Q3 2019 Earnings Call
Ladies and gentlemen, thank you for holding it will be beginning today's conference and approximately two minutes again. Thank you for holding it will be beginning today's conference and approximately two minutes.
Ladies and gentlemen, good day and welcome to these third quarter trends Ocean Limited earnings Conference call.
Today's conference is being recorded at this time I would like to turn the conference over to Mr., Brad Alexander. Please go ahead Sir.
Thank you David.
Good morning, and welcome to transactions third quarter 2019 earnings Conference call.
A copy of our press release covering financial results, along with supporting statements and schedules included reconciliations and disclosures regarding non-GAAP financial measures are posted on our website at deepwater dot com.
Joining me on this morning's call or Jeremy Thigpen, President and Chief Executive Officer, Mark My Executive Vice President and Chief Financial Officer, and brought in Mckenzie Senior Vice President marketing and kind of trucks.
During the course of this call transaction management may make certain forward looking statements regarding various matters related to our business a company that are not historical facts.
Such statements are based upon the current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.
Many factors could cause actual results to differ materially please refer to our FCC 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.
During today's call. Following those statements made by both Jeremy and Mark We will conduct a question and answer session. During this time to get more participants and opportunity to speak please limit yourself to one initial question. There one follow up. Thank you very much I'll now turn the call over to Jeremy.
Thank you, Brad and welcome to everyone participating in today's call.
As reported in yesterday's earnings release for the third quarter 2019 transition generated adjusted EBITDA of $245 million on $832 million and adjusted revenue.
These results were once again, driven by a combination of exceptional uptime across our global fleet, which resulted in revenue efficiency at 97% and performance bonuses, which serve as the ultimate acknowledgment that we continued to deliver safe and efficient drilling operations for our customers.
In spite of the challenges we face during this downturn, we've continued to focus on improving all aspects of our operations are consistently high uptime performance continuously improving drilling efficiency in our industry best operating margins are a testament to this focus into the hard work dedication to professionalism of our value team members the transaction [noise].
Looking more closely there at our third quarter performance as a whole works, we continued to meet and often exceed expectations.
Especially proud of two of our rigs the began new campaigns during the third quarter.
In July the transition normally I began her maiden contract drilling for Ecuador, and that isn't field offshore Norway.
The Nora is one of the finest harsh environment semi submersibles ever delivered.
And as has become customary for the Newbuild assets transition is placed into the market over the past four years, the nor get has delivered stellar uptime, 97% during her first three months of operation.
This is again, a great representation of what a customer can expect when they contract one of our newly delivered assets.
[noise] the same level of performance can also be expected by our customers from our legacy fleet.
The discover India commenced operations in early September boroughs and has delivered uptime in her first two months of operation that exceeded 97%.
This follows the successful campaign with CRL in Ivory Coast. After she was upgraded in 2017.
With this track record of performance Bolus is already exercise its first contract option and we're optimistic that burlesque will continue to exercise their options, which could extend her time in Egypt, well into 2000, 20-F aggressively increasing day rates.
[laughter] looking at the next two rigs entering our active fleet I'm pleased to report that both the corcovado and the making those two at the high specification drilling rigs we acquired in the Ocean rig transactions have arrived in Brazil and are going through final preparations before commencing operations on their respective contracts with Petrobras in the second half of November .
These rigs were among the top performing assets for Petrobras before they were ultimately stacked after completing their contracts in early 2018.
And given our thorough process and proven track records reactivating and upgrading asset we fully expect both rigs to quickly ascend to top of Petrobras as rig ranking again.
Well, we're certainly pleased to be adding rigs to our active fleet in early September we announced our intention to remove the enterprise class ships from our fleet.
These rigs are the discover enterprise discover spirit and discover deep season.
All three of these drillships commenced operations around the turn of the millennium and at the time represented cutting edge technology as they were the first ultra deepwater drillships with dual activity capability.
However, as we turn the clock forward approximately 20 years, the superior capabilities presence on the more modern drillships in our fleet combined with the estimated cost associated with reactivating and placing these older assets back into the market have resulted in us now prudently electing to recycle the shifts in an environmentally responsible manner.
[noise] also in September we took the decision to relinquish our interest in the ocean rig Santa rainy and the ocean recruit.
The drill ships were under construction, South Korea, and the rights to these assets were acquired through last year's acquisition of Ocean rig.
Although all signs point to an improving market and both assets represent high specification ultra deepwater floaters that would complement the other assets in our fleet.
The approximately $1.1 billion that remaining commitments associated with completing and taking delivery of these assets made some cost prohibitive.
[noise] sticking with the fleet, we continue to explore opportunities to enhance our existing assets to increase their marketability profitability and sustainability.
Earlier this month, we announced the deployment of the offshore drilling industry first hybrid energy storage system aborted floating drilling unit, which we installed on the transition Spitsbergen, which is now drilling for Ecuador, its northfield in Norway.
