Q1 2021 Transocean Ltd Earnings Call
Good day and welcome to the Q1 2021 Transocean earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Lex <unk> manager of Investor Relations. Please go ahead.
Thank you Shelby.
Good morning, and welcome to the Transocean first quarter 2021 earnings conference call.
A copy of our press release, covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on our website at deepwater dot com.
Joining me on this morning's call are Jeremy Thigpen, President and Chief Executive Officer.
Mark Mey Executive Vice President and Chief Financial Officer.
Roddie Mackenzie senior Vice President of marketing innovation and industry relations.
During the course of this call Transocean management may make certain forward looking statements regarding various matters related to our business and 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 SEC filings for our forward looking statements.
For more information regarding certain 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.
Following Jeremy and Mark's prepared comments, we will conduct a question and answer session.
During this time to give more participants an opportunity to speak on this call. Please limit yourself to one initial question and one follow up.
Thank you very much I'll now turn the call over to Jeremy.
Thank you, Mike and welcome to our employees customers investors and analysts participating on today's call.
As reported in yesterday's earnings release for the first quarter Transocean delivered adjusted EBITDA of $245 million on $709 million on adjusted revenue.
Resulting in an adjusted EBITDA margin of over 35 per cent.
Despite the many challenges over the past year, we have continued to deliver best in class operations for our customers picking up in 2021, essentially where we left off in 2020.
As you May remember from our last call we delivered the best overall annual operational performance and Transocean history. This.
This performance continued into the first quarter of 2021, as we delivered over 97% uptime across our global fleet, achieving one of the strongest operational quarters in company history, and both uptime and safety performance.
I cannot stress enough how proud I am of the dedication exhibited by our employees to deliver these amazing results for that I'd say, thank you to our entire team at Transocean for their devotion each and every day to deliver best in class service to our customers.
Turning now to the fleet starting on the Gulf of Mexico, I am pleased to announce the deepwater Asgard was awarded eight re will fixture with Beacon offshore energy following a successful 2020 campaign.
And as compelling evidence of improving market conditions. This most recent fixture includes two wells price of $240000 a day with a third well, which requires managed pressure drilling price to $280000 a day.
This award adds over $30 million on backlog and provides us with the opportunity to reactivate a warm stacked asset on the Gulf of Mexico.
The campaign is expected to commence in June and should continue through October and includes a one well option.
While we are still not earning the day rates, we want or need to provide the appropriate returns to our shareholders. This fixture clearly demonstrates both the tightening market in the Gulf of Mexico, and Transocean the ability to command premium rate based upon our industry, leading assets and services.
As you May know the Asgard is one of the most technically advanced and well respected assets in the U S. Gulf of Mexico as such we're excited to get her back on contract at what is currently a market leading day rate.
And we're actively bidding the asgard into multiple follow on opportunities on the Gulf of Mexico, reinforcing our belief that the offshore recovery is starting to take shape.
Moving down to Trinidad the DD three continues to demonstrate operational excellence with shell and is set to start from next fixture with BHP directly directly after completing her current contract in June.
Including option the DB three could remain on contract with BHP in Trinidad through September and because of our stellar reputation and versatility, we are bidding her into multiple opportunities around the world.
Continue on a journey further south to Brazil. The Petrobras 10000 is scheduled to conclude or contract.
With Petrobras on September.
As such we're in the middle of discussions with Petrobras about a possible long term extension.
Jumping over to Norway. The Transocean Norge was just awarded another one well extension by Ecuador at $297000 per day plus bonus.
The rig is now expected to remain on contract through June and is actively being bid on multiple opportunities in the robust Norwegian market.
This state of the art rig has developed a strong operational reputation and continues to draw customer interest from both <unk> and independents.
Also in Norway. The Transocean Barents is scheduled to commence her campaign with M. O L. Northern next week, which is expected to run through the fourth quarter and possibly beyond.
Again, we remain encouraged by the Norwegian markets resilience and future outlook.
Turning now to West Africa, as we noted on last quarter's call. The deepwater Skyros was awarded two hotels rig of the year. Thanks to its superior operational performance.
As additional confirmation that our performance is a key differentiator we are in the middle of discussions with our customer about a possible six well option expected to last for more than a year from the rig.
And finally looking at the Asia Pacific Region, just last week, the deepwater Nautilus began her 90 day campaign with Posco.
This contract will keep the rig active through July.
We are actively bidding the novelis into multiple follow on opportunities in the Asia Pacific region.
Looking forward, we are encouraged by the relative stability in oil prices as they've remained persistently above $60 per barrel since early February.
As the COVID-19 vaccines are distributed around the world, we expect that global demand for hydrocarbons will continue to recover and as global oil inventories decline prices are likely to push even higher.
Most importantly, we believe our customers also subscribe to this view there.
Their confidence in improving oil market fundamentals has resulted in accelerated planning for new or previously delayed projects many of which are expected to commence later this year.
