Q3 2022 Transocean Ltd Earnings Call
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You need assistance during your conference today. Please press Star Zero, Good day, everyone and welcome to today's Q3 2020 to Transocean earnings Conference call. At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pushing that.
Star and one on your Touchtone phone you may withdraw yourself from the queue by anytime by pressing star and two. Please note. This call may be recorded and I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Allison Johnson Investor Relations.
Thank you Shannon good morning, and welcome to Transocean third quarter 2022 earnings Conference call a copy of our press release covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on our website at deepwater dotcom.
Joining me on this morning's call are Jeremy Thigpen, Chief Executive Officer, Keelan, Adamson, President and Chief Operating Officer, Mark Mey, Executive Vice President and Chief Financial Officer, and Roddie Mackenzie Executive Vice President and Chief Commercial officer. During the course of this call Transocean management may make certain forward looking.
Statements regarding various matters related to our business and company that are not historical facts.
Such statements are based upon current expectations and certain assumptions and therefore are subject to certain risks and uncertainties.
Any 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 up.
Date 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 on today's call.
As reported in yesterday's earnings release for the third quarter Transocean delivered adjusted EBITDA of $268 million on $730 million and adjusted revenue, resulting in an adjusted EBITDA margin of approximately 37%.
Our overall performance was supported by strong bonus revenue and the transition to higher day rates on several of our rigs.
As usual this was truly a team effort and as such I would like to extend a sincere. Thank you to the entire transocean team for their commitment everyday to deliver best in class service to our customers in the best possible results for our shareholders.
On our second quarter earnings call I addressed the ongoing energy security concerns that have become an area of international focus following the Russia, Ukraine conflict.
Access to affordable reliable energy sources is essential to global economic prosperity the.
Sabotage the Nordstream pipeline carrying gas from Russia to Europe further underscores the importance of a reliable and diverse energy supply chain.
A vicious cycle of poor shareholder returns in the downturn and aggressive ESG investment mandates led to chronic underinvestment and reserve replacement, which ultimately affects production.
Sequentially, we are facing.
The risk of sustained oil and gas shortages globally.
Separately this year soaring inflation and rising interest rates have for the first time in almost eight years shifted investor sentiment toward energy stocks oil and gas in particular.
This shift coupled with the recent effects of systemic underinvestment in energy have further expose the practicality of a swift global transition from fossil fuels.
In the mid to long term demand for all sources of energy will continue to grow and it is imperative that new sources that supplier discovered and developed to meet this demand.
And while hydrocarbons will undoubtedly over time lose market share to renewables in the overall energy mix, most believe that volume metric demand for oil and gas will continue to increase.
Fact, rice that energy recently estimated that 63 million barrels per day of new supply are needed to avoid a shortfall in 2030.
It cannot be accomplished without significant investment and additional exploration and development, including in the offshore basins, requiring our assets and expertise.
Accordingly, we are the market leader in offshore drilling having necessary and important role to play in the ongoing energy expansion for the foreseeable future.
Let's now turn to the fleet.
As reflected by the new fixtures in our October 13th Fleet status report, we observe heightened demand for our services again in the third quarter.
I'm pleased to share that we added an incremental $1 6 billion in backlog since the release of our July fleet status report.
Our total backlog to seven 3 billion.
Importantly, these pictures come from five separate regions confirming that the recovery of the offshore drilling market is indeed global.
And as I will discuss in more detail in a few minutes. We continued to see a steadily increasing number of tenders. In addition to numerous direct negotiations with our customers.
I'll now provide a summary of our recent fixtures.
First I would like to briefly recap two awards discussed on our second quarter earnings call. These two important contracts are now reflected in our backlog numbers.
In the Gulf of Mexico, We signed a contract with a major operator for two years on the deepwater Conqueror in direct continuation of the current program at a very favorable rate of $440000 per day with up to an additional $39000 per day for managed pressure drilling integrated services and our technology products.
The contract represents approximately $320 million in firm backlog. It takes the rig off the market through Q1 2025.
Also discussed on our previous call in Brazil. The Petrobras 10000 received nearly six year contracts, starting at $399000 per day, and escalating annually to $462000 per day.