This patented hybrid power technology better utilizes the rigs power plant I storing energy and batteries that are strategically placed around the rig.
This stored energy has been used to power the thrusters as well as other critical components, thus, reducing fuel consumption and enhancing the efficiency of our entire power distribution system.
A hybrid energy storage system also improved the reliability of our dynamically positioned rigs station keeping enabling operation under either diesel were battery power, providing additional redundancy, which is an added an important safety feature.
As would be expected to reduce a fuel during normal operations, both lowers the cost of operation and reduces nitric oxide and carbon dioxide emissions, thereby reducing the carbon footprint of the rig.
The implementation of this system is consistent with the aspirational goals that we have outlined in our recently published sustainability report and furthers our desire to continue introducing efficient and sustainable technologies that deliver higher value wells to the industry.
Turning to our contracting activity since the second quarter call. In addition to the previously mentioned boroughs option exercise to discover India working in Egypt, we added four additional fixtures.
Shale has committed to another well for its current program of Rnai using the deepwater Nautilus.
As was disclosed in our fleet status report the day rate associated with the rig increased almost 50% from its prior contract and illustrates both the tighter market, we are seeing and the bidding discipline, we continue to maintain.
It is also a testament to our continued strong performance with shell globally and their confidence in transactions ability to consistently deliver safe reliable and efficient operations.
And Angola, Senegal contracted the deepwater Ryan for continuation activity that completed near the end of the third quarter. The rig is now available and we see a numbered opportunities on the horizon in West Africa, We're starting to its beginning no later than the middle of 2020.
In the North Sea Hurricane energy awarded the Colby Lloyd Junior three wells less completion program starting in February 2020, with a solid day rate that has significantly improved over previous contract.
And finally I'm pleased to report Conoco Phillips, just recently signed a life Eriksson for 125 days at a healthy day rate in Norway, starting in August of 2020.
In total we added approximately $130 million and new backlog since our second quarter conference call.
Well this growth number may seem slightly lower than normal to sum. It has a direct result of our commitment to remain disciplined approach pushing dayrates levels that improve our cash flow from operations and are more reflective of the value that we bring to our customers drilling programs.
As a result of the downturn for the past four plus years, we understand the drilling contractors have also been operating ultra deepwater assets a day rates approximating their cash breakeven costs. In fact, the numerous instances we suspect contractors have entered into contracts that were guaranteed to generate negative cash flow simply to avoid the cost of stacking.
Obviously that approach is not sustainable and for the past several months, we have been purposely executing a bidding strategy whereby we only enter into contracts that we know will generate positive cash flow.
[noise] this approach, especially applies to situations requiring the reactivation mobilization or upgrade of our rigs in those cases as we said on the last call, we will not reactivate an asset without being compensated for the reactivation and startup costs in the form of higher day rates longer terms and are lump sum reimbursements.
Our execution of this strategy is yielding some very solid results and although we do not disclose the details of conditional Ela lies anello ways until they become finalize contracts. We are very pleased to see that our first class operational delivery and disciplined bidding strategy has been rewarded with several ela wise the place near term ultra deepwater fixture rates firmly in the mid 200000 down.
As per day range.
Turning out of the market overall, the active floating rig count remained consistent with the prior quarter also in line with last quarter. The total number of floaters under contract remains near 160 assets, keeping overall marketed utilization at a level above 80%.
Of note when we look at the overall number of floating rig opportunities, we identify 90 likely programs spanning approximately 64 rig years.
These numbers have continued to grow throughout the year and importantly, the average contract direction durations are lengthening.
We're now seeing multiple markets in both the ultra deepwater in harsh environment, where the number of opportunities are either at or above the number of marketable rigs currently available.
As such we anticipate new contracts to reflect materially increase day rates, which will generate significantly improved cash flow.
It makes it was a surprise to many but even with the dip we've seen in oil prices over the last couple of months customer interest seasonality five year high.
Discuss this previously but what continues to drive this level of customer interest is but the reduction of breakeven levels that continue to materialize across the offshore space and the confidence in the sustainability of these improved project economics.
There's no question that the current macro uncertainty around energy demand is driving her customers remain cautious in their investments, especially regarding longer cycle projects whatever their confidence in the superior economics. The now expect from both the deepwater harsh environment portfolios continues to keep their product teams engaged so that they can quickly greenlight projects as the market recovers.
Dating indicates that in addition to the improving economics, we're experiencing offshore the shale boom that is provided the majority of all incremental supply relative to demand over the past five years as much closer to its peak than was previously anticipated.
Productivity from onshore wells appears to have topped out in 2017 and experienced declines in 2018, followed by further declines in 2019.
Recent estimates indicate that oil prices need to average around $60 per barrel to support us onshore supply growth of approximately half a million barrels per day.
