rig has been initially serving as an accommodation and support unit and is expected to begin its drilling campaign next month, which will keep it busy through 2026 and likely beyond. In addition, the Maine Pass four commences two year contract in Nigeria in December and is performing very well. This rig had already mobilized from Saudi Arabia to Nigeria along with the Shellker Link Achiever, which commenced its three year contract in October 2024.

Since our inception, we have focused on having the right assets in the right locations, which has resulted in a significant transformation of our fleet over time. We continue to believe that having a blend of standard and premium jackups is the right approach to serving our customers and that most of our standard rigs will continue to operate efficiently and generate cash flow for many years to come. However, we constantly evaluate market dynamics and opportunities and capital requirements for our rigs that can result in the disposal of certain of our less competitive units. In December, we signed an agreement to sell the Maine Pass one for $11,000,000 for non drilling purposes, and we closed this transaction in January. We will likely sell two to three additional units in 2025 for similar applications, which can generate near term cost savings and cash flow and also improve regional rig supply and demand balances.

Unidentified Analyst: The

Greg O’Brien, CEO, Shelf Drilling: TriMates insurance claim process is almost complete. We have now collected $48,000,000 of the $50,000,000 claim and expect to receive the remaining portion in the first half of this year. The rate had been moved from West Africa to The UAE and will be sold for recycling in the near term. On the contracting front, we continue to see strong demand for jackups in West Africa and Southeast Asia with contracting momentum exhibited in both the regions since last year. On the back of awards for the shelterlink achiever and main pass four in Q4 in Nigeria, we announced last month that the shelterlink scepter had secured a one year extension of its contract in West Africa, keeping the rig contracted into July 2026.

In addition, we are now mobilizing the sheltering Victory and the Highland two to West Africa, as we expect both rigs to commence new programs by the middle of twenty twenty five. The backdrop in West Africa and Southeast Asia has given us the confidence to search for and the need to access additional premium jackups as we face the possibility of missing out on opportunities in both regions. As a result, we along with Arabian Drilling Company, the largest onshore and offshore drilling contractor in Saudi Arabia, recently announced a strategic alliance to deploy ADC’s available premium rigs outside of The Middle East. Our initial focus will be on contracting one to three rigs in West Africa and Southeast Asia. We are very excited about the prospects for this alliance as we will leverage ADC’s high specification modern jackups and our extensive international presence and diverse customer base.

As of December 31, our contract backlog was $2,100,000,000 across 31 rigs. This includes approximately $600,000,000 associated with four of our rigs suspended that remained in Saudi Arabia at the end of the year. For all of 2024, we added approximately $900,000,000 in new contract awards at a weighted average day rate of $129,000 per day, which included $500,000,000 of new backlog in the fourth quarter alone. Briefly touching upon the financials, adjusted revenue for the quarter was $225,000,000 and adjusted EBITDA was $85,000,000 representing an increase of 23% over the previous quarter, excluding the acceleration of mobilization revenue in Q3 for two suspended rigs in Saudi. The sequential increase EBITDA was mostly driven by higher revenue in Nigeria and Norway following the commencement of new contracts in Q4.

Douglas will provide more details on our Q4 and full year 2024 results as well as the outlook for 2025. The medium to long term outlook for global oil and gas demand is forecasted to remain strong as development in emerging economies is expected to drive continued growth. Shallow water production is expected to remain a critical component of a diversified and reliable energy mix required to address the increasing demand for decades to come. Brent crude oil prices, a key driver of jackup rig demand, have been relatively stable in the last few years, averaging $80 a barrel in 2024 and trading in the mid-70s in recent weeks. Global jackup market utilization in 2024 was adversely impacted by the ’34 rig suspensions in Saudi Arabia, although strong incremental demand in other regions continues to absorb some of this rig capacity.

Adjusting for the suspended rigs in Saudi Arabia that still remain idle, the year ended with market utilization of 88%. Turning to specific regions where we operate, two operators in Qatar have indicated there will soon be multi rig tenders, some of which will be against incumbent rigs and mostly for gas development. We currently have one rig contracted in Qatar into early twenty twenty six. We expect to leverage its presence in country and our operational performance for these opportunities. In addition, a four rig tender was recently launched for operations in the neutral zone between Kuwait and Saudi Arabia.

It’s positive to see incremental requirements reemerge in The Middle East. In India, ONGC recently relaunched its highly anticipated tender for four standard specification rigs with bids due later in March. Awards are expected before the end of Q2 with contracts scheduled to commence in Q4 twenty twenty five. We will participate in this tender with two of our rigs that recently completed their previous contracts, the GT Angel and Paramuswara. The slowdown in tendering in 2024 will result in a short term reduction in the number of working rigs in India.

