Q2 2022 Transocean Ltd Earnings Call
Good day, ladies and gentlemen, we're awaiting the arrival of additional participants I'll be quick here. Shortly we thank you very much your patience and please hold.
[music].
Good day, ladies and gentlemen, and welcome to Q2 2020 to Transocean earnings Conference call.
For information todays conference is being recorded.
This time of late to the call over to your host today Ms. Allison Johnson with Investor Relations. Please go ahead ma'am.
Thank you George Good morning, and welcome to Transocean second 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 dot com.
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 Allison and welcome to our employees customers investors and analysts participating in today's call.
It has certainly been an eventful three months since our last update.
Prices have exhibited considerable volatility with the magnitude of the existing supply demand imbalance energy security concerns and the inability of swing producers to meet their production targets, all driving prices higher while concern around potential demand disruption due to either or both high gasoline prices Android dramatic slowdown in global economies pushing prices lower.
That said perspective is important while we have experienced volatility commodity prices have remained within a range that is still extremely healthy for offshore development.
Indeed, the outlook for our industry, leading assets and services. The most promising it has been in many many years.
Globally, we continue to face an energy crisis, resulting from years of Underinvestment in oil and gas reserve replacement and production growth as energy companies reacted to significant pressure from investors to maintain capital discipline and pressure from investors activists and politicians to rapidly transition to lower carbon energy sources and renewables.
As a consequence, the long term replacement of hydrocarbon reserves has consistently fallen short production levels and are consequently, depleted global inventories driving barrel and in product prices to near record highs.
This consistent shortfall in production leads us to conclude that we are in the early stages of a sustainable recovery.
Now to our results and a summary of global offshore drilling markets and fixtures.
As reported in yesterday's earnings release for the second quarter Transocean delivered adjusted EBITDA of $245 million on $722 million and adjusted revenue, resulting in an adjusted EBITDA margin of approximately 34%.
These solid results were once again driven by strong operating performance as we delivered fleet uptime in excess of 96% and revenue efficiency of 97, 8%, which was supported by strong contractual bonus conversion.
Notwithstanding our solid operating performance in the backdrop of a strengthening offshore drilling market illustrated by our recent fleet status report and the fixtures, we announced last night.
As we look to the back half of the year, we're likely to experience some gaps between contracts, which could impact our utilization as our customers grapple with temporary supply chain challenges the hamper their near term ability to secure key capital equipment and consumables required to commence their campaigns in a timely manner.
However, we expect these delays to gradually diminish over the next 12 to 18 months.
Mark will provide some additional color when he updates our guidance in a few minutes.
Let's now turn to the fleet in a recent fixtures.
We continue to see steady improvement in day rate contract terms and the utilization of the global offshore drilling fleet, particularly the high specification specification assets Transocean owns and operates.
First in the Gulf of Mexico, We signed an agreement with a major operator for two years on the deepwater Conqueror in direct continuation of the current program at a leading edge rate of $440000 per day with up to an additional $39000 per day for MPD and integrated services and our technology products.
The contract represents approximately $321 million in firm backlog that is in addition to the amount disclosed on our fleet status report.
In Norway, Ecuador exercised two one well options on the Spitsbergen at a rate of $305000 per day, extending the current firm term through June 2023.
We also signed a nine well contract with Ecuador for the Transocean Spitsbergen at a rate of $335000 per day commencing October 2023.
The agreement contains a provision for two one well options at a rate of $375000 per day and similar to many of our contracts in Norway. We have the opportunity to earn a healthy bonus percentage. In addition to the base day rate.
In the U K as disclosed in the fleet status report, we secured a one well contract plus options with any O energy and harbor energy for the Paul B Loyd at a rate of $175000 per day.
Subsequent to the release of the fleet status report the first option well was exercised to commence in direct continuation of the rigs current program, adding approximately $17 $5 million to our backlog.
The firm period now stands at 200 days.
If all options are exercised this will keep the rig busy through April 2024.
Down in Brazil, the deepwater Mykonos was awarded a 435 day contract at a rate of approximately $364000 per day in direct continuation of the current program.
Also in Brazil subsequent to the release of our fleet status report. The Petrobras 10000 received a 5.8 year contract at $399000 per day escalating annually to $462000 per day.
The rate does not include an additional fee for the customers' anticipated use of our patented dual activity technology, which remains valid through may 2025.
The contract commences directly following the end of the current term in October 2023, and adds an estimated $915 million to our backlog.
In India Reliance industries awarded an estimated 86 day contract extension plus up to four option wells for the K G. One at a local local market leading rate of $330000 per day.
The firm work extends the contract through July 2023, and if all options are exercised the campaign will extend through April 2024.
