Q4 2019 Earnings Call

February 27, 2020

Anton Dibowitz: Overall market discipline with respect to contracting increased through 2019. There are some external factors that we can control, such as the impact of COVID-19, trade disputes, and geopolitical risk. However, the fundamentals remain, and we've seen a solid year-on-year improvement in the market across all sectors, albeit at a different pace across segments. In the benign environment floater market, we've seen spot rates improving, but the forward rate curve is flattening. The start of this year has been slower, and we've seen market discipline wane, partly impacted by the high number of units rolling off contract in 2020. That being said, tendering activity remains high, and we remain optimistic that the market will continue to improve as we progress through the year.

[music].

Anton Dibowitz: The harsh environment sector remains the tightest market, particularly in Norway, where we continue to see strong day rates and marketed utilization trending towards 90%. In the high-specification jackup market, we continue to see improving utilization and strengthening fixtures, particularly in Southeast Asia and the Middle East. A strong demand outlook for premium assets may present the opportunity to add supply as the year progresses. We are well positioned for this. With respect to commercial activity in Seadrill, as I mentioned previously, during Q4, we added more than $1 billion in backlog. Overall, in 2019, the $1.4 billion in added backlog was in excess of our consumption for the first time in five years, and despite the continued roll-off of legacy higher day rate contracts during the year. I'd like to highlight just a few of the awards during the quarter.

Good day and welcome to the Seadrill Limited fourth quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May proceed star then one on your telephone keypad to it.

Anton Dibowitz: The West Phoenix secured a multiple well contract with Vår Energi in Norway, with total contract value of around $300 million. This was the highest fixture in Norway in the last four years and is in direct continuation of its next contract. Vår Energi is the second-largest E&P company on the Norwegian continental shelf, and we look forward to working with them. With that addition, we now have rigs contracted with four of the five largest operators on the NCS. In our benign floater fleet, we secured additional work for both the West Tellus, and West Carina, adding $211 million in backlog. On the jack-up side, we added nine years of backlog on the AOD II, AOD III, and West Callisto, adding circa $290 million in backlog.

Draw. Your question. Please press Star then too. Please note. This event is being recorded I'd now like to turn the conference over to at medley head of Investor Relations. Please go ahead.

Thank you and welcome to Seadrill Limited Q4, 29 team quarterly conference call.

[laughter] I get started I'd like to remind everyone that much of the discussion today not me based on historical spot, but rather consist of forward looking statements darts subject uncertainty.

Created on page two of the presentation. It's a comprehensive list covering forward looking state forward looking statements for additional information I could you are I think the filing please visit our website at www Dot Seadrill Dot com.

Anton Dibowitz: These extensions are at the high end of the market, indicating the value of the leading operational performance of our rigs with Saudi Aramco. To keep all of our four rigs operating in Saudi is of key significance. Subsequent to the quarter, in fact, just yesterday, Equinor exercised five wells for the West Hercules under the continuous optionality mechanism, thus keeping her busy through Q1 2021 and adding approximately $70 million in backlog. The West Hercules operates under a master frame agreement, and we're pleased to continue our long-standing relationship with Equinor. Now I'll turn things over to Stuart to take you through the financials.

So moving on to the agenda within the range today, our I'm talking to pivot our CEO Stuart Jackson our CFO.

Outline our chief commercial officer, I leave no, okay, our chief operating officer.

And our prepared remarks, you will hear from I'm, calling in square I sell more cover all the highlights for the quarter and provide you with all of our views on the market outlook on Stuart will then provide a review of financial performance of the culture and then we will open up the line. So you you can take some question from the entire team.

Stuart Jackson: Thank you, Anton. Turning to slide 6 in terms of revenue and EBITDA bridge for the quarter. This was a relatively quiet quarter from an operational perspective. We achieved economic utilization of 93% off a technical utilization base of 97%. As Anton has mentioned, during the quarter, the West Neptune was out of service for its planned 5-year classification. In terms of total revenue of the quarter, we're at $398 million compared to $367 million in Q3. This increase reflects the rise in the reimbursable revenues from the Northern Drilling rig preparation, and also higher management fees as the first Seadrill unit moves from rig preparation into operations. At an EBITDA level, we delivered $39 million of EBITDA compared to $85 million in Q3.

With that I'd like to turn the call overtime.

Thanks, Emma and welcome everyone to the coal.

Starting with the financial results for the quarter, which Stuart will give you more detail on later.

Technical utilization was a solid 97% the delta between missed an economic utilization of 93% was mainly related to a five year class thing on the west Neptune and seasonal waiting on whether time in harsh environment.

We had adjusted EBITDA of $39 million, which was primarily due to lower activity levels from rigs completing contracts in the quarter and finally, we closed the quarter with 1.4 billion in cash on hand.

In terms of operations.

We already have an extremely competitive cost position and the continued to be laser focused on improving the efficiency with which we run our business.

Stuart Jackson: The underlying EBITDA margin was 10% compared to 23% in Q3, predominantly because of the higher reimbursable activities. As we go through the transition of rig preparation to rig operations, you will see some periodic impacts as we recorded in this quarter. This is because we generate the majority of our margin on these activities in the operating phase, rather than in the preparation phase. While I'm dealing with EBITDA for the first quarter 2020 guidance, we expect adjusted EBITDA to be approximately $35 million. This reflects a full quarter of idle time on the West Jupiter and West Saturn, and it's partially offset by higher dayrates on the West Neptune and a full quarter of operations on the West Gemini and the West Carina.

Sufficiency focused helps our cost base today, but will also allow us to scale up business efficiently when required.