We remain very optimistic on the long term activity outlook given the strong desire and motivation for both operators and the government to reverse the recent trend of declining production. Capital flows in Egypt improved during 2024, which has positively impacted oil and gas development activity in the country. As a result, Petrobel, the joint venture between the Egyptian state owned operator and E and I re contracted the Trident (NSE:TRIE) 16 for a three month program with the rig commencing operations in February. We are in discussions with this customer and others to keep the rig working beyond the current term. As mentioned earlier, we continue to see an elevated level of activity in West Africa, increasingly driven by the indigenous producers, followed by the ISVs.

Operators in Nigeria are tendering for contracts from one well up to multiple years, offering our fleet in the region a good balance of long term backlog coverage and short term opportunities. Our local presence and scale and long term track record provide a competitive advantage in this market. We are mobilizing two additional rigs from The Middle East to West Africa to capitalize on the growing rig demand and near term commencements. We have secured a short term contract for the Highland two in Nigeria and are in dialogue with multiple operators regarding follow on work for this rig. For the Shell Drilling Victory, we hope to be in a position to confirm the program for this rig in the coming weeks.

The demand pipeline in Southeast Asia also remains strong with new opportunities in Vietnam, Thailand and Indonesia. Operators in Vietnam in particular are seeking rigs with factory style offline drilling capabilities found on several of our rigs. While there is near term pressure on day rates due to rigs competing from The Middle East, we are confident the unique capabilities of our rigs and our successful track record in the region will be critical in our marketing efforts. In the North Sea, 2 of our three rigs are contracted well into 2026. The program for the ShelterLink Fortress in The UK is now expected to finish in May and we are actively marketing this rig for opportunities both inside and outside of the North Sea.

The activity outlook in late twenty twenty five and into 2026 in both The UK and The Netherlands remains solid. The recent rumors of a few additional potential rig suspensions in Saudi Arabia, along with payment challenges and short term suspensions in Mexico have contributed to the short term uncertainty in the jackup market. However, we believe that Saudi Aramco (TADAWUL:2222) is at or very near the baseline level of jackups it will require for its operations. In addition, the recent reports that Pemex is committed to a payment plan for its suppliers should help address concerns over any long term rig demand impact in Mexico. We are focused on execution, successfully securing a series of market opportunities that represent near term priorities for shelf drilling and working with Arabian Drilling to capitalize on opportunities to create value for both companies.

While there are some short term headwinds, we continue to see strong long term fundamentals in the jackup market. Supply will likely be flat to shrinking in the years ahead and demand is concentrated in low cost short cycle basins and in countries with a strong desire to produce hydrocarbons for the foreseeable future. We believe utilization will stabilize and improve as we progress through 2025 and be strong for years to come. I will now hand it over to Douglas for his remarks.

Douglas Stewart, CFO, Shelf Drilling: Thanks, Greg. Reported revenue for Q4 twenty twenty four of $229,000,000 included $3,000,000 for amortization of an intangible liability related to the five rigs we purchased in 2022. As such, we’ll continue to focus on and refer to adjusted revenue, which excludes the impact of this non cash item. For the fourth quarter of twenty twenty four, adjusted revenue was $225,000,000 This included $212,000,000 of day rate revenue, $5,000,000 of mobilization and bonus revenue and $8,000,000 of recharges and other revenue. Adjusted revenue for Q4 decreased by $39,000,000 or 15% compared to Q3 twenty twenty four.

This was primarily due to the one time acceleration in Q3 twenty twenty four of $45,000,000 in mobilization revenue in respect of two suspended rigs in Saudi Arabia related to future years. It is worth noting that without this acceleration, adjusted revenue would have increased from $219,000,000 in the third quarter of twenty twenty four to $225,000,000 in the fourth quarter of twenty twenty four due to higher revenue in Nigeria and Norway following the contract commencements of the shelf drilling Achiever in October of ’twenty four and the shelf drilling BARS in November of ’twenty four, respectively, as well as a full quarter of operations of the shelf drilling Perseverance in Vietnam. With the commencement of these three new contracts, effective utilization increased to 80% in Q4 from 77% in Q3, and the average day rate increased to $88,000 per day in Q4 from $82,000 per day in Q3. On the cost side, operating and maintenance expenses were $130,000,000 for the fourth quarter, decreasing $3,000,000 from $133,000,000 in Q3, primarily due to lower mobilization costs for the shelf drilling achieved ahead of its new long term contract in Nigeria, as well as lower operating costs for the Baltic, which we sold in September of twenty twenty four.

