Q3 2022 Valaris Ltd Earnings Call
Good day and welcome to the Valero third quarter 2022 earnings call all participants will be in a listen only mode.
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I would now like to turn the conference over to Darin Gibbons, Vice President of Investor Relations and Treasurer. Please go ahead.
Welcome everyone to the Valores third quarter 2022 conference call.
With me today are president and CEO Anton Debits.
Senior Vice President and CFO , Chris Weber and other members of our executive management team.
Issued our press release, which is available on our website at Dolores dotcom.
Any comments, we make today about expectations are forward looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially from our expectations.
Please refer to our press release and SEC filings on our website that define forward looking statements unless risk factors and other events that could impact future results.
Also please note that 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 and required reconciliations.
As a reminder, yesterday, we issued our most recent fleet status report, which provides details on contracts across our rig fleet.
An updated investor presentation, and Aero drilling presentation will be available on our website. After the call now I'll turn the call over to Anton to buy this president and CEO .
Thanks, Darren and good morning, and afternoon to everyone.
During today's call I will start by providing an overview of our performance during the quarter.
I'll then provide commentary on the outlook for the offshore drilling market and discuss our strategy for maximizing shareholder value during the unfolding industry up cycle.
After that I'll hand, the call over to Chris to discuss our financial results and guidance.
We continued to deliver strong operational performance to our customers with revenue efficiency of 96% in the third quarter and 97% year to date.
We are committed to maintaining high levels of safety performance, which is particularly important given increasing activity levels.
Safety performance is the result of the focus and dedication of the Polaris team.
Programs that we've implemented these include a bulk leadership training courses that we run every other week.
Behavior based safety program with Supervisors mentor and engage with junior crews to ensure that they understand and are adhering to all safety systems of work.
And the new format for our basic training program in the U S Gulf of Mexico utilize it stacked rigs in the U S Gulf.
We believe that this format basic training will help new employees, especially those who are new to the industry to be better prepared for the offshore working and living environment and deployment onboard our working rigs.
Since its inception, we have averaged 18, new hire employees, graduating every two weeks.
I'm pleased that these efforts have been recognized by our customers with Soliris recently being rated the number one offshore driller and energy point research is 2022 customer satisfaction survey.
Soliris was number one in nine categories, including total satisfaction health safety and environment and job quality.
These awards are a testament to the exceptional work that our dedicated offshore crews and onshore support teams perform in partnership with our customers and we are grateful to our customers for recognizing our performance.
I'm extremely proud of the entire <unk> team for continuing to deliver high levels of operational performance during the challenging period for the industry in the organization.
Since the beginning of the year, we have successfully executed four major floater reactivation.
All four rigs returning to work largely on time and within our reactivation cost guidance.
This achievement speaks volumes about the operational execution capabilities of our organization and positions us well for future opportunities that required the reactivation of stack rigs.
The return of these four floaters to the active fleet over the past several months has contributed to a meaningful improvement in our third quarter operating results demonstrating the operational leverage inherent in our business.
Adjusted EBITDA increased to 76 million from 29 million in the second quarter, and adjusted EBITDA, which adds back onetime reactivation costs increased to 94 million from $54 million in the second quarter.
Turning out to the market.
The fundamental outlook for our industry remains highly constructive.
A lack of investment in new sources of production over the past several years has contributed to a tight supply picture that has been exacerbated by geopolitical instability and an increased focus on energy security.
A significant increase in investment will be required to rebuild global supplies irrespective of near term demand volatility and offshore production is expected to continue to play an important role in meeting the world's need for secure and affordable energy.
We believe that these factors and the significant reduction in the rig fleet, especially floaters over the past several years lay the foundation for sustained industry up cycle.
Despite recent downward pressure on oil prices due to fears of a global economic recession and the strong U S. Dollar commodity prices remain at levels that are highly supportive of continued investment in offshore oil and gas projects.
Two year Ford Brent crude prices are currently around $75 per barrel and five year forward prices are just below $70 per barrel levels at which almost all undeveloped offshore resources I expect it to be profitable.
As a result of the support supportive commodity environment Capex for acre project approvals in 'twenty 'twenty, three and 'twenty 'twenty four I expect it to be at their highest levels in more than a decade.
And these project approvals should help drive capital expenditures for several years to come.
The constructive macro environment and increased upstream spending have led to an increase in both contracting and tendering activity across both floaters and jackups.
On a trailing 12 month basis rig years awarded for benign environment floaters are approximately 40% higher than the previous 12 months.
