Q1 2022 Transocean Ltd Earnings Call
Good day and welcome to the Q1 2022 Transocean earnings conference call.
Today's call is being recorded.
This time I would like to turn the conference over to Kayo Dillingham. Please go ahead Sir.
Thank you Kevin.
Good morning, and welcome to Transocean first quarter 2022 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 dotcom.
Joining me on this morning's call are Jeremy Thigpen, Chief Executive Officer, Keelan, Adamson, President and Chief Operating Officer, Mark Mey, Executive Vice President and Chief Financial Officer, and Roddie Mackenzie Executive Vice President and Chief Commercial officer. 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 current expectations and certain assumptions and therefore are 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 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 Gail and welcome to our employees customers investors and analysts participating in today's call.
Before I get into the quarterly update I would like to provide just a few thoughts on the current global state of affairs.
During the first quarter, we observed oil prices, which regularly exceeded a $100 per barrel.
While the Russian invasion of Ukraine, and the resulting sanctions certainly contributed to these higher prices and focus the world's attention on the importance and value of energy security, we believe that the persistent underinvestment by E&P companies to replace the reserves has resulted in diminished capacity to produce hydrocarbons globally, serving as the primary driver of sustained higher oil prices.
As you know over the past few years some of the capital that certain E&P companies may have previously earmarked for investments in reserve replacement and production growth with instead distributed to their shareholders in the form of dividends and buybacks as well as invested in various energy transition initiatives.
All else being equal this is left them with less capital to invest in planning for and develop offshore projects.
While we recognize that taking steps to achieve a lower carbon future is important. We also firmly believe that the diversity of energy sources is critical to ensure adequate and reliable supply.
Hydrocarbons will without question continue to play a central role as the energy transition proceeds and fee.
Cash flow generated from the sale of oil and natural gas will play a critical role in funding energy transition technologies and initiatives by our customers.
Indeed, the EIA as international Energy outlook 2021 indicates that global energy consumption is expected to increase nearly 50% over the next 30 years.
While renewable energy resources are expected to experience the most significant growth rates, albeit from a very small base.
Demand for both petroleum and natural gas sources will continue to increase to meet this demand.
Exploration and production companies will continue to engage in the exploration and development work to meet worldwide demand and replenish diminishing reserves.
With constructive commodity prices combined with now proven and consistent lower project costs and the industry experienced several years ago. The economics of offshore projects remained robustly favorable.
In fact, the consensus of industry observers and experts indicate that approximately 80% of offshore projects are profitable at $60 per barrel with numerous customers, claiming that the breakeven price for their respective projects is well below $40 per barrel.
Now to the quarterly results.
As discussed in yesterday's earnings release for the first quarter, we reported adjusted EBITDA of $163 million on $616 million and adjusted revenue.
This strong operating performance was again driven by our team of experienced professionals, who delivered fleet uptime of 97, 6% for the quarter.
Let's now turn to the fleet and our recent fixtures.
During the first quarter, we were able to secure $87 2 million in incremental backlog and returned one of our recently idled rigs to work, leaving us with only two warm rigs remaining in our worldwide fleet.
And as we mentioned in our press release, we just added an additional $200 million of backlog with fixtures on the skyros and Invictus.
In the Gulf of Mexico, the deepwater inspiration secured a one well extension with <unk> energy at an increased day rate of $300000 per day the.
The additional well keep the rig busy in the January 2023.
Remaining in the Gulf of Mexico, the deepwater Invictus secured a two well extension with BHP at an increased day rate of $375000 per day.
The additional wells keep the rig busy through Q1 of 2023, representing eight years of continuous service for BHP.
Heading south to Colombia, the development Driller III returned to work securing an 80 day contract with Petrobras.
Rate of $331000 per day.
The rig had been idle since concluding its most recent contract in January .
Given the lack of availability of similar assets in the region combined with the well deserved favorable reputation of the rig we are actively pursuing opportunities for additional work for her commencing later this year.
In Norway, we added a three well extension to the Transocean Spitsbergen campaign at a rate of $305000 per day, which will keep the rig working into January 2023.
The agreement also contains provisions for additional work at escalating rates through 2023.
In Angola as mentioned in our earnings release, we are pleased to announce that the deepwater Skyros recently secured 540 days of additional work with a major operator at a base day rate of $310000 with the opportunity to earn a significant performance based bonus.
The rig is now contracted into may of 2024.
The award for additional work, while very much appreciated was not totally surprising is the deepwater skyros was previously awarded totals rig of the year. Thanks to its superior operational performance.
