Q1 2022 Valaris Ltd Earnings Call
[music].
Good day, and welcome to <unk> first quarter 2022.
Earnings call, all participants will be in listen only mode.
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Please note. This event is being recorded I would now like to turn the conference over to Tim Richardson Director of Investor Relations. Please go ahead.
Welcome everyone to the <unk> first quarter 2020 to the conference call with me today are president and CEO and interim.
Interim CFO , and Vice President Investor Relations and Treasurer darn given I know the members of our executive management team.
We issued a press release, which is available on our website <unk> dot com.
Any comments, we make today about expectations are forward looking statements and are subject to risks and uncertainties.
Please.
Many factors could cause actual results to differ materially from our expectations.
Please refer to our press release SEC filings on our website that define forward looking statements and list risk factors and other events that could impact future results.
Please note the company undertakes no duty to update forward looking statements.
During this call we will refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information required reconciliations.
Reminder, yesterday, we issued our most recent fleet status report, which provides details on contracts across our rig fleet.
An updated investor presentation on our drilling and presentation will be available on our website after the call.
Now I'll turn the call August Awesome Big event, President and CEO . Thanks.
Thanks, Tim Good morning, and afternoon to everyone and thank you for your interest in Valero us.
During today's call I'll start by providing an overview of our operational and financial performance during the quarter.
Next I'll provide some commentary on the current state of the offshore drilling market.
Gus how we're managing our fleet and our business to maximize shareholder value.
I'll provide an update on Aro drilling our 50 50 joint venture with Saudi Aramco.
After that I'll hand, the call over to Darren to discuss our financial results and 2022 guidance.
A part of our business and our primary focus everyday is on delivering safe reliable and efficient operations to our customers.
We celebrated a few notable safety milestones during the quarter with three rigs achieving three years without a recordable incident and another two rigs reaching this milestone since quarter end we.
We will also recognize that the recent IDC North Sea Chapter Safety Awards, receiving the best Safety performance Award for Jackups in 2021.
Winning this award was particularly gratifying considering some of the additional challenges faced last year, including rig reactivation and the impact of the pandemic.
On the operations efficiency side I'd like to thank the Polaris team for continuing to deliver the strong performance that our customers have come to expect from us.
Leaving 99% revenue efficiency during the quarter.
This is a fantastic effort and continues our excellent operational track record, having achieved more than 98% revenue efficiency over the course of 2021.
These results are the product of our dedicated offshore crews robust systems and processes and a culture that is underpinned by our values, including safety and excellence.
We are committed to maintaining these high levels of performance and to this end, we continue to develop and implement additional technologies that enhance our ability to monitor and manage performance across the fleet.
These include the Polaris operating system, our in house digital platform that interfaces with our personnel management and training systems are licensed drill application, which provides real time monitoring of the training competency and performance about drillers.
<unk> intelligence platform, which allows us to aggregate scream and visualized rig equipment sensor data, enabling a remote technical support center to monitor the performance of critical rig equipment.
We will also remain focused on developing expertise in our people and have stepped up these efforts with additional on boarding and leadership training programs for our offshore crews. These.
These are particularly important given the ongoing and expected future increases in activity levels in the industry.
As we have mentioned previously the first half of 2022 is a transitional period for us as we incurred reactivation costs to put three drillships and one semi submersible back to work on long term contracts that were secured last year.
I am proud of the entire Polaris team for the progress that has been made in executing these major projects concurrently, particularly considering the pandemic personnel and global supply chain challenges.
I am pleased to report that the Polaris Dps, one completed its reactivation and mobilization project and return to work last week, we continued to.
To expect that the remaining three floaters will be on contract by the middle of the year.
We are now a substantial way through these reactivation projects and anticipate that financial results will improve meaningfully once they are completed.
These four rigs are expected to generate a combined annualized EBITDA of more than $100 million base.
Based on contractual day rates, which was set around 12 months ago.
Importantly, as I will discuss in a few moments, we retained significant operational leverage to the improving market through our remaining high quality stacked assets.
Turning now to the market.
Demand for hydrocarbons has rebounded strongly from the impact of COVID-19, and is forecast to exceed 2019 levels by early 2023 and.
In recent years E&P companies have generally prioritize shareholder returns and deleveraging balance sheets over investments and new sources of production, resulting in OECD oil inventories well below the five year average.
