Q4 2022 Transocean Ltd Earnings Call
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Good day, everyone and welcome to the Trans Ocean fourth quarter 2022 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 Register to ask a question at any time by pressing the star one on your Touchtone phone.
You may withdraw yourself from the queue by pressing star and two.
Please note this call will be recorded and I will be standing by if you should need any assistance.
It is now my pleasure to turn the conference over to Allison Johnson Director of Investor Relations. Please go ahead.
Okay.
Thank you Todd.
And welcome to <unk> fourth quarter 2022 earnings conference call a copy of our press release covering financial results, along with supporting statements and schedules.
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.
And 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.
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 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 Keelan, 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 question.
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 fourth quarter transition delivered adjusted EBITDA of $140 million on $625 million and adjusted revenue, resulting in adjusted EBITDA margin of approximately 22%, which when combined with the new fixtures. We were awarded in the fourth quarter helped us to close the full year 2022, you want to.
A positive note.
Indeed, we think that 2022 will be remembered as a pivotal year in the offshore drilling industry, particularly for transocean and offshore contracting activity and could be significantly driving utilization rates and day rates materially higher throughout the year.
And as evidenced by our December and January contract announcements Transocean continues to be a primary beneficiary of this heightened demand.
Needless to say the last several months have been a very busy but rewarding time for the Transocean marketing team.
Helped us to secure an incremental $1 5 billion in backlog during the quarter, bringing our full year backlog added to approximately $4 billion.
As a reminder of our recent contract awards in the U S. Gulf of Mexico. The deepwater Invictus was awarded a three well contract with an independent operator at $425000 per day for an estimated 100 days.
The contract is expected to commence in direct continuation of the rigs current program.
In Brazil, the <unk> was awarded a 910 day contract at approximately $430000 per day, including integrated services.
Contract is expected to start in the third quarter this year.
Also in Brazil, the contracts for the previously disclosed selection of deepwater Corcovado and deepwater Orion for the pool tender have been finalized.
As a reminder, deepwater corcovado was awarded a four year contract at $399000 per day and is expected to begin in directly continuation of the rigs current program.
The deepwater Orion was awarded a three year contract at $416000 per day and is expected to commence in the fourth quarter of this year.
In Suriname energies exercised a one well option at a rate of $360000 per day on its contract with development Driller III.
The incremental wells expected to last 90 days and keeps the rig busy through the third quarter.
In Norway, certain previously disclosed options under the Transocean Norge contract with Wintershall, DEA and OMB are now firm.
The average day rate for this incremental term of 773 days is approximately $428000 per day.
In the U K North Sea Transocean Barents was awarded a one well contract with a major operator at a rate of $310000 per day.
The work is anticipated to commence this quarter and last approximately 110 days.
Finally, and also in the U K North Sea Harbor energy exercise the third option on contract with the Paul B Loyd Junior for <unk> at $175000 per day.
The additional term is expected to last 275 days and extended the contract of the third quarter of 2024.
As you've no doubt seen our finance and legal organizations have also been extremely busy supporting a variety of transactions.
In November we announced a minority stake in Maquila ventures, our joint venture with landmark partners and Perestroika. We're excited to partner with these two organizations that have a deep understanding of the offshore drilling market to bring deepwater chela another high load high hook load ultra deepwater drillship to the market.
As part of the agreement with our joint venture partners at Transocean maintained the exclusive right to market and manage the operations of this rig.
In early January we raised secured financing on the deepwater tightened and we also refinanced certain series of our secured notes improving our liquidity.
Mark will discuss these and other efforts to simplify our balance sheet in a few moments.
Additionally earlier this month, we announced our investment in global Sea mineral resources for GSR Deep Sea minerals exploratory company, which included the contribution of one of our stacked Drillships Ocean rig Olympia.
The Olympia was an optimal candidates for this transaction based on a number of criteria, including whole size and ease of conversion to a nodule collection vessel.
Contribution of this rig although further rationalize also further rationalize the global fleet of benign environment floaters, and we believe will ultimately prove to be a better use of this asset benefiting our shareholders over time.
In exchange for our investment transition received a noncontrolling interest and GSR, which ESR responsible for operations of the vessel.
This has transitioned second investment in the deep sea minerals exploration industry as you recall last year, we purchased a minority interest in Ocean minerals limited.
Through these transactions we are excited to play a role in contributing to the diversification of global energy supply and a lower carbon economy.
Our projects and operations teams also accomplished key objectives throughout 2022.
Notably the deepwater Atlas commenced its maiden contract with Beacon offshore and we took delivery of the deepwater tightened from the shipyard.
Very pleased to share that in just its first few months of operation. The Atlas has already set a new record for the longest 14 inch casing run nearly three eight miles.
