Q3 2023 Transocean Ltd Earnings Call
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During todays program.
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Good day, everyone and welcome to today's Q3, 2023, Trans Ocean, earning call.
At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session.
Can they registered to ask a question at any time by pressing star one on your telephone.
Please note. This call is being recorded it is now my pleasure to turn today's call over to Johnson Director Investor Relations.
Okay.
Thank you Mike Good morning, and welcome to Transocean third quarter 'twenty to 'twenty three 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.
Letting me on this morning's call are Jeremy Thigpen, Chief Executive Officer. He went out of a sudden 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 our forward looking statements and for more information regarding certain risks and uncertainties that could impact future results.
Also please note that the company undertakes no duty to update or revise forward looking statements.
Following Jeremy and Mark's prepared comments, we will conduct a question and answer session with our team. During this time to give more participants an opportunity to speak please.
Limit yourself to one initial question and one follow up thank you very much I'll now turn the call over to Jeremy.
Thank you Allison and welcome to our employees customers investors and analysts participating on today's call.
As reported in yesterday's earnings release for the third quarter Transocean delivered adjusted EBITDA of $162 million on $721 million of adjusted contract drilling revenues, resulting in adjusted EBITDA margin of approximately 22, 5%.
As released on October 18th Fleet status report, we've recently added $745 million in incremental backlog give it to a total of $9 $4 billion.
Of note. This is the sixth sequential quarter increase in our backlog.
Now the latest fixtures.
In India, the deepwater kg one received a 60 day extension with its current customer reliance at a rate of $348000.
As well as a 21 month contract with that would you see at a rate of $347500 per day.
Excluding mobilization fee of $5 million.
The rig is now committed through the end of the year at which time it will undergo a brief period of contract preparation before its program with O N. G. C commences in February 2024.
As discussed on our second quarter earnings call and operator in the U S. Gulf of Mexico awarded the deepwater Invictus, our P&A at a rate of $440000 per day.
The program was completed in the third quarter.
Finally in Brazil, the Newbuild ultra deepwater drillship deepwater Sheila was awarded a three year contract with Petrobras at a rate of $448000 per day, excluding the mobilization fee at 90 times contract day rate.
The kilo was delivered from the shipyard earlier this month and will soon receive customer specific upgrades for its initial contract which is expected to commence in the third quarter of 2024.
Contract with Petrobras was particularly important as it facilitated the acquisition of the outstanding interest in our joint venture with Kilo Ventures limited through which we assumed full ownership of the deepwater akela.
Transocean now and with the commencement of the <unk> contract will operate eight of the 12 globally competitive 1400 short ton hook load dual activity ultra deepwater drillships in the world.
The acquisition of the appeal is consistent with our strategy of continuously high grading our fleet of <unk>.
Strategy, which is proving very effective particularly over the last 18 to 24 months as we have secured market leading day rates with these high specification assets.
As an example, since the fourth quarter of 2022, our ultra deepwater fleet average day rate has increased by approximately 33% to $416000 per day.
By the third quarter of 2024 based upon current firm backlog. We expect this average rate to increase to $437000 per day.
Based upon the status of discussions with customers, we expect that the Transocean Barents will be contracted for new work starting in mid to late 2024 until initially late 2026, and the deepwater Skyros will be similarly committed early to mid 2025.
Details of these prospects will be forthcoming assuming execution of fully binding customer commitments.
Okay.
Not only do we have significant backlog over the past several quarters, but we also substantially linked in contracting terms during this period.
In April of 2022, 12 of our rigs were contracted for durations greater than 12 months.
Six were contracted for greater than 24 months, and only five or contracted for more than 36 months.
By comparison today 17 of our rigs are contracted for durations greater than 12 months, a 42% increase.
15 or contracted for greater than 24 months and 150% increase in 13 or contracted for more than 36 months, a 160% increase.
Of our 2023 contracted backlog just over 80% now consists of programs of more than one year in duration. Another clear indication that our customers believe in the longevity of this up cycle and then the capability of Transocean.