Heading east to India, three long term tenders were recently release based on our extensive experience in country and our stellar operational performance. We believe we are in a strong position to win some of this work.
As we look toward upcoming opportunities for 2022, we are encouraged by the market and industry trends that continue to take shape.
Oil prices, while somewhat volatile have remained highly supportive and are driving a steady increase in offshore activity. We continue to see a tightening of the offshore market unfolding across multiple regions with committed drillship utilization consistently exceeding 90% with some industry experts, suggesting utilization as high as 97%.
As further evidence that the market has reached an inflection point according to rig broker clarksons for.
For the first time in eight years, new contracts are on average being awarded at higher day rates than the contract they are replacing.
Additionally, rite aid energy analysts, yet again increase their short term expectation for deepwater investment this time to 14% year on year, which is double right that the expectation just six months ago.
As we've been predicting the current supply shortage of active floating rigs driven by the scrapping of rigs during the historically low demand cycle over the past eight years has contributed to the recent increase in day rates.
Since 2014 more than 150 benign environment floating rigs have been scrapped and permanently removed from the global fleet.
In addition, we strongly believe that the current real supply of rigs is even more limited than headline data would suggest due to high and increasing reactivation costs combined with long lead times for equipment.
Based upon several third party estimates and given slight differences in their definitions there between 25 and 35 benign floating rigs cold stacked globally.
We estimate that the reactivation of a cold stacked rig will likely will take at least 12 months to execute which has increased due to supply chain constraints and drive additional cost escalation, depending upon demand and availability of the required equipment.
Also it is very possible that some of these cold stacked rigs don't actually have the required specifications to be marketable in the future and will never return to the market.
On the topic of reactivation I want to reiterate that Transocean will not specular libbey reactivate a rig we will only bring incremental capacity to our active fleet with a contract that generate a suitable return on investment.
We remain committed to fiscal discipline, and we believe that ultimately rig utilization and day rates will continue their upward progression.
Per friendly's recent assessment of order books, there are 17 Newbuild currently at shipyards or recently in the hands of investors. We believe the majority of these rigs will likely each require significant additional capital expenditures in excess of 100 million to $125 million to prepare to go to work, which is in addition to the underlying construction costs.
As such we believe with few exceptions, the aggregate constraints of the balance sheet and liquidity of most industry participants combined with a good should constraints in the global supply chain will govern the rate of entry about cold stack and newbuild assets into the active fleet.
Taking a closer look around the global market environment.
Worldwide committed drillship utilization currently exceeds 90%.
Many of these high specification assets are concentrated in the U S. Gulf of Mexico, where we continued to observe the most significant broken day rates from the low 200, thousands just a few years ago to well over $300000 per day for recently announced fixtures.
It is very possible that we will see awards made in the near future at day rates above $400000 per day, which reflects the increasing Titan of this already nearly sold out market.
Remaining in the Gulf of Mexico, we eagerly await the delivery of our two newbuild drillships the deepwater Atlas in the deepwater Titan, which will enter the region in the coming months.
As Youll recall these floaters have already secured firm contracts for drilling on behalf of Beacon offshore energy and Chevron respectively.
Historically, the Gulf of Mexico has served as a leading market indicator for other deepwater offshore drilling markets.
As in the Gulf of Mexico direct negotiations with customers continue to increase in multiple locations with improving contractual terms higher day rates and longer durations, reflecting customers' recognition that there's a looming shortage of rigs and therefore limited time for tendering or Linkedin negotiations.
In Latin America, we expect strong demand growth going forward.
Industry analysts expect a 50% increase in rig demand from March of 2022 through September of 2023.
Given our experience established support infrastructure and operational track record in the region. We believe we are very well positioned to compete for these incremental 15 opportunities.
Just last week Petrobras issued new multiyear tenders for up to eight additional rigs, which could ultimately necessary necessitate up to seven new rigs entering Brazil.
In addition to the Petrobras prospects on the horizon medium to long term opportunities with <unk> and other entities, including Ecuador shell Petronas and total energies are expected to commence in 2023.
Current opportunities in Latin America could add more than 14 rig years that will start within the next 18 months.
With no high specification idle floaters in the region rigs from other areas will be required to meet additional demand, which should remain strong over the next several years.
In West Africa, we remained very encouraged by floater demand, we see 20 opportunities with program durations of greater than one year commencing within the next 18 months.
If this demand materializes as we expect a minimum of 15 rig years could be awarded.