As a reminder, the rate does not include an additional fee for the customers' anticipated use of our patented dual activity technology, which remains valid through may of 2025.
The contract will commence directly following the end of the current term in October 2023, and adds an estimated $915 million to our backlog.
Now for the remainder of our recent fixtures.
In the Gulf of Mexico, Murphy oil awarded the deepwater Asgard, a one well contract plus one well option at a rate of $395000 per day anticipated to commence in the fourth quarter.
I am pleased to say that the options have been struck and closes the small gap before the rig moved to its next program a one year contract with an independent operator at a rate of $440000 per day.
With the addition of these two contracts the rig is now busy through January 2024.
Is there an end the development driller III received a one well contract with total energies at a rate of $345000 per day.
Excluding additional services.
The firm contract, which is expected to commence in Q1 2023 also includes two one well options at $360000 per day and $370000 per day, respectively.
In Norway, our joint venture harsh environment semi the Transocean Norge was awarded a 17, well contract with Wintershall DEA and OMB at day rates escalating from $350000 per day to $430000 per day, resulting in an initial $73 million contribution to our backlog.
But assuming that the components of the program received final investment and government PTO approvals, which we expect the backlog potential is $437 million based upon an average market leading retail day rate for the full term of $408000 per day.
Also in Norway, Ecuador exercised a one well option on the Spitsbergen at a rate of $316000 per day.
The option extends the current firm term through September 2023, bridging the gap between the end of the current contract and the commencement of the rig follow on contract also with Ecuador.
In the U K hardware energy exercised a one well option on the Paul B Loyd junior at a rate of $175000 per day.
Extending the contract through September of 2023.
If all options are exercised the <unk> Lloyd will be contracted through June of 2024.
In India reliance industries exercised a one well option on the kg one to $330000 per day.
The rig will move to perform this work and then returned to complete the current campaign.
With the addition of this well the rig is now contracted through October 2023.
Looking forward, we expect the global recovery for the offshore drilling market to continue on a pace consistent with the past several quarters.
The offshore capex budgets of the majors have increased for the second consecutive year and we're seeing this reflected in tender and contracting activity.
These budgets are increasingly directed to offshore deepwater.
Year to date, the majors are contracted nearly 31 rig years on deepwater drillships when compared to 25 rig years for Jackups.
Drillship Dayrates have continued their upward trajectory and we are comfortably above the $400000 per day Mark.
As an example in just 10 months the deepwater Conqueror saw rate increase of $105000 per day, excluding integrated services like NPD.
And if we look at the third quarter of 2020. The average drillship fixture was $184000 per day last quarter. The average was $393000 per day, an increase of 113%.
Taking a closer look at the global market environment.
Active utilization of the Gulf of Mexico is expected to remain effectively 100% because we estimate eight programs to be awarded with commitments Commencements in the next 18 months.
As a direct result of this limited active supply we continue to see our customers favorite direct negotiations with an increasing propensity towards multi year programs.
Also I'm pleased to share that last week, the deepwater Atlas commenced its inaugural campaign with Beacon offshore energy Needless to say we are extremely excited to kick off this development with one of our two new eighth generation Drillships.
The Atlas will perform the drilling campaign would begin for the first 255 days of the contract before the installation of its 20000 Psi.
Stag.
The Atlas will then return to operations with Beacon for another 275 days as the industry's first or perhaps second closely following our deepwater tightened 20000 psi floating rig.
Next contracting activity in Latin and South America remains strong with a number of open tenders and.
In Brazil, Petrobras alone could contract an additional 12 rig to long term work several of which would likely come from outside the country.
The much anticipated results of the Petrobras pool tender had been announced and we are pleased to confirm that the deepwater corcovado and deepwater Orion are among the seven rigs that Petrobras selected for this work at day rates at $399000 per day and $416000 per day, respectively.
The period for public comment is passed and we anticipate contracts will be signed in the coming weeks at which time, we estimate we will add approximately $1 billion to our backlog.