The significant increase in contracted commitments as reflected in the size of our industry leading backlog from BP.
Again 2022 to the pregnant with added approximately $6 $8 billion in backlog.
When building a backlog maximizing EBITDA associated margins remains our goal in these data points clearly demonstrate the effectiveness of our longstanding asset strategy and portfolio management approach to placing our athletes on contracts are appropriate and meaningful value.
We can take decisions, most taking up the company and our shareholders and it means that at times, we may seek the highest day rate possible for a specific asset or job.
Consequence of which may be that we except short periods of idle time on individual assets.
In other instances, we may determine that maintaining high utilization at the ultimate financial impact, meaning that we fixed an asset at prevailing or otherwise acceptable market rates for a longer duration, securing high quality backlog meaningful EBITDA generation and longer term visibility to future cash flows.
Yeah.
As reflected in their budget processes, our customers continue to be disciplined in their allocation of capital.
The result of this behavior has exhibited in the Lumpiness of the timing of contract awards, we've observed over the last couple of years.
We expect this trend to continue.
Our sizable backlog and portfolio approach to fixing our assets minimize our exposure to this natural ebb and flow of customer activity, while best ensuring we achieve the best margin possible.
Yeah.
Notwithstanding the timing of announced contracting activity, our customers are securing rigs for longer and longer duration. If a program is expected to continue well into the future. This.
This is evidenced by the increase in average contract award lead times, which have increased significantly since 2021.
Drillship contracting lead times have increased by approximately 53% to 319 days and semi submersible contracting lead times have increased approximately 38% to 284 days.
The number of global floater opportunities continues to expand reflecting very strong demand and further encouraging our view of the longer term sustainability of the cycle.
Indeed overall demand remains on the rise with 84 rig years of activity expected to be awarded for 77 discrete programs starting in 18 months.
Looking closer at each region. The U S. Gulf of Mexico continues to be defined by direct negotiations with our customers with operators engaging contractors of choice for specific opportunities.
We see a steady stream of demand for short term programs with independent operators and it's a solid market with a limited supply of high specification ultra deepwater assets.
Notably we are engaged in discussions for follow on work for the deepwater Atlas upon completion of its current contract and are already having conversations with numerous customers regarding additional 20 K programs. Many of which are not expected to start for up to three years once again, demonstrating our customers' belief any prolonged upcycle.
The Invictus is currently competing for multiple local campaigns, including one which we believe will require a high hook load seventh generation Drillships.
<unk> supply, which is very limited.
We are also actively marketing the inspiration in various jurisdictions around the world.
As you well know Brazil continues to be a source of strong demand and based upon open tenders, we expect the active rig counts.
It's 12 months from the 29 rigs operating today.
Over the past year, there have been 27 awards made in Brazil, 18 for rigs already in country and nine that brought new rigs into the country.
Between the open tenders.
Yep Yep moored in BMC 33, they are expected to be another eight rig awards, which should require two incremental rigs from outside of Brazil.
This brings the addition of non Brazilian wakes to 11th with the up cycle began.
Furthermore, it's widely expected that more tenders in 2024 will keep all of the incumbent rigs busy and pending exploration success could demand. It further called on the global market to add yet more rigs to Brazil.
Clearly, Brazil is set to remain a pivotal long term consumer of ultra deepwater rigs with active rig count expected to reach at least 36 and 2020 for 2025 Jetblue.
Just by fulfilling today's no tenders.
Across the Atlantic we see in excess of 20 opportunities scattered throughout Africa in the Mediterranean commencing in the next 18 months.
For the first time in nearly a decade, Nigeria following its national election is showing significant signs of revival.
We expect between two and four long term programs to be tendered over the next six months, including three from international oil companies.
In Angola, Chevron Exxon and other large operators had a mixture of short and multiyear opportunities currently expected to commence in 2024.
Additionally, Namibian may require more rigs as total energy has confirmed future development, while chevron and shell a program is expected to be awarded in 2024.