This additional demand is driven by a return to activity in Angola, and Ghana and the recent large discoveries in Namibia combined with the reactivation of major developments like Mozambique in Nigeria.
In Asia Pacific, we're seeing pockets of demand for one or more years of work with insufficient rig supply to meet those specific needs.
There are opportunities for MPD Drillships in Asia, but there are no available MPD units in the region.
We are also seeing increasing demand for Australia, which is most likely to occur in 2023.
However, similar to what we're seeing in Asia, there is likely to be a rig shortage in Australia at that time.
Transitioning to the harsh environment market broader expectations are for a stronger Norwegian market beginning the 2023 drilling season.
A record level of sanctioning is anticipated by year end as operators move projects forward to utilize expiring tax incentives.
Norway may be challenged in 2022 and into the summer of 2023 due to program delays based on a shortage of critical subsea equipment. We do however, anticipate a stronger market by mid 2023, and a sold out market in Norway in 2024.
Our customers May also need to contend with additional tightening in the market as evidenced by recent 500 day tender in the region starting in late 2023.
Total Norwegian active utilization currently stands at 82% with 14 assets working in an active supply of only 17 rigs.
This market could further tightened up rigs leave Norway for the U K and Canada, which is a very real possibility now that the beta Nord project in Canada has received environmental approvals offshore Newfoundland.
And in the U K, there's a lack of warm assets <unk>.
Given the prohibitive cost of reactivating, a cold stacked rig we could find ourselves in an environment in which hot rigs from Norway are moved to the U K to perform some of the work anticipated over the next year further tightening the Norwegian market.
This would obviously bode well for us as Transocean remains one of the two main providers of sixth generation semi submersibles in the North Sea.
Additionally, as a result of the recent announcements made by the UK government regarding energy security policy to support European Energy requirements. We now expect an increase in demand for rigs.
We are actively responding to a number of new tenders that have emerged during the past couple of months and are encouraged by the new licensing round for North Sea oil and gas projects in the fall of 2022.
In summary, our outlook is increasingly more positive than at the end of the fourth quarter reinforced by recent fixture trends customer conversation industry analyst reports and market projections for commodity supply demand balances.
The evidence is clear that the market has further tightened since our last earnings call and the Dayrates contemplated in contracts continued to increase.
As a reminder, in the context of a steadily rising market. We will continue to manage our portfolio of rigs to obtain the best combination of rate and term.
Transocean currently has significant growth opportunities represented by our 12 sixth and seventh Gen stacked or idle rigs.
We will evaluate these opportunities on a case by case basis, ensuring that the financial return results and value creation for all shareholders.
As you know Transocean owns and operates the industry's most technically capable fleet of floating rigs and we are always implementing innovative technology to continuously improve the safety operating efficiency and value of our assets around the world.
The robotic riser system was installed on its first rig in cooperation with our customer in the U S. Gulf of Mexico, and just completed a first pull from 9500 feet.
The robotic riser system automates all activities around the rotary table during a riser operations, which improves personnel safety by eliminating the need for work in the Red zone area, while simultaneously improving consistency and increasing efficiency of operations.
We will deploy a second system to another rig this month in the U S Gulf of Mexico.
The enhanced kicked detection system developed with enhanced drilling was deployed early in the first quarter and has delivered improved well efficiency and operations integrity benefits for our customer through monitoring fluid volumes to help detect flow anomalies.
R. K by sharing technology provides unrivaled sharing capability that will result in a safer well construction process.
In the U S Gulf of Mexico. Following at just over 120 day deployment, we successfully tested our K bus technology sharing a landing string grade drill pipe in milliseconds to demonstrate the benefits of such a system in emergency conditions.
Needless to say, we are very pleased with the performance of these new technologies and look forward to continuing the deployment across selected rigs across our global fleet.
In conclusion, our industry, leading backlog provides us with the visit visibility to future cash flows that enables us to continue positioning transocean for what we anticipate will be a sustained industry recovery.
I'll now turn the call over to Mark Mark.
Thank you Jeremy and good day to all.
During today's call I will briefly recap our first quarter results and then provide guidance for the second quarter as well as an update of our expectations for full year 2022.
Lastly, I'll provide an update on our liquidity forecast through the first half of 2023.
As reported in our press release, which includes additional detail on our results for the first quarter of 2022, we reported a net loss attributable to controlling interest of $175 million.
Or 26 cents per diluted share.
After certain adjustments are stated in yesterday's press release, we reported adjusted net loss of $183 million.
Oh, that's for the first quarter include adjusted EBITDA of $163 million.