Likely the first of many records to be set with this new class of drilling assets.
In fact at this time I'll hand, it over to Kieran to further discuss these two state of the art eighth generation Drillships kilo.
Thank you Jeremy and good morning to all.
I would like to start off by thanking our project and operations teams are key suppliers and Semco marine for their remarkable dedication and commitment to complete the construction of our two state of the art peak generation Drillships, the deepwater Atlas and the deepwater Titan.
I'd also like to thank our customers Beacon offshore energy and Chevron, who have contracted the outlets and tightened respectively for trusting us to work with them on their industry, leading 20, K deepwater development projects.
These rigs represent the newest generation of Drillships capable of drilling and completing wells that were previously either technically or commercially and feasible.
We often discuss the 20000 psi capability of these assets.
<unk> Atlas and Titan will be the first two drillships outfitted with 20, K well control packages, including the blowout preventer.
This functionality opens the door for projects, such as anchor and Shenandoah and many other prospects yet to be developed primarily in the U S Gulf of Mexico.
In addition to their 20 take capabilities Atlas and tightened our the first and for the foreseeable future. The only drillships outfitted with a net lifting capacity of 3 million pounds.
This capability allows our customers to optimize their well designs and run heavier and longer casing strings, which translate immediately to lower well in field development costs.
More importantly, these improved well designs can ultimately facilitate larger production tubing blowers, and therefore increased production per well.
The rigs, which also feature extensive deck space and purpose built areas to accommodate well completion activities are the most capable drillships in the world and will ultimately expand the universe of exploration and development opportunities.
With the delivery of the outlet some tightened Transocean has now brought a total of nine new build and fully contracted drillships to its fleet in the past decade. These.
These additions have had a marked impact on the capability and operating efficiency of our fleet and also enabled us to refine our expertise and bringing ships out of the yard and into service.
Expertise, which we expect will prove invaluable.
<unk> as we put our idle and stacked rigs on contract and return them to the active fleet.
Our expectation is that these new builds will perform at the fleet average revenue efficiency level within the first six months of operation.
Which would be an extraordinary achievement for any newbuild floater, especially considering that these rigs are equipped with a variety of serial number one equipment.
We look to apply lessons learned from the delivery of our Newbuild as we reactivate our cold stack assets.
A successful rig reactivation is not only completing the project work scope in line with cost and time expectations, but also starting operations safely reliably and efficiently.
To achieve this a drilling contractor must have a robust operational management system and culture.
Transocean operational culture is data driven service focused and performance oriented.
Over the last several years, we developed and implemented a multitude of technologies and processes to support these pillars, resulting in the delivery of operational excellence across our fleet.
These tools provide our people with the right information at the right time to make the right decisions.
Some of these technologies include smart equipment analytics, which allows us to monitor the health and condition of our equipment in real time.
Permit and barrier vision, a custom application, which facilitates our ability to control work indentified and manage risk effectively.
And our operations procedure system Obs.
Digital platform, which provides our people with the tasks what designs and verification checks that are necessary to deliver procedural discipline and flawless execution.
As our industry embarks on this long overdue growth cycle drilling contractors must overcome the operational challenges that accompany restarting rigs and bringing them back into operations safely reliably and efficiently.
Because we have been preparing for this reality through the downturn by investing in our people assets and technology.
<unk> has the experience and capability to grow our operational fleet with a high level of performance.
We look forward to the opportunity to steadily bring our idle fleet back into service and the safest most cost effective manner to best ensure the highest returns for our shareholders.
With that I will hand, it back to Jeremy.
Thanks Kian.
The prospect of a reactivation is very topical as all of our drillships that are not warm or cold stacked are currently contracted.
Active drillship utilization is expected to remain at or above 97% for the next two years with active utilization of the highest specification assets at or near 100%.
We expect that the demand for our rigs and services will remain elevated for the foreseeable future.
In fact, if current tendering and bidding opportunities that we're aware of for work starting in 2024 and 2025 develop as expected demand cannot be met by the current active supply of Drillships having.
Having said that we remain absolutely firm in our position that we will not reactivate a rig unless our customers through a combination of mobilization fees day rate and term pay for the entire reactivation plus an acceptable return in the initial contract.
Rig demand in both harsh and benign environment as robust indeed over the next 18 months an estimated 82 programs are anticipated to be awarded for a total of 74 rig years of work.
Important importantly, this demand is globally diversified.
Consistent with this outlook industry analysts predict a number of wells drilled offshore will increase by nearly 15% in 2023.
Brazil currently continue to lead to incremental demand for offshore drilling services with a potential for up to 19 Floater Awards.
