Q3 2019 Earnings Call
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I would now like to turn the conference over to Emily head of Investor Relations. Please go ahead.
Thank you I welcome to Seadrill Limited's Q3, 29 team quarterly conference call.
Well I got started I would like to remind everyone that much of the discussions day lumpy based on historical thought but rather consist of forward looking statements are subject to uncertainties.
Greetings and pace here the presentation as a comprehensive list covering forward looking statement.
For additional information I see your Sep filing please visit our website at Www Dot Peterbilt Dot com.
So moving on to the agenda.
Nothing I mean today are I couldn't give away our CEO search out there I see echo.
Like our Chief commercial officer. Please note that our chief operating officer.
My prepared remarks, he will give them I'm, calling Scott.
I don't cover all the highlight for the culture and provide you with our views on the market like I'm sure will then provide a review of the financial performance for the culture and then we will open up the likes of you can take some questions from the entirety.
With that I would like to turn the call overtime.
Thanks.
And welcome everyone to <unk> third quarter 2019 out of school.
Before we go into a quarterly results I'd like to open with some comments regarding recent board changes the overall state of the industry the markets and some other things were doing here at Seadrill.
As you will see in this morning, we announced a bold changes, it's Glenn older Portland, succeeding John Fredrickson, as chairman and go not only us and placing help those thing.
I'd like to thank how far is dedicated service sequel, and welcome good luck to the board.
Also like to thank John for his leadership at the board to date.
I just successor, Glenn brings with him a wealth of experience or where do you have close dialogue with Glenn and he's a welcome addition to the team.
This is the best a bold screw up to the company a new tourists personally.
We've added a seasoned industry that has the chairman of the board, but we'll continue to benefit from the inside can perspective of John going forward.
They no longer the chairman, but I'll close working relationship continues.
As an industry the disconnect between improving fundamentals unfolding security prices is highly a current.
We remain focused on the things that we can't control.
We cannot turned a blind dissect what the market is telling us and the state of the industry more generally.
The good news, which I'll talk about in the moment that we continue to see signs of recovery in the market.
The bad news is that it's quite clear that this recovery, it's taken longer than anyone expected.
After the worst downturn and 25 years, the recovery has not met the expectations of many including I'll tell.
On top of the industry faces mounting debt maturities over the next five years at present significant challenges to us.
How competitors and I'll collective lending groups.
That's equal we all quite love it, but I disagree with the general sentiment that a company that should be measured solely by timing quantum.
We have a supportive and homogenous bank group that we can work with to address medium and longer term capital structure requirements.
Being proactive in this regard having met with each bank individually to ensure that is clearly understood that early and transparent engagement is our proposal out jointly can show a long term sustainability.
All about they called US recognize the value went on underlying business.
The best way to preserve this value is to maintain the flexible premium fleet on the best in class operational management. So that we can continue to deliver the safely and efficiently for our customers.
With respect to the market.
Yes, I do you kind of look good and we expect us to translate into improved industry activity in the future.
We're also seeing increases in term durations attendance, which should improve the utilization outlook as these contracts awarded.
He called improving Ford utilization underpins, a four day rate curve that is then contango.
And the spot market the high specification float as we approach the 200, Cape a day level Jordan third quarter.
More recently, we have secured contracts in the segment and the mid two hundreds.
We expect the strength to continue for similar work commencing in 20 to 22.
It remains to be seen where rates will be put some of the term warping tend that now, but I expect rates. When these longer term programs commencing a 2021 to be above the spot rates and 2020 .
We took a strategic decision to focus on pricing versus utilization and we're pleased to see that there was overall more disciplined the market today.
It's not where it should be but it's getting better and we'll continue to improve its improving demand opens up opportunities for industry consolidation facilitating oh, the fleet rationalization, which will in turn assist the supply demand balance.
We remain focused on deploying capital wisely, well that being reactivated idle units only been justified by contracting opportunities.
Given the fleet to increase operational and technical competitiveness.
Capital in contracting discipline is what you have seen approaching and that's what you should continue to expect from us.
Also the basis upon which our stakeholders will ultimately drive value.
Geared seadrill, we continued to be focused on lowering cost and improving efficiency.
After a massive growth base would screen like consolidating fixed operating regions into two.
We continue to develop a shared services model, including over the past year consolidating worldwide technical services and supply chain co locating them in Houston close to our major vendors.
We continue to evaluate and pursue further efficiencies in a process is an organization that will improve already competitive position.
Last quarter I mentioned targeted investments that we're making then technology that improved performance in safety.
Typically our proprietary played a performance management system VLP monitoring system ambition like Q, which uses laid all technology to keep people safe in the Red zone.
I'm very proud to see feed rolling the folks who developed this technology being recognized for their efforts.