This leading edge rate in India reinforces that the industry recovery has moved beyond the harsh environment and Golden triangle and is truly extending to other regions across the globe.
In total I'm pleased to share we've added an approximately $1.3 billion in backlogs since the release of our fleet status report.
Next I'd like to take some time to discuss energy security and the important role we play.
Though the alarming conflict between Russia, and Ukraine is the latest catalyst for recognition of this critical situation. It open the entire world's eyes to the increasingly fragile state of global energy supply.
In fact, the consistent and systemic marginalization of companies involved in the production of hydrocarbons has significantly contributed to the situation. We find ourselves in today. This is now more apparent than ever.
Recently, OPEC plus agreed to moderately increase production at the behest of large oil consuming countries chiefly the United States.
OPEC plus producers, however appear to have little or no spare capacity raising the question of whether these actions will reduce short and long term oil prices are simply contribute to sustained volatility.
Indeed, one of the leading energy research Consultancies estimates the spare capacity within OPEC plus is just 1% of global demand the lowest level since the inception of its assessments in 2012.
Without additional drilling it is estimated non OPEC production will decline by 9 million barrels per day by 2025, and 20 million barrels per day or 41% by 2030.
Additionally, according to <unk> Energy's 2022 review global recoverable oil reserves now total an estimated 1.6 trillion barrels which is a drop of almost 9% since last year and 152 billion barrels fewer than the 2021 total.
For those who are willing to look beyond political advocacy and honestly assess the empirical data. There is no doubt that hydrocarbons will continue to play an important role in supplying the worlds energy for the foreseeable future.
As an example, electricity generation is highly dependent upon hydrocarbons. According to bps. Most recent statistical review of World Energy, 63% of global electricity is generated by fossil fuels with over a quarter of total supply coming from oil and natural gas. Moreover, 84% of global primary energy consumption comes from fossil fuels.
57% from oil and natural gas.
With that we believe the case is clear that E&P companies will continue to engage in exploration and development work to meet worldwide demand and replenish diminishing reserves.
This is especially true in the offshore basins, requiring our assets and services were recoverable reserve levels are high and carbon intensity is relatively low.
With sustained constructive commodity prices the economics of offshore projects remain compelling for continued development.
The concept of energy expansion, rather than transition means we need to develop and deploy all energy sources and technologies without ideological bias.
The production of hydrocarbons in renewables must happen in concert to meet even the most conservative estimates of global energy demand.
As such it's not surprising that we continue to see a rapid tightening of the offshore market for high capability drilling assets unfolding across multiple regions with committed drillship utilization remaining above 90%.
And we believe further tightening is on the horizon in June Rice dead revised its year over year offshore deepwater E&P investment growth projections to 28%, which is double its marched projection driven by higher service costs and additional anticipated requirements in Brazil, Guiana, West Africa and Australia.
The trend of day rate fixtures also supports our positive view on the outlook for offshore drilling. Most recently, we saw Ecuador contracted competitors asset with nearly $90 million in upfront payments to partially cover mobilization reactivation and upgrade costs.
Bringing the total equivalent day rate of about $600000 per day.
A move we take is recognition by one of our largest customers that the market is growing increasingly tight for the highest specification drillship fleet.
And the latest projections by firmly shows active utilization for global sixth and seventh Gen fleet over 97% with rate projections clearly crossing the 400000 dollar per day threshold, which we certainly validated with the pictures, we announced last night.
Taking a closer look at the global market environment.
The Gulf of Mexico is expected to remain tight through the end of the year, while fixtures in the region have slowed a bit this quarter, we anticipate contract activity will accelerate over the next two quarters.
Our estimates show more than 10 programs yet to be awarded that are set to commence between now and the second quarter of 2023.
Importantly, direct negotiations continued to dominate as a result of market tightness and we are seeing improved contractual terms higher day rates and longer durations.
Several operators are urgently looking to secure seventh gen assets for multi year agreements in the U S. Gulf of Mexico, some of which have not appeared on any of the analyst reports today.
There have also been constructive developments in the 20 K market.
As you likely know shell recently assumed 51% ownership of the project formally known as North Platte, which they have since renamed Sparta.
The agreement for another drilling contractors' vessel that was initially contracted by total energies for North Platte was recently terminated and we believe we are now very well positioned to secure this work if and when the project is re tendered.
As a reminder, in addition to the 20 K well control equipment that will be installed on the deepwater tightened in the deepwater Atlas. Both rigs are also outfitted with industry, leading 1700 short ton hoisting capability. A feature that is unique to these two rigs and has the potential to enable our customers to run fewer casing strings, presenting a significant time and cost savings.