Additionally, Petrobras with BMS 11 prospect is expected to be awarded by the end of the year with the award for the <unk> field development. It is paid in the first quarter.
These two multi year tenders could put an additional five rigs to work further limiting the pool of available rigs and tightening the global market as we expect most if not all of the rigs necessary to deliver these projects will be mobilized from outside the region.
In addition to Petrobras requirements shell, Ecuador, and hotel entities will be tendering for their respective programs in Brazil, each requiring a minimum of one year with anticipated commencement in the 2020 for 2025 timeframe.
In India, we anticipate in the next few months <unk> will re tender for previously tendered work that was not awarded.
The new tenders are expected to be for two rigs each with 21 months of firm term with commitment scheduled for mid 2023.
With extremely limited local supply, we expect strong day rates to be announced when contracts are ultimately awarded.
Moving to the harsh environment market in the third quarter 3924 days were contracted in the north sea market, including Norway, and the U K, it's the highest incremental days added since the third quarter of 2012.
Of the contracted days, 72% were in Norway, where we are beginning to see the supply of rigs decline as demand from outside Norway could pull up the four rigs out of the north sea market in 2023.
This is a result of the opening of new harsh environment regions, including the South Atlantic and the best rates out of Australia.
In the U K policies to improve energy reliability and security are expected to drive incremental investment in the sector, including offshore oil and gas.
The active market is nearly sold out for 2023, and we are seeing longer term opportunities that not been typical in the U K in recent years, including programs longer than one year duration for Ithaca, Ecuador, an inquest.
In the near term, it's likely shorter duration opportunities will require rigs that come from outside the country applying even more strain on the rig availability in Norway.
On that topic earlier. This week, we signed a conditional letter of award or CLO for the parents for work in the UK commencing in the first quarter of next year.
Final signature is expected by the end of the month and the CLO provides for cancellation fees in the event the termination.
With the recent multiyear award for our Transocean Norge and several of our competitors rigs in Norway. We expect a number of available high spec rigs in country to diminish very quickly.
Based on our internal analysis, we expect the <unk> to be one of several rig that will leave Norway. In the next few months for work elsewhere, removing the highest specification available assets remaining from the Norwegian market.
Presently there are 24, Norwegian Aoc compliance and just 18 of those in country.
Current demand supports around 15 floaters and is expected to increase as project sanctioned under the tax incentives come online. Consequently, we anticipate the Norwegian market will not have enough rigs.
So fulfill customer requirements by 2024.
In Australia, there are two programs with durations greater than one youre expected to commence in the next 18 months we.
We've looked at we believe this requires that the two incremental rigs one opportunities in the vast rates in southern Australia, and due to extreme marine conditions requires a harsh environment semi separately Woodside is tendering for a DP moored rig for its program.
As we prepare our assets for the future we continue to invest in technologies that add value for transocean and our customers'.
Last quarter, we installed the first crane anti sway rotator and our fleet onto the deepwater thalassa.
This technology further reduces the exposure of our personnel to hazards associated with lifting and moving equipment and frees them up to complete other activities we.
We look forward to fully utilizing the tool and operations and installing units onto other assets across our fleet.
We've also agreed with one of our customers to deploy the second kinetic blowout stopper in our fleet and anticipate it being operational in the first quarter of 2023.
As a reminder, <unk> is a pyro mechanical device that is designed to shear and seal any object in the wellbore in milliseconds.
Importantly, this technology significantly reduces the risk of non <unk> across the <unk>.
As an update to our emission reduction initiatives, we've now adopted and implemented a fuel additive on four of our rigs.
With agreements for implementation on four additional rigs.
When these installations are complete we will be utilizing additive on over 40% of our contracted fleet the.
The additive optimize the fuel consumption, thereby lowering our emissions and reducing our costs.
Field test utilizing additive suggest fuel consumption can be reduced by 6% depending upon engine loads at.
At this time, we're tracking operational statistics to better analyze real world reductions and savings.
In summary, the demand for our assets and services remains strong and accordingly, our outlook for our high specification floating fleet is the most optimistic it has been in recent years.