And then maybe administering of mines and energy recently confirmed that projects requiring as many as five rigs are set to commence in 2024.
And finally in Mozambique, we expect tenders for both hotel <unk> and Eni in the coming months.
And Australia regulatory requirements continue to drive demand for plug and abandonment work. Additionally, several operators have indicated interest in securing rigs for additional multi year programs.
At this point, we anticipate formal tenders will be released in 2024 and expect our two rigs currently active in the region to be competitive for these tenders following their existing programs.
As such we expect both the Transocean endurance and Transocean equinox to remain in country for the foreseeable future.
They've also been promising developments elsewhere in the eastern hemisphere.
Anticipate that Eni will soon require a rig for follow on development for its recent discovery in the <unk> basin in Indonesia.
Yeah.
I also have an open tender for approximately 18 months of work in multiple countries in the region.
And in Malaysia, We expect PTT, EP and Petronas will come to market in the near future for an ultra deepwater drillship with a commencement in 2024.
Finally, we expect the high specification harsh environment market to remain tight.
Active supply in Norway is not fully utilized in large part due to the departure of numerous rigs to other markets.
As witnessed recently in a couple of public announcements many incremental programs will require operators in Norway to mobilize rigs from other regions.
And since many if not all of the recently departed rates will likely continue their active utilization outside but the Norwegian market. We expect this region to remain tight for the foreseeable future.
In addition to the fact that our customers are fixing contracts with start dates two years in the future.
Broader fundamentals also support our views of a sustained industry recovery beyond the 18 month time horizon.
<unk> recently reported that oil inventories in developed countries are approximately 115 million barrels below their five year average while the international Energy Agency reported global crude stocks have also fallen to their lowest level since 2017.
Meanwhile, the IEA forecast, increasing oil demand through 2028, while OPEC projected steady increase through at least 2045.
These predictions are supported populations and GDP growth projections, particularly for developing nations, where renewables infrastructure isn't it.
We continue to believe that much of new hydrocarbon development will come from deepwater basis. As these have consistently shown to yield superior investment returns and produce some of the lowest carbon intensity barrels available today.
Reliable third party analysis suggest upstream offshore capex will increase materially over the next several years crossing $200 billion next year, and reaching 234 billion by the end of 2027.
In summary, our outlook for it belong offshore deepwater drilling recovery remains firm and we will continue to manage our portfolio to maximize value.
Okay.
In this regard, but once it's truly a team effort and I extend a sincere. Thank you to the entire transition team for their commitment everyday to provide safe reliable and efficient operations.
I'll now turn the call over to Mark.
Thank you. Thank you Jeremy and good day to all.
During today's call I will briefly recap our third quarter results and then provide guidance for the fourth.
Quarter.
I will conclude with our preliminary expectations for full year 2024 includes our latest liquidity forecast.
It's just a practice we will provide more specific guidance for 'twenty 'twenty four.
About 2023 European core in February of next year.
As reported in our press release, which includes additional detail on our results for the third quarter of 2023, we reported a net loss attributable to controlling interest of $220 million or 28 cents per diluted share.
After certain adjustments, we reported an adjusted net loss of $280 million.
During the quarter, we generated adjusted EBITDA of $162 million.
Operating cash flows were negative $44 million, primarily due to approximately $135 million of contract preparation and mobilization costs.
<unk> seven rigs starting new contracts in late 2023, and 2024, including two rigs in Brazil too.
And just be prepared for Brazil.
Bound for Australia, and one rig operating in the eastern Mediterranean.
The negative free cash flow of $94 million in there.
Third quarter reflects the aforementioned negative $44 million of operating cash flow and $50 million of capital expenditures.
Capital expenditures for the third quarter included $30 million related to <unk>.
Two recently deliberate eight generation drillships, the deepwater Atlas and depot detection and a 7% plus.
Seven plus generation Newbuild deepwater killer.
Looking closer at our results through the third quarter, we delivered adjusted contract drilling revenues of $721 million.
Every style your revenue of approximately $391000.