These up to eight may be contracted under existing open Petrobras tenders.
<unk> has been an important source of demand for the last two years and we expect this to continue in 2023.
Importantly, the incremental demand is driving higher day rates, which have already increased 117% from 2020 to 2022.
We anticipate the new fixtures will continue decline as it is.
Active supply in the region is exhausted required assets from other regions, some of which will need to be reactivated and upgraded.
To be mobilized to support the demand in Brazil.
While we currently don't see the same volume of long term activity, we see in Brazil. The U S. Gulf of Mexico is expected to remain relatively tight with local supply and demand keeping in relative balance.
This region typically demands the highest specification rigs with the highest hook loads, which currently are all under contract.
Additionally, based on our direct negotiations, we believe that there could be sufficient future demand to bring one or two more rigs into the region on long term programs.
West Africa in the Mediterranean are also experience a return of demand.
While many opportunities are relatively short in duration, there are multiple multiyear tenders, including one in Angola with the dual energy joint venture between Eni and BP and wouldn't Romania with OMB.
We are encouraged by the uptick in requirement in this region as drilling is predicted to increase nearly 14% this year.
In India, <unk> will require up to three rigs to satisfy its current and upcoming tenders.
To fulfill these requirements rig from other regions will need to be mobilized and it following our announcement that the <unk> is heading to Brazil. There are currently no ultra deepwater rigs available in the region.
As such we anticipate rates on these awards to be higher than the most recent awards in India.
Taking a holistic view of the high specification harsh environment market multiple harsh environment semi submersibles have departed in Norway for other regions and even more expected to be contracted elsewhere in.
In the last 18 months six cities have departed Norway for work in West Africa, Canada, and the UK North Sea.
We anticipate at least two additional semis will lead Norway in the next 12 months potentially for opportunities in Australia.
This happens we believe there will be a supply deficit of Norway in 2024.
As mentioned in previous calls the tax incentives in Norway encourage record sanctioning over the past two and half years with 35 projects totaling approximately 190 wells sanctioned.
As this translates to heightened demand, we believe Norway floater market will see a strong comeback in activity from 2024 that will require rigs to return to meet the expected demand.
And suddenly in summary, our outlook for high specification floating fleet is starkly positive avail.
Available active supply of high specification floaters remains limited and on the backdrop of a strong demand environment. We anticipate our customers will continue to attempt to secure assets for longer term, which in turn should support the prevailing upward trajectory of day rates.
With an acute focus on delivering safe reliable and efficient operations as well as reducing our debt transocean is well positioned to prosper and deliver shareholder value as we continue through what we expect should be a sustained multi year recovery.
I'll now turn the call over to Mark Mark.
Thank you Jeremy and good day to award.
During today's call I will briefly recap our fourth quarter results and then provide.
Guidance for the first quarter.
Right.
Our expectations for full year 2033.
Lastly, I will provide an update on our liquidity forecast through 2023.
I'd like to take a few minutes to review the numerous liability management actions, we've taken over the last year.
First July 22, we extended our revolving credit facility through June 2025.
Then in September we conducted an exchangeable securities who provided the company with the incremental $175 million in liquidity.
<unk> executed two more transactions.
$525 million secured financing on the deepwater Titan.
At 1.1, 75 billion refinancing of our four series.
Senior notes, both transactions of which were well received by the market.
In the context of today's interest rate and broader capital market environment.
Two transactions materially improved.
Get some liquidity and further set the stage for us to Opportunistically, delever simplify and improve the flexibility of our balance sheet.
Now to the results as reported in our press release, which includes additional detail on our results for the fourth quarter of 2020 'twenty. Two we reported net loss attributable to controlling interest of <unk>.
$250 million or <unk> 48 cents per diluted share.
After certain adjustments as stated in Yesterdays press release, we reported adjusted net loss of three.
<unk> hundred $56 million.
During the quarter, we generated adjusted EBITDA of $140 million.
Slated into cash flow from operations of approximately $178 million.
Negative free cash flow of $231 million in the fourth quarter.
The capex associated with shipyard payments for a generation drillships.
This was subsequently offset with the $525 million raise that could put a caution as I mentioned earlier.
Looking closely at our results during the fourth quarter, we delivered adjusted contract drilling revenues of approximately $625 million.
Average day rate of $349000.
This is above our guidance and reflects more than anticipated operating days how are you.
The unexpected recharge revenue and strong bonus revenue.
Operating and maintenance expense for the fourth quarter was $443 million. This.
This is below our guidance, mainly due to both lower than expected in service and other service maintenance expenses, mostly due to timing and lower personnel costs.
Turning to cash flow and the balance sheet. We ended the fourth quarter with total liquidity of approximately $1 $8 billion.
