Q2 2021 Transocean Ltd Earnings Call

August 3, 2021

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Good day and welcome to the Q2.2021chance Ocean 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 Madison, Good morning, and welcome to Transocean second 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.

Keelan, Adamson executive Vice President and Chief Operations Officer.

And 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 and 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 with our team.

During this time to give more participants an opportunity to speak on this call. Please limit yourself to 1 initial question and 1 follow up thank.

Thank you very much I'll now turn the call over to Jeremy.

Thank you <unk> and welcome to our employees customers investors and analysts participating in today's call.

As reported in yesterday's earnings release for the second quarter Transocean delivered adjusted EBITDA of $255 million on $713 million on adjusted revenue, resulting in an adjusted EBITDA margin of over 36%.

We continue to operate at a high level during the second quarter as evidenced by our company best revenue efficiency of 98% and.

In fact, even compared to a very strong first quarter, we still reduced our sequential downtime by over 14%.

This reflects the steps we've taken to continuously improve our reliability through our disciplined operational procedures. The extensive collaboration we engage in with our various equipment providers for the maintenance of our assets and the broader use of our proprietary smart equipment analytics system, which enables us to identify anomalies tailor our actions and ultimately improve our reliability.

As such I would like to extend a sincere. Thank you to the entire Transocean team for the motion that you demonstrate each and every day to deliver best in class service to our customers.

You've shown tremendous strength and resilience throughout this pandemic and I would like to acknowledge the personal sacrifices that you continue to make each and every day to keep our rigs operating safely reliably and efficiently to support our customers.

Now taking a look at our fleet.

Starting in the Gulf of Mexico, I'm extremely pleased to announce that the deepwater Conqueror 1 of our most capable rigs was awarded a new contract that will commence in direct continuation of our current campaign.

And as compelling evidence of improving market conditions. This most recent fixture includes 1 well priced at $335000 a day plus 2.1 well options.

This is yet another leading edge fixture in the Gulf of Mexico, and our third fixture above $300000 per day this quarter, which is an important milestone in the offshore recovery and the type of rates that will help us to generate sufficient cash flow to continue delevering the balance sheet.

Continuing with this momentum deepwater Asgard was just awarded a 90 day contract with a major operator in the Gulf of Mexico.

This contract is expected to begin in the first quarter of 2022 and carries a day rate of $255000 per day, plus an additional $40000 per day per NPD, bringing the total day rate to $295000 per day.

These awards on day rates support our view that our customers recognize the value and increasing scarcity of readily available high specification ultra deepwater assets.

Staying on the Gulf. The discoverer inspiration has commenced her reactivation from warm stack status for her 9 well P&A campaign that is set to commence in September.

Moving down to Trinidad the DD 3 finished a very successful campaign for shell, which included banner safety performance with no lost time incidents.

We are confident that she will continue to operate at a high level with BHP on our current assignment which began in June.

And as we look forward, we are encouraged to be bidding her into multiple opportunities around the world. When she becomes available after her work in Trinidad concludes.

Continuing our journey further south to Brazil, I am pleased to report the Petrobras 10000 was awarded a 2 year contract extension by Petrobras in direct continuation of the current contract.

This award adds over $241 million on backlog and both on an average day rate of $330000 per day, excluding royalties.

This contract reinforces our belief that our customers recognize the shortage of readily available high specification not to mentioned well run ultra deepwater assets.

Jumping over to Norway. We recently, we were recently notified by our customer mole Norge that following disappointing results of the reserves found after drilling the first wells on the campaign they will not be continuing their drilling program.

As such in accordance with agreed terms the customer ended the Transocean Barents contract earlier than we anticipated.

While the decision by <unk> was disappointing just prior to the notification we received a new 200 day contract award from shell for work in Norway at a day rate of $302000 per day plus bonus.

The contract is set to commence in February and adds over $60 million on backlog once again, demonstrating the confidence that our customers have in both the Barents and the service that we deliver in this challenging operating environment.

Staying in Norway during the quarter. The Transocean Norge successfully completed her maiden contract with Ecuador, and importantly was awarded a new 4 well contract with Conocophillips.

The contract is expected to start in March of 2022, and add $56 million in backlog with the potential for an additional 5.1 well options.

And wrapping up in Norway. The Transocean Spitsbergen had 2.1 well options exercised by Ecuador at a day rate of $290000 per day and is now expected to remain on contract through September of 2022.

This state of the art rig has developed a strong operational reputation and continues to draw customer interest from both <unk> and independents.

Again, we remain encouraged by the Norwegian market's resilience and the outlook.

The steady flow of projects continues to build as the favorable well economics encourage more investment on the Norwegian continental shelf, which bodes well for our large established and respected fleet of high specification harsh environment assets.

Turning now to West Africa, as we noted on last quarter's call. The deepwater Skyros was awarded <unk> rig of the year. Thanks to its superior operational performance.

As additional confirmation that our performance is a key differentiator total exercised its 1 year option on the rig adding more than $72 million on backlog.