As we look at contracting offshore we're pleased to observe that the recoveries certainly opponents, what we would've preferred and more accelerated uptake by now we are excited by the continued strengthening in the harsh environment market and we're very encouraged but what we're seeing in the ultra deepwater markets across multiple basins.
In the us Gulf of Mexico, We continue to have constructive discussions with multiple operators regarding the need for a second 20000 PXI capable rig.
As you want to as we know the deepwater tightened will be the world's first 20000, PXI capable rig that will commence operations for Chevron in 2021 and.
And because of Rthree million pounds hook load the tightened sister rigs, which is currently under construction remains the industry's most obvious solution for the next 20000 pieces that commitment.
[noise] should also be noted the transition has invested heavily into 20000 PS I capability and has experienced team that makes transition the low risk and preferred solution for our customers.
And with some customers, indicating a desired commencement of activity in late 2020, it's not unreasonable to expect a final investment decision to occur in the coming months.
In addition to the 20000 PXI opportunity a number of players continue to inquire about ultra deepwater rig availability in the Gulf largely for activity commencing in the first half of two to 2020.
As I've stated many times over the last year well economics in the Gulf continue to improve this was driven largely by efficiencies reduce project costs do short cycle times, Dusty risky projects, and making them more attractive options and our customers respective portfolios.
In Mexican waters positive results from early exploration activity as further heightened our confidence that activity in the market will increase.
In addition to the expectation a further exploration work, we're encouraged that a number of development opportunities appear imminent.
In the Caribbean. The continued success the Guiana, along with budding opportunities in neighboring Suriname, and Trinidad is likely to continue absorbing ultra deepwater capacity.
Moving to Brazil. In addition to the six rigs that Petrobras recently contracted we anticipate that they could contract for the three rigs by early next year. We also anticipate another handful of rigs are likely to be contracted through 2020 as a number of international players begin kicking off their pre salt programs.
In West Africa, I'll start with Angola, where we continue to see a growing number of opportunities. In addition to the awards made over the last few months.
Consistent with this improved forward looking utilization the day rate levels are now increasing and appear to be comfortably above $200000 a day for sixth generation Ultra deepwater drillships.
Additionally, we see a couple of biopsies looking to start campaigns in Nigeria, along with opportunities in Ghana, Equatorial Guinea, Ivory Coast and Senegal.
In East Africa, we're encouraged by three Ibcs looking to kick off their long anticipated projects that would further increase rig utilization.
In Asia Pacific, We continue to successfully contract our rigs and anticipate further activity from a number of countries, including Brunei, Indonesia, Malaysia, Myanmar Vietnam.
The strongest market in that region remains Australia, where awards continue to support day rate solidly in the mid to high 200000 dollar per day range and we expect fixtures later in 2020 to push closer to the 300000 dollar per day, Mark as supply Titans.
Turning now to the harsh environment market the region North Sea remains strong and we look as we look into 2020, we see a number of programs on the horizon that will keep the market for the high specification assets at full utilization, which should support higher base day rates.
In Canada. The parents will be completing her current work with Suncor later this year and then kick off or next project with equity or extending into the middle of 2020, if not longer depending on the success of their program.
As the Barents is clearly the high specification asset in country, we will look to keeper in Canada. Following her work would have been or however, we are unable to secure the activity in rates. We believe are warranted, we will consider the option of returning heard in Norway, where we have exceptional confidence in the high specification harsh environment demand.
In summary, we remain pleased with the direction of the high specification harsh environment market, where a top tier assets are fully utilized and dayrates for such assets are approaching and in some specialized cases exceeding $400000 per day.
And we are becoming increasingly encouraged by the ultra deepwater market with a list of opportunities continues to grow rapidly and longer term campaigns are beginning to surface. The combination of which will inevitably lead to higher day rates for our high specification assets that are most coveted by our customers.
Strategically from an asset backlog and balance sheet perspective transition remains uniquely an exceptionally well prepared.
We spent the last several years positioning ourselves by establishing the industry's largest and most technically capable fleet of floating rigs with the industry's most talented and experienced crews and shore based support personnel.
We had the industry's largest and most profitable backlog, providing us with unparalleled visibility to future cash flows.
And the manageable debt maturity schedule, along with an undrawn revolver, providing continued financial flexibility.
As we consistently done we will continue to actively manage our fleet removing assets, we no longer marketable while continuing to monitor high specification assets available in market.
We will continue to explore opportunities to create an incident free environment with the ever present goal of eliminating personal injuries process safety events and unplanned downtime on our rigs.
We will continue to streamline and automate processes and activities, while exploring and ultimately integrating new technologies to outperform our customer drilling plans and increase the number of economically viable targets within their results for both.