Taking a closer look around the global market environment, starting in the U S. Gulf of Mexico activity is expected to increase with several projects starting late this year and in early 2022 with awards expected in the next several months.
Accordingly, if all of these projects move forward as expected, we believe that the entire Gulf of Mexico fleet of active rigs will be sold out later this year.
This is something that the industry hasn't even contemplated since 2014, and clearly support a meaningful inflection in day rates from current levels.
It is important to note that we're not only responding to more tenders. We are also engaging in far more direct negotiations, particularly with customers operating the Gulf of Mexico.
In fact, one IOC has recently submitted a request for a proposal for multiyear contracts for two of our highest spec rigs.
And there are other indications that there will be more projects moving forward.
Independent and Io CS are both requesting information on available assets in this region with an urgency not seen in quite some time in fact operators are increasingly entertaining paid mobilizations and reimbursement of project specific rig upgrades. Another important data point that includes that indicate an improving market conditions.
The increased level of activity, we're seeing in the U S. Gulf of Mexico corresponds to the belief that many of our customers are redirecting their focus to offshore projects from onshore shale opportunities.
This is the result of pressure on customers are facing to generate cash flow and acceptable economic returns, while maintaining spending discipline something that shell has not been able to deliver.
We also believe the focus on carbon emissions are playing into investment decisions for our customers.
We believe that the shift from shale and oil sands to offshore could also be influenced by the fact that according to NOAA one barrel of oil from the deepwater Gulf of Mexico has the lowest carbon intensity of any other oil in the United States.
Remaining in the U S Gulf of Mexico, we remain optimistic about our Newbuild drillships the deepwater Atlas in the deepwater Titan on order from simple Marines drawn shipyard, which are expected to commit their maiden projects with beacon offshore energy and Chevron respectively.
That said global supply chain disruptions related to the pandemic are expected to result in delays in deliveries from the shipyard for both rigs thus affecting the timing of our Capex spend which mark will Mark will provide additional details on as.
As well as a delay on the commitment of each rig maintenance drilling campaign.
As you might expect the delay is a fairly broad impact and we are in ongoing discussions with simple with a range of potential outcomes.
Since we are actively engaged in discussions with all parties. We are unable to provide any additional detail at this time. However, I can tell you that the conversations with Chevron Beacon and simple remain constructive.
In Brazil, Petrobras continues to award contracts, adding long term fixtures for several projects.
They also recently launched several additional multiyear tenders for the Campos and Santos basin that should absorbed many if not all of the available rigs in Brazil.
Based on Petrobras tendering activity and the incremental demand forecasted from the IFC, we expect the rig count Brazil to rise steadily over the next couple of years. We are also optimistic that a handful of successful exploration wells in the pre salt fields by the IOC will signal a welcome return of activity in Brazil to levels not seen in several years.
In Norway, we are excited about the opportunities unfolding as a result of the government's enactment of favorable tax incentives for oil and gas project sanction during the next two years.
We anticipate this market will continue to remain in balance as more projects are brought forward to capitalize on the favorable investment incentives.
With much of the Norwegian fleet already contracted opportunities for 2022 and beyond are now beginning to appear on our radar boding well for the continued high utilization and strong day rates for our assets.
Looking now at the U K, we are witnessing a surge in market opportunities and are actively responding to a number of new tenders that emerged over the past couple of months.
Current opportunities could add over five rig years of work that would start within the next 12 months.
And due to the lack of warm assets in this market available assets could command increasingly stronger day rates.
If this happens given the prohibitive cost of reactivating, a cold stacked rig we could find ourselves in an environment in which hot rig from Norway are being attracted to this market to perform some of the work anticipated over the next year.
Turning to West Africa, our customers are becoming more willing to consider programs in this region.
In fact, we're seeing multiple opportunities emerge for both short and long term work.
Additionally, we are eagerly awaiting boats hotel and Exxon's awards for multi year programs in Angola that would add a minimum of three and a half rig years of work beginning in 2022.
We believe we are well placed to capitalize on one or more of these opportunities.
In the Asia Pacific Region, which includes Australia, we see several short and medium term opportunities starting in the second half of this year and carrying over into next.
We are encouraged by the continued volume of opportunities. This region has generated in fact this morning. We also secured additional work for the deepwater Nautilus in southeast Asia that is in direct continuation of its current contract and will keep the rig busy into 2022.
In summary, we believe we are in the early stages of a sustained recovery for offshore drilling were very encouraged by the improving macro environment and the ongoing conversations with our customers for opportunities emerging in the second half of 2021 and into 2022.
On last quarter's call. We noted that the volume of opportunities was now back to pre pandemic levels. This trend has not only continued but further strengthened in certain parts of the world.
I'd now like to take a moment to discuss the recent industry consolidation.
As you May know many of our peers have recently emerged from restructuring and as expected. We're now starting to see much needed consolidation with the first major transaction recently announced between noble and Pacific drilling.
We welcome these actions as it improve the industry structure, and we expect it to drive more disciplined behavior, including but certainly not limited to contracting practices and accelerating the retirement of more floating assets.