In addition rig years of open demand, a tender or pretend to stage, which represent the visible customer demand and customer demand that is expected to formally come to market soon where approximately 40% and 25% higher than six months ago 12 months ago, respectively.
The increase in contracting and tendering activity seen utilization per active drillships sustained at around 90% for the past 12 months, which has led to meaningful improvements in day rates.
Average day rates for drillship fixture signed in the third quarter 2022 were approximately $400000 per day with some leading edge rates in certain regions above this level.
As compared to less than 200000 per day in the fourth quarter 'twenty 'twenty when active utilization was around 75%.
A meaningful portion of the recent increase in tendering activity was attributable to the recent Petrobras tender, which is expected to see seven rigs contracted for long term work offshore Brazil commencing in 2023.
Subsequently Petrobras have launched our new RFID or up to three further ultra deepwater rigs on the busiest development starting in late 'twenty twenty-three or early 'twenty 'twenty four.
We continue to expect that Brazil will be a significant driver of floater demand over the next several years and we're well positioned to benefit given our presence in the country with Polaris D. S. Four and D. S 15 already working offshore Brazil for Petrobras and total energies, respectively, and Polaris Dia 17 currently being react.
Debated to walk on Ecuador was Bacalao project, beginning in the middle of 2023.
We continue to see a mix of shorter term exploration and longer term development programs offshore West Africa, including in Ivory Coast in Namibia, which have both seen large commercial discoveries. This year that could lead to increased rig demand for the floater market going forwards.
We have a strong footprint in the region with three drill ships currently operating offshore Angola, Nigeria, and Mauritania and the further three stacked drillships nearby in the Canary Islands.
We also see several opportunities in the Gulf of Mexico, both on the U S and Mexican side.
The U S opportunities, primarily real quiet drillships, while the Mexican opportunities are well suited for our active semi submersible in the region Polaris D. P. S Fi, which was awarded a three well contract with Eni in Mexico in the third quarter at an attractive day rate.
On the Jackup side of the business, we've seen a meaningful increase in activity since the start of the year.
Primarily driven by increased demand in the middle East.
On a trailing 12 month basis Jackup rig years awarded are more than double the previous 12 months and rig years of open demand tend to pretend to stage as of quarter end were approximately 20% and 45% higher than six months ago 12 months ago, respectively.
As a result active utilization for Jackups reached approximately 90% at the beginning of the third quarter.
Day rates also continued to trend upwards with average day rates for benign environment Jackup fixtures signed in the third quarter 2022.
Nearly $100000 per day with several recent pictures above $120000 as compared to approximately 70000 barrels per day in the fourth quarter 2020, when active utilization was below 80%.
Recently, we will award a jackup contracts or extensions in the middle East The North Sea Latin America, Australia, and New Zealand highlighting the increase in activity, we are seeing across most regions in which we operate.
Well the benign environment Jackup market has improved meaningfully this year the harsh environment Jackup market in Norway continues to show little sign of recovery in the near term.
Our harsh environment Jackup fleet includes three Keppel Fels N class rigs capable of operating in Norway.
We already have one of these rigs operating in the U K North Sea and expect to relocate a second rig outside Norway. Following completion of its current contract in the fourth quarter.
A third rig operating offshore Norway is expected to end its existing contract in the first quarter of next year and prospects for follow on work in Norway are limited.
We expect some rigs working in the north sea outside of Norway to go idle later this year as we enter the seasonally weak weaker winter months and rigs complete their current programs.
While utilization during the first half of 2023, maybe somewhat challenging we see an improving pipeline of activity in the U K North sea for work commencing in the second half of the year.
This coupled with an expected improvement in demand offshore Norway in 2024 leaves us hopeful for a more balanced harsh environment jackup market in future years.
Moving now to our fleet strategy.
We will continue to employ a disciplined fleet management strategy with a focus on driving long term shareholder value.
First priority isn't to assure that the active fleet remains highly utilized while having a large fleet means that we can pursue a portfolio approach to contracting with a mix of longer and shorter duration contracts ideally with staggered rollovers.
We also aim to have a critical mass of rigs and priority basins to benefit from economies of scale for.
For example, once we have reactivated allows us Tia 17 for its contract offshore Brazil, we will have three active floaters at each point of the Golden triangle.
Our second priority is the reactivation of our high quality stack fleet.
We have proven our ability to win work for and reactivate a preservation stacked assets and we still have 11 high quality modern assets remaining including three Uncontacted high spec drillships.
D S. Seven D S. Eight D S 11.