And we will accomplish this while prudently managing our liquidity runway to ensure that we have a cash that we need to responsibly invest in our assets, our workforce and the communities in which we operate.
We're confident these initiatives best position transitioned to capitalize on the recovery, which is now underway.
I'll now hand, the color tomorrow.
Thank you Jeremy good data will.
During today's call I'll briefly recap.
Results and then provide updated guidance for the fourth quarter 2019.
I would also share of first look at 2020, lastly, I'll provide an update on our liquidity focus through 2021.
As reported in our press release for the third quarter 2009 chain, we reported a net loss attributable to controlling interest.
$25 million, a $1.35 cents per diluted share.
After adjusting for favorable tax items and unfavorable items associated with impairment charges related to the previously announced photo retirements.
Boarded and adjusted net loss of $234 million was 38 cents per diluted share.
For the details are included in our press release.
For the third quarter operating and maintenance expense of $547 million. This 28 million got less favorable variance to our guidance is primarily timing related and is now expected to be incurred in the fourth quarter.
I will provide further guidance.
For the detail when discussing our fourth quarter own expectations.
Looking now at our balance sheet and some strategic actions taken during the quarter.
As Jerry mentioned during the third quarter, we decided to script three of our fifth generation Ultra deepwater floaters. The discovered a deep sees the discover spirit and the discover enterprise.
This resulted in a non cash impairment charge of $580 million.
We will continue to assist the marketability of obsoletes and take the ceases recycle rigs when they would deem to be no longer profitably marketable.
Also during the quarter opportunistically repurchased approximately $250 million.
Mutated did the open market saving us approximately 75 minutes on is an interesting maturity.
As we've demonstrated over the last several years, we will continue to tick all necessary steps to extend our liquidity runway briefly reduce leverage and proactively manage on new debt maturities.
And this would go to participate using cash on hand to retaliate remaining 2020 and 2021 debt maturity.
Turning to cash flows we generated cash flip from operations of $91 million during the third quarter, a slight decrease sequentially the timing of receivables and interest payments.
We ended the third quarter with total liquidity of approximately $3.2 billion, including cash and cash equivalents of $1.9 billion.
Absolutely $1.3 billion from Undrawn revolving credit facility.
Maybe I'll provide an update in the fourth quarter 2019 financial expectations.
Well the fourth quarter 2019, assuming revenue efficiency, 95% active fleet, we expect our adjusted contract drilling.
Revenues to be approximately 820 $500.
Our forecast reflects the deepwater cocoa BARDA and people wouldn't making this commencing drilling campaigns in November with Petrobras in Brazil.
We also had the kg to starting a contract in October with Chevron in Australia.
Additionally, several rigs complete their contracts during the fourth quarter, including the as good.
This balance will be Lloyd transmission lead to Henry Goodrich.
Except for the as good and ended Goodridge, one of these rigs begin new contracts in 2020.
The as go to bid on civil Us Gulf of Mexico tenders with early twenties. When you start dates or the end the good news is expected.
Idled in Canada.
We expect fourth quarter over them expense to be approximately $585 million.
As previously mentioned approximately $28 million bookings to be expensed in the third quarter will not be recognized in the fourth quarter.
This includes $10 million associated with reactivation mobilization or the mic in Austin book of water to Brazil.
$5 million of shipped expenses in the Spitsbergen.
$500 of SBS preparation costs for the equinox.
And $500 to overall certain capital spares.
Additionally, fourth quarter I wouldn't it includes a food approximately $12 million overhauling furnace capital leases.
$9 million on that well be Lloyd juniors, consisting of 90 days of idle time between contracts and certain maintenance costs.
We also movies the remaining two cold stacked rigs in Trinidad, but do you put a champion and discoverer Americas degrees at total cost of about $10 million. This includes customer removal and inventory offloading formats.
We'd be removed from these rigs we've made available for use by the risk of extra seats.
These are being moved degrees to benefit from a more favorable environmental conditions, resulting in lower sticking costs at least thinking costing griso nearly 50% lower than in Trinidad translating into an annual savings of about $5 million.
We expect Julie expense for the fourth quarter to be approximately $47 million generally in line with the third quarter.
Interest expense for the fourth quarter expenses to be approximately $260 million.
This forecast includes capitalized interest of approximately $10 million interest income of $6 million.
Capital expenditures, excluding capitalized interest for the fourth quarter, well anticipated to be approximately $253 million. This includes approximately $47 million for the two Jerome Drillships. Additionally, we expect maintenance capex of $106 million.
Okay, Okay, Texas experts to be approximately $8 billion for the fourth quarter.
Turning now to particular liquidity at December 31, 2021, and including a 1.3 billion dollar revolving credit facility, which matures in June 2023.
And to view it 2021 liquidities estimate.
$901.1 billion.
This liquidity forecast includes an estimated 2020 capex of 900 million goddess and a 2021 capex of $100 million.