G and A expenses of $16,000,000 in Q4 decreased from $17,000,000 in Q3, primarily due to a decrease in compensation and benefit expense, partially offset by an increase in provision for credit losses. Adjusted EBITDA was $85,000,000 in Q4, representing a margin of 38% compared to $114,000,000 and 43% in the previous quarter. The decrease in adjusted EBITDA quarter over quarter was mainly driven by the one time acceleration of $45,000,000 of mode revenue in the third quarter as mentioned earlier. Of the $85,000,000 in adjusted EBITDA in Q4, SD and S generated $17,000,000 of adjusted EBITDA, while the rest of the business generated $68,000,000 of adjusted EBITDA. When looking at full year 2024, we had adjusted revenue of $972,000,000 and the business generated an adjusted EBITDA of $351,000,000 including $364,000,000 from the parent company and a negative $13,000,000 from SD and S.

This compares to a guidance range of $320,000,000 to $345,000,000 set in the prior quarter. The positive variance between our actual results and the upper portion of our guidance range was mainly driven by higher utilization and uptime during Q4, primarily in West Africa lower maintenance and operating expenses across our fleet during the quarter, as well as lower corporate G and A expenses, all of which contributed to mitigating the impact of the Highland II and Highland IV suspensions in Saudi Arabia during the quarter. Income tax expense of $7,000,000 in Q4 brought the full year tax expense to $32,000,000 or 3.2% of twenty twenty four revenues. Net interest expense of $36,000,000 in Q4 was in line with the prior quarter. Other net represented a gain of $5,000,000 in Q4 from an expense of $2,000,000 in Q3, mainly driven by gains from foreign currency exchange.

Non cash depreciation and amortization expenses totaled $48,000,000 in Q4, down from $53,000,000 in Q3, mainly due to lower amortization of deferred costs for the suspended rigs in Saudi Arabia. The quarterly net income attributable to controlling interest was $24,000,000 in the fourth quarter and included a $31,000,000 gain on the Trident Aid insurance recovery. Turning to capital expenditures and deferred costs, we spent $31,000,000 in the fourth quarter twenty twenty four, including $10,000,000 at SD and S. This compared to $35,000,000 of CapEx and deferred costs in the prior quarter. The decrease was mainly due to lower planned maintenance and shipyard costs for the High O nine in Saudi and lower contract preparation expenditures in Nigeria for the Sheltering Mentor and Main Pass four, which started their new contracts in late Q3 and Q4, respectively.

This was partially offset by higher spending on fleet spares and higher contract preparation spending for the shelf drilling BARSK in Norway, which commenced its new contract in Q4 twenty twenty four. As a result, our full year 2024 capital spending was $152,000,000 including $48,000,000 at SD and S. Capital spending for the year at SD and S comprised of anticipated investments in fleet spares build up. Excluding SD and S, actuals include the cost to redeploy the shelf drilling Achiever and the main pass forward to West Africa for new contracts, after they were both suspended in Saudi Arabia earlier in ’twenty four and contract preparation costs for the shelf drilling Perseverance in Vietnam and the shelf drilling BARS in Norway. Actual spending levels came in at the lower end of the guidance range of $145,000,000 to $170,000,000 communicated in early twenty twenty four.

Our consolidated cash balance as of 12/31/2024, was $152,000,000 as compared to $220,000,000 at the September. Cash at the parent level decreased from $193,000,000 to $131,000,000 mainly due to interest and amortization payments made in Q4 twenty twenty four and a $30,000,000 payment to the former SD and S shareholders for the then remaining 40% shares in SD and S, which was partly offset by $44,000,000 cash collected in relation to the Trident eight insurance claim. Cash at shelf drilling North Sea decreased from $27,000,000 at the September to $21,000,000 at the December 2024. As of year end, our total consolidated liquidity was $277,000,000 This included $152,000,000 of cash and $125,000,000 of undrawn revolving credit facility. Turning to 2025.

We included financial guidance for the full year 2025 in our release this morning. Fully consolidated adjusted EBITDA is estimated to be between $330,000,000 and $380,000,000 At the SD and S level, we anticipate full year EBITDA to come in between $85,000,000 and $100,000,000 With the five rigs expected to operate for most of the year, the run rate EBITDA is expected to be significantly higher than in 2024. We expect revenues and effective utilization to improve in the second half of twenty twenty five as rigs mobilizing from The Middle East to West Africa are expected to return to service. Total (EPA:TTEF) capital spending in 2025 is estimated to be between $110,000,000 and $140,000,000 This includes $25,000,000 to $30,000,000 spending at the SD and S level, with the SD and S rigs expected to remain in their current locations in 2025. This implies an expected spending level across the rest of the business in the $100,000,000 range.