These rigs are well suited for many of the attractive opportunities we see in the market today, but we will remain disciplined and exercising our operational leverage by Omi, returning additional stack rigs to the active fleet.
For opportunities that provide meaningful returns.
Based on current day rates reactivation economics are highly attracted.
The remaining supply of modern stack drillships, each largely helped by the Laris and two of our competitors and we anticipate that stack rigs will only be reactivated for opportunities that provide strong returns.
In addition to our stacked fleet, we have options to take delivery of Newbuild Drillships Polaris Dias, 13th and 14th by year end 'twenty 'twenty three.
For a shipyard price of approximately $119 million and $218 million respectively.
Paired to recent market transactions and broker <unk> with similar assets in the high two hundreds to mid three fifty's.
We will continue to evaluate our options regarding these regs as we see the market evolve over the next 12 months.
Importantly, we believe it is unlikely that we will see another flow to newbuild cycle, given high build costs long lead times and limited shipyard availability.
Therefore, we anticipate that the current rig fleet will form the basis of supply for the foreseeable future.
As part of our fleet strategy, we continue to actively assess athlete for retirement and divestiture candidates.
Recently, we executed a sales agreement on 40 year old Jackup allows 54 for $28 $5 million, which is expected to close in March 'twenty twenty-three upon completion of its existing contract.
<unk> 54 is approaching a special survey and would've required meaningful capital investment in the near term.
This is value accretive sale will provide capital that can be deployed on opportunities with more attractive return profiles.
We will continue to take a disciplined approach to fleet management and capital allocation to maximize long term shareholder value.
Another important part of the <unk> value proposition is that Aro drilling.
Consolidated 50, 50 joint venture with Saudi Aramco.
Arrow is an important strategic asset Polaris, providing a unique partnership with the largest customer for jackups in the world.
During the third quarter, we received a payment of $40 million from arrow, representing a partial early repayment of a shareholder notes receivable with the remaining balance of $403 million after the repayment.
The partial early repayments of our shareholder notes demonstrates our confidence in its earnings profile contract structure and that the newbuild rigs will be financed by third party financing and cash from our operations.
We're always actively exploring financing options for its newbuild rigs and expects financing to be secured prior to delivery of its first two new builds next year.
As a reminder, each of the 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 rate.
Following the initial contract each newbuild will be contracted for at least eight more years in aggregate.
With pricing set every three years utilizing our market pricing mechanism.
We see significant investor interest in the region for drilling businesses.
Recently, a local driller with both onshore and offshore rigs successfully completed its IPO raising more than $700 million substantially oversubscribed offering at an attractive valuation.
We remain focused on highlighting what we believe that significant value inherent to narrow and recent asset transactions in ipos in the region helped to support this view.
Further information on the Arrow can be found in a separate investor presentation on the Polaris website.
I will conclude by reiterating some of the key points from my prepared remarks.
First we continued to deliver strong safety and operational performance and these efforts continued to be recognized by our customers, including by being rated as the number one offshore driller in the 2022 energy point Research survey.
Second despite the current macroeconomic uncertainty the fundamental outlook for our industry remains highly constructive as evidenced by increase in contracting and tendering activity across both floaters and jackups.
And third we continue to take a disciplined approach to fleet management and recently executed on a value accretive sale, which positions us to redeploy capital on opportunities with more attractive return profiles.
In summary, flowers is well positioned to capitalize on opportunities that arise during an industry up cycle and allows management team and board remain laser focused on maximizing earnings and drive meaningful free cash flow by following our strategy of being value driven focused and responsible in our decision.
With that I'll hand, the call over to Chris to take you through the financials.
Thanks, Tom and good morning, and afternoon everyone.
I am pleased to be speaking to you all today in my first conference call as CFO of Lear is an exciting time for our business in the offshore drilling industry as a whole.
We believe that the positive outlook for commodity supply and demand in a meaningful reduction in rig capacity over the past several years provide the backdrop for a multi year industry up cycle.
In my prepared remarks today I'll provide an overview of third quarter results and our outlook for the fourth quarter.
<unk> I will briefly review, our financial position and capital structure.
I would also highlight our third quarter results press release, which includes our trailing five quarter analysis for the income statement balance sheet and cash flows as well as various supplemental data in our latest fleet status report that we published yesterday.
Moving now to the third quarter results.
As Anton mentioned earlier, the return of four reactivated floaters to the active fleet over the past several months has contributed to a meaningful improvement in our third quarter operating results.