Pat will discuss in a moment activity in this perennially difficult market finally appears to be improving.

And finally looking at the Asia Pacific region, the deepwater Nautilus had a 1 well option exercises by Posco, which will keep the rig active through November <unk>.

Additionally, the Novelis was also awarded a new contract by Mubadala Petroleum that is expected to start in the first quarter of 2022.

Rounding out the new contracts in our fleet. The kg 2 was awarded a 1 well contract in Brunei with shell, which is expected to start in December.

These data points firmly corroborate our belief that we are in the beginning of an up cycle on the offshore drilling industry as.

As the World continues to rebound from the global pandemic the need for hydrocarbons is increasing which in turn dictates the more exploration and production as needed.

Looking forward, we are encouraged by the relative stability in oil prices. They remained well above $60 per barrel since early February and more recently about $70 per barrel.

And as a result of the recent production agreement between OPEC and its allies. We expect this new pricing, Florida to be highly constructive and attractive for future investment from our customers.

As the COVID-19 vaccines are distributed around the world, we expect that global demand for hydrocarbons will continue to recover. However, we are pragmatic the timing of the global recovery may be a bit more fluid given the COVID-19 variance that are circulating.

Yet we've already witnessed as Covid cases diminished economic activity returns and so does the need for hydrocarbons.

Importantly, we believe our customers also share our view.

Their confidence in improving oil market fundamentals has resulted in accelerated planning for new or previously sideline projects. Many of which are expected to commence later this year or early next year.

Taking a closer look around the global market starting in the U S. Gulf of Mexico, We continue to see an extremely tight market with only 1 available assets as we enter 2022 and the very real possibility that this market could be entirely sold out of active and marketable rigs by year end.

Several of our recent fixtures for our seventh Gen assets are now near or above $300000, a day, reflecting the improvement marking the improving market and the obvious scarcity of active high specification assets.

We expect this trend to continue through 2022 with relatively few assets available in the region.

It's worth noting that we are not only responding to more tenders. We are also engaging in far more direct negotiations, particularly with customers operating in the Gulf of Mexico.

In fact, our direct negotiation volume has more than doubled since this time last year and there are other indications that there will be more projects moving forward.

With an urgency not seen in quite some time independents and <unk> are both requesting information on available assets in this region.

As we predicted previously operators are now increasingly entertaining paid mobilizations and reimbursement of project specific rig upgrades.

This is an important signpost that indicates improving market conditions.

And key aspects of an up cycle.

The increased level of activity, we are seeing in the U S. Gulf of Mexico is a direct result of higher and more stable oil prices coupled with the reduction in offshore project costs that have been driven down over the past several years as well as the added pressure that our customers are now facing to generate production with the lowest carbon intensity.

To that 0.1, IOC recently stated their deepwater Gulf of Mexico production had the lowest carbon intensity production amongst the entire global portfolio.

And to grow operate this increasingly pervasive theme a third party recently published an article indicating that a barrel of oil in the U S. Gulf of Mexico offered the lowest carbon intensity behind only Norway and the United Arab Emirates.

We firmly believe lower carbon barrels will drive our customers' future investment decisions and feel validated that our strategy to specialize in the high specification most efficient assets focused primarily in Norway and the United States was and continues to be the most advantageous.

Remaining in the U S Gulf of Mexico, we eagerly await the deliveries of our Newbuild drillships the deepwater Atlas in the deepwater Titan on order from <unk> Marine's, Jerome shipyard, which are expected to commence their maiden projects with beacon offshore energy and Chevron respectively.

During the quarter, we reached an agreement with the shipyard to defer delivery of these assets as well as the associated shipyard payments.

We now expect the Atlas to be delivered in December of this year and the tightened to be delivered in May of next year importantly, as part of the arrangement, we have deferred over $450 million in near term Capex.

While on the topic of Newbuild Beacon has extended the deadline for Shenandoah project to August 17th base.

Based on our almost daily discussions we believe beacon is fully committed to the project and is conducting its final procedures in advance of a day.

However in the unlikely event a decision is made to not pursue the project you should know that we have a very favorable arrangement in place with the shipyard to further delay the associated payments for the Atlas.

Now turning to Brazil, we see over 18 rig years of work to be awarded for drilling starting in 2022 with almost all of those expected awards coming from Petrobras. We believe we are well positioned to capitalize on this incremental work.

We've established a strong relationship with Petrobras as evidenced by our 3 Drillships currently all on long term contracts.

And it should be noted that all 3 of our rigs rank very highly on Petrobras on double this performance rankings for offshore contractors.

Based on Petrobras tendering activity and the incremental demand forecasted from the iOS ease we expect our rig count in Brazil to rise steadily over the next couple of years. We are also optimistic that a handful of successful exploration wells on the pre salt fields by the Ioc's will signal a welcome return of activity in Brazil to levels not seen in several years.

Jumping over to Norway. We are excited about the opportunities unfolding as a result of the government's enactment of favorable tax incentives for oil and gas projects sanctioned by December 2022.