On that note I'm proud and pleased to report that the deepwater Atlas was delivered from the shipyard in June and is expected to arrive in the U S. Gulf of Mexico in Q4, where contract preparations will be completed prior to commencement of her maiden contract with Beacon offshore energy.
And while on the subject of new builds we are on pace to accept delivery of the deepwater tightened later this year.
In Latin and South America substantial contracting activity is ongoing and the region continues to drive the largest recovery and incremental deepwater rig demand.
Specifically in Brazil, there are 10 opportunities comprising an excess of 21 rig years of demand.
One of these opportunities is the Petrobras multi year pool tender and opportunity, we believe could draw up to seven rigs from the global fleet into Brazil, which would obviously require several reactivation.
[noise] tender submissions are due within several weeks and we believe our long standing relationships and experience robust support infrastructure and strong operational performance in the region make us highly competitive for this work.
In addition to the Petrobras prospects medium to long term opportunities with IOC and other N O sees including Ecuador shell Petronas and total energies are expected to commence in 'twenty 'twenty, three and 'twenty 'twenty four.
As we mentioned on our last call. There are no high specification available floaters in the region. Therefore rigs from other areas will be required to meet additional demand, which we anticipate will remain strong over the next several years as Brazil continues on its journey to double production by 2030.
Which would make the country the world's fifth largest crude export.
In West Africa, and the Med, we remained very encouraged by floater demand as we expect over 20 programs to be awarded and commenced within the next 18 months.
A number of these programs are multi year opportunities with multiple NOC and IOC. As an example, Eni is currently tendering for two rig lines. Each at 18 months commencing between Q1 and Q2 next year.
Similarly shell is looking to secure an asset for its campaign in Egypt that could keep that rig off the market for up to two years.
If the demand materializes as anticipated we could see around 15 rig years of work awarded in the next several quarters.
In Asia Pacific, we continue to observe demand in various jurisdictions with limited rig supply.
If the demand materializes as we expect we could see a significant increase in day rates from what we've observed in the past several years in.
In fact O N G. C has demand for more than four rig years of work in India that could absorb at three rigs.
Additional demand in India, and Australia is expected to increase in mid 2023 in early 2024, which would result in a regional rig shortage at this time driving higher day rates as assets will need to be mobilized from other regions to fill this demand.
Moving to the harsh environment market in Norway, we expect relative softness in activity to continue through the end of the year with a sizable uptick in sanctioning and contracting activity anticipated by year end as the Norwegian tax incentives expire in December .
We think this will ultimately lead to a sold out market in 2024 as current active utilization is already at 88% up from 82% last quarter.
And it's important to note that we also expect to see several of those assets leave the harsh environment market for higher margin work and benign environments, which will further strained supply.
Consequently, we believe our rates in Norway will continue the upward trajectory, we've seen with our recent fixture on the Spitsbergen and.
In fact, the latest third party projections suggest we could see base day rates, excluding bonus potential exceed $400000 per day and some of the next fixtures being announced.
In summary, our outlook remains very constructive supported by the upward trajectory of fixtures customer conversations industry analyst reports and market projections for commodity supply demand imbalance balances.
All indications point to a further tightening of the market as we continue to see increasingly healthy day rates posted across all regions as well as longer terms.
As we approach rate levels that meaningfully support strengthening our balance sheet. We reaffirmed the message we have conveyed for the last several years liquidity and deleveraging is of Paramount importance to us. Therefore, we are actively managing our portfolio of high specification floating rigs to fit the best combination of rate and term and we will not reactivate an asset if it does not fit within.
Our broader strategy, including generating an appropriate return on the full cost of reactivation.
We will continue to evaluate opportunities for our stack fleet on a case by case basis, and we'll mobilize them if and when it makes sense in light of market conditions and if we are convinced it will enhance shareholder value.
The future of our core business is very bright and we expect offshore drilling to comprise the majority of value for our investors for the foreseeable future.
However, we fully embraced the need to wherever possible utilize our numerous competencies assets and talented employees to support the expansion of our business and the transition to a lower carbon future.
In this regard we continue to support several ongoing initiatives, including our collaboration with our partner Ocean minerals to help support the sustainable collection of seabed minerals that are required for high capacity batteries, such as those found in electric vehicles.
We continue to leverage our significant offshore energy experience in ways that contribute to the development of non traditional energy sources, however to be clear as we and other leaders in our industry indicated offshore drillers will continue to play a vital role in the production of hydrocarbons for the foreseeable future.
For Transocean, our core offshore drilling business will be the foundation that allows us to develop adjacent opportunities and lower carbon energy sources, while at the same time remaining focused on improving our balance sheet to ensure that we have the liquidity to support our business.