Secondly, we can't really recognize importance of sustainability and continue to progress with multiple initiatives related to environment, social and governance.

During the fourth quarter, we pioneered the use of hybrid power on the managed wake West Mira, reducing the one time of the diesel engines, increasing energy efficiency and lowering emissions, we see great promise in this technology to be expanded in the fleet.

We also received notification from the independently assessed carbon disclosure project and we have now attained a b rating for our carbon management program.

Stuart Jackson: For the results of our associated companies, so these are our operating non-consolidated entities, primarily Seadrill Partners, SeaMex, Archer, and Seabras Sapura. Here, we're achieving relatively good levels of utilization, perhaps with the exception of SeaMex. SeaMex, we've seen a lower utilization of 91% because of top drive issues with the West Titania. Additionally, at SeaMex, we are continuing to see a buildup of receivables from Pemex. This is seasonal, and it's in common with a number of suppliers at this time, but the resumption of payments has been longer than has been the case in previous years. At Seabras Sapura, we're back to full rig operation following the Sapura Diamante picking up some spot work in the early part of 2020, the new joint ventures of Sonadrill and Gulfdrill establishing their operations.

This is being a seven year journey for us and that would using our overall impact I'm environment of our carbon footprint.

And finally with respect to operations, we continue to receive recognition from our customers during the quarter for excellent operational delivery.

Within our own fleet West Jupiter working for total was recognized for two years and the West coast, they're working with Saudi Aramco for five years without a lost time incident, great accomplishment for both with deep.

Amongst our managed fleet the west the legal working for BP was rig or the quota for the third time and for and the West Capella was recognized as flow drove the year for shell.

We're also see receiving recognition from the broader industry last quarter I mentioned, the targeted investments that we're making in technology that improved performance in safety across the industry.

Late last year, Seadrill and the folks who helped develop both our Plato performance management, an asset integrity platform and vision I Q, a red zone management solution. We are recognized for these efforts by being awarded the best offshore services and equipment company in 2019 petroleum economists.

Stuart Jackson: At Sonadrill, the Sonangol Libongos became operational in Angola, triggering the commencement of management fee payments to Seadrill. At Gulfdrill, the West Castor is currently mobilizing in Qatar, and the first jack-up from the third-party shipyard is preparing for operations. At a net profit level, these entities are still sharing losses because of amortization and finance costs. Measuring those results in terms of impact on the Seadrill results, the impact for Q4 results for Seadrill is our share of losses fell to $17 million from $33 million in Q3 this year, predominantly in relation to our investment in Seadrill Partners, which had a tax credit in the quarter. Outside of the operating activities, we impaired the carrying value of the convertible loan in Archer during the quarter. Turning to the abbreviated statements, firstly, the income statement.

On the commercial side, we've been public about the need to exercise contracting disciplined focusing on pricing and not just utilization and we're extremely pleased that against that backdrop, we added an industry, leading $1 billion in backlog during the fourth quarter.

We increased average day rates on new fixtures across the fleet circa 45% year over year, and we continue to at industry, leading fixtures, which I'll talk about later.

As an update on discussion with our bank, we have met with all of them and engaged and constructive dialogue focusing on liquidity and giving us time to maintain flexibility.

We have a supportive bank group that we can work with to address our medium and longer term capital structure requirements to ensure long term sustainability.

Stuart Jackson: There are two real items driving the change from Q3. Firstly, obviously, you'll recall that we took a significant impairment on Seadrill Partners in Q3, and obviously, that's not been repeated. Secondly, the income tax expense. We've had a tax credit from deferred tax benefit associated with the completion of the West Jupiter contract. From a cash flow perspective, we take the net loss of $199 million, and after adjusting for non-cash items, working capital, and maintenance, we consumed $56 million cash from operations in Q4, reflecting the lower EBITDA. On the investing activities, we paid $25 million working capital contribution to Sonadrill related to the commencement of the first unit in this joint venture. This was offset by repayments of shareholder loans by Seabras Sapura and a proportion of the West Vela dayrate received from Seadrill Partners.

All of our stakeholders recognize not only the value in our underlying business.

I'd also that the best way to preserve that value is to maintain a flexible premium fleet and the best in class operational management. So that we can continue to deliver safely and efficiently for our customers.

And finally as noted in our press release Brigade, although strengthen in Harbin Flint have joined our board, replacing gene Davidson Scott Vogel.

Gene and Scott came to our board has appointees in connection with our restructuring.

I would like to personally thank them for their contributions to the board and counsel to me since that time, our new board members Bergeson Herman above industry veterans, who bring with them a wealth of experience and I look forward to working with them.

Turning now to the market and commercial activity.

Stuart Jackson: On the financing activity side, payments relate to the repayments of debt facilities to Ship Finance Limited. In overall terms, we consumed cash of $88 million during the quarter. Finally, turning to the balance sheet on slide 10. Total cash at the end of the quarter was $1.4 billion, and of this, $242 million was restricted cash. Restricted cash is markedly higher as a result of loan payments received from Seabras Sapura, which remained within the collateral package of the senior secured notes. On our other current assets, these decreased due to the reduction in accounts receivable following the completion of certain contracts. Our non-current assets decreased principally due to depreciation of our drilling units, net of any capital expenditure we've had during the period.

Overall market discipline with respect to contracting increased through 2019.

There are some external factors that we can control such as the impact of covert 19 trade disputes and geopolitical risk. However, the fundamentals remain and we've seen a solid year on year improvement in the market across all sectors, albeit at a different price across segments.