Unrestricted cash and cash equivalents of approximately $683 million.
Approximately $275 million of restricted cash for debt service.
And $774 billion.
From a.
Undrawn revolving credit facility.
Let me now provide an update on expectations for the first quarter and full year financial performance.
Revenue guidance is based primarily on <unk> contracts as listed in our fleet status report, but also includes a speculative component, which we have a high degree of covenants.
Any potential bonus revenue is excluded from guidance.
For the first quarter of 2023 rig spec adjusted contract drilling revenue of $635 million basically on average fleet wide revenue efficiency of 96, 5%.
This is slightly higher than the fourth quarter of 2022, largely due to increased activity on certain rigs, partially offset by fewer operating days during the quarter.
For the full year.
Last quarter, we are anticipating adjusted revenues to be between two nine and $3 billion also based on 96, 5% driven your efficiency.
As usual as the year progress.
As we may modify our guidance if necessary.
We expect first quarter O&M expense to be approximately $430 million.
This slight quarter over quarter increase was primarily due.
Attributable to higher costs incurred in relation to the country preparation of the deepwater Orion in the K G to the contracts in Brazil, partially offset by lower service maintenance contributors.
For the full year, we're anticipating O&M expense to be approximately one $9 billion.
We expect G&A expense for the first quarter to be approximately $50 million and ranging between 200 $210 million for the year.
Excluding noncash charges associated with a fair value adjustment of the bifurcated exchange feature embedded in our exchangeable bonds issued in the third quarter of 2022 net interest expense for the first quarter is forecasted to be approximately $120 million.
Includes capitalized interest of approximately $18 million.
For the full year, we anticipate interest expense of approximately $470 million, including capitalized interest of approximately $30 million.
Separately expenditures, including capitalized interest for the first quarter are forecasted to be approximately $315 million.
This includes approximately $85 million for Newbuild Capex and.
And approximately $30 million of maintenance Capex.
Cash taxes are expected to be approximately $10 million for the first quarter and approximately $40 million for the year.
I would expect that liquidity in December of 2023.
<unk> to be between one three and $1 $4 billion, reflecting our revenue and cost guidance and including.
The 600 million beyond the capacity of our revolving credit facility and restricted cash of approximately $210 million, which is mainly reserved for that service.
This liquidity forecast includes.
2023, capex expectations with $275 million of which $175 million related to our new bills.
As we highlighted in our website capex schedule and $100 million for maintenance Capex.
The maintenance Capex includes approximately $20 million with contractually required for the two long term contracts with a depot to Orion and the <unk> II in Brazil.
And $30 million.
Fleetwide major spirits program with <unk>.
Newbuild Capex includes mobilization.
The interest.
Okay, VIP upgrades and capital spirit.
In conclusion, our didn't liability actions over the past 12 months have positioned us well for further improving our capital structure, we made significant progress on several of our liquidity runway.
We will now focus on simplifying and right sizing our balance sheet.
As more of our rigs transition to higher contract day rate.
Cash flows from operations will accelerate.
Organic deleveraging.
We already see this with our ultra deepwater fleet, which is the weighted average contract day rate increase of approximately $30000 year over year to approximately $340000 per day as indicated in our fleet status report.
As we are in early stages with the cyclical recovery, we expect this trend to continue.
As I stated in the last quarter.
So you'd look at ATM equity sale program, we believe that the current strength of the offshore drilling market supports our ability to reduce our debt over time without the use of incremental liquidity equity.
We will however continue to pursue developing actions as and when that makes sense.
Operationally, we remained focus on delivering safe reliable and efficient operations, which ultimately supports our deleveraging goals.
Its value for our shareholders.
This concludes my prepared comments.
Turn it back over to Alison.
Okay. Thanks, Mark Todd, we're 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 Allison at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.
Remove yourself from the queue at any time by pressing star two.
Once again that is star one to ask a question.
Our first question comes from Greg Lewis with BP.
Thank you and good morning, and good afternoon, everybody Jeremy clearly.
Congratulations on all the work you guys have done over the last couple of years, and then getting the <unk> to work.
Rig was your last idle rig.
As we look ahead in this year and into next year.
Clearly there are going to be some of your competitors have reactivated rigs you have alluded to reactivating rigs as demand comes in and then customers are willing to pay more.
As we think about your ability to reactivate rigs and what's going on in the current market.
Does it make sense for transocean to be maybe on the early side or the later side of the wave of rig reactivation, we think are going to be needed to come into the market to meet demand over the next two years okay.