The largest components include the redeployment costs for the shelf drilling Victory in High Island 2 to West Africa from Saudi Arabia, as well as two major out of service projects contemplated in India. Our results in the last quarter of twenty twenty four show how we responded to the unexpected short term challenges faced last year, as we secured new backlog 500,000,000 in the quarter alone, reposition certain assets, realized efficiencies and preserved cash. In Q4, several of our rigs started new long term contracts at attractive day rates, and we remain confident in our ability to redeploy in 2025 additional assets that were suspended in ’twenty four. The recent announced alliance with Arabian Drilling is a testament to the confidence we have in the markets where we operate and to our unique operating platform, which we believe will allow us to create additional opportunities in these regions. Despite the short term challenges, the medium to long term outlook for our industry continues to be very positive, and we believe shelf drilling is well positioned to drive value for its stakeholders.

We’d now like to open the call for questions.

Conference Operator: And now we’re going to take our first question. And it comes from the line of Matthew Farwell from FA Advisors. Your line is open. Please ask your question.

Unidentified Analyst: Hi. Thanks for taking my question. I was wondering if you could elaborate a little bit more about sort of how the revenue flows or how the profitability of the partnership with the Arabian Drilling will occur?

Douglas Stewart, CFO, Shelf Drilling: Greg, you want to take that? Sure. Great. So, this will be determined on a contract by contract basis. So, it’s a little bit early to do that.

But the typical structure will involve a type of management fee for shelf, a type of barefoot charter for ADC and a sharing in the profits. But it will depend on each contract, but that’s kind of how the thinking is

Unidentified Analyst: today. Okay, great. Can you break out the backlog between SDNS and SDL?

Douglas Stewart, CFO, Shelf Drilling: Yes, give me a shortly, I’ll get back to that. Why don’t you ask the next question? I’ll come back to you on the backlog split. We’ve got that here. Okay.

Sure.

Unidentified Analyst: Can we expect any revenues from the suspended rigs that are mobilizing to West Africa in the second quarter? I know you’re guiding to an improvement in revenues in the second half, but I’m wondering if you can provide a little bit more color there.

Douglas Stewart, CFO, Shelf Drilling: Yes. I think from a day rate perspective, day rate revenue, that would be second half as we’d indicated, that would be Q3 the earliest.

Greg O’Brien, CEO, Shelf Drilling: It’s possible that one or both the rates that start before the end of Q2. I mean, obviously, the earlier the better. And part of the reason we’ve gone ahead with the mobilization process. But clearly the goal is to get them both there, both contracted and started working. And the hope is we have continuous activity segment.

So yes, some contribution in Q2 is possible, but we’re more optimistic about H2.

Unidentified Analyst: So you pushed out the thank you. So you pushed out the term loan A extension to March 31. Is there a possibility that that could be extended further or do you expect to pay that down by the end of the quarter?

Douglas Stewart, CFO, Shelf Drilling: So, yes, you’re exactly right. We extended to the March. We’re in discussions and we’re considering extending that for additional term. Basically, under our the S shelf drilling bonds, twenty twenty nine bonds, there’s capacity for super senior debt of $175,000,000 the greater of that and 10.5% of our total assets. Here’s the key point.

At maturity of the term loan, that capacity ratchets down to the greater of $150,000,000 and 9% of TLA. So the thinking behind this is, as we consider extending, is preserving that capacity of super senior debt going forward.

Conference Operator: Thank you. And now we’re going to take our next question. And the question comes from the line of Greg Brody from Bank of America. Your line is open. Please ask your question.

Greg Brody, Analyst, Bank of America: Good morning guys and thank you for the information.

Douglas Stewart, CFO, Shelf Drilling: Hi Greg.

Greg Brody, Analyst, Bank of America: Hey. As you think about managing your cost structure this year with some rates not working and some being mobilized, how do you how should we think about operating costs sort of norms that cost? How do you help us think through that?

Douglas Stewart, CFO, Shelf Drilling: Yes, I think as we think about it, let me talk about it in two pieces. On the G and A side, we’ve been very focused on bringing that down and that was trending around, shall we say, $70,000,000 but we’re pushing it toward the lower end of $60,000,000 ish. And so we’re very focused on maintaining a cost structure that’s commensurate with activity

Greg Brody, Analyst, Bank of America: on

Douglas Stewart, CFO, Shelf Drilling: the ground. On the OpEx side, I think it’s fair to look at Q4 twenty twenty four as you can see that we brought costs down sequentially and we’ll continue to look at doing that. But that’s a decent proxy for the year.