In addition, OPEC plus supply side measures and heightened geopolitical tensions have combined to drive oil prices higher creating a constructive environment for investments in new projects.
While the conflict in Ukraine has led to increased volatility in spot oil prices given.
Given the longer lead times for offshore projects, our customers tend to be more focused on medium and longer term commodity prices than what is happening in the spot market.
Two year forward Brent crude prices are currently above $80 per barrel and five year forward prices are around $70 per barrel levels that are highly constructive for offshore project demand.
Research from rice that indicates that virtually all undeveloped offshore resources are profitable at $70 per barrel and almost 80% are profitable at $50 per barrel.
As a result of the constructive commodity price environment offshore upstream Capex is expected to see double digit growth over the next couple of years and offshore project sanctioning is expected to increase meaningfully over the same period with more expected in 2022 and 2023 than any other year.
Since the start of the industry downturn in 2014, according to industry research.
Increased upstream spending is expected to lead to more demand for offshore drilling services and we have already seen a meaningful improvement in utilization and day rates over the past 12 months, particularly in the Florida market.
Several recently announced contract awards have been made at or above $300000 per day.
While many of these have been for shorter term programs in the U S. Gulf more recently, we have seen day rates at these levels offshore, Australia, South America and West Africa.
Very recently, we were awarded a two well contract with a major operator offshore Angola, and the Republic of Congo for Drillships <unk> DS 12.
The new contract is further detailed in our recently updated fleet status report is anticipated to take place during the first quarter of 2023 in direct continuation of its current contract and as a total contract value of $26 2 million.
The day rate under this contract at a level not seen in the past seven years for drillship work offshore West Africa is a testament to the demonstrated operational track record of the DS 12 and provides further evidence of the improvements in floater day rates across geographies.
Looking forward, we continue to see a strong pipeline of tenders and inquiries from our customers across each of the major deepwater regions, South America, West Africa, and the Gulf of Mexico.
This includes the recently announced tender from Petrobras for up to eight rigs for long term work offshore, Brazil commencing in 2023, which.
Which we expect will include some rigs that are incremental to its currently contracted fleet.
This is in keeping with reports that Brazil is seeking to double production by 2030 and with offshore resources that can deliver production at attractive economics.
We anticipate that Brazil will be a significant driver of offshore demand over the next several years.
Yeah.
On the Jackup side of the business, we've seen a notable increase in activity since the start of the year.
Rig years awarded for the first quarter of 2022 or more than 50% higher than during the same period last year and expected rig years of work a tender or pre tender stage are approximately 75% higher than 12 months ago.
Increased demand in the middle East is attracting rigs from other regions and is expected to help improve the overall supply and demand balance for benign environment Jackups going forwards.
Active utilization for benign environment Jackups has increased to approximately 85% and we are seeing pricing continue to improve.
Be it at a slower pace than high specification floaters due to the highly fragmented nature of supply and competition from local contractors and a number of markets.
Just recently, we added two additional contracts that improved day rates on the Polaris 107, which is operating in Australia.
Taking these rigs work program out to the fourth quarter of this year.
We continue to see some softness in the harsh environment Jackup market.
While current utilization rates for harsh environment Jackups are in the mid eighties contract durations continued to be relatively short, resulting in a competitive bidding environment.
We anticipate that an increase in project sanctioning expected offshore Norway in 2022, and a strong pipeline of activity in the UK North Sea for work commencing in mid 2023 will help balance the harsh environment jackup market in future years.
Moving now to our fleet strategy.
We'll continue to actively manage our fleet and our contracting activities to position <unk> for success.
In 2021, we set out to build our contract backlog first by securing additional world proactive breaks and then by reactivating some of our high quality stack fleet for long term contracts at attractive economics.
We achieved this goal and as of our most recent fleet status report have increased our contract backlog to more than $2 4 billion from.
From just over $1 billion at the beginning of 2021.
These backlog additions have added to our earnings visibility laying the foundation for increased earnings in the future.
Having secured this backlog and given constructive developments and demand for the high quality assets that we operate we further increased our hurdle rates and we will remain disciplined and only returning additional stacked rigs to the active fleet for opportunities that provide meaningful returns.
We have proven our ability to win work for preservation stacked assets and we still have 11 high quality modern assets remaining including three and contracted high spec Drillships <unk> DS seven DS eight and DS 17. These.