Increased cash flows from higher day rate contracts will enable us to continue to address our balance sheet as we transition our focus from extending our liquidity runway to actually deleveraging and positioning the company for the future.
As the supply of high specification floaters remains extremely limited we anticipate there will be more opportunities to begin reactivating, our cold stacked fleet.
As always we will continue to prudently examine all opportunities to place our cold stacked rigs back into the market and thoroughly assess each potential reactivation on a case by case basis to ensure that each creates value for the company and our shareholders.
Finally, we echo the sentiment heard across broader oilfield services and reaffirm our view that we are definitely entered a multiyear up cycle.
As always we will continue to focus on delivering safe reliable and efficient operations upon which we have built our reputation as the leading provider of high specification ultra deepwater and harsh environment drilling services.
I'll now turn the call over to Mark.
Thank you Jeremy and good day to all.
During today's call I will briefly recap our third quarter results provide guidance for the fourth quarter and complete preliminary expectations for 2023, including our latest liquidity forecast.
This is our practice, we will provide more specific guidance when we heard about wanting to move to year end call in February of next year.
As we reported in our press release, which includes additional detail on our results for the third quarter of 2022, we reported a net loss attributable to controlling interest was $28 million with <unk> per diluted share.
During the quarter, we generated adjusted EBITDA of $268 million and improved our adjusted EBITDA margin to approximately 37%.
We also generated cash flow from operations of approximately $250 million.
Looking closer at our results through the third quarter, we delivered adjusted contract drilling revenue.
$750 million.
The state route $343000.
Revenues are above our previous guidance due to a combination of more than anticipated operational days.
The termination payment from equinox, and higher reimbursable, partially offset by lower than expected revenue efficiency.
Operating and maintenance expense for the third quarter was $411 million.
<unk> costs came in below our guidance due primarily to the timing of certain maintenance activities and other costs.
We ended the third quarter with total liquidity of approximately $2 1 billion, including unrestricted cash and cash equivalents.
So between $954 million.
It would be $387 million.
Restricted cash with good service.
And $774 million from our Undrawn revolving credit facility.
I will now provide an update on the expectations for the fourth quarter.
We expect adjusted contract drilling revenues of approximately $600 million based upon an average fleet wide revenue efficiency of 96, 5%.
The quarter over quarter decrease was attributable to somewhat lower activity in the fourth quarter.
We expect fourth quarter O&M expense to be approximately $440 million.
This is higher than the prior quarter, the timing of certain maintenance contributors.
We expect G&A expense for the fourth quarter to be approximately $54 million.
The quarter over quarter decrease increase is attributable to professional accounting and legal fees.
Net interest expense for the fourth quarter is forecast to be approximately $104 million. This includes capitalized interest of approximately $16 million.
Capital expenditures and capital additions for the fourth quarter, including capitalized interest will focus could be approximately $575 million.
Includes approximately $540 million for our Newbuild, drillships and $35 million of maintenance Capex.
Cash taxes of approximately $9 million for the fourth quarter.
Now I'd like to provide the.
Overview of our financial expectations for 2023.
We currently forecast adjusted contract drilling revenues to be between two nine and $3 billion.
Furthermore, we believe our full year 2023, O&M expense will be between one eight and $1 $9 billion.
Finally, we expect G&A cost to be around $200 million.
I would expect that liquidity in December 'twenty, three is projected to be between one.
1 billion and $1 $2 billion, reflecting a revenue and cost guidance and included in the for the molecular test.
It would be over a boldly critical facilities and.
And restricted cash of approximately $300 million, which is Brazil for fixed service as well as anticipated secured financing of a second generation drillship the deepwater taxes.
This liquidity forecast includes between 'twenty, three capex expectation of $260 million.
The 323 Capex includes approximately $350 million related to our new booths and $100 million with maintenance Capex.
The Newbuild Capex includes mobilization capitalize interest.
Related to the <unk>.
20, <unk> upgrades and capital spares.
323, Capex guidance includes contract preparation costs for the depot to Orion.
Predicting our expectation maybe that successfully contract with Petrobras and its full timna.
As always our guidance excludes any speculative rig recommendations who upgrades.