This is consistent with our previous quarters, despite the lower than expected operating activity.
Which is mainly due to the late start on the total pie.
Deep water kg too in Brazil related to an importation issue.
And recent application of the lowest coding infiltration was country took application or the loss, which had been applied to our previously reported rigs.
This issue in the country has been resolved and the rig is expected to commence operations later this week.
We do not expect some of the issues with the other rigs scheduled to enter Brazil.
Operating and maintenance expense in the third quarter was $524 million. This is below our guidance, primarily due to lower than in service maintenance costs and operating activity.
Primarily related to the delayed start of the kg true.
General and administrative expense in the third quarter was $44 million.
Also bill, Nevada guidance, mainly due to lower than anticipated professional service.
I T related services piece.
First on expenses.
Turning to the cash flow and balance sheet.
Ended the third quarter with total liquidity of approximately $1 $4 million, including unrestricted cash and cash equivalents of approximately $594 million approximately $183 million.
Restricted cash for debt service and $600 million from our Undrawn revolving credit facility.
Yes.
Now I would like to address the impact of a significant increase in opex.
Having on our revenue and operating costs.
Jamie mentioned in the last 22 months, we've added approximately $6 $8 billion of backlog.
Many of these contracts, including those for deepwater, making us the political kubota.
Deepwater Orion.
Hey, G tube Transocean, Barents, Transocean endurance, and trace Ocean equinox, which together comprised $2 1 billion of this backlog increase.
Quite a substantial contract preparation and mobilization.
Which typically must be completed prior to the commencement of operations.
We started to include these costs in the second quarter of 2023, and expect EBITDA margins to be adversely affected by varying of months through the first quarter of 2024.
For reference, we expect to either defer or capitalize about 60% of these costs with the balance increasing expenses and reducing EBITDA.
These preparation costs, obviously temporary in nature and would translate into higher day rate revenue and operating margins in future years.
We anticipate quarterly increases in contract drilling revenues throughout 2024.
I will not provide an update on our expectations for the fourth quarter of 2023 and full year 2024 financial performance as always our guidance reflects only contract related rig reactivation and upgrades.
For the fourth quarter of 2023, we expect adjusted contract drilling revenue approximately $760 million based upon an average fleet wide revenue efficiency of 96, 5%.
This quarter over quarter increase was mainly due to higher day rates in the K G. One.
Polka Boto, Mykonos, and Petrobras 10000, more operating days.
So there's periods in the third quarter.
And expect to commencement of the K G to contract in the fourth quarter.
This is partially offset by idle periods in several weeks.
We expect fourth quarter O&M expense to be approximately $565 million.
This quarter over quarter increase is mainly due to the timing of in service maintenance activities.
And the Transocean Barents in Cyprus, and a full quarter of activity for rigs that are out of service periods in the third quarter.
This is partially offset by lower costs incurred on idle rigs.
We expect G&A expense for the fourth quarter to be approximately $55 million.
This quarter over quarter increase was mainly due to the high professional fees.
Fees that were not incurred this anticipated third quarter.
Net interest expense for the fourth quarter is forecasted to be approximately $127 million.
This includes capitalized interest of approximately $6 $4 million.
Okay.
Capital expenses for the fourth quarter are forecasted to be approximately $270 million, including approximately $210 million.
Related to the preparation of the people that killer for its three year contract with Petrobras in Brazil and.
$16 million with a deepwater Atlas and people to talk to them.
Cash taxes are expected to be $24 $3 million for the fourth quarter.
Okay.
I'd like to provide a preliminary overview of our financial expectations for 2024.
We currently focus adjusted contract revenue to be between $3 7 billion and $3 $9 billion.
This includes approximately $200 million of additional services and Reimbursable expenses.
We expect our full year O&M expense to be between 2.1 and $2 $3 billion.
Finally, we anticipate G&A costs to be around $195 million.
A P rumney projected liquidity at the end of 'twenty 'twenty four is one five to $1 $7 billion, reflecting a rebidding on cost cuts and including a.