Alright. Thanks for the question, Greg I don't think we've alluded to anything I think we've been very clear in our position on reactivation that the customer has to pay for it in the first contracted by that some form our mixture of of upfront payments mobilization fees, plus a day rate and term that more than pays for the reactivation itself. It actually generate a suitable return for transocean and so.
That may mean that were later to the reactivation party than some of our peers. If they are willing to reactivate on spec or four.
Lesser returns and we're okay with that.
Yes, I think.
Is it already hit I think I'd like to add to that a little bit.
Demonstrate that disciplined.
It's often difficult for us to talk about individual tenders and awards and negotiations.
Are there is there is a couple of great. Examples one in Brazil, which is as you know in certain tenders are fully public there were all the results are published so for example.
And the pool tender.
Two basket, that's one where we will be one a job with the Orion.
We were also the next rig to be awarded in that light.
The day rate on the rig was $474000 a day.
However, when we went through the details of this and we went through the timeline that Petrobras was going to execute upon.
We decided that the cash flows just didn't meet our return requirements. So we kind of stepped aside from that one took a disciplined approach of not putting forward the athena into that.
That turned out any further.
And since then the.
Petrobras move to the next operator, the next rig contractor.
That's going to be.
According to the results of the public tender the DS eight which should see bid award at $460000 a day.
The publicly disclosed information on that we'll have to wait and see how that turns out but we just wanted to reassure you that we take that discipline very very seriously and we have walked away from some contracts because they did not provide returns.
To be adequate.
Yes. It seems like these multiyear contracts are going to be pricing is going to be heading higher.
I'd want to shift gears to the north sea and to the harsh fleet just because it's an important EBITDA driver for the company.
Yes, where it seems like we're in this air pocket in Norway.
In 2003.
As we think about that.
And maybe some opportunities, let's maybe I know you mentioned, Australia on the call but.
As we think about some of these rigs.
How the market's developing in West Africa.
<unk>.
We have the one idle rig.
One of the cap rate.
Realizing that its water depth.
<unk> like <unk> or something along those lines.
Where outside of a place like Norway, and I guess, the southern North Sea could we see rig some of these.
And then there's cat rigs potentially find work or is it more of a just.
Manage and wait for wait for that market to rebound in 'twenty four.
Yeah, Okay, Great question I'll take that one.
So.
As Jeremy had explained we see that Theres basically about six rigs moving the Norwegian market.
So what's interesting in that is if you look at the supply of rigs available to the Norwegian market and you look at the numbers in 2021, and you compare them to where we are in 2003 and a PD to two years that number has dropped from.
In excess of 20 about 22 rigs down to 13 rigs available in 2003. So as you think about the effect that that's going to have that's the stuff that you were talking about where rigs are moving out of the region theyre going to.
West Africa, some are going to Canada.
A lot of speculation about.
Some rigs, maybe maybe even more than one going to Australia.
But also the U K.
And Stefan West Africa seems to be growing even further.
And the really interesting thing was in discussions that we've had with.
Certain larger operator in South America.
Next tender that we expect from them is going to be specifically targeting mood units with high efficiency drilling packages. So that would be ideal for the likes of the cat DS or any of the other high spec harsh environment rigs in Norway.
Just to touch on that you mentioned margins earlier so.
The cost base is being a little bit higher in Norway than it is elsewhere.
Going to be a key driver. So you've seen these kind of six rigs move I fully expect to see three or four more pretty.
Pretty soon and with Newsweek's move out once you've got over the hurdle of the movement and as Jeremy pointed out the customers are paying for those mobilizations now you'd make better margins outside so for those rigs to come back to Norway is going to be an increased hurdle for them to come back.
With that said, we have line of sight to jobs on.
Pretty much all of our harsh environment fleet, including the stacked Cat D.
And I can't really disclose the details about that but.
Essentially it's safe to say that for all of our harsh environment fleet, including the stack Cat D. We are in active negotiations for placing all of those so I think Kevin over the period of this year youre going to see pretty much all of those rigs get fixtures on them.
And.
Youll see that the day rates associated with those in the locations should raise a few eyebrows in terms of the trajectory of <unk>.
Rates for harsh environment rigs.
Okay, Great Hey, Ravi. Thank you for the time, thanks, everybody and have a great day.
Thank you. Our next question comes from Eddie Kim with Barclays.
Hey, good morning, So we've obviously seen a lot of slowed a bit in the past.
Nine months, which has mostly been driven by Petrobras and you guys have clearly been the biggest beneficiary of that but just shifting to the majors, we haven't quite seen as many large multi year contracts from that group yet likely because most of them are beholden to their investors, but are we getting to a point where pet.
<unk> is just absorbing so many rigs at.
This is almost going to kind of force the majors hands in locking up rigs for multiple years.
Yes, so so really that is what's happening.