These rigs provide operational leverage to an improving market and we are currently pursuing a number of attractive opportunities, which would allow us to contract and begin reactivation of at least one of these rigs in the near term.
It is also worth noting that we have options to take delivery of Newbuild Drillships <unk> DS 13, and DS 14 by year end 2023 for a shipyard price of approximately 119 and $218 million respectively.
Providing further operational leverage to the Florida market we.
Highlighted in our last quarterly earnings call that included in our backlog is approximately $428 million relate.
Related to an eight well contract awarded by total energies to drill ship <unk> 11 for work on the North Platte Deepwater project in the U S Gulf of Mexico.
And February total energy has decided not to sanction and therefore withdraw from the North Platte project.
Since our last call. The contract has been no beta to Ecuador, which is the partner on the project.
No material changes to the contract resulted from the novation, including with respect to the termination provisions in the event. The project does not received.
If the contract were to be terminated the early termination fee and contractual reimbursements would be more than sufficient to cover expenses incurred and commitments made by Valero.
Further given that commencement of operations is not scheduled until mid 2024, we expect that there would be other attractive projects for a high specification drillship like DSC 11 based on the opportunities and day rates, we are seeing in the market today.
We continue to take a rational approach to fleet management, including regularly assessing our fleet for retirement and divestiture candidates.
In this regard we recently sold two Jackups Polaris 113, and $1 14 to Adas for a total of $125 million.
A value, which is highly accretive to our shareholders.
Each of these rigs have been stacked for more than six years and would've required meaningful capital to reactivate.
We have also sold legacy Jackup, <unk> 67, which will be responsibly retired from the offshore drilling fleet.
We now have only four legacy Jackups remaining in our fleet moving.
Moving now to Aro drilling our 50 50 joint venture with Saudi Aramco that owns and operates jackup drilling rigs in Saudi Arabia.
Saudi Arabia is the largest market for jackup drilling rigs in the world and Arrow and Polaris combined hold nearly a 40% share of Saudi Aramco offshore rigs currently under contract.
Arrow is an important strategic asset for Polaris, we not only have a 50% equity interest in the joint venture, but also have notes receivable totaling $443 million from arrow.
However, sensitive unconsolidated, we believe the value inherent to narrow is not fully reflected in our enterprise value.
As a reminder, our owns a fleet of seven Jackup rigs operating under long term contracts with Saudi Aramco that have an associated contract backlog of approximately $1 billion.
These rigs are guaranteed high levels of utilization for life, So long as they meet our Ram co specification requirements.
Arrow also leases eight jackup rigs from Valero is through bareboat charter arrangements. Each also operating under contracts with Saudi Aramco.
Substantially all operating costs for the lease rigs are incurred by arrow, meaning the lease revenue represents nearly 100% margin for Valero us.
Finally, aero intends to add two newbuild jackups to its fleet over the next decade.
New build rigs one and two are scheduled to be delivered in the first or second quarter of next year and Aero is expected to place orders for Newbuild rigs three and four later this year each of these new builds will be backed by an initial eight year contract with Saudi Aramco at a day rate set to achieve a six year EBITDA payback on the total price of the.
Our rig.
Following the initial contract each new build will be contracted for at least eight more years in aggregate with pricing set every three years utilizing our market pricing mechanism.
Given the economics of the initial contracts the newbuild rigs are expected to be financed by cash from Arrow operations and third party financing.
<unk> actively exploring financing options for the new builds and financing is expected to be secured prior to delivery of newbuild rigs one and two.
We do not expect that allow us all aramco will need to provide any additional financing to arrow to fund the Newbuild program.
Further information on Arrow can be found in a separate investor presentation on the Polaris website.
I will conclude my remarks by reiterating some of the key points.
First we remain focused on our core business, which is safely delivering our services to our customers.
The challenging environment. The Valero team continues to deliver both operations and project at an exceptionally high level.
We entered the year in a transitional period with full major reactivation projects ongoing.
The first is now completed and the remaining three are making excellent progress. We continue to anticipate that our financial results will improve meaningfully at least reactivation projects are completed and the rigs commenced their long term contracts.
Third we retained significant operational leverage to the improving market through our high quality stack fleet, and we will only reactivate rigs for opportunities that provide meaningful returns on investment.