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 white space for 2022 and beyond is now beginning to be filled boding well for continued high utilization and strong day rates.

As you would expect we are engaged in conversations for extending or finding new opportunities for the extremely well respected cat D rigs, which we acquired on the songs on offshore transaction.

Looking now at the U K, we are witnessing an uptick in market opportunities and are actively responding to a number of new tenders that have emerged over the past couple of months.

Current opportunities could add more than 6 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 rigs from Norway, perhaps even the cat DS are being attracted to this market to perform some of the work anticipated over the next year.

Turning now to West Africa, despite the ever present challenges 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 both hotels and Exxon's development awards from multi year programs in Angola, which would add a minimum of 3 and a half rig years of work beginning in 2022.

We believe we are well placed to capitalize on 1 or more of these opportunities either through direct awards or the removal of lower price supply in the region.

In the Asia Pacific Region, which includes Australia, we see several short and medium term opportunities starting in the second half of the year and carrying over into next needless to say we are encouraged by the continued volume of opportunities. This region has generated.

In summary, we are growing increasingly optimistic about the tightening markets, we're seeing it around the world and take comfort in our approximately 7.3 billion backlog.

In fact, we've recently seen floating rig utilization for the Golden triangle exceed the 80% Mark something we haven't seen since 2015. This.

This has historically been a key inflection point from material improvements in day rates and contract term.

Supported by the ongoing conversations with our customers. We believe we are at the beginning of a sustainable recovery for offshore drilling.

Assuming oil prices remain constructed constructive we believe we have witnessed a robust offshore market recovery in 2022 and beyond.

As many of you know due to many factors such as the speculative building or reactivating of assets undisciplined contract bidding not to mention a global pandemic most of our competitors failed and as a result entered into financial restructuring.

Now that most of our competitors have emerged from restructuring we believe that the new owners understand and appreciate the value of disciplined bidding the value of industry consolidation and the value of retiring older and less capable assets.

Before I go on I feel obligated to say that Transocean is 1 of the few international offshore drilling companies that has protected the interest of its equity holders and for that we are very proud.

We continue to lead the industry in sustainable disciplined bidding practices industry consolidation and rig retirements.

This approach has helped us navigate the worst downturn the industry has ever seen and we are relieved and excited about the up cycle.

As we think about the recovery not only with industry consolidation and asset retirements payroll, but rig reactivation will also materially influence the market dynamic.

Based on Transocean fleet of Cold stacked assets, we estimate that the total cash cost of reactivating a cold stacked assets starts at $60 million and could go upwards of $100 million, depending on contract and location specific items.

Transocean maintains that it will not speculate to reactivate a rig and we'll only do so with a contract that generate a suitable return on investment.

This discipline will help us to ensure rig utilization and day rates maintained their upward progression.

Having said that we recognize that undisciplined speculative reactivation by our peers could slow that momentum we are experiencing.

Still while some of our peers have emerged from restructuring with relatively clean balance sheets and a much lower interest burden, we do not believe that they have sufficient liquidity or visibility to future liquidity given their limited backlogs to reactivate more than a couple of assets without more lucrative contracts.

As such we feel confident the transition will soon be rewarded with higher day rates and longer term contracts, which will ultimately enable us to delever and increase value to our shareholders.

In conclusion transition remains uniquely and exceptionally well positioned for the offshore market recovery. We have spent the last several years positioning ourselves as the industry leader by establishing the offshore drilling industry's largest and most profitable backlog, providing us with visibility on future cash flows that enable us to continue to invest in our people and our assets.

We have assembled the industry's largest and most technically capable fleet of floating rigs and are cold stacked assets provide us the capability to capitalize on the offshore market recovery as assets prepare for reactivation.

In fact, using Transocean is proprietary rig ranking database all of our cold stacked ultra deepwater assets are ranked within the top 100 of benign environment floaters positioning us well above our peers and making our available assets. Some of the most sought after rigs in the market.

We are encouraged by both.

Market data points and that we are best positioned to capitalize on the market recovery as we prepare for that recovery, we will continue to execute our strategic priorities to further enhance our position as the industry leader and develop value to our shareholders deliver value to our shareholders. Thank you Mark.

Thank you Jeremy and good day to all.

During today's call I will briefly recap on our second quarter results provide guidance for the third quarter and update you on liquidity forecast through 2022.

And as Jeremy stated, we delivered another very solid quarter due to the high level of performance of the entire Transocean team, particularly our offshore and onshore operations teams.

As disclosed on our press release, we generated adjusted EBITDA of $255 million.

Reflecting robust revenue generation and cost discipline.

Additionally, we further improved our industry, leading EBITDA margin to 36%.

Our strong EBITDA results were partially driven by our fleet wide revenue efficiency of 98% showcasing operational excellence, yet another quarter of excellent backlog conversion.

Furthermore, this enabled us to generate cash flow from operations of approximately $153 million, which is a quarter over quarter improvement of $57 million.