And the benign environment for the market, we've been we've seen spot rates, improving but the Ford rate curve is flattening.

The start of this year has been slower and we've seen market discipline Wayne partly impacted by the high number of units rolling off contract in Twentytwenty.

That being said tendering activity remains high and we remain optimistic that the market will continue to improve as we progress through the year.

The harsh environment sector remains the tightest market, particularly in Norway, where we continue to see strong day rates and marketed utilization trending towards 90%.

Stuart Jackson: Our current liabilities increased and our non-current liabilities decreased, reflecting the change in classification of debt with one quarter's progression. Finally, in relation to our overall capital structure, while our first bank maturities do not fall due until Q2 of 2022, we have engaged in productive discussions with our banks, as Anton mentioned during the quarter and also into 2020, to address the capital structure relative to the current trading conditions. We expect to provide a fuller update at the appropriate time. With that, I'll turn over to questions.

And the high specification Jackup market, we continue to see improving utilization and strengthening fixtures, particularly in southeast Asia and the middle East.

The strong demand outlook for premium assets may present, the opportunity to add supply as the year progresses.

We are well positioned for this.

With respect to commercial activity in Seadrill as I mentioned previously during the fourth quarter, we added more than 1 billion in backlog overall in 2019. The 1.4 billion an added backlog was in excess of our consumption for the first time in five years and despite the continued role of legacy higher day rate contract.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. First question is from Patrick Fitzgerald from Baird. Please go ahead.

During the year.

I'd like to highlight just a few of the awards during the quarter.

The West Phoenix secured a multiple well contract with more energy in Norway with total contract value of around 300 million.

This was the highest fixture in Norway in the last four years and is in direct continuation of its next contract.

Patrick Fitzgerald: Hi, guys. How much restricted cash is collateral for the secured notes at this point?

Or is the second largest GNP company on the Norwegian Continental shelf, and we look forward to working with them.

With that addition, we now have rigs contracted with four of the five largest operators on the NCS.

Stuart Jackson: Well, the $242 million of restricted cash we have, the largest element of that is actually bank guarantees, which is about $130 million. Then we have Brazilian tax that we've had to pay on a pay-in-order-to-defend basis, which is $84 million, which was done in Q3. Then the remainder of it is predominantly the amount sitting in this collateral for those secured debts.

And our benign floater fleet, we secured additional work for both the West Tellus, and what Korea, China, adding 211 million in backlog.

And on the Jackup side, we added nine years of backlog on the 80 to 83 and west Callisto, adding circa 290 million in backlog.

These extensions or at the high end of the market, indicating the value of the leading operational performance of our rigs with Saudi Aramco to keep all of our four rigs operating in salaries of key significance.

Patrick Fitzgerald: Okay. Basically the cash at SeaMex went down because you're just not getting paid from the customer, it sounds like. I mean, is that related to the-

Subsequent to the quarter in fact, just yesterday, Ecuador exercise five wells for the West Hercules under the continuous optionality mechanism. Thus keeping her busy through Q1 of 2021, and adding approximately 70 million in backlog.

Anton Dibowitz: Yeah.

Patrick Fitzgerald: contract renegotiations, for the, you know, step up in rates?

The West Hercules operates under a mask the frame agreements and we're pleased to continue our longstanding relationship with ethanol.

Anton Dibowitz: This is Anton. No, it's not related. This is, we'll call it an industry-wide challenge. Look, there is generally a period at the end of the year when this happens, year over year. It's not unusual. It has been longer and more protracted this year, and it is widespread in the industry. I think there's even been quite a bit of publicity about it in the press. No, we don't believe it's related.

Now I'll turn things over to Stuart to take you through the financials.

Thank you and Tom So turning to slide six in sensor revenue and EBITDA bridge for the quarter.

Which was a relatively quiet quarter from an operational perspective, we achieved an economic utilization of 93% of the technically utilization base at 97%.

And as Antell as mentioned during the quarter the West Neptune was after Servicers planned Pfizer classification.

Patrick Fitzgerald: Okay. On that front, you know, in the fleet status report, says you're still negotiating with Pemex. I mean, what do you see as the likely outcome, you know? Probably not as high as it was scheduled to jump, but above where you were currently getting paid in 2019?

In terms of total revenue of the quarter were 398 million compared to 367 million in Q3.

This increase reflects advice from the Reimbursable revenues from the north and drilling rig preparation and also higher management fees as the first central units moves from Rick preparation into operations.

As an EBITDA level, we delivered 39 million of EBITDA compared to 85 million in Q3.

Anton Dibowitz: Look, we've had ongoing, I've been to Mexico a number of times, productive discussions with Pemex. We have fantastic rigs that are amongst the best performers in their fleet. I'm not gonna get into the details of it on this call, but you know, there's always a balance between you know, long-term opportunity and having a long-term presence, and where you are in the current day rate. We found a way to work with Pemex before, and we will continue to do that.

Underlying EBITDA margin was 10% compared to 23% in Q3 predominately because of the higher reimbursable activities.

As we go through the transition of rig preparation to rig operations, you will see some periodic impacts as we recorded in this quarter.

This is because we generate the majority of our margin on these activities in the operating faiza rather than in the preparation phase.

Whilst on dealing with EBITDA for the first quarter Twentytwenty guidance, we expect adjusted EBITDA to be approximately 35 million.

Patrick Fitzgerald: Okay, great. Thanks. In terms of the backlog at Seadrill, how many vessels is that $1.3 billion cover? Did you guys sign up new contracts in the quarter?