Adjusted EBITDA was $76 million compared to $29 million in the prior quarter and adjusted EBITDAR, adding back the onetime reactivation costs with $94 million compared to $54 million from the prior quarter.
Revenues were $437 million compared to $413 million in the prior quarter.
Excluding reimbursable items revenues increased to $415 million from $385 million, primarily due to higher utilization for floaters in higher average day rates for both the floater and Jackup fleets.
We offset by $51 million termination fee related to the termination of a contract from Polaris D. S 11 recognized during the prior quarter.
Floater revenues increased primarily due to the impact of reactivated rigs returning to work.
D S for India's nine started contracts early in the third quarter.
Following <unk> 16, and Dps, one which can lose contracts during the second quarter.
Jakob revenues increased primarily due to more operating days for the layers Viking and one is sudden which experienced some idle time between contracts in the second quarter and higher average earn day rates for the fleet.
This was partially offset by idle time between contracts for lenders 118 and out of service time for a special survey on Xolair is 92.
Contract drilling expense was $337 million compared to $362 million in the prior quarter.
Excluding reimbursable items contract drilling expense decreased to $316 million from $334 million in the prior quarter, primarily due to costs associated with the layers D. S 11 contract termination in increased cost of certain claims in the second quarter.
Well as lower reactivation costs, which decreased to $18 million from $24 million in the second quarter.
This was partially offset by higher rig operating costs in the third quarter related to an increase in operating days across the fleet.
Moving to our shore based costs general and administrative expense of $19 million and onshore support costs of $30 million were both in line with the prior quarter.
As a reminder, onshore support costs were included within contract drilling expense in the income statement.
Depreciation expense was also in line with the prior quarter.
Other income decreased to $30 million from $149 million in the prior quarter due to gain on sale of assets of $135 million higher merely related to the sale of Jackups. The layers 113, 114 and 36 in the prior quarter.
This was partially offset by noncash interest income of $15 million recognized in the third quarter for a write off of the discount attributable to the $40 million of shareholder notes receivable repay but Aaron.
We recorded a discount on the ear shareholder notes receivable as part of fresh start accounting, which is being amortized over the life of the notes.
Upon commercial early repayment of the notes, we wrote off part of that discount to interest income.
Tax expense was $14 million compared to $20 million in the second quarter.
Quarter tax provision included approximately $6 million of discrete tax expense, primarily attributable to income associated with the contract termination.
Adjusted for discrete items tactics, there's a decreased to $12 million from $14 million in the second quarter.
Moving now to our fourth quarter 2022 outlook.
That total revenues will be in the range of $420 million to $430 million as compared to $437 million in the third quarter.
Revenues are expected to decrease primarily due to lower activity in the north sea with a harsh environment Jackup fleet.
We had three rigs rolling off contract in the region during the fourth quarter.
Interest of anger, which is operating in Norway, and the 121 and the $2 47, which are both operating in the U K sector of the North Sea.
While these rigs are currently being marketed for new work, we think it is unlikely they will commence a new contract before year end as we are entering the seasonally weaker winter months.
In addition, the Polaris 123 will have more idle time in the fourth quarter, if we're going back to work in November .
Given the anticipated lack of customer activity offshore Norway through 2023.
The list of anchor will be relocated to the U K upon completion of its current contract in warm stack in Dundee.
The lower expected activity in the North sea should be partially offset by the Polaris 118, starting a new contract offshore Trinidad early in the fourth quarter.
There's literally 92 returning to work after recently, they're going its special periodic survey.
Full quarter of revenues for the reactivated Drillships <unk> DS four and DS nine.
We anticipate the contract drilling expense will be in the range of $345 million to $355 million as compared to $337 million in the third quarter.
I'm merely due to more operating days for the floater fleet.
Mobilization costs for several harsh environment Jackups following contract completions.
General and administrative expense is expected to be $21 million to $23 million compared to $19 million in the prior quarter.
Adjusted EBITDA is expected to be $50 million to $55 million compared to $76 million in the third quarter and adjusted EBIT Dar is expected to be $65 million to $70 million compared to $94 million in the third quarter.
This implies full year 2022, adjusted EBITDA of $124 million to $129 million and adjusted EBITDAR of $243 million to $248 million.
Full year adjusted EBITDA is expected to be just below the lower end of our prior guidance range of $130 million to $150 million, primarily due to the timing of reactivation costs for the Polaris D. S 17.
Read that reactivation costs that were previously outlook in 2020 three are being brought forward into the fourth quarter ahead of US anticipated contract started in the middle of next year.