Additionally, we took several steps during the quarter to materially improve our liquidity.

As Jeremy mentioned, we reached an agreement with simple to defer delivery and payment of both on new boats, the deepwater Atlas and deepwater Titan.

As a result on liquidity is bolstered by over $450 million.

We now expect to take delivery of the <unk> in December of this year and the tightened in May of 2022 for additional details. Please refer to our press release on June 7th our accompanying slide deck posted on our website and our SEC filings.

During the quarter, we launched an at the market or ATM equity issuance program that permits us to sell shares opportunistically up to a value of $400 million.

As reflected on our 10-Q share sales under the program has generated approximately $145 million to date further improving our liquidity.

On surgery, both the shipyard agreement and the ATM program, we improved liquidity of almost $600 million during the quarter.

Looking closer on operating results during the second quarter, we delivered adjusted contract drilling revenues of $713 million. This was above our guidance, primarily due to stronger than forecasted revenue efficiency as well as higher than expected activity.

From an early contract product on the deepwater Asgard.

Coupled with the shifting of Mick on the shipyard project from Q2 to Q3.

Associated with this before the rig remain on contract within China second quarter on.

Operating and maintenance experience in the quarter was $434 million.

This is slightly below our guidance, primarily due to the aforementioned mykonos trip growth projects shifting to the third quarter.

Turning to the cash flow and balance sheet. We ended the second quarter with total liquidity of approximately $2.6 billion, including unrestricted cash and cash equivalents of approximately $1 billion approximately $300 million of restricted cash for debt service.

And $1.3 billion from our Undrawn revolving credit facility.

Let me now provide an update on our expectations for our third quarter financial performance for.

For the third quarter 3 on 'twenty, 1 we expect adjusted contract revenue of approximately $670 million.

Based upon on average fleet wide revenue efficiency of 96%.

The quarter over quarter decrease is mostly attributable to the early conclusion of operations on the Transocean Barents.

Transocean enablers special periodic survey.

The Transocean Norge rolling off contract.

And the deepwater Mykonos shipyard, which was deferred from the second quarter.

These negative impacts were partially offset by a full quarter of activity on the Asgard and inspiration.

We expect third quarter O&M expense to be approximately $427 million.

The quarter over quarter decrease is explained by the factors previously mentioned.

We expect G&A experienced growth third quarter to be approximately $40 million.

In line with the second quarter.

Net interest expense from the third quarter is forecasted to be approximately $113 million.

This includes capitalized interest of approximately $13 million.

Capital expenditures, including capitalized interest for the third quarter are forecasted to be approximately $19 million.

This includes approximately $75 million for our Newbuild drillships under construction and $15 million of maintenance Capex.

Cash taxes are expected to be approximately $11 million per the third quarter.

Our liquidity as of December 31, 2022 estimated to be between 1.5 and $1.7 billion.

This estimate includes the recently announced agreement with simple and the potential securitization with the deepwater Titan.

This liquidity forecast includes an estimated remaining 2021 capex of $630 million.

And the 2022 capex expectation of $820 million.

As always our guidance excludes any speculative rig activations or upgrades.

Our focus for the remainder of the year continues to be up on optimizing cash flow generation through revenue enhancement and cost discipline.

As the market continues to improve as evidenced by our most recent fixtures. We're very mindful of the recognition of expenses associated with our warm stacked assets. Furthermore, we will remain disciplined and we will not reactivate a coastal assets without a contract or contracts that justify the associated costs.

In conclusion, we will continue to take steps to improve our balance sheet and enhance our liquidity as we have already demonstrated you can expect that we will continue to monitor the capital markets and when appropriate execute smart timely and strategic transactions.

This concludes my prepared comments I'll now turn the call back over to Alex.

Thanks, Mark Madison, we're now ready to take questions and as a reminder to the participants please limit yourself to 1 initial question and 1 follow up question.

Thank you. Thank you I'd like to ask a question. Please signal by pressing star 1 on your telephone keypad. If you are using a speaker phone. Please me Jeremy function is turned off to allow your signal Covid care equipment again press star 1 to ask a question, we'll pause for just a moment.

And we'll go ahead and take our first question from Connor Lynagh with Morgan Stanley.

Please go ahead.

Yes. Thanks.

You had a couple of comments in your in your prepared remarks about the value of consolidation I'm, just curious how youre thinking about that in light of.

You do have obviously, some some idled assets.

You may need cash to continue to delever the balance sheet. So just curious what your appetite and thinking around that day.

Yes.

Okay.

Thanks for the question you are right and we said for probably the last 6 years or so that consolidation was necessary to get this piece of the industry healthy again.

We've demonstrated that with the acquisitions of <unk> offshore Ocean rig and of course, the investment in the transition Norge.

We think <unk>.

More consolidation needs to take place and will now that some of our competitors have come out of the restructuring process, obviously as transocean as the market leader, we get to look at everything that might be out there.

And of course, we're constantly looking for opportunities that might make sense for us, but as you mentioned.