The Capex estimates include a monster two newbuild drillships with the ROE as well as Pete mentioned that's.
Please note that our capex guidance excludes any future reactivations.
Now turning our attention to 2020 for the full you expect to have adjusted revenue at or above 2019, adjusted revenue decently, Rick upper races, and maintenance expense.
Although around $2.1 billion.
Excluding any speculative activations. Furthermore, we anticipate junior expense to be between 175 when $85 million.
We will update full year 2020 God is on our next earnings call in February .
This concludes my prepared comments.
I'll now turn the call back over to Brett.
Thank you Mark.
David We're now ready to take questions and as a reminder to all of our participants please limit yourself to one additional question and one follow up question.
Thank you, Sir ladies and gentlemen, if he would like to ask your question. Please signal by pressing star one on your telephone keypad now if you are using a speakerphone. Please make sure that your mute function is turned off to allow your signaled to reach our equipment again press star one to ask a question well pause for just a moment to allow every.
One of the opportunity to signal for questions.
And our first question will come from Greg Lewis with a BTI G.
Yes, Thank you and good morning, good afternoon everybody.
Hi, Greg.
Jeremy.
Thank you for the the kind of went through each basin and talked about you know what you're seeing in and the opportunities.
I guess more more of a direct question.
Clearly you guys had been.
In the market trying to push pricing higher Tom you've had some successes you probably wish you had some more successes.
As you're tracking the overall fleet and you and your competitors how many like capable six gen. Seven Gen plus rigs are out there that are hot that are kind of.
Maybe we need to be chewed through before we can.
Start to see pricing momentum, maybe accelerate a bet is there anyway to kind of quantify that.
I'll, let let right take that when he's he's smiling he's ready for this question [laughter], Yeah, Hey, when we look at said the active sixth and seventh Gen high fixed up the you're talking about.
At utilization looks like it's going to at peak, 95% by Q2 next year. So so there really isn't very much to barn through as you say.
So I mean, that's basically it and that's why we're seeing this day look crucial in day rates you know a projected daily sitting it could have anywhere between 170 260, we'd obviously really on the high end of that.
But yes, that's basically a exactly what's going to happen that supply is going to dry up pretty quickly.
It's really the first time at the start of the downturn, we have multiple customers.
Fighting over.
Asset and so thats a very good sign for US and this is the reason we are really doing our best to push there that were.
Okay, Great and then just another one I guess last month you on the company was able to <unk>.
Got out of two.
Drillship Newbuilds I'm, just kind of is as I guess, a couple of questions and there is one.
I mean, I want to say six to 12 months ago, there were active people Danny active.
Pillars bidding for some of these new builds in the ship yards on just kind of anything that you're hearing or seeing in terms of it's their appetite to take out any of these qual any of these new building at the shipyards and the second question on that is and how many.
Regs shipyards.
All ships the do we kind of think or strand that at this point.
I don't think theres any appetite from anyone to go and take one of these new builds out of the yard at this point in the in the cycle I mean, if he if you think about just the cost to bring one of these out you think that when things were ordered it was back in the peak of the site new they'll cycle. So 2012, 13, and even into 14 and shipyards, we're offering 5% down 15.
10% along their construction process and then 80% upon delivery. So there's still a big ticket to right at the end of all of this plus you know to outfit with critical spares and commissioning and milled. It's another 100 million on top of that and so the current environment and with the balance sheets of all of the offshore drillers stretch pretty thin I, just can't see a scenario where about you'll see.
Many of these rigs come at anytime soon.
Okay perfect. Thank you for the time everybody.
Thank you. Our next question comes from Ian Macpherson with Stephens.
Hi, Thanks, good morning.
Jeremy on the hybrid power system on the Spitsbergen.
Is that as a I mean, you described all of the positive attributes of it is that and upgrade that that.
Thats positive economically to you on that rig and it's something that you would like to scale up across the fleet or.
You know in this particular case in this particular case, we received some reimbursement for the Norwegian government for lowering emissions, we have to demonstrate that we are lowering those admissions over the course. The next six to 12 month and then and then they will actually help fund reimburse them of the funding for that but then also as you look at the fuel savings that we will realize depending on the relationship the contractual related.
But the customers that either occurs to them more to us and so in the case with Ecuador, the savings accrue to us because were responsible for for fuel consumption. So it's going to be it's going to be very interesting to see the value that we can create through the system over the course, the next six months and our belief is that it will be.
Material enough, an attractive enough where customers will be willing to pay for it it's installation on other on other assets across the fleet.
Yeah, I think I also just.
The system was originally designed for benign environment, because that's basically what you can make the greatest fuel saving so.
It's actually a very good situation, where we're able to kind of perfect assist them in Norway, where we receive a significant said reimbursement.