Moving now to capital expenditures third quarter, Capex was $53 million of which $23 million was maintenance capex and $30 million was related to enhancements and upgrades primarily for reactivation contract specific upgrades on reactivated rigs in steel replacement for Blair's 92.
Fourth quarter Capex is expected to be approximately $52 million to $57 million.
Of which approximately $20 million is expected to be maintenance capex and the remainder is expected for enhancements and upgrades.
In Haynesville upgrade are primarily related to reactivation capex and contract specific upgrades graves for Polaris Dia 17, as well as steel replacement frugal there is 92.
As a result full year 'twenty to 2022, Capex is anticipated to be approximately $205 million to $210 million.
This is at the high end of our prior guidance range, primarily due to accelerating certain work scopes on the Polaris Dia 17 reactivation project.
Now I'll move to the third quarter results as well as fourth quarter and full year 2022 outlook for Aero drilling our 50 50 joint venture with Saudi Aramco.
As a reminder, arrow is not consolidated in the financial results of hilarious.
EBITDA decreased to $17 million from $31 million in the second quarter, primarily due to an increase in out of service time related to planned maintenance on certain rigs, which resulted in lower revenues and higher contract drilling expense during the third quarter.
Arrows fourth quarter EBITDA is expected to increase to approximately $24 million to $26 million from $17 million in the third quarter, primarily due to higher revenues, resulting from those rigs returning to work.
And a full quarter of revenues for Valero is 141, so long as contracts started up in August .
There was a school year when each week to EBITDA is expected to be approximately $94 million to $96 million.
Finally, I'll provide a brief overview of our financial position and recent steps we've taken to increase the options available to us.
With regard to capital allocation decisions.
As of quarter end, we had cash and cash equivalents of $406 million plus $18 million of restricted cash and a further $220 million of short term investments.
As a result, we have total liquidity of $644 million, representing an increase of $67 million during the quarter.
This was driven by lower working capital and the $40 million receipt.
From ERO as a partial early repayment of our shareholder notes receivable.
I do want to note that in October we received a $55 million refund from the IRS related to the cares Act.
We still have a further $64 million outstanding however, the timing of this receipt is uncertain.
As Anton mentioned earlier, we recently executed a sales agreement for.
The 40 year old Jackup Polaris 54 for $28 $5 million, which is expected to close in March 2023 upon completion of its existing contract.
Blair's 54 would've required meaningful capital investments in the near term is that approaching a significant special survey.
This value accretive sale will provide capital that can be deployed in opportunities with more attractive return profiles.
During the third quarter, we completed a consent solicitation on our senior notes, which added a standard net income builder basket for restricted payments.
<unk> increased the size of our general restricted payments investments baskets.
These changes provide customary and greater flexibility over time and better position us to take advantage of strategic or other opportunities should they arise.
We also authorized a $100 million share repurchase program during the quarter, which allows us the flexibility to opportunistically return capital to shareholders.
These two actions provide us with enhanced capital allocation and strategic flexibility.
We believe their valuable tools at our disposal to create shareholder value.
In closing we remain focused on executing our key priorities are first winning additional backlog for the active fleet and second reactivating or high quality stack rigs for opportunities to provide meaningful returns versus their reactivation costs.
We also look to act opportunistically to create shareholder value through M&A additional asset transactions or other potential investments and we will maintain our focus on having industry, leading cost structure and a strong balance sheet.
By executing on these priorities, we will maximize earnings and drive meaningful free cash flow over time.
A disciplined approach to capital allocation.
We've now reached the end of our prepared remarks, operator, please open the line for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed we would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Greg Lewis the P. P. I G. Please go ahead.
Yeah, Hey, thanks, good morning.
Well I guess the first question.
Clearly the U S Gulf of Mexico day rates going higher.
You've seen.
What's that.
So it seems like.
Like market rates.
Pretty much everywhere.
Hey.
As we think about that.
See that.
You know realizing budget seasons are feeling.
As we look out into 2023 and beyond.
It seems like customers that then.
Contract drilling customers seem to be well.
Well Ian.
More.
Short term contracts that kind of extend out.
Taking a rig for work.
Yeah, just given the fact that rates continue to go up on us.
Yeah.
Are you starting to see.
Customers coming into the market looking to get.
Okay.
Bruce.
Hi, Greg.
Well I think it's a fair observation I think a couple of observations.
About what we're seeing on contract durations in day rates.