We have quite a few idle assets ourselves and we can't do anything that will in any way, we can the balance sheet or compromise our liquidity position. So as we look at these we look through through those lenses. So certainly value and consolidation. We are we are.

Actively exploring opportunities, but we have a very narrow focus and so.

I think we've been pretty consistent with that direction over the past several quarters and years.

Thanks, maybe just to follow up there are there are there any specific regions or types of assets out there in the world that you think would be better placed in your hands or.

It sort of opportunity to add to your portfolio.

I think we've been pretty consistent with that as well high specification ultra deepwater and harsh environment assets are really our focus.

If you look at particular regions, obviously, we have pretty good strongholds in Norway and in U S Gulf of Mexico and so.

And I think any asset would be better on our hands.

But I'm biased.

Alright I appreciate it.

Sort of unrelated 1.

Quickly is how are you thinking about the ATM program.

And how you plan to use that this year.

Yes, thanks going on.

As I said in my prepared comments. This is an opportunistic program for US we have no timeline, we're going to monitor the market and as the opportunity presents itself. We'll take advantage of this program as you know as Capex $400 million. So it's not a lot of shares that we have so we're going to be very careful balance of user.

Got it.

Alright, thanks very much.

All right. We'll go ahead and take our next question from Greg Lewis with <unk>.

Please go ahead.

Yes, Thank you and good morning, everybody.

Jeremy you definitely kind of bounced around the various rig markets.

I guess I guess I'd, just like to talk a little bit more about.

Maybe about West Africa.

We saw the extension on that on the Skyros.

It's interesting to me it seems like at this point the Gulf of Mexico is really sold out we're pushing pricing higher it's hard to get a rig into the market.

Could you talk a little bit more about West Africa on what we're seeing on what maybe needs to happen so that.

West Africa has a higher cost base and then Gulf of Mexico, How we could think about the path towards getting the rig at the rig level economics to look a little bit more like the Gulf of Mexico than maybe they do today.

Yes, thanks for the question and I'll defer to Roddie in just a second but I think you heard me in my prepared remark maybe twice a day, it's a very challenging market, but that opportunities are presenting themselves.

Adding to the challenges that historically.

<unk> been in West Africa.

We have access to the Covid vaccines, either and so that makes changing crews and changing personnel on that region extremely difficult and thats going to create some.

On some further challenges and maybe slow the progress that we're seeing right there, but we are seeing some progress on I'll defer to roddie to give a few more specifics on that yes.

Yes.

So exactly to that point the availability of vaccines.

Hampers.

Who we can move people, but also just in general.

Open to new business those regions are but yes, So Africa and Asia kind of like the last ones to see the uptick the good news is that we're seeing that.

Existing assets are getting rolled over there are several interesting tenders out there just no theres going to be quite a few awards in Angola coming up.

We also see that.

Guyana looks good as.

Got it looks good on.

Nigeria is making some legislative changes to make it far easier to invest so all of those things bode well for Africa, but certainly a little bit trickier day snow.

On the the real uptake as you saw it in the Gulf of Mexico, but I think 1 of the themes, we're going to see coming forward.

The Golden Triangle, which includes Brazil uses those ultra deepwater assets and Brazil has really taken off the boomers on in Brazil for sure.

Tenders are up from Petro.

Petrobras on the on the Ioc's, but Petrobras on particular.

Not only renewing contracts and keeping the active rigs working long term, but actually increasing the rig count substantially over the next couple of years. So we're really encouraged about Brazil.

Certainly you've already seen the fixtures that we've made in the Gulf of Mexico, being able to really push rates up.

Just <unk>.

Getting to what's a non.

On his trust for the service, we provide but.

Specifically to West Africa, and things are improving but as you say, it's still at relatively high cost.

Seeing that the boom that we witness in Gulf of Mexico, and Brazil.

Okay, Great and then I guess kind of curious on your thoughts.

Clearly I think people expect.

Floating rig count to move higher over the next 1.2 years.

Big question, that's always out there is what does that order book.

Briggs on their construction or its shipyard still look like.

You guys have with Transocean has there are 2 rigs.

Already there are new builds addressed.

We're already at the conversation started between cold stacked rigs that may be cost $50 million to $60 million competing against new build rigs that are in the shipyards that have never worked on any kind of dynamic around what customers are thinking about that just kind of curious on your views because as we ramp up.

Our rig count it does still seem like there are a couple of handfuls of rigs under construction that prop have never drilled a well that maybe you want to get into this market and start making a little bit of money.

Yes, I think youll see that.

So obviously, there's a run on active rigs but.

In terms of the.

Cold stacked rigs I mean, it's 1 thing for a cold stacked rig to be on.

Already proven and operations prior to being stacked, but bringing 1 out of the shipyard fresh and doing the shakedown stuff introduces perhaps.

A little bit more risk on that side. So I think what we're seeing is.

There is really enough work to go around the only thing that was the case a year ago was certainly it wasn't during COVID-19, but no there really isn't any need to justify a lossmaking reactivation.