We believe we will continue to see further consolidation, which in turn could lead to more rig retirements and a more balanced market.
The stage is being set for a strong recovery in offshore drilling with demand for rigs, increasing and the marketable supply of rigs that simultaneously decreasing.
If the market plays out the way. We currently think it will day rate could and per Transocean should significantly increase as we move into 2022 and beyond.
Our fleet of high specific specification floaters is exceptionally well positioned to capitalize on the recovery.
Ultimately, providing us with the opportunities to generate sufficient cash flow to meaningfully delever the balance sheet when opportunities arise.
While we are increasingly encouraged by the market dynamics and take comfort in our approximately $7.4 billion backlog, we will remain pragmatic and prudent in our operational and financial planning recognizing that there are always going to be unforeseen challenges.
In conclusion, Transocean has strategically assembled D high specification floating fleet in the industry with the industry's most experienced crews and shore based support team we.
We maintain the largest contracted floating fleet with the largest and certainly highest quality backlog, providing us with visibility to future cash flows that we need to continue to invest in the training of our valued employees and the maintenance of our assets.
As such we are best positioned to overcome challenges and benefit from the oncoming market recovery.
We're seeing data points now that confirm our belief a full scale recovery in the deepwater market is beginning to emerge later this year indeed as oil inventories continue to deplete our customers need to replenish the reserves through high quality cash flow generating projects seen offshore.
We are proud to have positioned ourselves as the industry leader in harsh environment and ultra deepwater drilling and will continue to deliver best in class operating performance, while strategically continuing to refine our fleet to further enhance our position.
And as always we remain committed to creating value for our shareholders.
Needless to say, we are encouraged by various market data point, and we'll continue to execute our strategic priorities to further enhance our position as the industry leader.
Mark.
Thank you Jeremy and good day to all.
During today's call I will briefly recap on first quarter results.
The second quarter.
And then update you on on recruiting brokers through 2022.
As disclosed in our press release, which includes additional details of the first quarter 2021, we reported a net loss attributable to controlling interest of $99 million was 16 cents per diluted share.
After adjustments associated with the retirement of debt.
Disposal assets.
Greek tax items, we reported an adjusted net.
Loss on $117 million on.
<unk> 19 cents per diluted share.
Oh, that's for the first quoting through.
EBITDA of $245 million, reflecting robust revenue generation from excellent cost control.
We provide revenue efficiency of 97, 4%.
So casing on operational excellence.
Another quarter of excellent backlog conversion.
And $96 million of positive textbook marketing activities.
Looking closer at our results through the first quarter, we delivered adjusted contract drilling revenues book.
$109 million.
This was above our guidance primarily due to some of the book that's a good efficiency as well as high as than anticipated Reimbursable expenses.
Operating and maintenance expense for the first quarter was $135 million.
<unk> is slightly below on items, primarily due to timing certain shipyard projects.
Turning to cash flow on balance sheet.
We ended the quarter with total liquidity of approximately $2 $7 billion.
Unrestricted cash and cash.
Cash equivalents of approximately $1 1 billion.
Approximately $300 million of restricted cash for debt service and.
And $1.3 billion from ongoing.
Revolving credit facility.
Let me now provide an update on our financial expectations from second quarter.
We expect adjusted contract drilling revenue of approximately 675 million Ltd.
Based upon average fleet wide revenue efficiency of Watson.
And lower Reimbursable revenues.
We expect second quarter O&M expense to be approximately $445 million.
$10 million quarter over quarter increase.
Is primarily attributable to the Transocean Barents and deepwater as broad recognition as.
As well as hiring service maintenance expenses across the country.
From an activity standpoint, the deepwater Nautilus remains to campaign plus growth.
In April the Transocean Barents typical per campaign next week with Emma will noga.
On a deepwater Asgard, we'll look to commence who campaign with beacon at the end of June.
This decrease in activity will be largely offset by the K G III.
The contract with boots on in April and is temporarily warm stacked in Asia as we book into multiple opportunities.
We expect G&A expense in the second quarter to be approximately $40 million in.
In line with the first quarter.
Net interest expense from second quarter's book here, so it'll be a flexible 110 million loans.
This includes capitalized interest of approximately $12 million.
Capital expenditures, including capitalized interest from second quarter book.
It will be approximately $60 million.
Include approximately would be moving on this book.
Newbuild drillships under construction and $20 million of maintenance Patrick.
Cash taxes are expected to be approximately $15 million.
For the quarter.
On liquidity at December 31, 2022, some estimates to be between one two and one $4 billion.
This estimate includes the potential securitization on the deepwater Titan.
This liquidity forecast includes an estimated three 'twenty one capex.
$725 million.
2022, Catholics expectation of $835 million.
Between 'twenty, one capex includes $670 million related to an E book and $55 million from maintenance Capex.
As Jeremy mentioned was updated Capex policy mix items patients, who take the liberty at the end.
Does this year.
Liberty with tightened between 22.