And lastly, we will continue to assess the fleet for retirement and divestiture candidates and will act opportunistically to divest assets. If the transaction makes economic sense and is accretive to shareholders.
In summary, <unk> is well positioned to capitalize on opportunities that arise during an industry up cycle and the <unk> management team and board are highly focused on maximizing earnings and driving meaningful free cash flow by following our strategy of being value driven focused and responsible and <unk>.
Isn't making I'll now hand, the call over to Darren to take you through the financials.
Thanks, Anton and good morning, and afternoon to everyone.
In my prepared remarks today I will provide an overview of first quarter results our outlook for the second quarter and updated guidance for full year 2022.
In addition, I will briefly review, our financial position and capital structure.
I would also highlight our first quarter results press release, which includes a trailing five quarter analysis for the income statement balance sheet and cash flows as well as various supplemental data.
Additionally, we published an updated fleet status report yesterday and have begun disclosing individual contract day rates and other forms of compensation. We will continue to publish day rate and other compensation information for all contracts and contract extensions on a go forward basis, So long as our contract with the customer allows it.
As Anton mentioned earlier, we are currently in a transitional period, while we incur onetime reactivation costs to return three drillships and one semi submersible to the active fleet.
We anticipate that financial results will improve meaningfully as we complete these reactivation with these four contracts expected to contribute a combined annualized EBITDA of more than $100 million.
Now that we're further along in the reactivation process of our four floaters, we estimate that reactivation costs will average $40 million to $45 million per rig while future floater reactivation will likely be higher than that range.
However, given the improving market and lack of available supply. We are now asking customers to reimburse a portion of the reactivation costs for future projects, which we expect will more than offset the increased reactivation costs.
The floater market has improved significantly since these contracts were negotiated.
And we are well positioned to benefit due to our three remaining on contracted Drillships <unk> DS seven DSA and Dia 17.
As Anton mentioned earlier, we are pursuing a number of attractive opportunities to reactivate at least one of these rigs and we would expect these opportunities to payback a reactivation costs within the first year of the contract.
As a reminder, our reactivation cost estimates include all costs to reactivate the rig, but do not include mobilization costs or costs for contract or region specific upgrades for which we would generally expect to be compensated.
Most of these costs are recognized in our income statement with the remainder recognized as capital expenditures.
As we have done previously we have presented our results on both an EBITDA and EBITDAR basis, as we believe reactivation expenses should be treated like growth capital expenditures with the income statement portion backed out of EBITDA when analyzing our results.
<unk> compelling value proposition is built on four key components and we believe that it is important to value valores on a sum of the parts basis. We have presented analysis in our press release broken out by these four components.
First our active fleet of 33 rigs, which includes rigs currently being reactivated is generating positive cash flow today.
Second our leased and managed rigs comprised of eight rigs, we leased to arrow drilling under bareboat charter agreements and two rigs that we manage on behalf of a customer in the U S Gulf of Mexico.
Third the stacked fleet, which includes many high specification assets, which we have already demonstrated the ability to win work for and provide the operational leverage to the continued improving market.
And finally Aero drilling our unconsolidated 50, 50 joint venture with Saudi Aramco.
Moving now to the first quarter results.
Adjusted EBITDA in the first quarter was negative $31 million compared to positive $3 million in the prior quarter and adjusted EBITDAR, adding back onetime reactivation costs was $31 million compared to $40 million in the prior quarter.
Revenues for the first quarter were $318 million compared to $306 million in the prior quarter.
Excluding reimbursable items revenues increased to $291 million from $283 million.
Primarily due to higher utilization for the Jackup fleet and higher average day rates for the other segment, partially offset by lower utilization for the floater fleet.
In the Jackup segment, Valores, $2, 49, $1 17, $1 44, and Norway, each commenced new contracts either in the first quarter 'twenty two or late in the fourth quarter 2021.
This was partially offset by idle time between contracts for Valores, Viking and 107.
And the other segment revenues increased primarily due to higher day rates for managed rigs Mad dog and Thunder horse, which were each awarded two year contract extensions with BP in the U S. Gulf of Mexico effective from late January .
In the floater segment revenues declined primarily due to the large dps five being out of service for most of the first quarter, while undergoing a five year survey prior to starting the first of several new contracts.