First thing is to remember as I said in my prepared remarks that you know contract leading edge day rates for ships have almost doubled Oh, we'll have doubled over the last two years from 2000 22022 from around 200000 to $400000 a day.
You know as we went through the the beginning of the last down cycle. There were a lot of our customers who were caught very long regs I'll call. It that way and there was a significant amount of money that was spent on terminations. I think there is a general reluctance from from customers to contract for longer than they know they need a rig.
For what the program that they they have in place.
Oh, no shorter exploration programs, although those have stretched out a little bit as supply available supply of rigs is has diminished kind of pushing towards a year and development programs and that kind of one to three year and I think we were going to see that for for a period going forward that being said.
If we look at reactivation economics.
We did on the Dia 17, being able to get in 18 months or two year contract day rates are that are in the high three hundreds are low four hundreds makes for an attractive program and while there is some you know available stock capacity that can still be brought to market them at those rates and some <unk>.
Trying to the assets at the yard I think you know that's going to be a feature of the market or for a period going forward, but not a market that we can't make up that we cant make good business out.
Our next question will come from Frederic stellar with Clarksons Plateau Securities. Please go ahead.
Hey, guys hope, you're well and nice to see the stack.
That capacity coming on line in boosting that performance.
So I have a I have a few questions, but I'll try to be short I think.
In terms of.
You know the the supply side here I think I agree with you that for nowadays doesn't really seem like there will be a newbuild cycle here and with some of the call.
Call It easy reactivation, it's out of the way.
And some of your peers.
You've seen that.
The threshold for that cold stacked or smart spec capacity to come back.
It's Dr.
The ductless opinions being reflected into bid that day rates and I think I've seen the D S. Having under D. S. Eight show up in some of the Brazil.
Anders here.
The rates that you've put forth there seems to be around $500000 through young on for years.
So do you think that that's where it needs to be for this to come out or are you looking at all.
Are there opportunities for that capacity elsewhere outside of Brazil as well.
Perfect. Some good observations and obviously, you're not going to get into the specifics of our commercial strategy.
Where we're bidding, but what I will say.
Is that you know there are attractive economics to bring to bring rigs out I think when you're looking at all in day rates you know some of the numbers that you're referring to includes as we've done on previous reactivation, where were getting the customer to contribute partly to our reactivation, which was not a feature of the markets you know.
You know 912 months ago and those get added in you know get added into the day rates.
There are attractive opportunities, where the market is right now for us to reactivate to reactivate assets.
You know as we've said all along we see the demand picking up growth year over year and projected kind of 7%, 8% compound annual growth in demand for deepwater offshore floaters, you look at our look at the rice that numbers over the next few years and we're going to be disciplined in it.
In finding the right opportunities to bring our remaining stacked capacity now there are many factors that go into that you know obviously de rages Ah is an important part of it but it's also what location are we putting the rig into you know is there an expectation or you know follow on work in that basin, we've been very focused on concentrating our rigs.
In the Golden triangle, so that we can get efficiency yet.
And benefits of scale in there what is you know who is the customer what are the other contract terms.
And just the headline day rates you know in the end the Gulfport program that we can get from there. So yes. That's I think the day rates are are are attractive and we see opportunities for seven 810, 11 and operating them in a number of programs, but we will be patient and disciplined in putting them back to work in the right basin with the right customers.
And then.
In the right market.
Yeah. Thank you that's very helpful and just a follow up on that for.
I guess the.
I see it I I in the Golden Triangle, I'm really worried about it being enough supply with what's currently warm, but there's also when you compare the backlog now versus where we were you know 12 13 14, the forward coverage and it's still kind of lackluster there's still.
Overall, our lack of <unk>.
Term on average versus where we were in the previous cycle and I guess, that's also something you would consider when bringing things back that you don't end up cannibalizing your your.
Current to warm fleets when you do that.
Absolutely I think you have it you have it precisely right. There I think both Chris and I mentioned, you know our first priority is to keep our active fleet highly utilized and to bring out a stack fleet back for the right opportunities and you know the kind of your question and Greg's question before you know there are there is not.
As we've seen in previous cycles, we haven't gotten to that point in the cycle at least yet where there is long term multiyear for a five year contract backlog coverage on the floater fleet agenda, which means we need to be very thoughtful about how we manage our fleet profile and how we manage our business.
But you know given the right opportunities given that you know an initial program, including our reactivation provides meaningful meaningful returns, we do see place an incremental demand coming through for us to do additional reactivation, but yes, we have to manage the business the business, where we are in the cycle and needs to be managed carefully.