These include at least in feature article in the Ti on because like you just this week and award from the Petroleum economist for I'll walk in innovation.
More recently, we pioneered the use of hybrid power on the West Mira, making her the first float in the world to be awarded Dnbi GL battery power class notation.
By incorporating batteries onto the rig we would use the onetime of diesel engine, thereby increasing efficiency, while lowering emissions.
This is part of our continued focus on commitments on the U.S.G.
We have been benchmarking ourselves as part of the carbon disclose a project of seven years now over that period, a progresses play stuff and the industry leading position.
The reason I point out these efforts, it's not just to beat our own drop but more so to make it clear that I'll focus on maintaining capital discipline and innovation or not mutually exclusive.
We will continue to make targeted investments, where they have a clear link to making us more competitive improving performance, we provide our customers well keeping all people safer.
And with respect to safety, we will continue to share this technology with the industry.
Turning now to the results of the corridor.
Economic utilization of the fleet was 93% mainly related to a five year classic in the West Linus. Excluding this utilization was 95% in line with levels you expect to see.
We added $123 million in backlog during the quarter, which I'll talk about in a moment.
Our joint venture Sonic drill secure denying them all contract for the Sun and go leaving us, adding $101 million the backlog into the joint venture and the rig commenced operations post quarter end.
We recorded impairments on our investment and see departments, which George will provide more details on later in the coal and finally, we closed the quarter with 1.4 billion in cash on hand.
Turning now to recent contract wins.
During third quarter, we added approximately $123 million in backlog primarily related to the following calling trucks.
The West Neptune secured a one year contract backlog in the U.S. Gulf of Mexico in direct continuation with its existing contract.
This is a 30% year on year improvement in day rates and was the first rigs breach $200000. The day in the Gulf of Mexico, an important signpost for what it's been a very competitive market.
It would be too I mean, whats callisto, where each watered short term extensions with Saudi Aramco.
We have a long operating history with Saudi Aramco and have amongst the best operating rigs in their fleet.
These short term extensions should be viewed in the context of the AG, one for which we conclude that long term extension in Q1 and the productive discussions that we continue to have with aramco about extending the three remaining rigs we have working in the kingdom.
The third quarter was relatively quiet, which is not uncommon, but year on year, that's been a material step up in the number of fixtures and we're optimistic about Q4, having already secured more than doubled the Q3 additions post quarter end.
Already this quarter additional wells have been added on both the West Hercules West Phoenix, Norway speaking to the solid operations on these rigs and the strength of the market and the answer yes.
Well that's in my previous comments regarding our operations in discussions in Saudi Arabia. They ODC too was awarded a for the six month extension.
We secured a two year contract on the West Tellus Petrobras in Brazil.
Six months ago, the price levels in this market, primarily driven by local players made at an attractive to us.
Now that much of that supply has been taken up opportunities have begun to emerge in this important high spec ultra deep water basin.
The tell US extension is a good example of working collaboratively collaboratively with our customers. This contract which begins in direct continuation allows us to avoid a protracted out of service time, well having to switch customers between contracts.
There are quite Fibria class thing will be performed in country with two short out of service periods. During Q4 nine team in Q1 2020 .
Minimal upgrades all acquired since it's the same customer and we will ensure continued good operations in the rig by maintaining the same crew gumport.
And lastly, just yesterday the west Covina was awarded a full well plus six auction well contract with PT pp in Malaysia.
The contract is expected to commence in Q1, 2020 , which fits nicely with a five year class and currently underway Malaysia.
The day rate demonstrate the continued strengthening of the high specification, Florida market.
In addition to the $250 million the backlog that I've already described in Q4, well in advance discussions for additional work that we expect to close before year end.
With that I'll turn things over to Stuart to take you through the financials.
Thank you and Jordi attention to page seven I'll take you through the key drivers for all of its helpful.
Oh, that's been a relatively quiet quarter from operational perspective, economic utilization was 93 to seven.
Ventanas mentioned that was slightly lower than we anticipated because at the west Linus They know what five a yet classification.
The largest settles the change in relation to both the revenue on the epic, though is the reimbursables.
These all cost that we incurred on behalf of other parties on every Charles to life policies.
Incurring costs, both Sabal trail and committed and drilling and preparing their there because of the bulk.
Well that revenue perspective for the quarter were 367 billion compared to 320 million in Q2.
As one of their best impacts we've had higher operation days during the quarter, which has contributed to revenue.
And then EBITDA level were 85 million compared to 69 million in Q2.
Well as having the higher operating days the offsets some high stakes had cost attached to those we've always said benefited in the corner and the quarter by definition, the seven Louisiana lots that hot insurance claim.
In relation to the guidance for the fourth quarter, we expect adjusted EBITDA to be approximately 40 million. This is showing a further completion of legacy contracts as well the west satin coming off contract.