If you choose to account for that or how did those numbers. They are real so we really don't see.

A tremendous number of rigs coming out of the yard to do this really think is going to have to be backed by a contract. So I think youll see some reactivation square dayrates are solid they are.

Producing.

Good EBIT numbers.

Then it makes sense to reactivate, but we really think the inflection points not quite there yet we'd have to see sustained numbers above 300, K a day across the board before we would see significant number of rigs coming out of the shipyard so.

You will see 1 or 2 that have good contracts on them, but on the whole we don't expect to see a lot of reactivated rigs in the next year.

Okay, great. Thank you for the time everybody.

Alright, again that is star 1 to ask a question of Keybanc. Your question has been answered you may have.

Now from the queue.

Thank you.

Our next question.

And then from Taylor share with.

Sure.

Hey, good morning, everyone and thanks for taking my question My first 1.

On the 20 <unk> opportunity set it sounds like.

Even though.

Day for Shenandoah continues to drift to the right.

Because it seems to remain pretty committed to proceeding forward with that project.

Project I guess my question is 1 of your competitors this morning announced a multiyear contract for.

2020, <unk> work on the Gulf of Mexico that had that contract.

The line pretty well with that.

The potential follow on opportunity for the Beacon or excuse me for the Atlas after its potential.

Potential program with <unk> in here and so I was just curious if you could give us an update on an incremental 20 <unk> opportunities out there and call. It the 2.

2023, 2024, plus type timeframe.

Thoughts on on longer term work for the Atlas following the potential for program with Beacon.

Yes, sure. So then with Beacon they continue to make really good progress they've had a couple of milestones this week.

We're encouraged by so we can't really talk about the details of that under our agreement with them, but we're very optimistic that moves ahead in the timeframe that we expect.

So that's very positive.

Actual start date for the program is not slipping. So it's just a question of when the pull the trigger on that.

In terms of the the.

The North Platte work that was announced.

So.

That happened.

Some time ago and.

Our availability actually wasn't that good for it we kind of had an overlap there.

Separately.

Would have been interesting to put that work on the back end of it however.

We kind of felt that the rates being discussed at that time, Werent exactly where we would see that in that timeframe. So.

Keeping our powder dry on Optionality whilst.

Having the beacon.

Contract come to fruition, we think is a better strategy to basically drive.

The return for the substantial investment made in the 20 rigs so.

To your question about follow on opportunities that are several actually in some operators have come to us directly and ask if they can.

<unk> time on the rig so.

It's looking pretty good it's just a question of where we would like to be in terms of their earnings on that thing.

Okay. Good to hear thanks, Roddie and my follow up just a higher level 1 on pricing.

You've talked for a couple of quarters now at least on.

The tightening supply demand fundamentals in the deepwater Gulf market.

That's clearly evidenced with some of the day rate you put out there with a 3 handle on them recently and I guess my question is just thinking more broadly whether it's the deepwater golden triangle or west or.

Other deepwater markets around the globe and it doesn't feel like we're seeing the same sort of pricing momentum outside of that as we are seeing inside the gum.

I am just curious if you could help frame for us outside of.

We're just ramping demand.

In the Gulf of Mexico.

What's driving this.

Improvement in pricing that continues to come at a premium versus other markets is it really just demand pull in the Gulf of Mexico or are there. Other factors at play that are helping driving that are helping to drive some of that price momentum. Thank you.

Yes, no I think I would actually argue that it is not limited to the Gulf of Mexico.

Clearly the effects that we had in Brazil is very encouraging.

And also the fixtures getting above 300, and Norway, but and.

In general.

The Gulf of Mexico requires.

Relatively high specification compared to other basins like West Africa. For example, so you haven't really good combination there were.

The work demands the best equipment.

And that economy is in a kind of a recovery mode.

<unk> happens to be amongst the lowest breakeven.

<unk> for the operators. So it really makes a lot of sense that.

When they have a good value proposition there.

Then they go into the market the alert to consume rigs and of course as we consume those higher specification assets.

Obviously, we're paying very close attention to how many assets that are available on that.

<unk>.

Allows us to move rates accordingly.

Elsewhere in the World as I had mentioned earlier Africa, and Asia lagging a little bit really because they are feeling.

The significant effects of COVID-19 lasting a lot longer there than the odd elsewhere, but.

We're super encouraged by Latin America.

Particularly Brazil, showing some some really positive signs and not just showing the sales anymore. As we had indicated in previous quarters, but now actually seen fixtures fixture after fixture coming out of Brazil plus.

<unk> open tenders and.

We expected to book 11 rigs in the second half of the year to add to the 11 rigs the book in the first half of the year. So that's pretty much record contracting for Petrobras. So.

Very pleased to see that.

Great and if I could sneak 1 more in you talked about the $50 million to $60 million I believe if I heard you correct cash cost to reactivate some of your cold stacked rigs potentially getting up to $100 million could you frame for us.

Where does pricing or contract duration need to be to see those reactivation progress forward from at least from.