Contract drilling expense for the first quarter was $331 million compared to $286 million in the prior quarter, excluding reimbursable items contract drilling expense increased to $305 million from $264 million.
Primarily due to higher rig reactivation costs, which increased to $62 million in the first quarter from $37 million in the prior quarter as we prepare for floaters for long term contracts that are expected to commence in the second quarter.
First quarter reactivation costs were higher than our prior guidance.
During the first quarter, we incurred approximately $4 million of additional costs related to an incident involving valores DS 16, which broke free from its moorings during gale force winds, causing minor damage to the rig the.
The remaining variance represents higher than estimated costs across the four reactivation projects, primarily due to additional identified work scopes that were not included in the original reactivation budgets.
Aside from reactivation costs, the sequential quarter increase in contract drilling expense was primarily due to an increase in personnel costs and higher repairs and maintenance spend during dps five special survey.
Moving to our shore based costs general and administrative expense increased marginally to $19 million from $18 million in the prior quarter and onshore support costs, which are included within contract drilling expense in the income statement also increased slightly to $29 million from $28 million.
The sum of these two categories provides our total onshore support costs, which increased to $48 million in the first quarter from $46 million in the prior quarter.
Depreciation expense decreased to 23 million from $25 million in the prior quarter.
Other income decreased to $9 million in the first quarter from $21 million in the prior quarter.
First quarter. Other income included a $2 million gain on sale of assets related to the sale of Jackup <unk> 67, compared to a $21 million gain on sale of assets related to the sale of Jackups Dolores 20 to 37 and $1 42 in the prior quarter.
The remaining other income variance is primarily due to lower reorganization related professional fees in the first quarter as compared to the prior quarter.
Tax benefit decreased to $1 million in the first quarter from $31 million in the fourth quarter the.
First quarter tax provision included $15 million of discreet tax benefits primarily related to a reduction in liabilities for unrecognized tax benefits associated with tax positions taken in prior years.
The prior quarter tax provision included $30 million of discreet tax benefits primarily related to a reduction in liabilities for unrecognized tax benefits associated with tax positions taken in prior years.
And deferred tax benefits associated with the Swiss tax reform adjusted for.
Discrete items tax expense of $13 million in the first quarter compared with a tax benefit of $1 million in the prior quarter.
The increase in tax expense is primarily due to our jurisdictional mix of earnings and a reduction in deferred tax valuation allowances in the prior quarter.
Of note, we still expect to receive a tax refund of $97 million related to the cares Act, though the timing of this receipt remains uncertain.
Moving now to our second quarter 2022 outlook.
We expect total revenues will be in the range of $355 million to $370 million as compared to $318 million in the first quarter.
Quarter revenues are anticipated to benefit from each of the four reactivated floaters commencing contracts during the second quarter Valores.
Dolores Dps one started its contract with Woodside offshore Australia in late April .
<unk> 16 is expected to start its contract with oxy in the U S. Gulf of Mexico in the coming days and we anticipate that both DS four and DS nine will start their respective contracts with Petrobras offshore, Brazil, and Exxon offshore Angola by the middle of the year.
Also floris Dps five started a new contract with Cosmos in the U S. Gulf in late March after completing its five year Special survey.
As a result of these contracts startups operating days for the floater fleet are expected to increase by approximately 45% on a sequential quarter basis and are anticipated to increase further as we experienced the full quarter impact of these new contracts in the third quarter and beyond.
We anticipate that second quarter contract drilling expense will be in the range of $315 million to $325 million as compared to $331 million in the first quarter, including approximately $31 million of onshore support costs.
The expected sequential quarter decrease is primarily driven by lower reactivation costs, which are anticipated to decline in the second quarter as our four floater reactivation projects wind down and these rigs go back to work.
Lower reactivation costs are expected to be partially offset by higher operating costs, reflecting higher activity levels, particularly for the floater fleet.
Finally, second quarter general and administrative expense is expected to be 19% to $21 million as compared to $19 million in the first quarter.
As a result, adjusted EBITDA for the second quarter is expected to be approximately $25 million as compared to negative $31 million in the first quarter and adjusted EBITDAR is expected to be $45 million to $50 million compared to $31 million in the first quarter.
Moving now to capital expenditures first quarter, Capex was $38 million of which 12 million was maintenance capex and $26 million related to enhancements and upgrades.