And to reiterate Jeremy's comments, we will not provide include information regarding the new book is worth.
Discussions with the shipyard and others.
As always on got it excludes speakers that rig recommendations for upgrades.
In addition to the safe and efficient operation from a rig we will continue to focus on optimizing cash flow generation revenue enhancement and cost control initiatives.
The market improves.
We are mindful of greater based on expenses associated with us net.
Assets include more who have maintained discipline that will not reactivated postbank asset with not a contract book contract.
Just the part associated expense.
In conclusion, we will continue think stents and opportunistically move our balance sheet and liquidity.
As evidenced by our history you can expect we will continue to amongst a couple of markets.
And when appropriate.
Timely and strategic transactions.
This concludes my prepared comments.
I'll turn it back to net.
Thanks, Mark Shelby.
We're now ready to take questions and as a reminder to the participants please limit yourself to one initial question and one follow up question.
Thank you Andy we'd like to ask a question. Please signal by pressing star one on your telephone keypad.
If youre using a speaker phone. Please make sure your mute function is turned off to allow your.
Your signal to reach our equipment again, please press star one to ask a question, we'll pause for just a few moments to allow everyone an opportunity to signal for questions.
We'll take our first question from Taylor Zurcher with Tudor Pickering Holt.
Hey, good morning, and thanks for taking my question My first one Jeremy you painted a.
A pretty optimistic or I should say encouraging picture for a continued recovery.
Across it sounds like almost all markets on on the deepwater side over the next call. It 12 to 24 months and if I look at your fleet today I mean, you do have some some near term contract rollovers, but if I look at what's warm stacked today, it's really just the Orion and an inspiration.
So I wonder when you talk about a pretty robust or at least healthy recovery off the bottom over the next 12 months in a number of different markets.
If you could help us parse through what what might be truly incremental to your rig fleet today, and and what might be kind of renewals or new contracts signed for near term rollovers for rigs that are currently contracted within your fleet over the next 12 months.
Hey, good morning, Thank you for the question.
We are very encouraged with what we're seeing in the marketplace. If you go back to the fourth quarter of 2019 before the pandemic, we had a similar tone and as you remember at the end of the fourth quarter and beginning of 2020.
We signed five ultra deepwater fixtures.
At day rate that we're kind of $250000 a day, which was significantly above where we were at the beginning of 2019 were pictures were being funded 130 $540000. A day. So we have a similar deal about the market as we did then.
And now we've had a couple of head fakes over the last six seven years with some some macro issues that were beyond our control that that are kind of oil price is down and certain demand from our customers down. So we are.
We are mindful that something like that could occur again, we are hopeful that it doesn't and that have exited the market improves as vaccines are distributed around the world and global economies pick up again demand for oil picks up.
And as you know theres been very little investment in.
And replenishing reserves over the course of the last seven years. So all of that bodes well. The fact that our competitors are consolidating and retiring assets a more rapid pace also helps the views, though so everything seems to be lining up.
And we're seeing it in our customer conversations and the opportunities that are presenting themselves for later this year and next with regard to our fleet, specifically I will I'll hand, it over to Roddie to get some of his thoughts regarding what he's seeing and hearing from our customers around a specific regions and specific rigs ready, yes, sure Ed silhouette deal or just the.
To that you mentioned, we are Oh on advance discussions.
On those we do expect that to something positive is going to come pretty soon I, obviously can't get into the details of that.
Currently in negotiations.
To reiterate that Jeremy's comments.
And also you noted that are all sectors on up and that's actually what all of our chart show that.
All sectors on up on projected to continue to go up in terms of demand. So I mean, we'll get into some more.
Specifics as we go through the call but.
You know with the Brent and 69, and many pundits predicting an oil super cycle.
The GAAP dwindling.
Reserve and dropping production rates from existing assets in certainly a lot more drilling has to be weighted just to keep pace with the current demand and the macro itself.
He is a Jeremy said you know we've had a few head fakes along the way, but this one Luke salads for real so we're excited about it.
Alright, good to hear and my follow up's on on the tightened and I won't ask on specific as it relates to the delivery timeline and stuff going on with the wrong, but just mechanically and your liquidity forecast for year end 2022, you do include the.
Expected secured.
Secured proceeds from.
The tightened in there and I Wonder if you could remind us how that process works is it the rig goes to work in the back half of 2022 and <unk>.
You could immediately raised at 400 million of expected secured proceeds or is there a bit of a lag there just any color on the mechanics, there would be helpful.
Yeah. So thanks Tyler.
We have options. So if you look at our various debt capacity baskets, we can put peninsula net rig right in the quarter Liberty right. After the Liberty all with to optimize our baskets within 12 months, who rigs starting to work hard on delivery, but actually operating.
So if you consider the fact that you're going to be operating the rig somewhere three to six months after Lehman the yard we have debt last 12 months.
We raised the financing so we put it into 'twenty 'twenty, two but quite realistically you could see it in 'twenty three.
Okay understood thanks for that.