On a rig standpoint is it.

Ask the question because day rates seem to be pretty healthy right now and we're probably nearing a point, where somebody's reactivation is you've got to make sense, whether for rig or for some of your competitors.

Curious how you think that you guys think about that.

So it kind of on this is Marc I think you have to look at this especially from the perspective that the numbers that Jeremy gave you the $60 million to $100 million that is the all in costs. That's not just maintenance costs on the equipment costs. It includes all overhead. It includes any kind of inventory that's required for that rig.

So it's a fully inclusive number.

As it relates to what day rate works for us it depends on the duration on the contract for a 3 year contract you can clearly lower day rate.

6 months 9 months contract from a difficult degree to redirect debated against that so I think it has to come with some term and as already mentioned, we are seeing term increase but not really at a level where you can.

Good consistently 3 year contracts, but I would say certainly starting with the 3 would be on would be a good price.

Understood. Thanks for all the answers.

Okay. We'll go ahead and take our next question comes from Mike Sabella with Bank of America. Please go ahead.

Hey, good morning, everyone.

I was wondering if you could just kind of follow up on on that last line of questioning and just think of it I guess, if we think of it in terms of in terms of returns instead of day rates.

I think it's a little more helpful.

I know you all said.

Expectation for a suitable return.

Can you just talk about I guess, what that means I mean does that mean.

That youre reimbursed within this first contract or is there some other way we should think about it.

Yes, so Mike clearly it has to pay for the reservation. So we want to get.

The entire knock on wood spending on getting back to work back in the term on the contract and then obviously we also need.

<unk>.

A decent return on that and we haven't described where theres going to be 5% or 25% this needs to be fair and like I said, depending on the term of the contract we would make the necessary adjustments to that but we're not we're not.

Ascribing any kind of fixed return.

No that's perfect.

That you expected to be paid back within the first contract. That's that's helpful.

And then as we think about.

The liability management activities from here you guys have done a pretty good job, we've seen a lot of activity over the past.

I guess 9 months to a year just on this front can you talk to us a little bit about.

Some of the things that could come next day no.

We've got the rest of the ATM program that can be used is there anything else out there that we can we can look to us.

Guideposts that you all are expecting to accomplish this year over the next 12 months.

So last year obviously.

Dislocation in the market has provided us an opportunity to take advantage of sample management.

Exercises.

We look forward now over the next call. It 12 to 18 months, what we do have on our plate is the.

Financing from the Titan once that rig gets delivered and then clearly with the revolver maturing in the middle of 2023, we would look to to addressing that sometime in the first or second half of next year, but that's where we are with a fit from now together with the ATM.

Perfect.

Quick follow on the ATM.

Yes.

Markets continue to accept.

The equity is there any.

Opportunity for you guys to go above and beyond that average not really willing to talk about that at this time.

Clearly we have to go back to our board through further approval on that but we haven't discussed that yet we want to get this done and like I say, we have no timeframe, we could take the rest of this year or maybe 2 years to get to the $400 million, we're going to do it on a disciplined manner at the price we feel the spirit program from <unk>.

The company on for our shareholders.

Okay perfect. Thanks, everyone.

We will go ahead on <unk> take our next question from Ian.

Mcpherson with Piper Sandler. Please go ahead.

Good morning, Thank you.

Jeremy you mentioned that.

The UK market could be at a deficit and you might even.

Positioned to Cat day rig there to fill that and I was just.

I wanted to clarify that given the backlog status on those rigs with Ecuador, Yes, yes.

Question on how that would work whether it would be a sublet or a.

Reassignment to ocwen or how that mindset.

No good question, and probably misstated that a little bit of a misinterpret that a little bit the really.

Therefore on a rig the cat D rigs are on contract with Ecuador, and <unk> happy with those rigs were currently engaged in conversation with Ecuador about the options on those rigs.

In the first.

First assets the first get the asset <unk> I think the first get D is end of 2022.

So it would it would have to be something after that obviously before we would consider a program starting after that before we consider obviously moving moving on asset but but.

Just just making the comment that the UK market is heating up and if it continues to do so that could create opportunities for some of them are weighted assets.

Okay understood. Thanks.

And then just for my follow up I wanted to revisit Congress questioning from the beginning of the call on.

Your role in continued consolidation, which we all know.

Should continue to happen.

I don't think it would be unfair to say that most of the deals that the industry has seen in a long time.

Haven't worked through the objectives that day.

Set out with saga was clearly an exception.

And not that not that other transactions, where you can see it but.

Mainly happened throughout a downturn, that's sort of overwhelm day.

The benefits of <unk>.

Of deal. So do you think that just now that we are at the lip of an upturn that that in itself.

Propels a better case for you to continue to consolidate or does there need to be more attributes of a target better songs alike.

I think it is rare or non existent today in order to really to MTA deal.

Doing more.

Yes, good question and to be clear, we are looking at opportunities just because we think it's incumbent upon us to do that and to see what's out there and available, but we've been very clear its only high specification assets in the harsh environment Ultra deepwater space and we can't do anything to compromise the balance sheet, our liquidity position and so that really narrows the opportunity set.