This reflects a full quarter of idle time on the west Jupiter and by seven.

And it's partially offset by higher day rates on the West Neptune.

Full quarter of operations on the West Gemini and the West Carina.

And then for the results of our associated companies. So these are our operating non consolidated entities on lease Seadrill limited Seadrill partners.

Anton Dibowitz: Yeah. Currently, all of the vessels are operating. They're on different terms of contracts. The vessels that rolled off contract during the year have secured some short-term work. Yes, that backlog includes all the vessels.

Cmax Archer and CBS.

Hey, retrieving relatively good levels of utilization, perhaps with the exception to see mix.

So you've actually seen lower utilization of 91% because of top drive issues with the West Virginia.

Patrick Fitzgerald: What are the rates on that short-term work relative to the long-term work that you guys have been working on for quite a while?

Additionally, as C. Max we are continued see a build up of receivables from Pemex.

This is seasonal and it's in common with a number of suppliers of this time the resumption of payments have been longer than has been the case in previous years.

Anton Dibowitz: I'm not gonna get into the rates on the particular vessels on the call here today. I'll say they have come off the bottom and you know, we're happy, and it's definitely better for them to be working than it is for them not to be working.

Let's see breast superior Sephora.

We're back to full Rick operation following the DMC picking up some spot work in the early part of Twentytwenty.

Patrick Fitzgerald: Okay. You said that you spoke with all of your lenders in Q4. I mean, is this essentially the exact same group that you know went through the process with before? Or has there been a lot of the debt that's changed hands over the course of since you emerged?

The new joint ventures of summer drill and Gulf shoulder, establishing their operations.

Sonic drill the longest became operational in Angola, triggering the commencement of management fee payments to Seadrill.

On the Gulf drilled the West Casters currently mobilizing Qatar and the first Jackup from the third party shipyard is preparing for operations.

Stuart Jackson: There has been some debt that's changed hands, but in terms of aggregate, that's not a significant portion of the overall debt we have. In relation to meeting the banks, obviously I've been a CFO for six or seven months or so. An early part of my job was getting around seeing all the banks, and I achieved that through Q3 and Q4. I guess as we came into Q4, we've then organized a bit around discussions, particularly with the lead banks, about the opportunities for our capital structure going forward.

The net profit level. These entities are still sharing losses, because of amortization and finance costs.

Measuring measured results then in terms of impact on the Seadrill results. The impact for Q4 results to Seadrill is share of losses fell from to 17 million from 33 in Q3 as this year predominately relation to our investment in Seadrill partners, which had a tax credit in the core.

Okay.

Outside of the operating activities, we impaired the carrying value that the convertible loan in archer during the quarter.

Anton Dibowitz: Yeah. I'll add to that. I mean, there has been a marginal amount of debt has traded. Our bank group has been with us since the start. We know them. They know us well. They're very supportive of what we need to do. As I said in my prepared remarks, I think what all the stakeholders are aligned that the best way to preserve value is to maintain flexibility, runway, and keep operational management of a premium fleet.

Turning then to the abbreviated statements versus the income statement.

There are two real items driving the change from Q3.

Firstly, if you recall that we took a significant impairment on Seadrill partners in Q3, and also Thats often repeated.

And secondly, the income tax expense, we've had a tax credit from deferred tax deferred tax benefits associated with the completion of the west Jupiter contracts.

Patrick Fitzgerald: Okay, great. Thanks for answering all the questions. I'll jump back in queue.

From a cash rate perspective, it takes a net loss of 199 million after adjusting for non cash items working capital maintenance, we consumed 56 million cash from operations in Q4, reflecting the lower EBITDA.

Anton Dibowitz: No problem. Thank you, Patrick.

Operator: Again, if you have a question, please press star then one. The next question is from Saurabh Bose from Imperial Capital. Please go ahead.

Saurabh Bose: Hey, thank you. Patrick actually managed to ask all the questions I was going to ask, so thank you very much.

Sourav Das: Hey, thank you. Patrick actually managed to ask all the questions I was going to ask, so thank you very much.

On the investing activities, we paid 25 million working capital contribution to southern drawl related to the commencement of the first units in this joint venture.

Anton Dibowitz: No problem. Thanks for the interest.

This was offset by repayments of shareholder loans by sea breast supera out of proportion of the West fell a day rate received from Seadrill partners.

On the financing activities side payments related to the repayments of debt facilities to ship Finance limited.

So in overall terms, we consume cash of $88 million during the quarter.

Part of the turning to the balance sheets on slide 10.

Operator: The next question is from Piotr Osowicki from Sarone. Please go ahead.

Total cash at the end of the quarter was 1.4 billion.

Piotr Osowicki: Hello. Thank you for taking my questions. Just one, most of them have been asked, but I just wanted to follow up on your comments regarding the subsidiaries. First around the Pemex receivable, I mean, you have had a very similar movement in Q4 last year, but do you see these receivables still building into Q1 2020, or has that been paid or reduced since?

Our first 242 million this restricted cash.

Piotr Ossowicz: Hello. Thank you for taking my questions. Just one, most of them have been asked, but I just wanted to follow up on your comments regarding the subsidiaries. First around the Pemex receivable, I mean, you have had a very similar movement in Q4 last year, but do you see these receivables still building into Q1 2020, or has that been paid or reduced since?

Restricted cash is modestly higher as a result of loan payments received from the C C breast upper.

Which remain within the collateral panel package of the senior secured notes.

On our other current assets these decreased due to the reduction in accounts receivable following the completion of certain contracts.