Turning to slide eight which is our results from associated companies.
Operating then consolidated entities with job Seadrill partners.
I'll check and see breath, achieving good utilization levels as well if generates very reasonable EBITDA.
The two new joint venture so from a drill and Gulf drill our establishing their operations and post quarter end the big the bill the longest became operational in Angola.
However, net profit level. These entity itself, there were shutting losses, because that amortization and find ensco predominately associated with Seadrill partners.
Let's see real perspective, all share with the loss and these entities increased from 20 to anybody in the 30 to 30 million to them that because of the completion that they see across the Atlantic contracts.
However, we have signed a contract for capacity I have you thought that vessel three 2020 .
And also see breath has returned $19 million to see Seadrill.
And loans and distribution payments during the quarter.
Outside of your pricing got hit with his Seadrill partners, both suspended from the New York Stock exchange as a consequence, we'd have to consider independent.
And then to slide nine and the income statement.
So I believe the 85 million of EBITDA, we have the quota.
The major movement here in addition to the Texas companies I've already be true.
For the Seadrill partners perspective, the trigger events for looking at a patent both the suspension from trading from New York Stock Exchange.
We consider the on other than temporary a change in this respect.
As a consequence, we booked during the quarter. So you haven't team again, nothing had one of our investments in Seadrill partners.
The other major change in terms of the income statement, it's in relation to income tax and you'll recall that in quarter. Two we had the benefit of that some changes in uncertain tax revisions arising from changes in U.S. legislation, which was off your docket.
Gordon.
From a cash outlays perspective.
Up thinking on net loss of 520 comedy and for the quarter. After the write down of Seadrill partners.
If we adjust the noncash items, our working capital and our maintenance cost.
You can see in 60 million of cash from operations in quarter three.
This reflects improved EBITDA and payments in the Boston, San Pedro capacity 85, and then can change in Q2.
[noise] feminine investing perspective, we benefited from the FIFA payments received in the quarter.
The financing side, we had payments related to the debt facilities that you find them together limited.
I don't think comparisons to Q2 and Q2, we have the cash outflows associated with the NSN tenda.
They will turn from the cast perspective, if we can shoot $24 million of cash during the quarter.
[noise], that's reflected on our balance sheet on slide 11.
Our cash position that we ended the quarter was 1.44 or 5 billion.
All of which 229 billion, it's a relation to restricted cash.
In terms of all the moving from the balance sheet. Other current assets decreased due to the amortization the favorable contracts the rising from fresh start accounting.
The non current assets decreases prison, principally in relation to the Seadrill partners rifle.
And it sounds to the current liabilities among her among current levels is the change S&P through the one that's the corporate debt amortization being classified.
Finally in relation to the capital structure and all liquidity position.
The cash of 1.44 or 5 billion together with 500 million of the embolization conversion election, we hold where the underpins our liquidity.
During the process of utilizing the ice for the first time, we'll continue to use the ace <unk> three 2020 .
So that will have no amortization of out that until 2021.
And they maturities I'm not that until 2020 too.
This means they got time to manage our long term capital structure, but we do believe in an early engagement with all stakeholders.
And the respective the banking facilities that has already started as we've had a number of individual meetings with all the banks over the past people.
In terms of capital structure related thought prerogative to focus on continue pay down all the NFL and square feet.
That concludes the presentation, we have today I'd now like to have two questions from the older.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Patrick Fitzgerald with Baird. Please go ahead.
Hi, guys.
What's going to happen with the 416 million a solar snow that's due to you guys in December of this year from C. Max.
You know at Cmax I should say.
Yeah.
C. Max that was crazy that although coming through at the ended the year is subordinated behind be the bank debt.
Okay. So I guess just extend it.
Correct, correct that extra automatically extended and will continue and then ultimately sits behind the banker.
Okay.
Is there you know.
You had highlighted earlier this year that you had.
I don't we're seeking to try to monetize.
All the assets that you could in terms of Cmax since you brought surprise.
Is there just no market our parents or refinance.
Some of the done on those entities. Despite the fact that they're performing very well from a cash flow perspective, Oh it.
Situation there.
Oh I'm not sure I'd characterize it that way I mean, we have a number of levers available not that is one of them female sellers credit, obviously, and a and sykora the JV its about the lifetime and and and third the right place to to to get value for it. So we continue to look at options in that regard.
Pardon I don't think we're going to get into more detail come back on the cool okay.
Okay.
Footnote eight of the fleet status report.
Talks about the potential discount Dayrates cmax.
Could you could you discuss.
What what that means.
Yeah, I mean, we've had a a long operating history with the out with Pemex, you don't see much joint venture, it's a solid market with with long term calling truck.