In that take those lessons learned enough bisha into the benign environment, maybe the us Gulf of Mexico are a Africa. So yes watch this space, there's going to be more movement on that.
Good. Thank thank you Beth.
Mark on your guidance for next year, just sort of falling behind a little bit with my pencil I think I essentially netted out to a revenue guide for next year, you said up slightly and then if weren't too.
0.1.
Billion for own in expense that will be flat to down versus this year. So is that the the directional.
Message.
Yes, absolutely.
That's correct.
Got it okay. Thank you.
Thank you. Our next question comes from Connor Lynagh <unk> Morgan Stanley .
Thanks, Good morning.
All right.
You made a comment about about the pipeline of opportunities I think it was somewhere around 64 rig years I was wondering if you could just give some color to how that's trended over the past I don't know 12 to 18 months, just just trying to get a feel for how much that's building up versus where we were at this time a year ago.
Yeah, when we look at that debt compared to a year ago, we were basically Sina bye.
45%, increasing the number of rig years that idea a couple of things that probably point, but that is.
Fixture numbers are remaining.
It was slightly positive quarter on quarter, but most importantly, the duration is going up so when I look at what happened kind of the across as 2018, navvis donation only being about kind of six months or so we're now pushing up as an average beyond nine months and in fact, the last quarter. It shows. The average is about 11 months, so we kind of see.
Pretty sharp increase their you know the 50% increase in that and they did east of the fixtures. So again I really positive sign on that recovery.
Yeah, you sort of segway to this so maybe I'll ask it the theres been some concern from some of your competitors some market observers that.
We're in sort of a structurally lower contract duration environment than we have been in the past would you agree with that do you view it as a cyclical dynamic just just you're thinking around how that's going to trend over the next couple of years.
Well, so we have the benefit of seeing all the tenders and things are a direct negotiations are happening behind the scenes and we can definitely say that do the patients are increasing there's no doubts about.
Yes definitely longer than they've been in the last four years, where we've been kind of going well to well type of opportunities. We're starting to see multiyear campaigns with options behind those now are we going to get back to the 10 year terms, the probably not anytime soon but we are seeing multiyear opportunities right now.
I think I see as you look at the number of big F. ideas that we're going to be a awarded in the next kind of six to 12 months those are typically around developments, which attract typically a little longer donations.
We have been focused a lot on net short term production work in a few explanation things in downtown but there's no question, especially in basins like guess, you'll Mexico in the U.S. said, there's big shifts towards the development drilling in the next 12 months.
Got it thanks for the color.
Thank you were next question comes from Taylor Searcher with Tudor Pickering Holt.
Hey, good morning, I wanted to just to touch on the 20 Kps I opportunity you said it sounds like discussions there continue to move into right direction. Just curious if you could frame.
The potential magnitude opportunity set for for that type of of rig moving forward and then.
For the one that.
Contract that seems to be.
Contract announcement that seems to be nearing would you expect to get a assuming it to you that once the contract or whoever wins. The contract would you expect to get similar economics as to what you got further deepwater Titan.
Yes, so I think they yet and that the number of Oprah is this the probably three or four very serious and we think there's that two of them are getting closer and closer to make it an award and as Jamie alluded to the one could actually be this year for the for the feed costs at award to that so one.
Certainly activity moving in that direction there in terms of a daily I imagine that they should be a at least if not better than what.
On the site.
We can't speak to what our competitors are doing but definitely we are that you know and shooting that are reasonable economics of all of that particular fixture.
Okay got it and maybe a question on the Gulf of Mexico for Awhile.
You've heard a lot of positive commentary coming out of Brazil, and even West Africa, but <unk> Gulf of Mexico on the U.S. side, it seems that been lagging a bit.
The outlook commentary in prepared remarks is pretty encouraging there when you talk about incremental conversations you're having today or are these.
Primarily extensions with some of the big I see that are already there big independents that are contracting incremental rigs are anymore color there would be helpful.
Thank you. So it's a mixture of everything in fact, theres kind of less of the extensions and what are they can a new work. So the several players that have been relatively quiet over the downturn.
There's also a couple of new players, but said the U.S. side of the Gulf of Mexico is very interesting more active than it's been probably four or five years.
And on the Mexico side of things I mean stuff is really picking up you'll people are making discoveries.
Now that the focus is no shifting from a lot of explanation work and everyone's no thinking about what they're going to do to develop and monetize these discoveries so.
Definitely a lot of good stuff following their and that's a really helping up soak up by additional supply that we has seen a candidate this year. So it's going to be Super tight 2020 I believe.
Great. Thanks, guys.
Thank you. Our next question comes from Justin how with Citigroup.
Hi, Good morning, guys I'm jumping on behalf of JV. Thanks for taking my question. So I know you guys mentioned the parents a possible, possibly moving that over to Norway back to Norway, but I'm just wondering with the Goodrich set to roll off next month.