Thanks, Kevin.
And we'll take our next question from Ian Macpherson with five minutes.
Thanks, Good morning.
Jeremy you did draw I think an apt comparison too.
The temperature of the market to where you were just before COVID-19.
Derail this for a little bit here with regard to.
Oh, just percolating pricing power.
And I think what's what what's quite different now versus then is is where your competitors are where they are with their process right. I mean, so you had a recovery market with the whole competitive landscape in distress and today you have the recovery market with.
The competitive landscape coming out of distressed and that had been in a lot of People's minds.
Paresh angle for Transocean.
From the cleansing of your competitors' balance sheets, but youre, describing a market that still.
Well you didn't say, specifically, but you didn't you didn't point to any disruptive pricing.
<unk> by your competitors. So do you feel as sanguine about competitive price discipline now given the change the landscape as you did 15 or 18 months ago.
Yeah. Thanks Ian.
I do I think I think what we're going to see drastically different behavior from our competitors post restructuring.
They they now have new ownership new governance on their boards.
And you know our strategy has been to maximize cash flow from our drilling contracts I think maybe strategy from some of our competitors was to increase and maximize utilization.
That approach is going to change under under this new leadership I mean, you saw how quickly.
Pacific and noble came together pumps are emerging from restructuring that is that is a clear indication that that new leadership over there wants to do everything they can to maximize cash flow and you do that immediately.
By consolidating businesses to eliminate board costs and executive management team costs. You also do that to expedite the retirement of assets to avoid the stacking costs and future reactivation cost. So so we think there's going to be.
A far more disciplined approach to generating cash flow from from our competitors.
Certainly with the elimination of their debt, we acknowledged that they're not going to have the interest expense that we carry and so fundamentally that they were having a lower cost structure, which they could leverage.
But they also a merchant restriction without a whole lot of cash I mean, I don't know if you. If you look back you know Pacific emerged from restructuring with a 100 million on cash and within four months when they merged with noble it was down to $30 million.
These businesses consume a lot of cash when you have when you have backlog, that's not generating much cash because the day rates are so low they can burn through it quickly and so we think that the focus from our competitors is like us going to be on maximizing cash flow from the drilling contract and so we're hopeful as we start to move through the year that that everyone sees the tightening market.
Especially in the Gulf of Mexico.
And then ex accordingly, with respect to bidding practices.
Yeah, I think I would just add that.
No.
Uh huh.
Destructive bidding practices are just not required because the market there to support something much much better.
And you know.
Everybody is looking at the same data as we are so we.
We think theres going to be a significant shift per share.
Okay. Good. Thanks. Thank you both and then I wanted to ask you Mark you gave you.
You gave some full year guidance parameters last quarter, including.
$2 7 billion for revenues and $1 6 billion for O&M expense for the year are we still good with those any any reason to refine either or both of those at this point on a year.
Alright, no net.
Right now we stand by those numbers there is some upside obviously given the comments from Nordion Jeremy.
Non enough at this stage to adjusted.
Great. Thanks, everyone.
Thanks Ian.
We'll take our next question from Connor Lynagh with Morgan Stanley.
Yes. Thanks, I just wanted to return to the Newbuild just for a minute.
Obviously, it's one of the most topical things.
As we've discussed with investors on your stock right now and I, just wanted to confirm or at least.
See if you could comment on the probability there is obviously some concern that.
Your customers could could change their minds with delays and things like that so just wanted to get a temperature check on how youre thinking about your customers' willingness to move forward.
The probability of.
Worst case scenario, where the customers walk by yourself debated. The shipyard do you think thats a reasonable possibility at all.
So really cant comment on this right now what I will say I'll reiterate ARX <unk> or conversations with with Chevron Beacon and some core are all constructive and and are well along the way.
And I will also reiterate that it is a very positive macro environment right now so if these projects look good to our customers.
Back when oil prices were depressed.
You'd think they look better now I can't speak for our customers at this point in time I can tell you that our conversations with all parties involved are constructive and we hope to have resolution in the in the coming weeks and months and obviously, we will publicly communicate that because this is we know it's forefront on your minds, it's definitely material to the company.
Yeah understood understood.
Sorry go ahead.
Yeah, I was going on.
And not specific to a day.
That question, but if you had to draw a parallel to the macro environment, we've gone through several years here where at Berry.
Very good prospects, who are put on the shelf because operators were being.
Abundantly cautious about moving forward now we're seeing all of those things being dusted off so.
It's really an acceleration of projects that were already chemical on the cusp of being profitable.
But now you are going to be.
Producing tremendous returns so I think that's why you're seeing such a big increase in the number of beds and inquiries.
And what the forward demand looks like for rig.
Since it is who we're talking about the Gulf of Mexico, There I mean, where we're going from.
We had that EBIT intangibles to answer this time last year right now we're sitting on 17.
I mean that.
Tremendous examples of just how quickly things are moving.
I appreciate that maybe sort of pivoting here your prepared remarks were pretty constructive not just on the development drilling prospects, but also the.