Operating cash flow used during the first quarter was $1 million, we anticipate positive cash flow again in the second quarter and for full year 2022.
Looking closer at our results during the first quarter with Liberal adjusted contract drilling revenues of $615 million at an average day rate of $335000.
This is slightly better than our previous guidance and reflects increased reimbursable and marginally higher operating activity.
Operating and maintenance experienced for the first quarter was $412 million, which is slightly less than our guidance, primarily due to timing of certain maintenance activities associated with global supply chain challenges.
Turning to the cash flow and balance sheet.
We ended the first quarter with total liquidity of approximately $2 $6 billion.
Unrestricted cash and cash equivalents of approximately $910 million.
Approximately $280 million of restricted cash for debt service.
And $1.3 billion from our Undrawn revolving credit facility.
Before I move on to updated guidance, let me address the impact of inflation and supply chain delays on <unk> operations.
As with most companies, we are experiencing upward pressure on salaries and wages and increased pricing from our vendors.
Unfortunately, although the formulation differs for each are long term contracts provide cost escalation protection with a time lag.
As we negotiate new contracts, we reflect these cost increases in the direct.
Additionally, we were notified by several vendors, but certain parts and equipment may take longer to procure and as such we have adjusted our inventory strategy to address these potential delays.
At this point, we did not anticipate shortages of critical equipment or spares, which mate.
That could impact our operations.
Let me now provide an update on expectations for the second quarter and for full year financial performance.
For the second quarter of 2022 rigs, but adjusted contract drilling revenue of approximately $705 million based upon an average fleet wide revenue efficiency of 96, 5%.
We expected higher revenue efficiency than our first quarter is largely due to certain circumstances experienced in the first quarter, including radio and whether in Norway, and a reduced day rate for a period.
On the deepwater Pontus.
For the full year 2022 we are anticipating adjusted contract really revenue to be approximately $2 $7 billion or so based on 96.5% revenue efficiency for the three remaining quarters.
We expect second quarter O&M expense to be approximately $460 million.
The slight quarter over quarter increase is primarily attributable to timing of maintenance projects across the fleet.
For the full year 2022 we expect.
O&M expense to be approximately $1.7 billion.
We expect G&A expense for second quarter to be approximately $50 million and range between 180 or $85 million for the full year.
Net interest expense for the second quarter is forecasted to be approximately $98 million.
This includes capitalized interest of approximately $17 million.
For the full year, we estimate to incur net interest expense of approximately $395 million, including capitalized interest of approximately $73 million.
Capital expenditures and capital additions, including capitalized interest, but excluding imputed interest when favorable shipyard financing of the deepwater Atlas are forecasted to be approximately $511 million.
For the quarter.
This represents approximately $490 million for a newbuild drillships predominantly the deepwater Atlas of which $370 million will be financed and $21 million of maintenance capex.
Cash taxes are expected to be approximately $10 million for the second quarter and approximately $28 million for the year.
The expected liquidity in June of 2023 prior to the drug coverage, one $3 billion revolving.
All of our maturing is expected to be between one point and $1.6 billion.
<unk> restricted cash for debt service of approximately $275 million and anticipated secured financing of our second generation drillship deepwater toxin.
This liquidity forecast includes an estimated <unk> <unk> capital expenditures and capital additions of one $3 billion.
And a 223 capex expectation of $140 million.
The 222, Capex includes $1 $2 billion related to our new builds and $80 million for maintenance Capex.
As always our guidance excludes speculative rig recommendations or upgrades.
In conclusion in addition to the safe reliable and efficient operation of our rigs we will maintain our focus on optimizing revenue and cash flow generation by enhancing our revenues this improved offshore drilling environment and effectively managing our operational costs.
As we have demonstrated through our prudent management of our capital Opportunistically executing liability management transactions comprising more than $10 billion over the last six years and.
And judiciously assessing capital equity capital markets, strengthening our balance sheet and improving our liquidity remain our priority.
We will continue to actively monitor and pursue opportunities to delever and extend our liquidity runway through a variety of actions using all appropriate tools available in the market.
This concludes my prepared comments I'll now turn it back over to Carol.
Thanks, Mark Kevin 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.
Ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad. Please.
Please ensure that the mute function of your telephone is switched off to allow your signal to reach our equipment again. It is star one to ask a question.
A brief pulse level participants the opportunity to shape up for question.
The first question today comes from Ian Macpherson of Piper Sandler.
Thanks, Good morning, everyone.
Good morning, Jeremy.
Curious about the state of play in Norway, you described how theres going to be.