As the industry leader in ultra deepwater and harsh environment drilling we are continuing to invest in innovations that make our fleet safer more reliable and more efficient creating value for our customers and shareholders.
On our last call we shared progress on the implementation of a robotic riser system on one of our rigs in the U S Gulf of Mexico.
I'm pleased to report that we have installed the system on a second ship in the Gulf and are currently working to outfit a third rig in the coming quarters.
As a reminder, the robotic riser system automates activities around the rotary table during road riser operations, which improves the safety of the operation for our personnel and ultimately improve the consistency and efficiency of our operations.
We are also working with our customers on a fuel additive that optimizes fuel consumption, thereby lowering emissions and reducing costs.
You'll test utilizing the additive suggest fuel consumption can be reduced by up to 6% depending upon engine loads.
To date, we have worked with two customers in the U S Gulf of Mexico to adopt and implement the additive and are in conversations for additional implementations.
In.
<unk>, our industry, leading backlog, which I would like to emphasize grew last quarter and with our announcements last night will certainly grow again this quarter along with the steadily increasing cash flow producing ability of our fleet enables us to maintain transitions position as the market leader for ultra deepwater and harsh environment drilling.
As we move further along the curve in the industry recovery, we will continue providing safe reliable and efficient operations for our customers, while simultaneously focusing on deleveraging our balance sheet to safeguard and create value for our shareholders.
I'll now turn the call over to Mark Mark.
Thank you Jeremy and good day to all.
Today's call I will briefly recap our second quarter results, then provide guidance for the third quarter as well as an update of expectations for full year 2022.
Lastly, I'll provide an update on our liquidity forecast through the end of 2023.
As reported in our press release, which includes additional details on our results for the second quarter 2022, we reported a net loss attributable to controlling interest of $68 million.
Or 10 cents per diluted share.
During the quarter, we generated adjusted EBITDA of $245 million and improved our EBITDA margin to approximately 34%.
We also generated cash flow from operations of approximately $41 million.
You can close that our results during the second quarter, we delivered adjusted contract drilling revenues of $722 million at an average day rate of $358000.
Revenues above our previous guidance and reflects better than forecasted uptime higher bonus conversion and higher reverse reimbursable.
Operating and maintenance expense in the second quarter was $433 million.
This is less than guidance, primarily due to timing of certain maintenance activities.
Turning to cash flow and the balance sheet. We ended the second quarter with total liquidity of approximately $2.5 billion.
Including unrestricted cash and cash equivalents of approximately $729 million.
Approximately $400 million of restricted cash for debt service and $1.3 billion from our Undrawn revolving credit facility.
Before I update guidance I'm pleased to share that we have closed an amendment to our revolving credit facility extending its maturity to June of 2025.
The extended Rcs has a capacity of $774 million through mid June 2023, and $600 million thereafter through maturity.
This extensive provides additional certainty and enables us to maintain sufficient financial flexibility as the global drilling market continues to improve.
Food and accordion feature the amended facility also permits us to increase the amount there.
The aggregate amount of commitments.
But up to $250 million.
I will now provide an update on our expectations for our third quarter and full year financial performance.
For the third quarter of 2022, we expect adjusted drilling contract drilling revenues to be approximately $670 million.
Based on an average fleet wide revenue efficiency of 96, 5%.
The quarter over quarter decrease is largely attributable to lower utilization due chiefly to idle time on the Asgard.
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For the full year 2022 we're adjusting and anticipating adjusted contract drilling revenues to be approximately $2 $6 billion.
Down from our prior guidance by $100 billion due to the additional idle time mentioned above.
To provide context for the aforementioned idle time, but that is not a result of a lack of contract drilling opportunities as witnessed by our recent fleet status report and the $1.2 billion of contract backlog announced yesterday, but rather primarily a result of supply chain challenges faced by our customers.
For example in the Gulf of Mexico, several operators have been struggling to access tubular and consumables with a wall construction activities.
And in Norway, similar supply chain issues are coupled with lengthy approval cycles that have been hampering near term activity.
While these delays are disappointing, but not ultra amit to longer term outlook.
We expect third quarter O&M expense to be approximately $464 million of.
Our quarter over quarter increase was primarily attributable to timing of maintenance projects across the fleet.
For the full year 2022 we anticipate O&M experience to be approximately $1.7 billion.
We continued to experience pressure on employee costs and increased pricing from our vendors.
Significant portion of our maintenance expenditures or under our comprehensive services agreements.
D. C. S says contain provisions capping annual inflation and limit our exposure to rising costs.
Additionally, our longer term customer contracts provide cost escalation protection.