In conclusion rig day rates are now above levels necessary to generate cash flows that help support the deleveraging our balance sheet.
As Jeremy mentioned, we are beginning to benefit from the strengthening market as rigs roll off their legacy contracts under these higher day rates.
While our focus is on deleveraging, we will also take prudent actions that contribute to our financial flexibility.
This regard.
Previously highlighted in our presentation materials, we will continue to evaluate the potential for an opportunistic refinancing of some of our outstanding secured bonds into one or more new bonds with the objective of extending maturities and increasing liquidity.
As you would expect the terms timing and occurrence of any transaction or dependent upon a variety of factors.
Particularly market conditions at the time of such transaction.
Additionally, at this time, we didn't unexpected engage them exchange transactions such as the one we executed in third quarter.
And absent any material increase in the trading price of our shares we do not plan to utilize our ATM equity sale program in the near future.
We reiterate that creating value for our shareholders remains a priority and we will assess all future actions through this lens.
This concludes my prepared comments on other call back over to Alison.
Thanks, Mark Shannon were now ready to take questions.
As a reminder to the participants please limit yourself to one initial question and one follow up question.
Thank you at this time, if you'd like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing star to once again that is star one to ask a question we'll pause for.
For just a moment everyone had the opportunity to signal.
And we will go ahead and take our first question from Thomas Jonsson with Morgan Stanley .
Hi, Thanks, and congratulations on the strong quarter here.
First question on the reported element O&M expense, obviously, well below the guided number obviously helpful commentary there on maintenance timing, which is not.
Not a typical.
It would be helpful just to get some.
Additional color on the impact.
FX in the quarter.
Obviously that was noted in the press release.
A could you guys give us a ballpark number.
A possible tailwind from a strengthening U S dollar there.
Maybe rough rough outlines on the percent of kind of Opex that is non USD.
And then average quarter. Thanks.
Yes, Thomas this is mark very good morning.
So obviously the U S dollar strengthened relative impact on our costs.
Main reason for the cost increases.
Some of the supply chain challenges and the timing of the maintenance expense is tied to supply chain.
Hiccups, we've mentioned this in previous quarters that some or all.
Major vendors are having.
Difficulty in meeting delivery schedules and as such some of our planned maintenance expenses pushed up from quarter to quarter as you've seen in our fourth quarter <unk> guided to be higher because of the.
The shortfall in Q2 and Q3, so there should be some catch up in the fourth quarter regarding the modeling questions or suggestions speech Allison afterwards.
Great. Thanks, that's helpful. And then last one just on the deepwater Titan I know prior commentary has been around possibly.
Being able to issue up to $400 million secured against that asset once it delivered and on contract.
Yes.
Constructive longer there. So I guess could you kind of provide any updated outlook for our plan for the deepwater Titan.
Just yes for helping us think through additional liquidity, maybe when typically would you be able to issue secured against a ship. After it commenced its initial contract.
Yes, Thomas So we expect the rig to be delivered in the fourth quarter, probably in later in the fourth quarter.
After the rig will mobilize to the U S Gulf of Mexico. Once the rig leaves Singapore, we plan to start working on a secured transaction. We said in the past that we could raise up to $400 million. That's conservative I would say, it's between four and $500 million and as the Mark.
They are stabilized over the last two.
<unk> three weeks.
Feel highly confident that we can achieve that so you can expect to see this financing completed in the first quarter of next year.
Right before the rig starts operating for Chevron.
Great. Thanks, I'll turn it back.
Thank you and our last question comes from Eddie Kim with Barclays.
Hi, good morning.
So we've seen day rates increase pretty dramatically here in just the past four months, but if I look at all the contract with day rates at or above 400, a day and we count about 15 of them nearly all of those have either been in the Gulf of Mexico, Brazil. So my question is when can we expect to see day rates.
A low level in other regions look like like a West Africa Asia Pacific for example, and is there something structural about those regions that are making day rate increases a little harder to come by.
Yes, Hi, this is Ravi I'll take that one.
So yes, we've seen the first move in rates coming in the U S Gulf of Mexico.