Anton Dibowitz: No. They do continue to build into Q1 of 2020. As I said, we are not unique in this regard. We have a very close handle on it. We have, you know, a very close dialogue with Pemex and, you know, this happens on an annual basis, so we're confident they will get it sorted, and we'll be back on track. A question of timing at this point.

Our non current assets decreased principally due to depreciation on our drilling units net of any capex venture we've had during the period.

Our current liabilities increased and our noncurrent liabilities decreased reflecting the change in classification with debt with one quarter's progression.

The thorn in relation to our overall capital structure.

Last sell Firstbank maturities did not for June to Q2 of 20 to 22 Institute.

We have engaged to productive discussions with our banks as Andrew mentioned during the quarter and also into Twentytwenty to address the capital structure relative to the current trading conditions and we expect to provide a further updates at the appropriate time.

Piotr Osowicki: Okay. While you are negotiating the rate, is it fair to assume that in Q4 and now in Q1, the rigs continue to work on the reduced rate that we've seen in 2019?

Piotr Ossowicz: Okay. While you are negotiating the rate, is it fair to assume that in Q4 and now in Q1, the rigs continue to work on the reduced rate that we've seen in 2019?

With that I'll turn over to a questions.

We will now begin the question and answer session to ask a question. You May proceed Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys.

Anton Dibowitz: Well, let's see where we get to at the end of the discussions we're having with them and we'll update you.

Piotr Osowicki: Right. My question more about the Q4, that the number you have reported, this reflects the well, the discounted rates or the higher rates.

Piotr Ossowicz: Right. My question more about the Q4, that the number you have reported, this reflects the well, the discounted rates or the higher rates.

To withdraw your question. Please press Star then too.

This time, we will pause momentarily to assemble a roster.

Anton Dibowitz: The rates that we were working through Q1, Q2, and Q3 of the year is what's reflected in the numbers.

First question is from Patrick Fitzgerald from Baird.

Piotr Osowicki: Okay. Understood. On Seabras, there also seem to have been a similar move with respect to cash build up. Are you seeing any receivables building, I mean, Seabras as well?

Piotr Ossowicz: Okay. Understood. On Seabras, there also seem to have been a similar move with respect to cash build up. Are you seeing any receivables building, I mean, Seabras as well?

Please go ahead.

Hi, guys.

How much cash how much restricted cash as collateral for the secured notes at this point.

The 242 from restricted cash we have the largest element that is some national bank guarantees.

Anton Dibowitz: No.

Piotr Osowicki: I mean, has there been any other distribution to Seadrill then? Because when I-

Piotr Ossowicz: I mean, has there been any other distribution to Seadrill then? Because when I-

We have which is about $130 million we have.

Anton Dibowitz: No.

Piotr Osowicki: When I look at the move in the net debt, I mean, it seems to be smaller than what would've been indicated by the EBITDA. Has there been any other, I know, working capital buildup, any other unusual cash outflow from Seabras?

Piotr Ossowicz: When I look at the move in the net debt, I mean, it seems to be smaller than what would've been indicated by the EBITDA. Has there been any other, I know, working capital buildup, any other unusual cash outflow from Seabras?

Brazilian tax that we've had to pay on a.

Payable to defend basis, which is 84 million, which is done in Q3 and then the remainder of is predominately the amount setting and the collateral for those securities.

Okay.

Anton Dibowitz: Well, we and Sapura would've received the loan payments that I referred to as part of the Q4 process.

So the the risks the basically the cash Cmax went down.

Because you're you're just not getting paid from the customer it sounds like I mean is that related to contract renegotiations for the you know step up in rates.

Piotr Osowicki: Okay. All right. Thank you.

Piotr Ossowicz: Okay. All right. Thank you.

Operator: The next question comes from Florian Struben from Citi. Please go ahead.

Florian Struben: Hey. Yeah, thank you. All my questions have been answered already. Thank you. Bye.

The answer no. It's not related this is a well call. It an industry wide challenge look there there is generally a a period at the at the end of the year. When this happens year over year, that's not unusual it has been longer than more protracted this year.

Operator: The next question is from Michael Alsford from Citi. Please go ahead.

Michael Alsford: Hi there. Good afternoon. I've just got a quick question. I was just wondering whether you could sort of triangulate between your view on the market outlook for rates and the recovery to when you might expect yourselves to be cash neutral within the business at a group level. Thank you.

And it is widespread in the industry I think theres, even being quite a bit of publicity about it in there in the press, but now we don't we don't.

I believe its related.

Okay, and then on that front.

Says you're still hanging on the fleet status reports as you're still negotiating with Pemex I mean, what do you see is the.

Anton Dibowitz: Well, I'm generally not in the business of making predictions, and anybody who is is generally made to be a liar. What I can say is the market has improved significantly year over year from last year. You know, there are a lot of external factors that we have to look at. You know, I mentioned COVID-19 and what that impact's gonna be on GDP and demand and supply on both sides. What we do know is that the fundamentals are solid and we see it improving. I think it's difficult and, you know, quite frankly, maybe wrong to say we can peg a date. Leave it at that.

Although the likely outcome, probably not as high as they were the it was scheduled to jump, but above where where you were currently getting paid in 2019.

Well we've had ongoing.

Into Mexico, a number of times productive discussions with Pmax, we have fantastic rigs that are amongst the best performers in my fleet.

Im not going to get into the details of it on this call, but as you know there's always a balance between long term opportunity and having a long term presence.

Michael Alsford: I think.

Anton Dibowitz: It is better.

And where you are in the current day rate, we found a way to work with Pemex.

Anton Dibowitz: It is better.