Perfect and then just two Super quick once short term investments can you comment on exactly what that it's our if you decided I didn't catch it and second the rig save up the whole artist 54, what would you consider that an arms length sale because the price points for 40 year old rig is in my view.
I just need to make sure that I understand it correctly.
Yes.
This is Chris on short term investments and that was just a time deposit went over 90 days. So just trying to get a little extra yield on the cash so nothing nothing more than that.
Yeah and on the rig sell absolutely an arms an arms length transaction I mean for US we operate a high spec fleet you know most about our fleet is in the top quartile in the top half and that's what we do well and serve those customers 54 is a 40 year old asset need significant capital in and we.
Have more more opportune places to invest that capital, but for somebody else who wants to operate in a in a different market.
That may make sense for them. So absolutely an arms length transaction I think just speaks to how the jackup market has has strengthened broad based.
You know over the last six to nine months.
Perfect. Thank you so much.
Okay.
Our next question will come from David Smith, with Pickering Energy Partners. Please go ahead.
Thanks, Matt Good morning, and good afternoon, and thank you for taking my question.
One of the most circle David.
I wanted to circle back to the Norwegian Jackup market, you mentioned moving the banger two U K I think to put it up and then B I think is that in anticipation of a potential U K work is that mostly to lower the warm stack costs.
Yeah, So what I'll say about Norway, and I think we've tried to be quite quite upfront and clear about the Norway market is a market that historically carried at some points in time you know.
Up to close to 15 rigs operating.
At its height and is down almost a counter almost a third.
Relocating the rig we have already relocated one of the N class onto a contract in the U K, we don't see the opportunities in the near term demand.
Nor way generally Norway is featured by having very long lead times and in their contract in a contracting process. So you can see you know 912 months out what the demand is going to be and we just don't see the demand from the operators in the north sea I'm not going to get into the commercials of what we're looking at.
For all those rigs, but there are opportunities the great thing I mean these assets are mobile they can operate in the U K or in the remainder of the North Sea just as easily as they can operate in Norway and if we don't see you know the future demand and in Norway, and we don't see it and we will look for opportunities elsewhere and wait for them.
The Norway markets, two to be better and stronger and obviously they will remain capable of operating Norway. They they have the suite and you know we will bring them back to the Norwegian market. When there is a better market there.
That's perfectly clear.
Wondering if I guess.
Two quick follow ups to that.
Could you talk about you know potential opportunities to deploy in class jackups outside of the North Sea.
And then related how should we think about idle costs for these jackups.
I hate to ask maybe what you might need to see before you would consider you know preservation stacking one.
Absolutely I you know the the N class you know as opposed to some of the bigger <unk>.
<unk> Jackups as is.
It can work outside the North sea.
We would like to keep it it's S. A utilized in harsh environment rigs were built for harsh environment. So we can if we can find attractive opportunities in the north sea and not take it too far afield, but absolutely if it makes sense for the right contract, we will absolutely move it outside the North sea, if there's an attractive opportunity.
As far as the stacking cost you know I I wouldn't put the stacking cost of a jackup there relatively.
You know relatively small and I wouldn't put stacking cost of an <unk> class you know much different from a from a.
Any other jackup kind of in that three to $5000 a day range.
Very helpful. Thank you if I could sneak one more and I don't want to read too much into your introductory comments, but I did want to revisit your remark about the unlikelihood.
I think you said, specifically clean another load or to build cycle. So I wanted to ask I outside of Aero What do you make the same comment about jackups.
Okay.
For the medium term absolutely, yes, I you know I think that there is a difference between building jackups in building floaters, you know theres, a lower investment cost, they're a lot more yards that could potentially build jackups. If the market. You know, yes, you know very high end.
Stays that way for a significant period of time, well I think we're a long way away from that today, but if you ask me as a comparison between the two you know the chances of a of a newbuild cycle and jackups versus in floaters. I think there is a relative difference, but I do think we're quite a ways away from that.
Great. Thank you very much I'll circle back.
Sure.
Again, if you have a question. Please press Star then one our next question will come from Samantha Hoh with Evercore ISI. Please go ahead.
Hey, guys congrats on the nice quarter.
I thought it was interesting that you kicked off the prepared remarks about I'm talking about your new training facility.
Pretty impressive that you graduated 18, new candidates every two weeks I was just wondering if you could talk about where you're finding these T I guess.
You are in place.
Yeah, how are you and what are you thinking in terms of the pace at which you need to keep adding them.
You know I mean are you putting them out to work and like your sleep well why like how is this.