I would not say that the majors have been quiet in fact, we signed the two year contracts with.
Some of the majors in the Gulf of Mexico, We know that there are several others to be signed or multiyear contracts for the majors.
But by contrast.
It would appear like they are moving slower.
The context here as they are moving faster than they've ever moved in the past seven years, but Petrobras is really on a different level.
Petrobras is progressing their tenders at.
Flip that and <unk>.
Everybody, but.
I would argue a very smart move because there they are going to get the bulk of the available rigs.
But what we would consider solid day rates, but I think in time that will prove to be an absolute bargain from Petrobras on view, because they will fix rigs in the mid four hundreds.
To your point that will not be.
Much supply left for the other prospects that of course and as Jeremy said once we get into those that kind of higher 90% utilization rates.
Typically where.
The inflection point on the next tier of rates come so we're really optimistic about that.
Not only because we can we can push a lot of volume in Brazil, but mainly because they're long term contracts and we are beginning to see the majors around the world, particularly West Africa are really beginning to focus on the longer term, so you're going to see in the West African region. Several fixtures will be made over the next few months that will be multi year.
In nature, So I think youll see that across the board is just that Petrobras is moving so quickly. It makes it look like the others are not.
Got it got it all sounds very positive for day rates moving forward.
Just shifting to to costs.
Are your competitors yesterday highlighted higher costs this year for offshore crews and onshore support.
One of your peers talked about kind of rig level Opex Lulu.
Moving up and kind of at the high single digits type of range is that something you're seeing or expecting as well and is that kind of uptick in costs currently embedded in your full year O&M guidance.
Yes. Thanks.
Clearly with the inflation currently ongoing in the tight labor market, we're seeing some of the cost increases I would say so.
We are in that 5% to 8% area.
You blend both the labor plus O&M costs. So yes.
Okay.
Okay understood. Thanks for all that color I'll turn it back.
Thank you. Our next question will come from Fredrik Stene with Clarksons <unk> Securities.
And Sir. Please go ahead your line is live.
Okay. We will try our next question it looks like we have another line from Fredrik Stene with Clarksons <unk> Securities.
Please go ahead.
Can you guys hear me in certain places we can take it here okay.
Perfect sorry for I'm not sure what happened there.
Jeremy and team thank you for for.
Good update.
Today I think some of my questions have been covered but mark maybe you could help me.
Altair <unk>.
You've done some prep work on the balance sheet.
Over the last Drs, you mentioned index.
Prepared remarks, but you also.
<unk> said that.
There might be more work to do you have definitely you definitely have some leeway now but in terms of right sizing and simplifying your balance sheets are you able to share any more.
Color high level thinking around how we would go about that and what could be.
Sensible next steps and also timing wise on that.
Yes, Thanks Fredrik great question.
The goal of the actions we've taken over the last 12 months was to buy ourselves some time.
I've been saying this since I joined <unk> in 2015, we could never Delever down cycle. While now we are in a cyclical recovery and as a result of that as I mentioned in my prepared comments, we have higher day rates.
Generating significant cash flow. So we're prepared to take our time and grow into our balance sheet.
By using these cash flows to delever the balance sheet.
Simplifying recruit for different types of debt on our balance sheet clearly simplifying means taking goes forward and move them onto one eventually but overtime. So as you know there is unsecured and secured as PGM SPG and so clearly the first focus is going to be <unk> and then from there we'll look at the other types of.
Of.
Jack on the balance sheet, and then thirdly, we have.
Exchangeable bonds, we have three tranches of debt. Those are also on the table for us to address over the next year or so.
Thanks Sue.
Helpful.
Two other quick ones for me first one.
Aquila, which youll have the marketing rights to how would you go about.
Managing your investment there and also the older owners versus how you market your own stock.
For example, how is that governed.
I didn't hear you very clearly, but I think you were referring to the Aquila.
We have experience in doing this as youre well aware, we own a third interest in the norge.
We have a similar.
Process whereby.
We maintained a clean marketing team to avoid any kind of antitrust concerns. So we will use the same approach with the aquila and perhaps if we get the libra that rig as well.
Perfect.
Thanks.
Super quick.
At Fort reactivation.
Guys have any idea of how many.
Reactivate global reactivation.
Why change we'll handle per year do you think there is a limit.
How many do you and your peers can do at the same time.
I'm going to take a stab at this and obviously, Germany already conjunction as well, but I think what you're seeing right now is.
The first in line on what the cold stacked rigs the rigs that have been completed to go sitting at.
Shipyards in South Korea.
Several of these are projected to be contracted.
In Brazil, West Africa, and elsewhere throughout this year, we don't believe that any of those rigs can really stock on their contracts in 2023, given the fact that I think there is a consensus around at least 12 months to reactivate a rig.