General reserve replacement theme and need for exploration activity.
I guess theres certainly been some visible large customers out there that have signaled a willingness or desire even to see their production decline over time, which implies less need for reserve replacement, but maybe they're a bit overrepresented in.
The market's mind I'm just curious if you could.
Give us some context for how you think customers are thinking about that what sort of gives you conviction that there won't just continue to be under investment in the near term here.
Yes, I think one of the primary drivers theaters.
Because of the date of the loan investment on the number of years that not occurred.
On a project sanctioning the project wins from.
Pick a third party.
From 'twenty one to 'twenty two is supposed to double and then double again into 'twenty three.
That is driven primarily because.
<unk> declined a wheel.
Energy transition is very important to us.
And to get to everybody in that transition.
The phrase that black piece for Green.
It has never been truer.
We were basically at the position here that cash flow is our generated from oil and gas production on that.
That's what's required.
Significant investing into renewables.
Even in those projections, we show that the current benign per island gas never actually attracts it's just that the global demand for energy overall.
The net with that.
Green technology.
Obviously in the optimistic case for for renewables and you've taken kind of a base case of actually getting them.
On the oil and gas production.
And specifically the demand will increase over time, despite the transition to renewables.
Again, I think all of those things coming together the year's all delayed investment now come to ahead in them.
Lip Bu other choices.
Perhaps it hadn't gone.
Thanks, very much I'll turn it back.
And again to ask a question. Please press star one.
We will take our next question from Greg Lewis with BT agile.
Thank you and good morning, everybody all day.
Good afternoon.
And I guess from Richard Jeremy or a Rottie I was kind of hoping you could kind of touch a little bit on.
It's something you mentioned around the Gulf of Mexico tightening.
And as we think about that right I mean, there's a lot of debate around what a warm stacked rig is white hot stacked rig is.
Everyone's looking at the same kind of data and we can argue that there's 50 ish type of warm stacked rigs that are classified is there any kind of detail that you look at to kind of say well you know.
Our what we consider actually competitive hot rigs.
This is a little different than that number kind of curious any thoughts around that just as we think about a tightening market how that good luck.
Yes.
Greg Let me take a shot of this incremental volume.
40, a day the consumption as well.
When I look at loose a hot.
We can go to work tomorrow, it doesn't require any capital.
Let me see and it's been working very recently, a warm stacked rig.
To be able to go to work with including days and close to around $5 million at most.
You have to add some junior crew and you can do that like I said within 30 days when you get beyond that then it becomes a real great. Now you mentioned about 40 rigs at all in the warm stack category.
I would direct you to page 10.
Because theres very few regret actually wants that can go to work in 30 days with $5 million on less it's going to take a lot more than that so I think that supports the comments that Jeremy made from us as ready made that's going to require.
A lot more capital to get these rigs working again balance sheets of our screen, which means they rates on mobilizations will both have to go.
Yes, I think I'd add to that just to say look this is why youre seeing the urgency and the very sharp turnaround on tenders beds.
Because the recognition of which rigs are actually ready to go is that there's just not that many.
And we're rapidly approaching a sold out status so that are active rigs.
On the.
The next kind of paradigm is that as Mark said you know a lot of these rigs are not ready to go with those they're going to require tens of million.
$1 two to get ready on net.
That is really what's pushing the.
The realization from the operators that we have to get their hands on the available hot rig on.
Otherwise the day the day rate required to bring those colder rigs items are.
Angela.
We talked a lot of the day the operators many privately will will admit that they fully expect rates to go beyond communicated a sharp so.
Nobody said that publically, but.
Sadly the status of active rigs.
Driving prices significantly and quickly.
Yeah, Yeah, and whether in academia and we can debate when its there its going to be later this share next year and then just kind of staying on that that theme I guess, what I'm kind of curious about is clearly there's been a pickup in activity.
Is there any way to think about the duration of these to up the type of work we're seen I E.
It seems like it's a lot of short term work, which is which actually good in keeping the market tight or are we starting to kind of hear rumblings about you know what we.
We saw the one in Brazil, but are we starting to hear rumblings about longer term duration work that may be starts to kind of warrant maybe some of that investment or we're still kind of in a.
Short term contract market, which kind of just AIDS in the tightening process.
No. So that's a really interesting point so when certainly for short term work as you said youre retaining optionality for an improving market but.
At this day that when we compare you know that the average duration of beds in Q1 last year.
We are in Q1 this year that essentially doubled so duration is up we've got several out there that are now multi year or multi rigs.
So we're seeing a kind of a phenomenon here, where the operators that are increasingly certain about the programs going forward recognizing that they need multiple assets, but they need them for several years, they're really pushing to get some fixtures.
Because of course is as things rise on the short term market.
Locking in.
Our best assets at low rates as you know as we've said many times before it is not a move so.
We're seeing a lot of increased activity for longer term.
Fixtures.
Primarily operated tying to get head moving.
The market.
Okay Perfect day. Thank you all for the time.