Greg Brody, Analyst, Bank of America: And then you gave some excellent color on the regional dynamics. Maybe a little additional color on Saudi Arabia. I think you said there’s is some rumors of rigs additional rigs being suspended. What can you tell what’s happening there and just the mindset of the Kingdom (TADAWUL:4280) from here?

Greg O’Brien, CEO, Shelf Drilling: Yes. We had three different rounds of cuts in 2024. And I think that was a bit of a surprise to everybody, including some folks within Saudi Aramco, but there continued to be changes. And I think the fact that activity continued to move caused folks to continue to speculate and that hasn’t really stopped. But it seems like in the last week to ten days, there’s been a lot of chatter.

It’s really just that, it’s chatter and rumor. We don’t know anything more that’s in the public domain. I think there have been a number of research notes speculating something like two to up to five incremental offshore rigs in the last two weeks. That seems to be kind of the consensus rumor. The third round from October, November when we got when we had two more rigs that were impacted by Hi2 and Hi4, that round ended up being a little bit smaller than we were told it was going to be by a couple of rigs.

So that’s the only thing that we could point to that would seem consistent with some of the chatter in the last couple of weeks that the rig count was kind of mid-50s before all this started three years ago. We’re high 50s today, so still call it a couple of rigs higher than where we were before the big offshore expansion kicked off. You do have to believe that going much lower would start to have an impact on oil supply and kind of medium term oil production capacity there. So we think we’re in good shape. We only have two rigs left in operation.

One is up for renewal, so we’re having live discussions on that rig. But yes, that’s kind of all we know at this

Greg Brody, Analyst, Bank of America: point. And you touched on the Highland five, which is up for renewal. Is your expectations that likely stays working? And for the few rigs that are left in country, what do you expect to happen once the suspensions roll off?

Greg O’Brien, CEO, Shelf Drilling: So the two rigs that are still in operations, Highland nine is on a long term contract, Highland five is up for renewal at the May. We are in discussions on that rig. We do believe that there’s a desire for both those rigs to continue working. We’d like to see that happen too. There are a number of other rigs up for renewal with other contractors.

I think there’s a fair amount of dialogue ongoing now regarding renewals. But we think we’re in pretty good shape. We’d like to see the rig get reduced. Hopefully, we’ll have some clarity in the next month or two. We had four others suspended rigs at the end of the year or two.

We have just started the mobilization process to get to West Africa. So expect to have those rigs working here pretty soon in the next few months. The last two, we’re debating options to be honest. We mentioned that we would consider selling a few additional idle standard jackups for non drilling purposes. We have three rigs that have just come off in India, One is about to finish and those last two in Saudi.

We’re kind of looking at options for each of those units. We obviously see contract opportunities in India. So no explicit plan, but each individual asset, we may look to dispose a couple of additional rigs this year, which again we think helps supply and demand globally, but also on a regional basis, depending on where those rates are taken out.

Conference Operator: Excuse me, Greg, any further questions?

Greg Brody, Analyst, Bank of America: That’s it. Thank you.

Greg O’Brien, CEO, Shelf Drilling: Thank you.

Conference Operator: And now we’re going to take our next question. Just give us a moment. And the question comes from the line of Antonia Segura from BCB Securities Incorporated.

Douglas Stewart, CFO, Shelf Drilling: And I wanted to ask about the shares during North Sea and wanted to understand if its shares are still listed or divested in the all social exchange?

Greg O’Brien, CEO, Shelf Drilling: Yes, that company is delivered. We completed the merger in October. Shelldrilling is the 100% shareholder of Shelldrilling North Sea. But the company still live, if we produce financial statements on a regular basis, we’ll continue to do that. So yes, Dan, we’ll continue to move.

Unidentified Analyst: Thank you very much.

Conference Operator: Thank

Douglas Stewart, CFO, Shelf Drilling: Operator, this is Douglas Stewart. Just going to close the loop on the last question regarding the backlog that was raised by a caller. The backlog of $2,100,000,000 that we show is $300,000,000 at the SD and S level and $1,800,000,000 at SDL, excluding SD and S.

Conference Operator: Thank you. Dear speakers, there are no further questions. I would now like to hand the conference over to your speaker, Greg O’Brien for any closing remarks.

Greg O’Brien, CEO, Shelf Drilling: Very good. Thanks for the time everybody. Appreciate the interest and we’ll talk to you next few months. Thanks.

Conference Operator: This concludes today’s conference call. Thank you for participating. You may now all disconnect. Have a nice day.

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