Not much of anything so we're continuing to look out there and kick tires and be creative to the extent, we can but we're not going to jeopardize the balance sheet, we're not going to compromise future liquidity right. Now that is that is the absolute paramount importance to us.

We would encourage consolidation amongst our peers all consolidation at this point is good consolidation.

Improve industry structure and get some more disciplined behavior out there amongst our competitive peers.

Absolutely. Thanks for all the color today I appreciate it.

Thanks.

And we'll take our next question from Patrick <unk> with Clarksons Plateau Securities. Please go ahead.

Hey, guys so credit care.

Thank you for.

For answering all of the previous questions because I think most of what I Wonder Bob has been touched already but I wanted to see if this operating.

Due to.

Ask you about your cold stacked rigs just directly because I think you said maybe it was last quarter that you were at this point not bidding any cold stack rigs and then we had the largest for example to today coming out with some new contracts on.

On their stack right. So I was wondering if.

Are you actively bidding on any of them at this point have you seen those opportunities that I've talked about in terms of price points return on English or are you still just leaving 1 offshore market at the table.

Yes at this point in time, we haven't seen any opportunities out there that present the day rate in the term that would justify a reactivation of 1 of our assets.

So we're being disciplined on that approach and maybe some of our competitors have a different strategy.

Then we have yes.

I would say that there are a few cases, where we're bidding the rigs, but the economics of those beds.

Cover all of the things that we mentioned PVC like paying for the full reactivation, so which basically means we're not going to win them.

Yes, it's someone else's deciding to.

Justify a loss on that.

Yes.

And just a quick follow up before I jump off here have you.

<unk> gotten any pushback on those bids or are you seeing a broader.

Aversion in the market tour.

Operator.

Being willing to take on assets that Havent worked for some time or have been stacked or coming out of yards I've seen it on a few tenders, maybe particularly out on southeast Asia, but I was wondering if you've.

Being involved in such kind of restrictions and what <unk> been bidding for as well.

I don't see any restrictions and what we've been bidding for but.

In Southeast Asia for example.

So as you asked about that market, specifically, yes, we're not there yet, but as I said before that really got to get through the restrictions currently in place from Covid.

You see that meaningfully change.

In terms of.

On the operators willingness to.

To entertain.

On stacked rigs our reactivation, we see that with a kind of a mixed bag. It all depends on things like rig inspections that they may do.

The general risk tolerance, but.

Yes, I think you will see some assets come back book, we cannot see a wholesale return of all the cold stacked assets.

Anytime soon.

Alright. Thank you so much on and also congrats on the great data points last week, that's all from me.

And we'll take our next question from Karl Blunden with Goldman Sachs. Please go ahead.

Good morning, Thanks for the time.

We've heard about improving day rates on a couple of different regions. So I wonder if you could comment on whether you would expect to see progression towards some longer term contract specifically in Norway.

Yes on the reason I ask is there's some tie in there to liability management options that you have with some of the secured bonds coming due in 2023 for example, any color on that would be helpful.

Yes, I think you.

In Norway, specifically youre going to see.

<unk> seen some long term programs be awarded actually some some of the prominent development yes.

Yes, there are a few of the shorter term things in play at the moment, but.

Sure.

Cautiously optimistic that's migrating upwards in terms of contract duration in fact, we track that closely across all the different markets and in the space of the past kind of 4 or 5 quarters thats essentially doubling in terms of fixed terms.

So, yes expect to see longer awards for sure.

Thank you.

That's probably going to be driven by.

<unk> decisions on budget over the summer but.

Especially with the tax incentives and play Norway is looking pretty strong for additional investment over the next couple of years. So.

Yes, we're positive about that on.

On just remains to be seen how long that goes but.

Elsewhere around the world that's the kind of the big thing that we're seeing now is a lot of things are converting from 1 and 2 wells opportunities previously that are now multiyear stuff.

But all of its multiyear sales.

That's very helpful and I guess, just more specifically on things like the 2020 <unk> century bonds 1.

When you look at those perhaps Mark do you look at those as a use of liquidity or do you see that as something that you could potentially refi if the opportunity provides itself.

Yes.

Haven't given too much thought you'd call, but clearly if we can get a 234 year contract on any 1 of those rigs are refis on gross on the table. So we would certainly hope.

Hope to be able to do that but we do have plans in place to deal with us through our liquidity.

Thanks for the time appreciate it.

Okay. It appears there are no further questions at this time Mr. MA on next turn the conference back to you for any additional or closing remarks.

Thank you Madison and thank you everyone for your participation on today's call. If you have further questions. Please feel free to contact me. When you look when we look forward to talking with you again, when we report our third quarter 2021 results have a good day.

This.

On today's call. Thank you for your participation you may now disconnect.

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Good day and welcome to the Q2.2021Transocean earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to <unk> manager of Investor Relations. Please go ahead.