We'll take our next question from Mike Sabella with Bank of America.
Hey, good morning, everyone.
Morning.
I was wondering if you could give us an update I guess on on kind of a cold stacked fleet I know I think in the past you guys talked to this sort of $50 million to $75 million to reactivate those rigs.
Can you just I guess clarify what that means is that capital cost just to get the rig.
Basically at a point, where you can.
We had a minimum start bidding in.
If you were trying to get those rigs to wear.
From a technology standpoint up to where Youre operating fleet is today, how much do you think the capital is for you.
To do that.
So Mike Yes, we've given the estimate of $50 million to $75 million on our fleet I want to differentiate between operating other rigs out there on those numbers on all inclusive so that is getting from being cold stacked reactivated and mobilized to.
The new location.
This would not include something like MPD, because that's a it's a customer specific cash and that would be over and above that.
Same thing is what's going to Brazil, Brazil has certain requirements within the cost share additional $10 million to $20 million that would be in addition to up $50 million to $75 million. So custom.
Customer specific items separate those 50 to 75, we stand behind them.
Yes, just to quantify on that we're not bidding.
Assets into the market.
Yeah, no I understood on that.
And then.
If we could and I apologize.
If we could just touch a little bit on M&A.
Is there anything surprised you on the pace of the consolidation so far as you guys all come out of bankruptcy.
How do you think that looks for the rest of this year.
Change transmissions mind, whether they should participate on that.
Well. So if you look at what's transpired so far this year not long after noble and Pacific emerged from a from from their processes They announced the merger.
So just within the last week or so I guess Valero and diamond have just emerged as well we would not be surprised at all to see more consolidation over the next few months.
I don't know how quickly that will all come together, but but it makes sense. There there is value to having a larger fleet of floating rigs there there's quite an infrastructure that you need to provide the technical support the supply chain the operational support.
For these these assets that are operating income and some pretty challenging environment you have to have that support. So if you can spread that support across more revenue generating assets. It makes you more efficient as an organization and so we wouldn't be surprised at all to see more consolidation take place you can obviously combined management teams and eliminate that expense you can buy board will make that expense.
So we would we would.
We would expect more consolidation as we move through this year.
And with respect to Transocean I think that was the other question.
If there's a company out there where assets have backlog and you can see visibility of future cash flows that would be interesting to us.
But quite frankly, we have enough really high spec floating assets that are currently cold stacked we don't need more.
Understood got it wrong.
We'll take our next question from Fredrik Stene with Clarksons Plateau Securities.
Hey, guys. Thanks for for <unk>.
Taking my question and congratulations on that.
Very solid operating quarter here.
Many of them on my main points have been touched upon but I wanted to.
Dig a bit deeper into the.
Dynamics that you are currently experiencing with your customers here and obviously, our you're painting a very construction picture for the demand side. So I was wondering around this.
That you mentioned.
Is there way to quantify.
Defy that and I guess my main point here is that.
Have you.
Have you seen any.
On the type of behavior from those customers that they are trying to kind of accelerate.
Programs further to to put rigs to work faster because they're seeing a wave maybe next year on the left you mentioned a few opportunities coming this year.
Already or are you seeing that they are trying to contract rigs.
Our rates it would start up quite.
Yes.
So some time out just to make sure that they have the capacity when they need it but kind of any color you can give around those dynamics and how that currently compares to FERC example, a year ago that would be that would be great. Thanks.
Yes, so there's a couple of examples where.
Constructive tax incentives from certain governments are encouraging operators to act sooner rather than later, which is always helpful and we welcome that.
But.
I'm sure our competitors do the same thing, but we frequently discuss supply and demand dynamics with our customers on.
As we've gone through that more and more recently.
We've had several instances where we go through kind of extensive review with a customer whose is concern.
Considering our.
Jack do you think they're going to get to move forward and then after we go through that review practically instantly we get a bid on a tender.
On that better tender has.
On an island of a week or two weeks or something like that so.
Youre seeing there that I think.
For many of the operators simply need.
The external confirmation that the.
But the squeezes on.
On net or others I think they have predicted that in fact, we felt the one customer recently who had Mickey.
A presentation that we went through with them.
Completely sold out market in 'twenty two.
On the claim that they had made that presentation internally through that executives six months prior to that so I think we really do have the finger on the pulse of that you're very aware of the situation.
Jeremy and Mark will describe the cash.
Cost to reactivate pull that day.
Substantial on the.
The number of.
Truly active rigs available is really sharp so.
Those that want to get on with their drilling programs in net.
Near term timeframe, the really are getting on that in terms of economy commitments.
Okay Alright. Thanks on just a quick follow up on that with what you said about the cold stacked.
Assets, you said that you're not building any coltec asset at this point price just to confirm that.
That's correct.
Yes.
Who's going to pay for it either too through the capital injection at the beginning and mobilization costs or or through higher day rates on longer term that justifies. The reactivation, we will not from a marketing called back asset.
Yeah.
And on that is there.