We have had these discussions from time to time and our ongoing basis. Then we will continue to you know right now, though the contractual rights is for the rates to take a step up five we're currently engaged in a in a discussion.
With Pemex about the go forward on these contracts we've had a number of discussions there very productive but.
But nothing's concluded yet so I think we'll just have to have to see how those how those play out. We do have you know quite a quite a good history. All of finding you know mutually beneficial agreements with our customers, whether they be a blending extend or or working with our customers. So we're just going up to see how how about how.
That plays out.
Great. Thanks for any color on the.
On a new contract for the Paasio.
Is out at a day rate.
Near we're not worried that it had been contractor before.
You know any color on that would be helpful.
Oh, I think it it's fair to say that the markets in a different place to two up you know five six years ago when when.
Pretty much any best low rig was originally contracted but I will say, it's a it's a solid it's a solid contract and that's a good contract for that vessel for that vessel path.
All right. Thanks, a lot I'll jump back in Q.
Thanks.
Again, if you'd like to ask a question. Please press Star then one.
Our next question comes from Lukas Daul with a B G. Please go ahead.
Thank you good afternoon law gentleman.
Uh-huh looking at looking at your floaters that are available in a 2000 uncertainty Oh, Jupiter softer or no and lose the online now carina becoming available can you just quickly talk about de marketing opportunities you see for those rigs.
I'm not so to speak.
Not sure.
Hi, Lucas So Oh I will start the Saturn. She is currently located in Trinidad and completing her current five year survey.
We're in discussions I would call them advanced with the potential opportunity that should commence mid 2020 , we'll look for some short term work in the event she's ready to go beforehand, and I Hope I can give you guys. Some more color on that in the near future.
With respect to the Jupiter that rig is still working in a in Nigeria 'em. We expect it soon to conclude its program with total.
We are marketing it a internationally there are some attractive opportunities in west Africa that would obviously be a perfect fit it's a balance between term and timing.
So so there may be some gap there that we need to fill with some short term opportunities.
Finally for the fourth the Capricorn, which is Seadrill partners.
Probably lead that one too to discuss for them on their call, but a for the Louisiana.
We are continuing to dialogue with a number of the customers that we've worked with there is an interest given not rigs unique capability to work in shallow water in DP mode, which provide some cost savings for the operator.
And we're confident we'll see a continued continued interest through 2020 I wouldn't signal that it's gonna be a long term contract, but there will be some some future spot work for that rig.
I I will say you know overall Lucas I mean, we always try to balance was one of the benefits of scale and having size. It is managing the benefits of short term versus long term opportunities and that's something would have to weigh up against each other but we don't want to do is is is take a short term opportunity.
That that puts us out of the running timing wise for a longer term more attractive opportunities in another market. So I think what you will see it. It is a focus with some of these rigs on on longer term opportunities and as Matt said, you don't need to fill in on the frontend to fill the gap, but Ah we.
Back to see some additional fixtures in the fourth quarter.
Okay. So with that kind of outlook, you know, let's say being in a discussions on all of those rigs would would be the next oh, two rigs one or two rigs that you would be low getting to reactivate because you don't really have.
Oh, that's much near term availability besides those four.
Oh, I I think I've been public before I think that the probably the first candidates you'll see for reactivation, maybe some of our high specification Jackups as we move into 2020 . You know, we you know as I said in my opening comments. The good news side of the story is it the recovered mark.
When we can clearly see the trends and the contango in a in the up and nine people go to market, but the the costs involved in reactivating deepwater rigs, especially when you consider that most of these rigs both need a reactivation process as well as an SBS.
To be performed I don't think as an industry. The right the rates are right or at a level quite yet where where it's a sensible capital decision I think where where we're heading that direction.
But but we're not quite there yet, but let's just see how the market plays out in the next the law.
Okay. Thanks for calling.
<unk>.
Our next question comes from Ben Fader, Radnor Wet Canyon capital. Please go ahead.
Hi, I'm can you.
Disclose what the clean day rate would be on a west Korea.
Hey, Ben.
Look we are we're working with our customers to get them onboard with disclosing day rates on our fleet status.
I think you'll notice that that it's more populated than it's been before but there is a sensitivity around it for for each and every reason is that an operator has and everybody is different so at this time, a that's not something I can comment on but but I I will say if you look at the some of that the bank from the brokers, Indiana.
I will support the Cabal regarding day rate you can probably triangulate from many of those folks have a pretty smart when it comes to those numbers. So I think the numbers that are out there are are you know.
Fairly accurate.
Great. That's all I had thanks.
Thanks.
This concludes our question and answer session I would like to turn the conference back over to I'm only for any closing remarks.
And thanks, everyone for joining and that concludes our quarterly conference call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.