Michael Alsford: Okay. Thank you. I understand. Just when it comes to tendering, what are the key focus points from a customer's perspective? Is it simply? Well, clearly, safety is very important, clearly, but I'm just thinking, is it sort of next just really about rates or is it about capability? Can you maybe talk a little bit about, you know, how that tendering process is going and whether the needs of customers are changing as the market does start to recover somewhat?

Before and we will continue to do that.

Okay, great. Thanks in terms of the.

Backlog.

I see bras how much.

How many how many vessels is that 1.3 billion dollar cover did you guys.

New contracts in the quarter.

Yeah.

Anton Dibowitz: I'll let Matt, Chief Commercial Officer, start, and maybe I'll come back afterwards, Matt.

Frankly, all of the vessels operating they want different terms of contracts over so the vessels that rolled off contract during the year have secured some short term work. So yes that backlog includes or.

Matt Lyne: I think in the market today, customers obviously have varied demands depending on the technical specification of either the exploration or development program they're looking for. Seadrill, without being too general, we benefit from an extremely modern and diverse fleet that sits in the high specification ranking against our competitors. The technical side, we meet all the requirements in most international tenders globally. Main factors, of course, as you pointed out, safety is absolute paramount to anything we do and anything they do. That's why we've built long-established relationships with major customers around the world. Timing is extremely important.

So all vessels.

And what are the rates on that short term or work relative to the the long term work that you guys have been I'm working on for quite awhile.

I'm not going to get entered into the rights on the particular vessels on on the call here today I'll say they have come off the bottom line and.

And we're happy and that's definitely better for them to be working memory. This for them not to be work.

Okay.

And you said that you spoke with all of your lenders.

Matt Lyne: Where you see that supply has increased at the end of 2020 with rigs rolling off, it's still crucial given how tight the operators are running their budget, that they have the rig when they want it for either exploration or development to meet their targets. I think timing is probably one of the more important elements associated with it. If you've already completed upgrades, if you have MPD, certain specifications, you move to the head of the line because you have an opportunity to start when they need you to start.

In the in the fourth quarter I mean is that.

Is this essentially the exact same group that you.

Went through the process with before or has there been a lot of.

That's changed hands over the course of since you emerged.

There has been set some that has changed hands, but in terms of accurate because that's not a significant portion of the April.

We have.

In relation to meeting the bank Sofia I've been in a CFO fab six seven months or so so early part of my job is getting around seeing all the banks are not achieve that through Q3 in Q4.

Anton Dibowitz: I, yeah, I think you covered it, Matt.

Michael Alsford: That's great. Thanks very much.

Operator: The next question is from Raghav Nanda from HSBC. Please go ahead.

I guess as we came into Q4.

We then organize the bedrock discussions, particularly with the lead banks about the opportunity for our capital structure going forward.

Raghav Nanda: Hi. Thanks for the presentation. I have a few questions. First, on the semi-subs, you've mentioned harsh environment market remains strong. Do you see any reactivations for the harsh environment assets? I'm talking about West Eminence and possibly West Venture. Similarly, on the benign environment side, you have Sevan Louisiana, which is operating at the moment. How do you see opportunities for this rig going forward?

Yeah, I'll add to that I mean, there has been a marginal amount of debt has trade at our bank group is being with us since the start we know them. They know us well, they're very supportive of what we need to do and as I said in my prepared remarks, I think we'll all the stakeholders are aligned that the best way to preserve value.

Anton Dibowitz: Let me look, on the harsh environment side, we have been quite public that we're gonna be extremely disciplined. We've been disciplined on the capital expenditure side as we have been on the contracting side. The harsh environment market, especially in Norway, is the one that has strengthened the most. There are opportunities, but for us, it's an evaluation of the cost of reactivation and considering adding supply back into that market versus where the day rates are. We'll take that on a case-by-case basis. In the benign floater market, today, you know, given where the supply-demand balance is, drillships still are favored over semi-submersibles, but we have, you know, the Louisiana as well as a managed rig semi in the Gulf of Mexico.

As to maintain flexibility runway and and a key operational management of a premium fleet.

Okay, great. Thanks for answering all the questions I'll jump back in Q.

No problem. Thanks, Patrick.

Again, if you every question. Please press Star then one.

The next question is from sorry boss from Imperial capital. Please go ahead.

Hi, Thank you Patrick actually managed HOS gold questions I was going to ask say, thank you very much.

No problem thanks for the interest.

Anton Dibowitz: It's more of a spot market right now. We continue to add programs to both those rigs as we go forward. Today I would not see us, you know, reactivating additional, benign environment semi-submersibles back into the market, and I don't think the market's gonna be there, you know, for a little while at least. Matt, anything?

The next question is from Piotter also was it from surround please go ahead.

Hello, Thanks for taking my questions.

Just want most of them happy now so just wanted to follow up on the on your comments regarding.

Matt Lyne: No, I think that's, I think we're, you know, on the Sevan Louisiana specifically, we've, the technical organization operations group have done a fantastic job. I think we mentioned this a few quarters ago about creating a more flexible rig by being able to work in shallower water depths than your traditional dynamically positioned unit, but without the assistance of mooring. That's broadened its ability to work in some of the mid-water opportunities in the Gulf of Mexico. Although the rates haven't materialized as quickly as we'd like, keeping that rig active for companies that we cherish relationships with, like Walter Oil & Gas, is really important for us. They've got a strong backlog of opportunity and we continue to talk to other customers, so.

The subsidiaries so.