Potential deficit of rigs into.
The harsh environment theater.
But possibly some some project delays between end of year in the summer of 'twenty three that could push some of these starts out.
So curious how that influences your near term contract exposure their rigs like the equinox, which I think Norway, Ecuador might be finishing their troll work early this year.
How does that play into your thinking for bidding shorter term longer term and where you think rates are going for that class of rigs into.
That type of market.
Thanks, Ian I will I will turn that whenever roddie as he has been <unk>.
<unk> deepened this in this conversation right now yes, okay. Okay.
So.
Looking at this as we had mentioned before you know Theres No. Ben 36 development plans submitted are expected to be submitted this year for that period of <unk> 'twenty three 'twenty four 'twenty five so that's where the significant optimism about just how tight that market is going to be comes from and in the near term.
We've yet to see any reaction in Norway to the Russian crisis, Russian recreating issues with gas so that the energy crisis that you have in Europe has not yet played out in terms of rig activity in Norway.
It has played out a little bit in the U K. So what you've seen recently in the U K is a really strong move by the government to basically reduce the red tape to open up there as much as they can in terms of permitting and actually enacted new licensing right. So.
With the Cat D. Specifically, the equinox, she's very well placed to go in and do it in these increased oil recovery projects that allow her to use that to a lighter b O P and go on to existing wells to essentially <unk>.
Increased production of gas in the near term and that that's what we think is going to play out here quite strongly between the UK and eventually come to Norway, Norway being a bit more regulated.
Bit more red tape involved in moving projects forward. So.
You could see that although the rig has done well and finishing the project are kind of ahead of time and.
We think there's pretty good prospects on the back end of that that just might be a small gap in between.
The really interesting thing about that market is.
The U K already has a couple of tenders that I. Just noted there are kind of in the process self being negotiated and we would expect to see within the next couple of months that a couple of rigs our premium rigs from Norway are going to get pulled out. So as you see those rigs leave Norway. The remaining fleet in Norway is going to be in hot demand.
Particularly when the when folks are waking up to them to what's going on in the longer term and you have actually seen one or two of the operators proactively looking longer term programs in Norway. Despite the fact, they don't actually have those wells filled.
On the on the chart so.
Really optimistic about Norway, even more optimistic about the changes I've just happened in the U K, but there will be a little bit soft.
Market just in the near term so kind of like through the end of 'twenty two.
Understood. Thanks, Ravi and then I wanted to ask separately.
How we're looking with the final construction and commissioning for.
The deepwater outlets ahead of the Beacon startup.
And if you could refine the estimated start date, there there as well as how that plays into your full year guidance. If you don't mind.
Yeah, So I'll turn that one over to Kevin who is just firstly back from Singapore.
Okay.
Good morning, and just returned from Singapore, where we conducted the naming ceremony for the deepwater Atlas. So she's she is on schedule for delivery in Q2.
And we expect her to be in the Gulf of Mexico, and working by the end of the year. So no change there.
Okay, and then just lastly.
Curious if the full year guidance contemplate some material contribution or if it's more of a late Q4 start.
Yes, yeah, that's the Mark until late Q4 starts so there's nothing material contributed from the Atlas at this stage.
Got it thanks, everyone.
Okay.
Our next question comes from Connor Lynagh of Morgan Stanley .
Yes. Thanks.
So obviously things are looking very strong in the industry right. Now I. Appreciate this is sort of an overly simplistic way of looking at it because the calculation is complex, but how are you thinking about.
Potential uses and sources of capital Mark you alluded to this somewhat in the prepared remarks, but obviously there will likely be some reactivation opportunities.
Would you push customers to pay some of the reactivation cost that Brian .
How are you thinking about.
Potentially tapping the market further for for equity.
Yeah. So thank you kind of.
Oh, a priority. This year is to first of all get ours here of a renegotiated extended to provide us the Christian we need for the next several years. In addition to that we're very focused on.
Adding.
Through our fleet.
Either through a cold stacked assets or in other ways and if we do that as Jeremy mentioned in his prepared comments.
The activation costs will be coming from the initial contract. In addition to a day rate that sufficient to be able to return.
A fair amount of capital to out to our investors.
We're also focused on other liability management opportunities.
I won't get into that at this stage, but clearly there's a lot that we can do in a market. That's a market backdrop that we currently have as opposed to what we've been dealing with the last several years, so I'll pause there and hand it back to you.
Got it that's helpful context, maybe just moving to the broader market here I think it's very apparent that supply has been a major source of.
Tightness.