It's gonna be idle.
Why wouldn't that be considered an opportunity to find over.
Yes, so we as an opportunity to send that tend to make over to UK and in that environment, but to be honest the stacking cost of the rig in Canada of any cost effective so.
Until we see a significant opportunity, we probably keep the rig there for now.
I know that.
Through the winter and think about moving over there.
Okay, Great and then regardless of which one of those ships. If you guys were to send it over would that be.
A.
Would you be looking from a paid mode or would you guys do you want to take that investment spend that or.
Yes, I think we'd be looking for a paid more or perhaps a pay demo, but that certainly any movement of the assets is joining me to say.
Alluded to before we're looking for a payback on that was I mean does the we're not moving rigs speculatively went on to.
Trying to I guess ourselves or not it's really tight for those economics to pay forward.
Okay, and then just last one from me yet you guys mentioned that ER.
You guys saw increased Oh revenue beyond guidance from a performance bonuses just wondering if that's something you guys then more successful and your ability to negotiate and your and your contracts.
Yeah, I think so we've always said I see through the downturn that we were very interested in performance bonuses kind of fat, putting your money we might as well.
Let's say a our operations team have they executed extremely well. So we continue to see that as being a good lever to demonstrate our willingness to perform and.
That's what type of so far so there's no reason, we wouldn't touch wouldn't continued its very much customer specific some customers just prefer the flat day rate others are willing to enter into performance contracts and so it's totally dependent on the contract we remain flexible on that front.
Okay, great alternate over thanks.
Thank you. Our next question comes from Mike Sabella with Bank of America.
Hey, good morning, guys.
Morning.
So what are your biggest customers just recently floated a pretty long duration tender down in Brazil, you guys work for them in other parts of the world, but but not down there can you talk us through you know kind on whether your relationship you have developed north is helpful in that bidding process or the markets just kind of two different.
No I think the I think the relationship speaks for itself I mean, if you look back five years ago, We had no work.
With them and now we're the largest drilling contractor and we operate globally form and so I think there's been a very effective partnership.
Good relationship somebody on the commercial side and then an excellent operational performance across the actively.
So now we would certainly like our chances to expand that relationship into other markets.
Great and if we kind of circle back to 20 gave you hope you all sound like Theres potentially the market for a couple more of these rigs.
Can you talk about your willingness to go out and maybe getting contact with one of the shipyards on stranded assets if they came to that.
And then talk about the difference between new build versus upgrading existing rig with 20 Kb.
Yet to be clear, we think the market needs. Another 20 K P. S. I, we're not sure about multiple more after that and so you know I think it is a it's an awfully big upgrade and a very big checked to write for for a drilling contractor and operator and so.
We do believe that there is a market for at least one more 20000, PXI and if theres market for more and the customers willing to pay for them. Okay. Sure. We'd go look at a stranded asset or one of our existing assets to see if the the upgrade myself.
Great. Thanks.
Thank you. Our next question comes from Kurt Hallead with RBC.
Hi, good morning.
Okay.
Hey, Thanks, Todd Thanks for all that color seems like things are heading the right direction.
The.
Question I had was just on a follow up Jeremy in your initial commented in or a answer one of the earlier questions was ER ultra deepwater utilization hit 95% by second quarter. 2020, then you talked about kind of day rate range somewhere between 170 260 tons a day rate range, you're just kind of curious was.
Seven 170 260 by rates that have already been signed or is that you're you're kind of.
Indication of what some future signings may be you know as you get out into second half of 2020 can you give some color on that.
Yes, sure so I mean weve that we've seen.
A few things isn't that when 70 range. Unfortunately, yeah, we mentioned the otherwise we're sitting on the or that you know firmly into mid two hundreds the gives an indication of where we see those things coming out in the very very near future.
The 170 260 range is actually the our number that number from like Burnley's and Arctic and some of the industry commentators.
If we if we actually look at that range in a move you know one or two of our competitors not in fact I see one specifically then that range will the bottom end of that range immediately jumped up 20%. So I mean, even though there is unfortunately, one or two fixed or still in the hundreds we're seeing everything going forward is gonna be a minimum 200.
Pushing up to mid two hundreds.
Okay appreciate that Vishal color and mark on on a on the outlook into kind of 2020 I'm eating you mentioned you know paying down the 20 and 21 debt numbers. How does this all translate into or does it translate into any need to kind of tap into that revolver.
No into 2020 or into into 2021 can provide some some perspectives on that.
Sure could we don't see us using the revolver at all until late 2021, if at all.
They are a few things that we have to do the interim including but you're going to secure financing on the deepwater Titan I'm. So once we got to companies that there's no need to type into the revolver at all but as you know, we're calling do that until it gets delivered which wouldn't be until late 2021.
Okay, Great and then just one last follow up just on a housekeeping.