Kind of followed up with the long term and high day rates higher day rates in Brazil.
In West Africa were actually beginning to see that so theres been a couple of fixtures that are closer to those numbers.
Most recently Youll.
Youll see stuff in Angola, getting around that 400 and above Marc.
What would as you look at it now in terms of like a market outlook.
<unk>.
Tighter and tighter.
Market from our point of view that Theres, just not as many capable assets available. So I think youre going to see a pretty substantial move in those markets as well Asia typically has a.
A little bit lower specification. So if you look at the tenders in Asia you look at the assets that are there. They are typically the kind of.
The sixth Gen and the fifth Gen assets. So that's usually the last place for.
Daily to start moving we also happen to be coupled with particularly low operating cost. So even though you may not see the highest day rates in those regions you will see very solid EBITDA margins created by those contracts.
So I think in summary, you're you're kind of seeing this ripple effect across the.
The markets, primarily because these rigs move between markets, because because theyre mobile because they are capable in all these different jurisdictions, you simply see them moving first and the ones that are in the highest demand.
Thank you will actually see some of the lower specification rigs getting better and better day rates as the market gets tighter and tighter typically the way things go in an upturn, but yes look super encouraged by Brazil.
Rig counts potentially going from a 28 rigs in Brazil.
In this timeframe to in excess of 40 rigs within the next 12 months to 18 months, so be very interesting to see if the industry is capable of producing that number of assets in Brazil.
Yes Super encouraging signs.
Got it got it that's very helpful. Thank you.
And just my follow up is reached.
<unk>. So one of your competitors earlier. This week said reactivation economics are very attractive at current day rates.
<unk> is understandably in a little bit of a different situation just given the leverage on the balance sheets. So you may have other more pressing priorities for that reactivation expense. So just curious if that is impacting your decision at all and pulling the trigger on a reactivation here, even if you are coming across.
Contracts today with a sufficient level of pricing and term maybe a simpler way of asking is is transocean had been debt free for the past year year and a half.
Would we have seen a reactivation by now.
So let me let me start and then I'll have you.
Already comment as well.
We've said consistently.
Over the next four to six quarters that we reactivated rigs to contract.
Hence you have seen us do this with the most recent Petrobras tenders, we have in some of our cold stacked rigs.
Good possibility that we were able to achieve one or two of those rigs on contract.
That those contracts at those rates and mobilization fees will allow us to fully pay back the cost to renovate the rig long before the end of the contract. So we're very comfortable doing this in.
Our balance sheet.
Average or not is not going to inhibit us from directly with the rigs.
Yes, I think I would add to that and you kind of say that.
Previous administrations that our competition may have.
Gone down that track, but certainly what we're hearing across the board is that nobody's.
Willing to speculatively reactivate those rigs.
But what you are seeing is.
Re activations for contracts that support that so to.
To marks point I think we've been really clear on that over the entire cycle that we will not reactivate on speculation, but we will do with the contract and we will ensure that that contract.
Fully pays that reactivation.
No.
Actually just don't see that thats going to be an issue to Mark's point in terms of.
Does our financial.
Requirements prohibit us certainly not because we're only bidding on things that are.
Cash flow positive over the term of that contract.
Got it. Thank you I appreciate all that color I'll turn it back.
We will take our next question from Fredrik Stene with Clarksons Securities.
Okay.
Hey, guys. Congratulations on the strong performance this quarter nice cash flows I would say so I think some of my questions have been touched upon already but I wanted to circle back to the day rate side.
A few quarters back when you guys were.
Pushing the 400 K Mark.
Gulf of Mexico.
I think it will.
At least will be operators.
Our reluctance in a way to actually see something starting with a four handle that they were trying to package this into all their types off.
Wait to recognize.
This revenue higher mobe fee, but lower clean day rates et cetera. So now we push towards our <unk>.
And to the mid four hundreds that's starting to get global for sure and.
I think for me I'm wondering when are we going to see this.
I'll handle the.
The firm opinion that we are short on rigs and filters in the Golden triangle, we need to see.
Reactivation, but now there's this battle between operators again, what are their willingness to pay.