Disciplined from from some competitors out there and obviously a lot of attrition in the fleet.
Where we get some questions from investors as the demand outlook here and you've outlined some some big areas, but I guess just broadly speaking have you seen a change in customer conversations over the past few months here in light of what's been going on in Russia, and Ukraine, and how are you thinking about the broader exploration.
Globally over the next couple of years here.
Yes, I think I'll take that one yes.
Yeah. So.
Look in the context of Russia and Ukraine.
We're not focused on that as a driver for the commodity price the underlying fundamentals and the lack of investment in oil and gas developments over the past seven years or what drove that commodity prices up towards that 90, or 100 100 barrel mark prior to all of that so.
If you if you take that out of the equation and you don't think that that upset is going to happen in a on a long term view, so you've got to be a bit more conservative as you do that we look to the demand that's being created around the world. So.
<unk>.
Everyone has.
Had the discussions directly with the customers.
Theres less tendering going on Theres more direct negotiations as customers seek out to get just the right asset for them, but it's interesting that the move by Petrobras to to issue tenders for up to eight rigs just at this moment in time. In addition to the tenders they already have out there.
Brazil for example has already awarded five rigs this year and with these new tenders that I did expect detailed award and additional 16 potentially in the remainder of 'twenty. Two so if you think about it in that context. It seems like an unprecedented move it it seems like that is a.
Now going to be a huge pool on the active supply and in fact is going to necessitate. Some some reactivation of rigs because there simply aren't enough rigs to meet that demand, but I have to tell you I don't think it is unprecedented I think this is Petrobras is contracting philosophy I think this is the ultimate barometer of how strong this market is going to be and for.
And extended period of time in previous downturns as you come into the upswing whenever you see Petrobras go long that tells you that they are locking in capacity because they see the writing on the wall in terms of availability. So like it appears unprecedented but it's not I mean I think this is truly the barometer that says.
[noise] drillships are going to be a very strong demand.
For many many years in fact, those tenders in Brazil.
I think the average is about three three and a half years firm, but with three four years of options. So that is going to be a tremendous draw on the global availability of ships.
Interesting thank you for that.
Thanks.
The next question comes from Taylor Zurcher of Tudor Pickering Holt.
Yeah, Thanks, Jeremy and Mark and Roddie Roddie I actually wanted to follow up on some.
Some of the comments you just made there.
About 16 more rigs.
Rig years, maybe going down to Latin America, Brazil, Jeremy in your prepared remarks, you said at 20 opportunities with over a one year of potential term in West Africa. The call a 15 rig years, there and I guess my question is are these sorts of opportunities.
Our rigs that are currently working today that the types of rigs that are bidding into these opportunities or is all of this incremental work truly incremental and going to need to be serviced by <unk>.
By rigs that aren't contracted today.
Yeah. Good question so.
The tenders in.
In Brazil prior to the the ones that just came out this week.
Those.
We're far rollover contracts so those are.
Yes, Adam 11, Libra those kind of projects are are for rigs that are already on contract and expected to renew them or roll them over the this potential for up to an additional eight we think seven of those are incremental demand. So that's rigs that are either not currently in Brazil.
We are certainly we'd have to come from elsewhere to meet that demand in terms of the Africa numbers and we've already seen.
Seven awards this year expect it to get another 12 to 14 by the end of the year at about half of those new ones are again incremental demand.
Not only that but in Asia as an example.
We've got.
Several shorter term contracts, but there are a few that are long term specifically in India. You've got three longer term programs that are all incremental demand that will require rigs from.
Either currently.
Not utilized are coming from outside to satisfy that demand. So as we think about that coming across the world. The incremental demand is in each one of the major regions. So the short answer to that as a very substantial portion of these contracts is going to be all incremental nuts that that's why we see a fully.
Sold out market.
Near term horizon.
Yeah very encouraging.
Good segue into my next question, which is a rig reactivation. So you've got a number of cold stacked rigs today and actually that the higher spec rigs have been.
Stack for call it five or six years now so Jeremy you talked in the prepared remarks about reactivation costs continuing to.
To tick higher as a industry wide I think was your references as time continues to pass by so curious if you could refresh us as to what sort of costs, it's going to take transaction to bring some of these rigs out of stack.
Okay.
The cost.
Yeah. So this is a moving target as you can imagine.
As an industry, we have never reactivated a cold stacked rig a seventh gen. Six Gen. Kosta I agree with all the electronics that has so we have been estimating this based upon a in depth study by our engineering team and our estimates where our rigs are in that $50 million to $75 million. We do believe that that number could go higher because.