And then the other thing is this being expensed or capitalized.
Okay.
Oh no problem no look obviously.
Obviously as the fleet as the whole business activity levels increase there is increasing competition for people and attracting people.
You were talking about it in the Gulf of Mexico is really for entry level people coming in you know kind of floor hands kind of at the at the bottom level as we're training them up and we've lost a lot of people from the industry you know through through the down cycle in some of those folks aren't coming back so for us, it's about bringing new entry level people who've made.
We never worked offshore you know before and getting them used to what the offshore working environment is and it's one thing to learn it in a training facility on land and then go out offshore and you have to do what that environment and we just thought this was a great way to actually have people live on a rig or for a couple of weeks, while they doing training be able to see what it.
Rig floor looks like to be able to practice lifting operations with real cranes and really get into the environment, partly so they could see whether they liked the environment and they they they you know it wasn't a surprise to them and they felt comfortable on the rig when they get out there and we've had great response from the folks who are doing that so for US you know.
We went through this period of reactivated four you know floaters, which was a huge lift for the organization and we will continue to reactivate rigs, but that would be at a kind of a more measured pace. You know got we'll have four going on simultaneously, but let's see but this is really about building our pipeline and having the people who are working on our rigs understand.
Our culture understand all states system to work and be safe and successful when they get out onto a working facility and this is because it is expense, but I mean, when we look at this it is and as I mentioned this is about our pipeline.
With turnover you always needing to bring crews in especially with these senior level position. So we think it's a really cost effective solution to manage that.
So we play these are people who are we know all going offshore working assets and they were hired.
We would be doing the training. This is part of normal business. This isn't an incremental amount that we're adding to the cost base.
Where and how we do our training for our people to train.
And also trying to.
It's not the right fit for someone we wouldn't know sooner rather than later.
Uh huh.
Thank you.
I think if I can squeeze one more yeah. It was interesting to see what you guys did.
We're the I think he has eight or nine until the Petrobras I see a lot of tender.
Yeah, probably it seems that there is the.
Okay.
Reactivation costs in there.
And then also.
Kind of rolled up into that that then.
And then I also thought it was kind of interesting that just people.
That they plan on adding two might get bought it makes them be a couple of months ago, but I'm just kind of wondering you know with all your clothes that floaters and the Canary Islands. How are you thinking about balancing where you add that incremental you know reactivation like between the Golden triangle and how should we think about the difference.
Uh huh.
You need on the daily side versus what it costs them incrementally you're working in each of those three basis and like where you would really like to add more scale I guess, Florida operation.
Well right now we have three rigs at each point of the Golden Triangle, and we have three high spec.
Act drillship. So you know in a in a perfect World you know put one in each corner, but look we will we will see where the where we're the most off.
Attractive opportunities are and deploy them to those.
There are quite different requirements in each of the markets you know Brazil.
Brazil, and Petrobras in particular have very specific requirements about how they like their rigs setup as do most operators, but but but Brazil in particular, Petrobras certain certain equipment being set up of a certain way. So there is a you know there is an upgrade in capex components to those.
One of the features of that contract structure is also that for each bid that comes out they limit. The upfront you can more or less mobilization and upfront payments to a number of days times that day rate that you bid.
Normally in order up about 70 days. So your day rate needs to reflect you know if there is an amount that you can't recover onto that upfront payment. So it's there.
Kind of a function of how black market operates versus versus others.
But to your question you know I think there is a there are opportunities that at all corners of the of the Golden triangle This incremental work coming in.
And Africa, West Africa, North Africa, but that are attractive opportunities for our for our cold stacked assets, where obviously you talked about you know the the incremental demand. We've just had the seven rig tender the buzzi as tenders out there's still a couple of rigs that need to be secured for BMS 11, which haven't been secured yet and I think when.
You look at the day rates that were bid into that Petrobras tender without getting into specifics. He saw a clear delineation between folks who already had a rig in market and we're wanting to make sure that they continued to be operating there versus the folks who are bringing rigs from outside the market into the market and.
Seeking compensation for the upgrades the capex and the mobilization that would be required to bring the rig into the market.
But I think it was and I'm sorry, the nice thing is we already have three rigs in each of the basins and so you've already got a scale position there.
So it gives us flexibility.
This concludes our question and answer session I would like to turn the conference back over to Darren Gibbons for any closing remarks.
Thanks, Matt and thank you to everyone on the call for your interest in Valores, We look forward to speaking with you again, when we report our fourth quarter of 2022 results have a great rest of your day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.