Finally, with the expected rapid increase in activity, we may experience a shortage of qualified personnel and resulting labor inflation over the next 12 to 18 months.
We expect G&A expense for the third quarter to be approximately 45 minutes and approximately $175 million for the full year.
Net interest expense for the third quarter is forecasted to be approximately $98 million.
This includes capitalized interest of approximately $21 million.
For the full year estimate to incur net interest expense of approximately $295 million, including capitalized interest of approximately $72 million.
Capital expenditures and capital additions, including capitalized interest are forecasted to be approximately $150 million with third quarter.
This represents approximately $100 billion for our Newbuild drillships predominantly the deepwater Atlas and $50 million of maintenance Capex.
Cash taxes are expected to be approximately $11 million for the second quarter and approximately $34 million for the year.
I've expected liquidity at December of 2023 is projected to be approximately $1.1 billion, reflecting $550 million remaining capacity of our revolving credit facility and including restricted cash of approximately $280 million, which was primarily reserve for debt service and anticipated secure.
Financing of a second generation drillship deepwater chartered.
This liquidity forecast includes an estimated 222 capital expenditures and capitalization of $1 $2 billion.
'twenty, three capex expectation of $200 million.
The 2022 Capex includes $1.1 billion related to our new builds and $60 million for maintenance Capex.
As always our guidance excludes speculative rig reactivation to upgrades.
In conclusion, strengthening the balance sheet and extending our liquidity runway remain a priority the extinction of arrow Bobby critical <unk> is the first in a series of actions, we will take to address our balance sheet and financial flexibility.
We also anticipate to continue utilizing.
Open at the market equity offering program, which we have.
Aggregate cash proceeds of $367 million as of June 30th.
As you are probably aware, our first and highly successful ATM equity program is limited to $400 million.
We fully anticipate renewed network organization for another $400 million.
As always you can expect us to continue to prudently manage our capital.
Mystically excess capital markets as and when we believe it makes sense.
Green day rates have not comfortably surpassed levels necessary to generate cash flow sufficient to meaningfully support deleveraging our balance sheet over time.
This remains our primary priority and as we execute accordingly creates value for our shareholders.
This concludes my prepared comments I'll now turn the call back over to Alison.
Thanks, Mark George we're now ready to take questions as a reminder to the participants please limit yourself to one initial question one follow up question.
Thanks, So much Ms Johnson.
Ladies and gentlemen, if you have any questions. Please press star one on your tough I'll keep it at this time.
Today's first question is coming from Mr. Thomas <unk>, calling from Morgan Stanley . Please go ahead. Your line is open Sir.
Okay.
Hi, Thanks, good morning, and congratulations on the strong quarter.
Question on the dairy side, obviously, two fantastic rates reported.
Historically, we've seen some lag between.
Contract negotiations take place, where the Dayrates are actually printed to the public so just to help the sell side.
Place expectations on where day rates could be going specifically on the drillship side of things.
Could you give us some timeframe for when negotiations were taking place for the two most recent contracts.
And B could you update us on how conversations are going with customers well.
So the day rates.
Yes.
Hey, this is roddie I'll take that one and look.
Look I appreciate the yen the complement there, but Tim I think what I'd first like to say is that yield.
Those may look like market, leading dayrates, but I really believe those are base.
They savvy customers, who are moving to get access to the right assets in the right timeframe. So yes. They look like they are leading the market today, but I don't think that's going to be the case in the next six to 12 months.
I think the truth of the matter is they simply as we as we look at things around the world, especially on the specification of the assets.
The customers are moving extremely quickly so it used to be that you saw.
Six nine months, sometimes between when.
We were answering tenders and when a when I fixture would be made that's not the case now the majority of that Theyre. The negotiations would involved in our direct negotiations and not part of a tender. So then that really helps set as we're beginning to see commitments being made within the space of weeks.
And in a couple of months rather than.
Quarter, So I think youre going to see an acceleration there because especially for the high specification units. There simply is is very very little avail.
Availability, so that that bodes very well and I think the second part of the question was around the conversations with the customers.
I think again it is an increased sense of urgency, but also making sure that they have access to the right M. Iron for there are prospects. So.
Of course, having higher specification units as is important in that realm. So I think youll see a real push at the moment for <unk>.
Our access to the existing fleet, especially the high spec stuff.
Because what we really are close to being sold out completely and that means.
Reactivation.
Moving called assets back into the market, which.
Obviously, it's not as desirable as picking up one of the highest spec rigs in the world that say hot and already performing very well.
Great.
Just staying on the topic of reactivation.
Last quarter.
You stated that reactivation likely take 12 slides.
Supply chain lead time, so yes.
Can you just update us on reactivation timelines, where are the biggest constraint for supply.