The enhancements and upgrades include $13 million of reactivation costs and $13 million of contract a region specific upgrades primarily related to the <unk> four and DSO weapon.
Second quarter, Capex is expected to be $100 million to $110 million of which approximately $25 million is expected to be maintenance capex and the remainder is expected for enhancements and upgrades.
The enhancements and upgrades are anticipated to include approximately $15 million of reactivation costs with the remainder for contract or region specific upgrades. The majority of which is related to the <unk> 11.
Moving now to full year 2022 guidance.
Revenues are expected to be one five to $1 55 billion.
Contract drilling expense is anticipated to be one five to $1 3 billion inclusive of approximately $80 million to $85 million of reactivation expense substantially all of which is expected to be incurred during the first half of the year.
We continue to estimate G&A expense of $80 million to $85 million, which combined with $120 million to $125 million of support costs included within contract drilling expense provides total onshore support costs of approximately $200 million to $210 million in 2022 unchanged from our prior guidance.
Some of these items provides adjusted EBITDA of $160 million to $190 million and adjusted EBITDAR of $240 million to $270 million.
In terms of our value drivers. This translates to expected full year 2022 operating margin exclusive of onshore support and G&A expense of $325 million to $350 million for the active fleet of $410 million to $435 million when adjusting for onetime reactivation costs of 80 to 85.
<unk>.
Operating margin for our leased and managed rigs is expected to be $75 million to $80 million and we expect to carrying costs of approximately $45 million for the stacked fleet.
Our 2022 capital expenditure guidance of $225 million to $250 million remains unchanged from our fourth quarter Conference call. This guidance continues to assume reactivation announced to date, but does not include any potential incremental reactivation for the rest of the stacked fleet.
As Anton noted, we will remain highly disciplined when evaluating opportunities for future reactivation.
Based on current contract lead times, particularly for floaters, if we were to reactivate additional rigs in 2022. It would have a negative impact on 2022, EBITDA and Capex, but would increase earnings and cash flows in future years.
While 2022 Capex is expected to be in the range of $225 million to $250 million, we anticipate receiving approximately $160 million in upfront payments from customers in 2022 related to capital reimbursements and mobilization fees of which approximately $90 million is associated with DS 11.
As a reminder, these and any other upfront customer payments and the related revenues are not included in the contract backlog average day rates or EBITDA reported in our quarterly filings and for some of our contracts. These represent a meaningful portion of the total contract value.
Based on this guidance and our current market outlook and as we've mentioned, we expect that financial results will improve meaningfully as we complete our four floater reactivation in the second quarter and capitalize on opportunities to return additional high quality stacked rigs to the active fleet in this improving market for contracts that provide meaningful returns.
Yeah.
Now I'll move to first quarter results as well as the second quarter and full year 2022 outlook for Aro drilling our 50 50 joint venture with Saudi Aramco as a reminder, arrow is not consolidated in the financial results of Dolores.
Aero EBITDA increased to $22 million in the first quarter from $11 million in the prior quarter, primarily due to higher utilization.
<unk> second quarter 2022, EBITDA is expected to be relatively in line with the first quarter.
<unk> full year 2022, EBITDA is expected to be in the range of $80 million to $90 million. This is lower than our prior guidance range of $90 million to $100 million, primarily due to a later than expected startup for <unk> 140, and an expected delay in delivery of the first newbuild rig to early 2023 finally.
I will provide a brief overview of our financial position.
<unk> has the strongest balance sheet in the offshore drilling sector.
As of quarter end, we had cash and cash equivalents of $578 million plus $30 million of restricted cash.
Which does not include the $125 million received in our recently completed sale of the <unk> and <unk>.
Our only tranche of debt is our $550 million senior secured note due in 2028 the coupon for the note is 8.25% if paid in cash 10.25% if paid half cash half pik and 12% if we elect to pick the entire interest payment.
The second interest payment of $23 million was paid in cash this month and we will pay the next installment in cash in November of this year.
As we previously mentioned the note provides a parrot pursuit that basket of $275 million and junior secured debt capacity of the greater of $200 million or 8% of total assets.
In closing our industry, leading balance sheet best in class operational performance and high quality modern fleet position us well to capitalize on contracting and strategic opportunities as they arise.