How did the day ambition to future are they understanding the lack.
Capacity et cetera. So I was wondering do you have any thoughts on.
On.
Whether or not the trend that we've seen now can continue or if you want to you need to have a battle with the E&P companies won't begin to start to see five handle.
So greedy.
Man.
No I think.
We agree with you in terms of the shortage of active supply definitely high specification assets.
We're seeing it I think our customers are finally, realizing it too and.
And we see that in the way that they're behaving more direct negotiations.
Certainly trying to.
I wouldn't say hide their prospects are the rigs that they are interested in but they see the lack of availability. So we are having far more direct negotiations, which is which is a good sign you've seen day rates steadily improve pretty dramatically I think I said in my prepared remarks that over the last year day rates have improved 113% for ultra deepwater drillships.
And so we expect that trend to continue our customers feel it they know what's coming.
And so I'm not going to give you a date, but when we would see a five handle but we're definitely moving in that direction and I'll turn it over to write it add even more color yes.
Yes, I think I would add to that that.
There are those that have moved 12 the rates are still in the 400.
They have done so because it represents very good value for money.
Don't forget that over our seven years of winter the prospects that are being invested in now are.
Breakeven is in the 30% 40 barrel dollar about range so even with.
A substantial increase in the rig rates theres still economically very exciting prospects.
If you couple that to where you have a stable high commodity price as we've had for some time, albeit volatile, but its volatile above that well above that investment level.
Thank you.
Youre going to see that the.
The scarcity of the rigs become more and more of an issue, particularly for specifications that customers needs. So hard to see us going anywhere, but up in terms of day rates, but certainly.
As I often explained.
The operators are kind of pay in three quarters of a day rate today, and we still have them go back to what we consider a full day rate, but I think you will see that over the next couple of years.
Super helpful and I think we're up there the same opinion here and I would also add that.
You should be allowed to be greedy.
Thank you.
Thank you.
I agree with you.
Yeah.
Thank you and our next question. Our final question comes from Karl Blunden with Goldman Sachs.
Hey, good morning, Thanks for the time and congrats on the strong results this quarter.
I was curious about the comment about not intending to use the ATM you used it during <unk> pretty similar stock price overall, and so just interested in understanding what has changed maybe it's around your expectations or comfort with liquidity just any other color there would be helpful.
Recall as you're probably aware.
Evaluate this.
Continuous basis.
In the third quarter, we were expecting to have some.
Experiences, which we felt we would need to shore up our balance sheet. So we use the ATM, we feel comfortable now to conclude with my liquidity forecast.
On the prepared comments, we're very comfortable where we are and we expect to transact with the chartering transact potentially with the secured bonds and with those transactions.
We think our liquidity is at a good price so we.
We can revisit this stock price jumped to $5 could.
Could we use the ATM, perhaps right at the moment, we feel comfortable where we are.
That's really helpful.
You mentioned also mark thoughts around these extensions of the secured bonds you could look to do that extended into one or more secured bonds.
That means.
Maybe I pulled contract or just the standard approach where <unk> had.
Bond backed by a rig and cash flows from our contract as you think about that what are the considerations that youre looking at when you. When you think about the optimal outcome for for Transocean.
Yes, as I've said, the two benefits Transocean is a restructured amortization program what that does is it.
As the remaining.
Part of those contracts, especially the shell contracts because we put on fixed considering your bonds have been continuing to contract. So we have titles of three or four years, which now gets utilized which means the amortization pushed out over that time period, which improves near term liquidity and also gives us more financial flexibility by having the bonds because it.
Collapsed into one or two.
Larger bonds.
So the balance sheet becomes a little bit less complex.
That's helpful. Thanks again for the time.
And ladies and gentlemen that does conclude today's question and answer session I will turn the conference back over to Allison Johnson for any concluding remarks.
Thank you Shannon and thank you everyone for your participation on today's call. We look forward to talking with you again, when we report our fourth quarter 2022 results have a good day.
Ladies and gentlemen that does conclude today's conference. We thank you for your participation you may now disconnect.
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Okay.
[music].
[music].
[music].
[music].