If there.
I know that a few tenders on maybe most on the Jackup side, so far has.
Putting COVID-19 age limit our stacking limits on whenever they are tendering for it is there do you think that they're currently kind of putting.
<unk>.
Day rates and or reactivation costs. The fight is there a reluctance with operators to potentially use cold stacked assets on the line because maybe they are perceived as more risky or do you think that at some point they would be forced into doing that.
Anyway.
Yeah, I think it's the latter I think Kevin.
When there was a significant abundance of available rigs.
We observed a lot of them.
The operators.
Putting stipulations and he went actually up the rigs have been stacked more than a certain period of time, but.
But they also put in stipulations about really wanting to get the very highest specification rigs.
Because the wet available so that gives them a lot of flexibility as they move forward, but now that things tighten up.
Certainly.
As we think the active supply of hot rigs is going to be sold out in 'twenty two.
It just begs the question so what's next.
On the is the increased demand continues as all of the projections show then there's there's going to be.
A big ask on the potential to reactivate called asset and as Jeremy pointed out.
The free cash sitting on balance sheet.
Not that abundant anymore. So the idea about picking up by $75 million on more.
On proactively.
On to reactivate an asset it's just not going to happen, it's certainly not going to compromise.
<unk> had almost everybody else in the industry day that they're not going to do that either so.
You're going to see that.
When it comes to that stage the mobilization fees is going to be substantial.
There's not going to be much of a willingness to.
Spend a lot of money on short term prospects. So I think you'll begin to see longer and longer commitments with more cash upfront.
But definitely that's our position on private you'd be on.
We intend to lean very disciplined in that regard.
Great. Thanks.
Get back in the queue.
We will take our last question from Karl Blunden with Goldman Sachs.
Hi, good morning, Thanks for the time.
It looks like the market certainly is tightening in several areas I Wonder if you could discuss the potential for some more 20, K tsi work that could be a follow on post Shenandoah and I'm not necessarily looking for specifics, but you discussed the potential liquidity improvement from secured financing on Titan and I'm wondering if.
As you look at your out year liquidity forecast, where the secured financing on the Atlas could be a realistic expectation as well.
Given the potential from follow on work there.
Yeah. So.
I'm not going to comment on the Atlas that tightens, specifically, but.
You are right about follow on work on 28, there's several prospects in the Gulf of Mexico was actually a couple overseas as well.
We do see the these high.
High wellhead pressures that require them to <unk>.
<unk> technology to be able to complete the well so.
Just focusing on the Gulf of Mexico there.
Multiple operators theres actually probably by five or six operators today that have.
Very realistic probability of moving into 'twenty key into next.
Few years so on when.
When you start to think about that and the fact that we are moving from this technology, we're bringing to bear on.
We do expect that we will be able to deliver that soon.
I think.
On a follow on work.
And it will be interesting to see just how big the demand for that when it goes back to the company.
And I think Thats right.
Keeping these assets wouldn't be restricted to 20 K work I mean, these are going to be the best assets in the industry with 3 million pound hook loads, enabling our customers to do some different things with.
With their projects that 10000, PSM mud pumps.
Large deck space for completions, making more efficient to move.
Material and equipment around.
These will be the most sought after rigs in the industry.
Yeah Fair point.
Yes, just maybe a follow up here on liquidity and maybe it's from Mark on the last call you did talk about the potential of openness to equity linked issuance.
Now it does look like things are turning more positive here and you've improved liquidity through.
Some exchanges in the Capex forecast that you have is a little different than what it was prior I Wonder if you could talk about.
You know whether it's.
Still something that.
It's something that you'd look at whether the likelihood or interest in that may have changed and then just a final point on liquidity. It does look like that came down a bit more than we had forecast at least interested in and your view on using a little bit of excess liquidity for further opportunistic debt reduction maybe what you did in the first quarter and then going forward.
Yes, thanks for that.
Look I said in the last call that we will use all the tools on the two books, which includes equity equity linked and maybe a little bit of cash.
We see an opportunity which is are too good to pass up.
That being said, we're not going on we're looking to issue equity when we're trading in the threes. So suffice to say that we would need to have a more robust stock price.
For us the good creative alone.
Could you use season, clearly if we do raise cash through equity.
Much more aggressive in buying back on.
Engineering pool, sorry about that.
So yes, we are certainly focused on this and as the market.
Groups the.
The market has been.
Truck market as opposed to fundamental market, which typically moves ahead with fundamentals we look to take.
Take advantage of that.
I appreciate it thanks.
That concludes today's question and answer session. At this time I will turn the conference back to <unk> for any additional or closing remarks.
Thank you Shelby and thank you everyone for your participation on today's call. If you have further questions. Please feel free to contact me, we look forward to talking with you again, when we report our second quarter 2021 results have a good day.
This concludes today's call. Thank you for your participation you may now disconnect.
[music].
Net.
[music] average.
Moving.
Good day.
[music].
Yes.
Okay.
Got it.
Yes.
[music].