Pemex receivable is that you creditors and members of my movement in Q4 last year about the use of these receivables to the building into into Q1 2020 or that has been has been paid or with Houston's.

No that they do continue to build into Q1 of the of Twentytwenty has a said. This is there. This is we're not unique in this regard we have a very close handle on it we have.

A very close dialogue with with Pemex and.

And this happens on a per se on an annual basis. So we're confident they will they will get sorted and we'll be back on track a question at this point a question of timing.

Raghav Nanda: Right. Thank you. Just the last question on harsh-environment jack-up rates. I see there are a couple of rigs, which are working on a market index rate. Would you be able to give some idea of what sort of data would that be in the present context?

Okay, and say well, while you're negotiating the rights.

It's it's fair to assume that in Q4 and now you on that.

The rigs continue to work on the registry.

We've seen planting.

Matt Lyne: I'm not able to disclose any rate elements associated with the market index rates. As you would expect, it tracks the market specific to its competitive group, and cycles on a periodic basis. That's about all I can tell you.

Let's see where we get through at the end of the discussions where we're having with them and we'll update you.

Right My question more about the QQ boarded the number the number you have reported this reflects the well the discounted rank order or the higher rates.

Yes, the car the rates that are in the rates that we were working through the first three quarters of the year is what's reflected in the numbers.

Raghav Nanda: Would you be able to give an idea where this rate would be for the competitive group that you have in the market?

Anton Dibowitz: I don't think we're gonna get into the mechanism of the competitive group and where we feel we are right now.

Okay understood on CBS.

We had been a similar or move.

Raghav Nanda: All right. No problem.

Respect to build up are you seeing any receivables building I mean, she brings as well.

So that.

Operator: The next question is from Sunny Chhabra from Iron Shield Capital. Please go ahead.

So I mean as it would.

I mean, any any other distribution too.

Sunny Chhabra: Hi. Thanks for taking my question. Just a couple of questions on the Seabras subsidiary. You mentioned in the presentation that you've received some spot work for the Sapura Diamante until June 2020. Are you able to share any color on the rate you're getting? And is it with Petrobras?

He will then because when I when I look at the demos.

The internet that I mean, it seems to be smaller than it would have been indicated by.

Hey by by the EBITDA. So has there been any other I know working capital build up on the other cash unusable.

No.

From zebras.

Anton Dibowitz: It's not with Petrobras, it's at a decent rate, better than where the day rates were a year ago. Well, an absence of opportunities a year ago, but we're not gonna get into the details of where the rates are. It is EBITDA positive, though. We see the rates continuing to improve and the market tightening there as we go forward. You know, I think that 2019 was a low point for that market. When we can see the developments and the need for those type of assets as Brazil ramps up its activity, much like the rest of the market, and especially in Brazil, we see the opportunities growing in that market going forward.

Well, we and Super oversee the loan payments are referred to as part of the key focus.

Okay all right. Thank you.

The next question comes from slurry instruments from Citi. Please go ahead.

Hey, Thank you all my questions have been onto already thank you.

Right.

The next question is from Michael Alsford from Citi. Please go ahead.

Sunny Chhabra: Actually, just the follow-up was actually extended on the same question, and you answered it partly. If you can just expand on it, because you received the extension on Topazio as well, and now you've received a contract on Diamante with some other contractor. If you could just share a little bit more color on the opportunity you see there. You have Onyx coming off as well later this year. If you could just share some color on how do you see that market developing and which other players you could, you know, lease these ships to.

Are there good afternoon I just real quick question I'm, just wondering whether you can triangulate between your view on the Mark outlook for rights and the the recovery to wouldn't you might expect yourselves to be cash neutral within the business or the grid level. Thank you.

Well I don't think I am generally not in the in the business of making predictions in anybody who is generally turns made to be a liar what like what I can say is the market has improved significantly year over year from last year.

Anton Dibowitz: Well, look, you know, I think we're not gonna get too much into the details of the opportunities we're looking at. I'll, you know, I'll point to my last comment about an improving market, an increasing need for those type of assets with a long operating track record through the JV in Brazil. The vessels there have received awards for being the best performer in the Petrobras fleet by their metrics. Operational track record is a really important indicator and gives you a great competitive position for future work, both with Petrobras and with the IOCs that are gonna be coming down there.

There are lot of external factors that we have to look at ill mention covert 19, and at what that impacts going to be on GDP and and demand and supply.

On both sides, but what we do know is is that the fundamentals are solid and we see it improving so I think it's it's difficult and.

Quite frankly.

I, maybe wrong to save probably can pega date.

Leave it at that but it is okay.

Thank you. Thank you I understand and then just what when it comes the tendering what are the kind of the key focus points from up from a customer's perspective is it simply Oakley safety is very important really but I'm just thinking is it sort of next it's really about rates or is it about capability can you maybe talk a little bit about how that tendering process is going in.

Anton Dibowitz: you know, we're very optimistic that as the market continues to strengthen and improve in Brazil, that we will get at least or more than our fair share of opportunities down there.

Sunny Chhabra: Got it. Just one more regarding Seabras, and that's with respect to the capital structure. There was around $14 million of payments made on the loan that was due to NSNCo. Was that related to the Sapura Topazio and Sapura Diamante loan, and has that been exhausted now?

And whether the the needs of customers that are changing as a market does start to recover somewhat.

Ill, let Matt Chief Commercial officer started maybe I'll come back after that so so I think in the market today. The customers. Obviously, you have very demands depending on the technical specification of the either the exploration and development program and looking for.

Anton Dibowitz: I don't have the detail on that, so I'd have to get back to you on it, Sunny.