Hi chain are and maybe how labor availability is going to play a role in limiting the number of reactivation.
Please.
Problems.
It's always this is killing in a very good question I think our guidance remains the same we're probably looking at over 12 to 18 months or a reactivation based on the limitations in the supply chain at this time.
Obviously, we're hoping that that will improve as the situation stabilizes.
From a labor point of view that is something that the industry is used to and we're used to the solicitor that exists in our business and you'll find that most of the drilling contractors in our space, including ourselves are prepared.
From a recruiting processes to our training and our competency development programs.
We have access to people, we can we can recruit and develop those people in a very timely fashion. So.
Yes, it's a challenge, but I think the the bigger challenge we have right now is the supply chain side, which is still around 12 to 15 months.
Hey, I was going to supplement that just with the economy that you know as we look at the latest projections from Fearnley. There. The discussion is just for sixth and seventh Gen rigs that you're expecting to see something like 15 to 20 floater reactivation in the next year and a half well we know that's not possible.
So to <unk> point, I think there's going to be a tremendous pressure on our.
On the supply chain here and I think would only just beginning to see that.
The demand for reactivation, so that's only going to get worse. We are in the positive side of all of that is our customers are starting to recognize that which feeds directly into what Rodney was saying earlier that our customers are approaching us with urgency and quietly actually in the direct negotiations to try to secure the assets that are going to be available.
Because they know if they don't they're not gonna have availability at all it's going to take a little bit longer than they want to to start their campaigns and they're gonna have to pay more for it because they'll have to pick to the the reactivation and the upgrade in the mobe. So all of that bodes well for us and continued progression in day rates.
Absolutely. Thanks, I'll turn it over now.
Thanks a.
Sure.
We will now go to Greg Lewis, calling in from BTG. Please go ahead Sir.
Hey, Thank you. Thank you and good morning, everybody and.
Congratulations I think sometimes we forget when the markets rolling hire how quickly you can roll higher.
I guess Ravi this is probably for you.
As you think about the different basins.
And just kind of piggybacking on the press releases from last night is there any way to characterize the type of duration demand you're seeing in different basins I E. As we look at opportunities in West Africa are those more term duration work versus say.
What youre seeing and maybe Gulf of Mexico in any way to kind of parcel that out where as we look ahead could we see some some more multi year contracts or is it really broad based.
Yeah, So I'll deal with the broad based first because that's the easy bit.
So if we compare that the number of rig years that their M. A S prospects.
Since Q4 and that has increased 50%. So that's a big big movement in our business.
So in terms of the regions Ah Yeah, I think we're just seeing across the board yeah, There's one or two places that they're still shorter terms, but I.
I think because.
The place that would end in the industry and in the call on oil and gas to increase production I think there's just a.
A significant move towards delivering developments and and kind of getting on with it. So to speak. So we are seeing you know and in Africa, there certainly multi year deals out there.
In the U S Gulf of Mexico, that's what you're going to see going forward I think it was very much EM kind of well to well based stuff, but obviously with the.
The last couple of fixtures out there I think youre going to see.
A year being added to rigs two years in some cases more but the one that's really moved the needle is Brazil. So Petrobras are are really getting after it now so.
When they have the assets that they need the assets that they want and they certainly have the prospects and the developments that take a multi year requirement. So I think we had commented on this before and certainly in Jeremy's prepared remarks, but there are there's still a huge amount of unsatisfied demand and that.
<unk> at the moment just on the tenders that are out there today. So I think you'll probably see most of the the longer term stuff coming out of Brazil and of course, we're very pleased to see that with the last couple of announcements. We've had we've been able to move those dayrates up so that.
We're in a position now that it is interesting to pick up long term work because the day rates really support a.
Very high EBITDA margins.
Okay, great. Thank you for that and then just you know Jeremy in your prepared remarks, and I don't know if a variety wants to respond to this question, but I think in your prepared remarks, you mentioned about the potential for <unk>.
Kind of maybe even some of the best in class rigs, leaving the North sea market.
As we look across your fleet you definitely have some some high quality rigs that could probably go earn more money elsewhere outside the north sea, given where rates are which then.
Well I guess the Titans in the North Sea market further is that right.
We saw the Stena ice Max Reagan, Canada is that.
Could we say transocean move rigs out of the North sea to other markets here.
Or maybe just the you know the <unk>.
<unk>, just a little bit better.
Of course [laughter].
Yeah, I mean, we we explore every opportunity out there to maximize value with our assets Theres absolutely no doubt.