Mark in any sense on how we should think about the quarterly depreciation or going into fourth quarter and then at the next year.
I think I'll take that offline. Thanks.
Okay. Thanks, Mark <unk>.
Thank you. Our next question comes from Sean Meakim with JP Morgan.
Thanks.
Jeremy I was hoping you can maybe just characterize those rig years that you're you're looking at in terms of 2020 versus 21 versus 22 or beyond and are you willing to maybe just share the types of floor as you consider for from a day rate perspective, when bidding for term work across across those years.
Well I'll take that one of the first one but the duties and so as an illustration. If you look at the six seventh Gen. Drillships in 2018, yet about 15 rig years awarded.
2019 year to date would already 28. So you know, we're seeing a doubling of that and our projections on 20, 2021, and 22 I really based upon project sanctioning. So project sanctioning as we look at that those movements are basically increased due at least 50 60.
Percent between 80 to 90, we think that increases another 20% into 20 and then on to 21. So that's kind of the range that you will see things continued to grow in terms of day rate floors. I mean, obviously I can't give that wave [laughter] and certainly we see rates increasing from where they are today I think you'll see some and.
I think fixtures in the next month or two sounded before the end of this year that will support that and then.
You would expect if things continue to improve from there.
Fair enough I appreciate that could you maybe just.
Thinking about Brazil could you maybe give us a bit of a contrast in terms of timing magnitude and maybe type of rig demand as you look at Petrobras against the other is either acquired acreage maybe thinking about activity post salt versus pre salt.
Yes, fair enough and you know a I think a coming up as the next pre salt bidding round number six net I had understood. There are 17 different oil companies have been qualified for that which is the largest number ever clear to participate in Brazilian bidding right.
You know you mentioned Petrobras. So Petrobras has been supergrass. If you know originally that came out for that a tender that LG. What attended that was expected to contract two units. They went ahead and contracting six we also see that that Petrobras it just.
Well I said, another tender for multiple rigs or not and decide to space and so that's pretty interesting and then as that somebody had mentioned before you've gotten said some of the Io sees.
It already I attended and expect to make awards so they.
So I'd just add to that if you think back I mean to Petrobras has already awarded six contracts to some of the local players and so absorbs some of that capacity and so as you look.
You look at a future they have at least a few more contracts if they're gonna word here over the next to next several months and then you've got the I will seize that are coming in and tendering and my guess is a lot of local capacity is going to be consumed and and the international players are going to want higher spec assets in that market anyway, and so I think that opens up the door for us to grow our presence there.
Yeah, Shaun I see the stuff that we know this under negotiation at the moment.
Well basically place all of that breaks out and currently under contract. So there's no more local supply available that you'd have to bring rigs from my side.
Got it very helpful. Thank you.
Thank you our final question will come from Vebs Vaishnav with Howard Weil.
Hey, good morning, and thanks for taking my questions.
I guess.
I'm just thinking about the filter count.
It has great stuff, we started off with the looking calendar for like they did it in five we went to about 120 and now back below 115, I just wanted to see if there's some seasonality that you guys think is going on and this is clear this could make the transition number and then from here on equal keeps going up let's.
Any color would be helpful.
Yeah, I think if you look in any given moment that might fluctuate by little bit, but we're seeing that progressions pushed up the you know I Didnt 30 rigs working you know almost 160 under contract.
Nicely that we're not going to see a whole lot more than not just simply from the point of view that the costs a lot of money to bring that rig or to reactivate they ought to bring it from a shipyard. So what we think happens now is that a this active fleet that you have at the moment is basically going to.
Increase it as utilization level, it's going to support solid day rates and once those day rates are high enough that you know perhaps in the 300 and beyond range, then you're going to see that kind of move up again, but that's good to be because of that reactivity units, which is we've kinda stated from our point of view that that would have to be paid forwards.
Perhaps if you look at just one quick rigs that's been up over the next three years. So I think are you seeing rigs to much sooner and all bulwark starting further into the future.
And.
They did fall up maybe if a month. So when you guys guide about when you find enough drilling revenues.
That excludes the 45 million off I'm not a.
Monetized revenues are contracting Daniel so when you actually reported would be we should think about a 25 plus that 45 is that fair.
No al contract drilling remembered you would be 778 now adjusted contract revenue 820.
Okay, that's very helpful.
That sounds funny.
Thank you, ladies and gentlemen that concludes our allotted time for questions and answers I would now like to turn it back to Mr. Alexander for closing comments.
Yes. Thank you very much David and thank you to all of our participants on today's call. If you have further questions. Please feel free to contact me either today or later in the way to look forward to talking with you again, when we report our fourth quarter full year 2019 results have a nice day.
Ladies and gentlemen that concludes the third quarter Transfusion Limited earnings Conference call. You May now disconnect and thank you for joining us this morning.