This is based upon a 2021 estimate clearly we haven't seen that because we the inflation of somewhere around 8% to 9%. So you can probably add that inflation impact to it as well, but as Jeremy said and this is this is the other.
The issue with the supply chain delays it will take at least 12 months to get these rigs back into the operating fleet and that's excluding the impact you may have recovering at a certain markets like the U S. Gulf of Mexico, where you have to have specific configurations and you'll be apiece.
Yeah.
Understood. Thanks Martin.
The one thing I'd add to that Taylor as our customers are finally, starting to recognize the cost required to reactivate these assets and the duration. The time, it's going to take to reactivate these assets and so on.
Up until now it in short term projects and ever increasing day rates. It seems which is great, but ultimately they're going to have to move to longer terms to secure the existing assets or they're going to wind up paying a pretty a pretty penny for a reactivation for these assets and they're going to have to wait potentially 12 months or more.
Right right, yes, it makes sense to me thanks.
Our next question comes from Greg Lewis of <unk>.
Hey, Thank you and good morning, everybody.
I was I was.
You guys did a good job of laying out.
The improving market case in Brazil, and West Africa, and the term work around that.
It's interesting in the Gulf of Mexico, one of the best thing Thats happening right. There is kind of you might argue the lack of long term work, where youre seeing short term spot work, which is enabling dayrates that just continually pushed higher and higher.
As we think about the Gulf of Mexico, and kind of the appetite for for rig demand.
Is there anything thats going to change that is going to make.
Customers think about taking rigs for longer or are we in this kind of.
This nice pocket, where as you look out over the next 612 18 months. The majority of the work is spot which is going to enable you to continue to push pricing higher.
Yeah. So if you think about the situation that we're in.
We actually have four long term contracts in the Gulf of Mexico. So if you think about our fleet and our strategy. It's about split 50 50 between rigs that are available for short term work and rigs that are available are unavailable because they're on the longer term stuff.
The discussions that we have.
<unk>.
It kind of a mix of both right. So there are some customers that are looking to add you know year plus programs.
And what we've seen is that in each one of these discussions which are typically not out to tender their that almost all direct negotiations now in the Gulf of Mexico. Each one of those customer conversations is indicating longer and longer periods and I think that that comes back to the the overarching underinvestment in oil and gas and the U.
Gulf of Mexico, representing a very quick uptick in terms of being able to.
Exploit those opportunities so what you see as the operators being able to move quickly in the Gulf of Mexico.
And as they go through their budget cycles, there's more and more term getting added to these so what we typically see as.
We start out with you know two or three wells firm and then they want some auctions and then before we actually get to the start of the contract. Those options are now becoming firmed up and Theres ask for even more options. So that's happened in a couple of rigs Florida's Theres also a couple of things that we're looking at that we are asked for multi year work.
And it really is going to just pass on a kind of a case by case basis. We are trying to keep our powder dry for our very highest spec assets. So as to take advantage of the improving market and the complete lack of availability in the 'twenty three so.
Watch this space, we think you're going to see further growth in terms of day rates, but we also think you're going to see a few fixtures that are multi year in nature as as the operators basically have a much better looking runway now with the sustained commodity price them up at a $100 plus.
Okay, great. Thank you for that Randy and then just.
Jeremy you mentioned in the prepared remarks, Australia I know Transocean has been in Australia. Previously I don't think we I don't think you are working in Australia, right now as I as I look across your assets.
And realized in Australia is not the north sea, but Australia is a challenging environment. Nevertheless.
What type of rigs.
This transition that could actually benefit from an improving market in Australia.
Yes, Australia.
I mean, <unk> always been a kind of interesting market for us over the years.
Yeah.
Today, there are only a couple of rigs working but you know as I look down the list of opportunities here, we have at least five rig lines required in Australia, and there's only a couple of rigs there. So I mean of course, there's that required rigs to to come in and be reactivated the the kind of the ideal push for rigs there.
Our.
Rigs like our development Driller class. So the these are the rigs that are kind of a hybrid between a moored rig and a and a DP rig and also high performing moored assets like our deepwater Nautilus.
Rigs like that in.
In the past we've also had several of the Drillships in there so like our K G rigs as well. So I think it said there's potential for a number of different classes of vessels to move into Australia, but.
Dahlia has a reasonable amount of red tape and requirements to get and so there's there's a there's going to be some expense associated with that so I would expect to see the dayrates said and and Australia become real solid and the fact that I think you probably saw that in one of the the last fixtures that was up there towards the 400 Mark.