From the shipyard or from cold and to prepare the <unk> contract because you know each operator has their own contract specific requirements and equipment for the upgrade opportunity. So I think it's going to be measured mainly because of this constraint, but also because of the fact that there is significant amount of cash required.
To do this and if you look at the balance sheets of the drillers, especially going through this country restructuring I'm not sure. It supports a wholesale reactivation program unless it's paid upfront by the customers.
Alright. Thank you very much that's all for me. Thanks.
Thank you. Our next question will come from Thomas Jonsson with Morgan Stanley .
Alright. Thanks.
Question on the deepwater Atlas clearly.
If you sign that contract.
Our work today.
Assume that rates would be much higher.
Could you maybe give us an update on how conversations are going on on the outlook for work for that rig following kind of the mid 2020 for exploration and in addition to that maybe just give us a quick update on potential to do any secured issuance against that in and how we should think about capacity there relative to.
Thanks.
Yes, Okay, I will take that one yes.
Yes. So we were in discussions for follow on work after her maiden contract. So.
Thats still.
A while before she gets through that maiden contract but.
There are several bites some of the furniture in the <unk> space.
But as <unk> pointed out one of the most interesting features of the rig as the Super high Hook load.
And we know that.
Yeah.
We set a record.
The longest and heaviest casing run in the Gulf of Mexico, and I have to say the record was set about.
A few days before on the deepwater Conqueror.
That was really stressing.
Our maximum capacity and now we have then the Atlas in the market and available for those even higher hook load. So.
We're really optimistic about that and think there's real demand for these.
So heavy casing strength and of course, you can only do that with that class of asset <unk> happens to be the 20 K rig so.
The concept is we basically have the most capable rig on all fronts and we've kept out available in a relatively near term.
Situations, so where.
We're very optimistic about what's going to come next.
Great. Thanks, and then just maybe any commentary on potential plans or capacity for first secured issuance. If you were to receive a multiyear contracts on the outlets maybe just relative to what it's been recently announced that will tighten.
Yes, I think Thomas will correct here, but let me get to it but clearly at the moment, we don't see a need for that.
Got it thanks, I'll turn it back.
Thank you. Our next question comes from David Smith, with Pickering Energy partners.
Hey, good morning, and thank you.
So.
Looking at the marketed floater fleet.
I think we see a little increase in special surveys this year close to twice as many next year for the entire market in Florida.
The mix of rigs coming up on their second or a third.
Sps is growing so.
The industry needs reactivation, maybe some stronger mobile delivery to accommodate growing demand.
So I'd like to shipyards are busy and Oems and rationalized a lot of capacity in the last four years. So <unk> taken a slightly different angle on a prior question I think you mentioned that balance sheet constraints.
Among contractors as maybe a governing factor for reactivation, but I wanted to ask if that reactivation cash we're there.
I just wanted to see it.
Do you see potential for a shipyard and OEM capacity could be a constraint on growing the supply of active floaters in the next couple of years.
Yes, we do clearly.
You've indicated.
Isn't that it takes at least 12 months congratulated because.
The.
Challenges that all Oems are happy because they've reduced capacity significantly driven assuming your Johnson. So now as they are ramping up we are starting to see these challenges because demand from them.
Contractors have improved substantially.
Was there anything to add.
No I think you can kind of a hallmark comment I would add that.
We are continuously engaged with our major.
<unk> suppliers.
When you look at the demand forecast that we have.
Through our collaboration.
Agreements.
Kind of agreements that we have evolved.
Very important suppliers to us.
April two.
I think I'm very confident look up the supply chain from their side to understand their restrictions.
<unk> plan around not only have their case in front of them, but also.
Sure.
Capital spare equipment that we have on hand.
Final votes.
And on those projects and reactivation.
Initial restriction.
But I would say that we are working collaboratively to find ways to move it.
Sorry, I just add in some way in some ways the capital constraints of the drilling contractors and supply chain challenges that we're facing in the shipyards and with Oems is actually healthy for the industry. We can't do what we've done in the past and overbuild.
So that's why we think it's going to be a prolonged recovery because we cant overbuild as an industry at this point in time and so while the growth will be slow it will be steady and should last longer and really the growth will come through day rates as opposed to adding a bunch of rigs to the fleet.
I appreciate all the color and sorry, if I missed it but do you have a view on how many floaters might be working off Brazil in 2025.
Yes.
At the time, we get into 2025 that rig count is going to increase to the range of 40 or maybe even more.
Because not only you are looking at Petrobras, adding significant capacity there are six other programs from.
The likes of shell total, Ecuador and others.