Sunny Chhabra: Okay, thank you.

Seadrill without being too general Seadrill, where we benefit from of extremely modern and diverse fleet that sits in the high specification ranking against our competitors. So the technical side, we meet all the requirements and most international tenders globally.

Operator: This concludes our answer, our question and answer session. I would like to turn the conference back over to Anton Dibowitz for any closing remarks.

Anton Dibowitz: Just say thank you very much for your interest and participation in the call, and we look forward to talking to you next quarter.

Their main factors of course as you pointed out safety is absolute Paramount to anything we do in anything any doing and that's why we've built long established relationships with major customers around the world.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Timing is extremely important.

So where you see that supply has increased at the end of Twentytwenty with rigs rolling off it's still crucial given how tight that operator, who are running their budget that they have the rig when they wanted.

For either exploration or development to meet their targets. So I think timing is probably one of the more important elements associated with it. So if you've already completed upgrades. If you have NPD certain specifications. You moved ahead of the line because you have an opportunity to start when did you do start.

Yes, Thank you color Matt.

That's great. Thanks, so much.

The next question is from Greg have non to from HSBC. Please go ahead.

Hi, Thanks for the presentation I have a few questions first on the semi subs you've mentioned harsh environment market remains strong.

Do you see any activations for behind moment assets Im talking about west eminence on possibly based Ranger and similarly on the benign environment side, you have save on Louisiana, which operating at the moment, how do you see opportunities for this rate going forward.

Let me.

On the harsh environment side, where we have been.

Quite public that we're going to be extremely disciplined we've been disciplined on the capital expenditure side as we have been on the contracting side.

The harsh environment market, especially Norway is is the one that has strengthened the most.

There are opportunities, but for us. It's it's an evaluation of the cost of reactivation and considering adding supply back into that market versus where the day rates also we'll we'll we'll take that on our case by case basis.

In the in the but nine flow to market.

Today, given where the supply demand balances.

Drillships still our favorite over older Semisubmersibles, but we have the Louisiana as well as a managed Greg semi in Gulf of Mexico, It's more of a support market spot market market right now.

We continue to add programs to two to both those rigs as we go forward, but today I was not see us reactivating additional.

The non environment Semisubmersibles tech back into the market and I don't think the market's going to be there.

For a little while at least.

And I think Thats I think we're on a strong Louisiana specifically we've.

Technical organization operations group have done a fantastic job I think we mentioned this a few quarters ago about creating creating a more flexible.

Rig by being able to work in shallower water depth than your traditional dynamically positioned unit, but without the assistance of moring. So thats broadened its its ability to work in some of the mid water opportunities in the Gulf of Mexico.

Although the rates haven't materialized as quickly as we'd like keeping that rig active for companies that we cherish relationships with like water oil and gas is really important for us. So so they've got a strong backlog of opportunity and we continue to talk to other other customers. So.

Right. Thank and just the last question on harsh environment Jackup rates I see there a couple of rigs.

We're working on a market index rate. So would you be able to give some idea of what sort of dated would that be the person context.

Well I'm not able to to disclose any rate any rate.

Elements associated with the market index rate, but as you would expect it tracks the market specific to its competitive group.

And cycles on a on a periodic basis.

But thats about all I can tell you.

So would you be able to give idea will lead this rate would be for the competitive a group that you have in the market.

I don't think where were going to get into the mechanism of the competitive group and where we feel we all right now all right.

No.

The next question is from Sunny Charburger, some iron Shield capital. Please go ahead.

Hi, Thanks for taking my question just a couple of questions on the C Bras subsidiary.

You mentioned in the presentation that you received some Sportsbook, Florida.

On Monday.

At June 20 are able to shed any color on the radio getting and is it with Petrobras.

It's not with Petrobras and and it's not a decent breaks better when better than where the where rates were a year ago, well an absence of opportunities a year ago, but we're not going to get into the details of where the rates are it is it is EBITDA positive though.

And we see the rates continuing for an early when the market tightening there as well as we go forward I don't think that 19 was was a low point for that market, but when we can see the development and the need for those type of assets as as Brazil ramps up its activity much like the rest of the marketing, especially in Brazil, we see.

The opportunities growing in that market going forward.

Maybe just to follow back to be extended on the same question on new on sort of partly if you can just expand on it because you received the extension on deposits as well and I'll be received the contract on DM on day with some other.

In fact, if you could you shed a little bit more color on the opportunity you see that you have onyx coming off as about.

Later this year, if you could just shed some color on how do you see that market developing in which other players you could.

These these ships do.

Got it you know I think.

We're not going to get too much into the details of the opportunities we're looking to add up.

Our points of my my last comment about an improving marketing increasing need for those type of assets with a long operating track record through the JV in Brazil.

The vessels there have received awards for being the best performer in the Petrobras fleet by by their metrics and operational track record is a really important indicator and gives you a great competitive position for for future work, both with Petrobras and with the and with the Io see that are going.

To be coming down there so.

Where we're very optimistic that as the market continues to strengthen improve in Brazil that we will get at least for more than our fair share of opportunities down there.

Got it and just one more regarding cebra.

Just back to the capital structure.

It was around.

40 million of payments made on the loan that was due.

Duenas and go.

It was that related to the to pause you nvme onto alone and has that been exhausted now.

Our other enough a detail on that so I'd have to get back to Amazon.

Thank you.

This concludes our answer a question and answer session I would like to turn the conference back over to Anton Dibowitz for any closing remarks.

I'm just saying thank you very much for your interest and participation in the call and we look forward to talking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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