I think you'll see them well beyond that going forwards.
Great to hear thank you very much.
Our next question comes from.
Manta Ho of Evercore ISI.
Hello, guys. Thanks for taking my question.
And as it does might be unusual.
I have a question about your recent announcement about investments that you made in Russia.
Net.
He'll be on my radar for the Cook Islands, and I was just.
Wondered if you could elaborate on what type of technology that you would be developing.
What this means for your rakes Jesus.
So anything you can provide in terms of what this investment.
I appreciate it.
But thanks for thanks for the question first of all let me say that very small investment basically.
Basically dipping our toe in the water, we sit around and we talk about different opportunities for the direction of our business it and things that we might be able to contribute to and grow into in and as you think about the nature of our business and in terms of our assets and our expertise and our global presence and what we can bring to bear in that regard I kind of look for opportunities outside of us.
Our current space that may or may not make sense, and so obviously something like like ocean deep sea bed mining.
Potentially we could utilize existing assets potentially we could utilize our expertise that I just described in terms of delivering safe reliable and efficient operations.
To create value in that space.
As of now again, it's just a it's a little more exploratory at this point, we are hopeful that it could develop into it to a potential business, but at this point. It's very early days, so don't expect too much coming months or quarters.
Okay.
Well actually then the other question my follow up really quick.
Just on that topic.
And you guys are starting now that you are drilling of the well.
Right.
And could you.
Is that happening this year.
Yet that's already underway, so that yes, I think you'll you'll see a few more of those there but.
Again, those are as Jeremy alluded to you know being part of the broader solution for energy.
That's kind of one more facet of the business that we're very interested in because you use the existing assets were largely unchanged to to go do the the Ccs work.
Thank you Jessica.
Yes.
<unk>.
And our next question comes from Karl Blunden of Goldman Sachs.
Hi, good morning, Thanks for the time.
Yeah really good to see those two new fixtures announced in the press release with one with strong term another with a really good day rate.
The question was is that the kind of backdrop that you are looking forward to to look to extend the bank facility I know that I think last quarter Mark made a comment about.
Wanting to have an improving backdrop and expecting that and then what do you think is a reasonable term to look at when you think about an extension there to give you time to grow into this up cycle.
Alright.
Could you ask the question again I'm sorry.
No problem.
Yes, two new fixtures announced positive backdrop, and I think the comment last quarter was that with a stronger backdrop can be put you in a better position to extend the bank facility. So I just kind of wondering are you know they're that position, where you can do that and what kind of term do you think is reasonable to target on the bank facility to give you time to grow into this.
The positive market that you've described.
Yes, so thanks for that call our CF is secured by the assets.
There's still value of the assets, obviously, having contracts on those rigs improves that but that's not a big driver.
The fact that we are in an up cycle now we have.
Numerous a higher value asset securing the facility I don't foresee an issue with us getting that done.
This will not be a new facility, we're looking at extending it so youre looking an extension somewhere in there to maybe two and a half year range I think that's good for us. It's good for the banks because we do believe we're coming into a multiyear up cycle, which gives us a little more leverage down the road to be able to redo those that maybe the larger amount toward better terms.
Yes, that's very helpful.
One other thing that's been coming through earning season, it's just inflationary pressures that many companies are seeing interested in.
What youre seeing from your major drivers of cost labor being one of them, but also maintenance capex expenses. How are those trending do you feel like some of those headwinds have peaked at this point in time and any commentary that would be helpful.
Yes, so in my prepared comments a call I mentioned, the fact that we do have we do see the inflation in both salaries wages and in some stuff from some of our vendors.
All of our long term contracts have protection now, there's a time lag, but we're protected against that dollar per dollar so overtime that does benefit us.
And then obviously with the new contract says royalty of these T. When negotiating them. We know what the cost structure is and we can incorporate those increases into the day rate and because this is an increase in day rate environment. You can make the argument that margins are expanding.
And therefore softening any impact from inflation that we've seen I don't think it's speaking I do think we.
We're in for a bit of a Roger and maybe another 12 months of increasing inflation, but we are well positioned to take care of that.
Okay. That's helpful. Thank you.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
And as there are no further questions I would like to hand, the call back to cable telecom for any additional or closing remarks.
Thank you Kevin and thank you everyone for your participation on today's call. We look forward to talking with you again, when we report our second quarter 2022 results have a good day.
Ladies and gentlemen that now concludes today's conference call. We thank you for your participation you may now disconnect.
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