Are you satisfied as well so.
We dip down to kind of the teens in terms of rig count in Brazil, but it's going to double over over the next little while so I think youre looking at 40 40 plus rigs.
Thanks, so much.
Okay.
Thank you our final question will come from Samantha Hoh with Evercore ISI.
Okay. Thanks, and thanks for taking my questions and congrats on a really productive quarter.
So maybe thank you.
A little bit on the topic of Brazil.
It looks like Youre going to be operating a fleet of about.
I think vessel Theyre five drill ships there in that country.
A lot of concentration really around.
Gulf of Mexico, and Brazil.
Just wondering if you could maybe provide some sort of commentary around what that does for profitability in that region. When you have somebody very concentrated in one market.
Yes, okay.
The concentration of rigs in that market and so what's interesting about it is most of the work in Brazil comes out in the form of a tender.
As you go through the tender there is basically a minimum specification.
Either qualify or are you doing.
So the specification is set realistically for what's required in Brazil, and the good thing about that from our point of view is it opens up a world of possibilities for a sixth generation asset. So we don't necessarily have to deploy the seventh generation, which are potentially the highest earners to brazil to be able to be successful. So.
That's why it's been of significant interest for us, we're basically taking our lower spec rigs and putting them on multiyear high day rate contracts.
That we're very familiar with and we've had a presence for over 50 years.
Of course, we're now looking at five rigs being contracted there I would be very optimistic that we'd be able to add one two or three more to that over the next year or so.
And so Matt just to add to that your question. Your question was a little bit muffled on this so I apologize, but I think you were asking a little bit up a question around economies of scale and certainly our economies of scale with the larger with a larger installed base working fleet there.
It requires a tremendous amount of effort and time and energy and experience to run one ultra deepwater rig safely reliably and efficiently, but then as you add rigs you don't have to add much in the way of incremental support onshore. So theres definitely some economy of scale to be had the more rigs we can add to be certain jurisdiction.
Thanks, Brian .
Similar vein I mean, taking that rig Namibia, which has gotten so much press and excitement lately.
What are your thoughts in terms of like that market and what its potential looks like longer term.
Is that.
Is that just a.
And do you in terms of.
I guess exploration.
His work and this one is that longer duration.
Visibility that's all I got.
Development project in Brazil.
The high profile exploration type work.
Yes.
Yes, I'll take that one so look the exploration stuff in Namibia, you've now got several operators.
Or kind of dip their toe and they've had good success. So with success in exploration the move into the development phase a little bit further down the track. So you've basically got kind of two rigs working in Namibia and know there is demand for more in fact golf energies is out for an additional tender in Namibia.
So I think that's going to be a really solid jurisdiction for the foreseeable future I think youre going to see multiple rigs I think youre going to switch from.
The kind of.
Exploration phase into appraisal and development over the next few years so.
I would expect to see a story there very similar to what you saw in Guyana with Exxonmobil. So.
The difference here is that you just have even more operators on interested so I think that's a really positive sign, particularly because they use harsh environment rigs rather than just benign rigs.
But again around the world I think you've seen a lot more discoveries in the last year than you had in some previous years you will see as.
As we shift towards more development of these fields, rather than just exploration youre going to see a lot more.
Long term contracts because that's typically how the cycle works in terms of delivering all of those wells and not given timeframe.
Okay. Thanks, Robin and then if I could just squeeze one more in.
Yes, it's kind of interesting is that right.
Dipping your toes.
I think earlier this year or last year. When you guys first announced your JV into the deep Sea mining Jeremy is that takes place on that.
And your toe in that sort of exciting new venture.
I was just wondering obviously the <unk>.
Thinking around that that potential opportunity has shifted a little bit.
And it was really nice to see that you guys are swapping out essentially the Olympia.
With the.
Kayla.
What type of economics should we be thinking about for the Q and you guys mentioned that you are looking for like a one year type contract initially but is there like a return type profile anything that we can use in terms of our modeling.
On that similar.
Like one third interest that you have in the north.
Hey, Samantha sorry, you're really muffled on this end but.
Yes.
About the return profile on the <unk> mining opportunities yes.
Yes.
Or was it on the <unk>.
Taylor.
Could we just defer that to a call afterwards with investor team that analysis.
Yes.
Because it really has been difficult to understand you sorry.
Oh, sorry about that but thanks, guys for all your time.
Right. Thanks meta.
Thank you that does conclude our Q&A session I will turn it back to management for any additional or closing remarks.
Thank you Todd and thank you everyone for your participation on today's call. We look forward to talking with you again, when we report our first quarter 2023 results have a good day.
This concludes today's call. Thank you for your participation you may disconnect at any time.
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Yes.
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