We'll say you know to the extent that we can command appropriate day rate in the Norwegian market, we would prefer to keep our asset and our crews there because mobilization and recurring always introduces some some risk, but we look at every opportunity to maximize value and of course, we've looked at opportunities outside of Norway with some of the assets that are currently there and we'll continue to explore there.
As opportunities as they arise.
And then just I think as we see them.
I was just going to add I think, especially when you see some of the assets that are idle at the moment, you're definitely going to see our competitors moving some of those rigs out.
Primarily as you describe because they can make a better margin so a higher cost and that Norway combined with them kind of near term softness in that market.
You're going to see these guys move from perhaps making 30, 40% EBITDA moving into West Africa.
Moving into parts of Asia.
And in the Golden triangle and be able to push that up to 50, 60% EBITDA. So yeah.
Yeah, there's clearly a case for that to happen.
And I think where we're probably not the only ones talking about that.
And so and just and just following up on that and then I'll be quiet.
I guess, what we've seen over the last 18 months has really been a drill ship Renaissance in rates.
Moving out of the North Sea as SME.
As we think about that it sounds like based on your comments.
That that spread between Drillships and semi is looks ready to converge is that does that kind of a fair way to think about it.
Yeah, Yeah, no art advice and the reasons.
Yeah, I think it I think it is and I mean, I think there's basically a lack of drillship availability.
Well you have to remember is a lot of what we describe as the harsh environment assets were designed and in many cases I would say teed some work and ultra deep water. So they are very capable very multifaceted machines.
And to your point earlier I do think when some of these rigs move out of Norway.
Highly regulated and move into some places that are little easier to do business and support much higher EBITDA margins I don't think they go back I'll be quite honest I think once you see some of these rigs move out there'll be out for for many many years.
Okay, Great Hey, Thank you all for the time have a great day.
Thank you wish Mr. Lewis.
We'll now go to David Smith, calling it for Pickering Energy Partners. Please go ahead Sir.
Hey, good morning, and thank you for taking my question.
Good morning historically.
Thank you historically, when we see day rates moving up.
Terms and conditions are also improving in the background. So I'm curious if you can give us any color.
Around Pmt's particular, particularly around bonus opportunity, it's nonproductive time allowance and cancellation provisions.
Yeah. So I think that is yes generally the case.
The the kind of the fringe benefits, if you would or they are you'll you'll probably see where certain services may have been rolled into the day rate before they're now being called out separately. So that's that's good to see and that's that's often why we have the discussion about the clean rate and then that the compounded rate but.
Certainly.
In terms of bonuses, yes that said very much a thing to play.
I think youre going to see especially in Norway to net in the next little while several contracts that are increase their bonus potential on them. So not only do you see a higher <unk>.
<unk> daily on the rig, but youll see a higher bonus opportunity.
And most recently, we signed a couple of ourselves on some of the ships that have very substantial bonus opportunities.
And Oh, you know what.
Kind of excited to see how that goes but I think it's just a way of operators being able to to to provide some extra value to us and themselves and in a market. That's really getting tight. So yes, you are seeing improved terms and conditions and contracts and an increase in bonuses.
Thank you and sorry to just add to that Justin.
Yes.
I was just can say some things that we all had to give away during the downturn.
Customer wouldn't pay for reactivation mobilization, we're starting to see that now.
Couldn't get downtime banks waiting on weather was an issue and so.
And our customers just pushed a lot of risk onto to us and the other drilling contractors and so calling all that back. During this time has really been a part of our key focus in addition to increasing the day rate.
Really appreciate the color.
Follow up is just.
And what youre seeing around customer interest in exploration.
Uh huh.
With the IFC.
Still mostly near field exploration or if youre seeing any growing interest in frontier exploration.
Yeah, No I think we are and actually I think you saw in the downturn. There was a big focus on immediate production measure. So I'm you know a lot of Workover wells M stimulus wells those kind of things.
We're seeing a.
A steady increase in and everything else. So certainly we are seeing more explanation. We we basically are getting to the point that you know the.
The major operators are essentially liquidating their their assets as they produce without replacing reserves. So we've talked about this.
For quite some time, but reserve replacement ratios going down.
We've noted that some of the majors you know Exxon recently were quite vocal about that that time. They they they simply have to start exploration again and doing a lot of replacement of reserves and getting those assets back on the balance sheet. So yeah definitely more explanation more delineation wells than we had.
And the downtime probably for for many many years.
Thanks, again, and congratulations on the quarter and the solid contract.
Thank you Mr. Smith.
Okay.
We'll now go to Mr credit extend calling you from Clarksons Securities. Please go ahead Sir.
Hey, guys.
I think that's the equity.
The rest of the people hear that.
The very impressive contracts here.
Sure.
That should give us definitely invest yourself some easter on the cash flow that you're going to generate going forward.
