NOTE 7 – COMMITMENTS AND CONTINGENT LIABILITIES

The Company has operating leases covering office space and equipment. Certain of the leases are subject to escalations based on increases in building operating costs. Rental expense attributable to continuing operations was $8.0 million in 2012, $5.6 million in 2011 and $3.7 million in 2010.

At December 31, 2012, future minimum payments to be made under noncancelable operating leases were as follows (in thousands):

2013	$	5,120
2014		4,778
2015		4,243
2016		4,250
2017		4,080
Later years		11,359
	$	33,830

In September 2012 the Company exercised its option with Hyundai Heavy Industries Co., Ltd (Hyundai) for the construction of a fourth ultra-deepwater drillship at its Ulsan, South Korea, shipyard scheduled for delivery in March 2015. The agreement with Hyundai also includes an option for a similar fifth drillship exercisable in the first quarter of 2013, for delivery in the third quarter of 2015. We may seek to extend the option prior to its termination.

The following table presents the status of the Company's rigs under construction as of December 31, 2012. Project costs include capitalized interest (in millions):

	Scheduled delivery date	Total estimated project costs		Total costs incurred through Dec. 31, 2012		Projected costs in 2013		Projected costs in 2014		Projected costs in 2015		Total future costs

Rowan Renaissance	Dec-13	$	730	$	202	$	516	$	12	$	-	$	528
Rowan Resolute	Jun-14		738		186		144		408		-		552
Rowan Reliance	Oct-14		731		188		48		491		4		543
Rowan Relentless	Mar-15		760		170		43		103		444		590
		$	2,959	$	746	$	751	$	1,014	$	448	$	2,213

In addition, the Company expects to incur approximately $75 million of capital expenditures in 2013 for riser gas-handling equipment, software certifications and drillship fleet spares to support its deepwater operations.

We periodically employ letters of credit in the normal course of our business, and had outstanding letters of credit of approximately $32.9 million at December 31, 2012.

A subsidiary of the Company was served with a Notice on February 28, 2012 under Section 29 of the Petroleum Act of 1998, which required the subsidiary, jointly with Xcite Energy Ltd and Xcite Energy Resources Ltd, to submit a decommissioning program, upon request, to the UK Secretary of State for Energy and Climate Change in respect of certain offshore installations, namely the Rowan Norway drilling rig and Xcite's well being drilled by the rig in the Bentley Field. The subsidiary appealed this Notice contesting the obligation to decommission the well. The appeal was commenced in the English High Court of Justice in April 2012 and was immediately stayed by agreement of the parties upon indication that the Secretary of State would likely withdraw the Notice from the subsidiary following the rig's departure from the field. The Rowan Norway departed the field on October 25, 2012. On February 26, 2013, the parties settled the matter and the Secretary of State agreed to withdraw the Notice within seven days.

However, even after the Section 29 Notice has been withdrawn, the Company's subsidiary may still have liability under Section 34 of the Petroleum Act if the Secretary of State issues a new Notice. The cost to decommission the well is currently estimated to be up to US$17 million. We are unable to determine the likelihood of a new Notice being issued or the ultimate outcome of this matter.

On May 2, 2012, as the EXL I was being towed toward a shipyard in south Texas in preparation for its mobilization to Indonesia, a passing tanker collided with and caused substantial to the rig. The Company filed suit against who it believes are the tanker's owners and operators and seeks damages primarily for repairs to and loss of use of the rig. The Company completed repairs to the rig in 2012 at a cost of approximately $12.0 million, which has been recognized and included in material charges and other operating expenses in the Consolidated Statements of Income. The EXL I returned to work November 5, 2012, and at this time, the Company is currently assessing the amount of its loss-of-use claim associated with this incident, as well as the other monetary damages that may be available under the law. The tanker owners have sought relief under the Limitation of a Shipowner's Liability Act, claiming that damages should be limited to the post-accident value of the tanker plus freight. At this time, both suits are in the preliminary stages of litigation. The Court has set a trial date of October 14, 2013. We believe the Company's claims are legally and factually strong; however, we are unable to predict the ultimate outcome of the litigation. The repair costs to the EXL I will not be covered by the Company's insurance because such costs are below our $25 million deductible. In addition, loss of use is not an insured risk. In the event the tanker owners are successful in limiting their liability, it is possible that such limitation will not cover our repair costs and loss-of-use damages.

In 2009 the Company recognized a $25.4 million tax benefit as a result of applying the facts of a third-party tax case to the Company's situation. That case provided a more favorable tax treatment for certain foreign contracts entered into in prior years. This position is currently under audit and is initially being challenged by the IRS field agents. We have appealed their findings and expect to come to a conclusion within the next twelve months. We plan to vigorously defend our position and continue to believe that we will more likely than not prevail. See Note 11.

We are from time to time a party to various lawsuits filed by current or former employees that are incidental to our operations in which the claimants seek unspecified amounts of monetary damages for personal injury, including injuries purportedly resulting from exposure to asbestos on our drilling rigs. At December 31, 2012, there were approximately 18 asbestos related lawsuits in which we are one of many defendants. These lawsuits have been filed in the state courts of Louisiana, Mississippi and Texas. We intend to vigorously defend against the litigation. We are unable to predict the ultimate outcome of these lawsuits; however, we do not believe the ultimate resolution of these matters will have a material adverse effect on our financial position, results of operations or cash flows.

We are involved in various legal proceedings incidental to our businesses and are vigorously defending our position in all such matters. The Company believes that there are no known contingencies, claims or lawsuits that could have a material effect on its financial position, results of operations or cash flows.