We will continue to be disciplined in our allocation of capital as we focus on driving increased earnings and maximizing cash flow from our growing active fleet and we will only reactivate further stacked assets for opportunities that provide meaningful returns.
We will also be value driven as demonstrated by our recent sale of stacked Jackups Valores, $1 13, and $1 14 for a total of $125 million a.
The transaction that is highly accretive to our shareholders and well above the value implied by our enterprise value for those rigs and the rest of our benign environment Jackups.
We will continually assess our fleet for retirement and divestiture candidates and where it makes economic sense to do so we will sell rigs are responsibly retire them. We've now reached the end of our prepared remarks operator. Please open the line for questions.
Okay.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Greg Lewis with <unk>. Please go ahead.
Thank you and good morning, good afternoon everybody.
Yes, congratulations on those rigs sales.
I feel like that's finding like money in your pocket.
In light of that you mentioned.
Your your $550 million piece or piece of debt that you have out and clearly that that's obviously well funded trading above par.
As we think about that.
That $120 million in extra money and who knows maybe maybe theres opportunities to monetize other assets, maybe that we thought might not have been working when you came out of restructuring a couple of quarters ago is there an ability to kind of.
Are there any penalties associated with maybe trying to retire some of that debt early.
Yes, Greg good morning. Thanks, Thanks for the question.
<unk>.
I'd say on the on the 125, obviously the indenture has.
Kind of your typical reinvestment rates as we think about our cash balance and liquidity position.
We still do have.
11 stacked rigs that we can bring back to market.
And obviously, if we do so if there is if there is opportunities to do so that makes sense that's going to take.
Some investment in order to do that our note does have a non call period as well.
We do have an ability if we wanted to to buy buy back notes in the open market, but it does have a non call period.
And I think it would be end of April of next year and then it has kind of a typical step down provision so.
I think we like the liquidity position, we have but we also today still have.
Some potential investment that could earn meaningful returns in our stacked fleet. So we'll just have to kind of see.
What makes sense.
And how the market continues to unfold.
Yes, no doubt and clearly it seems like there is increasing demand by by the day I did want to touch on Brazil, you mentioned in your prepared comments.
Clearly Petrobras is in the market. We can debate how many are new incremental how many are resets, but I did want to ask you.
More around the the the iOS season, Brazil.
Clearly you have one rig with.
On iOS.
It comes up for Rolls off contract later this year.
It's a two part question one is as you look out ahead to 'twenty three if you could kind of maybe talk a little bit about the interest from.
Non Brazil, or say, what the IOC appetite for rigs in Brazil might look like as well as given that that rig is already in country. Maybe if you sort of walk us through some of the dynamics and the costs associated with bringing in a rig.
Maybe it is outside of Brazil, and maybe that maybe that that financial benefit of already being in country, maybe a little bit of color on what that looks like.
Hi, Greg This is lance yeah.
Yes really good question.
Obviously, what we're seeing now in Brazil, as you would say maybe the best of both worlds, which is strong interest from the iOS.
That are down there to continue what they are doing and even to extend their presence and grow their presence in Brazil, along with Petrobras.
As publicly stated wanting to double production by 2030 and you've seen that.
That eight rig tend to come out they are awesome rigs that need to that need to rollover, but we definitely see some incremental demand as part of that tender. So we're getting an increase in demand and.
In Brazil, and expect it to carry on that way going forward, obviously more so from the Petrobras side, but also from the IFC side, which is really good for the for the market.
No.
Petrobras in Brazil have some some very specific Petrobras in particular has some very specific specification requirements. So.
It does take some capital expenditure to get a rig.
Market once you're there and you are an incumbent and you have a rig in <unk>.
Country. It obviously it gives you quite a significant.
Marketing advantage.
Two to carry on there that's one of the reasons why we're very focused on taking the DSO down there last year, having a critical mass in one of our strategies is to be focused on priority basins.
And having a critical mass of rigs in the country that we can grow a position problem was one of our focuses last year and we're doing that and we will seek to increase their presence as we go forward.
Okay. Thank you very much.
Thanks, Greg.
Okay, and if you'd like to ask a question. Please press Star then one at this time.
This concludes our question and answer session I would like to turn the conference back over to Tim Richardson for any closing remarks.
Thanks, Sarah and thank you to everyone on the call your interest in <unk>.
Look forward to speaking with you again, when we report our second quarter results have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.