But my.
My question relates to the North sea and come up with the older stuff has been covered.
Already you said that in your prepared remarks, you could look at the market that could be sold out in 2024 and there are several reasons for that particularly some some.
Asset that might leave the area, but I think.
For your sake.
What I usually call the four aikman, our rigs the enabler encourage endurance and equinox.
At least from my side on the discussions that I've had with investors.
Jones.
Tied to those rigs is something that.
People will also like clarity on innovation for the year.
So I was wondering if you could provide any color as to.
Are you having discussions with Ecuador, now when would it be fair to potentially see an upstate around contract extensions.
Those rigs.
Do you have.
Anything you could share on.
Rate levels or term that you think would be fair to assume for for such extensions on that Cortez.
Yeah, Hey look so on the contract side I'll I'll I'll cover that for pass over to Mark let them yes.
We're obviously not going to reveal what we're working on but we are in discussions with the Ecuador M for extensions on that and some of those rigs and.
When you talk about that then.
The near term softness that that's the reason that these rigs are going to leave the market.
In our case, we are looking to keep them. There is as Jeremy mentioned before we much prefer to keep our our crews in Norway together.
But where we're confident you're going to see a few fixtures come out in that in the next month or two that's going to help quantify that situation but.
On the market side I think we're in discussions with Ecuador, but also several other players and as we've mentioned before the rigs are very capable to work outside of Norway as well.
So I think you are aware the preferred route.
No.
The first regarding it kinds of contract in December of this year so weird.
We also have other ideas and how to.
Secure those rigs in different a different way so I think we have options.
I district, Chris that you're beautiful patients that's all.
I will be patients for sure our remarks. Thank you.
Just on the other ones.
For me as well here in terms of potentially re Activations I think.
We're going into territory now what did you say what would the economics at least on reactivation starts to make sense and one thing is the supply chain issues that Mike.
Limit the amount of time it takes to take them out, but if you were to reactivate some of these rigs.
Kind of off the top of my head I would say that the year.
The lack of rigs and Brookfield could potentially be opportunities.
Or stacked capacity as well.
Have any.
I know there are differences between the assets here, but do you have any carryover.
Prioritized list of which rigs you would prefer to take out first if you have the opportunity.
Yes.
Yeah. So clearly we do we have three seventh Gen rigs currently in Greece, we have a warm stacked rig in.
In West Africa, So our rigs at a warmer we'll get first priority followed by the highest specification assets like the seventh Gen rigs and in Greece.
Okay. Thank.
Thank you very much I think that's all for me at this time and looking forward to following you over the next few months.
Thank you Sir.
Yeah.
Today's last question will be coming from Mr. Karl Blunden, calling you from Goldman Sachs. Please go ahead Sir.
Hi, good morning, Thanks for the time, congrats on the contract and liquidity progress.
Just a question on the new contracts from last night.
Does allow you to raise incremental secured debt further.
Other augment liquidity position you have right now.
Yes call on the the Conqueror over those two years I think combining that rig with another rig could provide us an opportunity to raise additional secured debt against it on the Petrobras 10000, no that is a set of lease agreement already back in there.
Rig contracts, so that rig is a collateral for existing transaction.
Helpful. Thanks, and then just.
Follow up.
Thank you you mentioned some of this briefly in the prepared remarks, but should we still expect some concrete news on the Petrobras at rig tender in the near term.
Any thoughts on.
Your involvement in that would be very helpful.
Yeah, I'll take that one yet so there's there's several tenders out there that are still to be awarded.
And then you've got the what they what they describe as the pool tender.
That said.
Bids for that go into thinking about two weeks time so.
Youll see that when the bids go and to get open right away because it's kind of like a public tender so pretty quickly you'll be able to see.
The right levels of all the different players I don't think there are that many rigs that will be immediately available in country. So expect to see several from outside.
And.
With that with the constraints as we've mentioned before about reactivating rigs moving them into country.
It will be interesting to see just how many rigs out there and what kind of rate levels at all.
It's obviously, a very big tender in terms of the number of rigs. So we're kind of excited to see that and certainly we will play our part in that and hope to be successful.
Abating degree, but we'll just have to wait and see but should find out in about two weeks.
Thanks, so much.
Thank you much sir.
Ladies and gentlemen that will conclude today's likely if that's especially to turn the call back over to MS. Johnson for any additional or closing remarks. Thank you.
Thank you George and thank you everyone for your participation on today's call. We look forward to talking with you again, when we report our third quarter 2022 results have a good day.
Thank you, ladies and gentlemen that will conclude today's conference. Thank you for your tenants, but thats because I can say, we wish you a very good day goodbye.