$600 million capacity of our Undrawn revolving credit facility.
And restricted cash of approximately $340 million, most of which is reserved or debt service.
This liquidity forecast includes 'twenty 'twenty, four capex expectations of $195 million.
It's approximately $205 million related to the deepwater killer.
And approximately $90 million for sustaining and contract preparation capex.
In conclusion, and salaries continue to move to higher day rate contracts or corporate imperative.
Changed first we will focus on the safety in fact people.
And execution of your LIBOR and efficient operations.
We also remain committed to strengthening our balance sheet and restoring value to equity holders.
As such we will continue to manage our allocation of capital prudently and in a manner that allows us to continue to delever without compromising safety and operational execution, while highway two and close opportunities.
This concludes my prepared comments I'll turn the call over to Alison.
Thanks, Mark Mike, 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 at this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star two and once again that is star one if you'd like to ask a question.
And our first question comes from Greg Lewis with BTG.
Well, hey, Thank you and good morning, and thanks for taking my questions everybody.
I guess, Mark I was hoping you could talk a little bit more about that next year's guidance and thank you for that.
I may be off by a rig or two but as I count rigs with available are open revenue days in 2024.
Looking at about eight I think its around eight rigs that have summer idle some maybe roll off in Q3 of next year.
As I think about the revenue guidance that you're giving in any kind of color you can kind of talk to on those rigs I mean, clearly in jeremy's prepared remarks, he announced white space.
Is there I would imagine some rigs are better positioned than others to get to work or to maybe extend any kind of broad strokes you can give around that.
So Greg Thanks for the question Firstly, if you look at our guidance of approximately $3 8 billion take the middle of the range at about 90% of that is contracted revenue. So there's about 20%, which we obviously rudi's and killen are very much involved in that we sit down and we look at the rigs we look at the opera.
And it is we look at the probability obviously and then we assume a day rate based upon our five year plan pay rate deck and.
In some cases, we will put.
That rig to work using that day rate deck. Other times, we'll assume that the rig sits idle for a little while for one well depending on where it is.
What are what type of rig. It is so there is an element of approximately 10% in that which is spec revenue.
We update that as we go through the quarters next year.
Yeah, I'll I'll add a little bit to that.
Yeah.
If you if you take out the I guess.
The strict reading of the fleet status report and then we are at.
Kind of look at about eight rigs.
Our internal view I mean, obviously, we kept the volatile the conversations we have with customers, but we think that number is maybe closer to three so.
We're pretty optimistic about being able to fill those gaps as we go forward.
Okay, that's great to hear and then Ronnie since each chime in.
You know I did have a question.
And Jeremy alluded to it in his prepared remarks, I mean, clearly theres a lot of activity going on and a lot of demand from customers.
As we sit here I guess I'll ask on the last day of October happy Halloween everybody.
I guess, what I'm I guess, what I'm wondering is how much of it is is lykes is part of the seasonal I E. We're heading in the winter and maybe we see.
End of operators start to lock up some of these rigs as we move.
As they are starting to get ready for spring time.
He kind of seasonal factors may be we could be thinking about in terms of that eventual activity are not even activity fixture in our contracting pickup that I think a lot of us are waiting for.
Yeah, I think so a couple of things to unpack there. So first of all it may look like the absolute number of fixtures is slightly lower this year, but that the truth is.
The length of each one of those fixtures is is progressively longer year on year. So the actual number of rig days Committee, just looking really really good for 'twenty three already.
So as we enter the last couple of months of the year.
They're the things that we're actively engaged in just note are all long term in nature, there's one or two short term things, but the majority of this stuff, especially the headlines that you guys see over the next couple of three months as all for longtime stuff and we're not just talking about you know one year deals we're talking about like 345, maybe even 10 year deals.
So there is a lot of lot of stuff in terms of the stats on the number of fixtures made but what we're looking at is kind of Jeremy said is making sure we pick it up the right pieces of work that give us that.
Length of contract, but also a really good day rates because the decisions we make are all.
Generating returns and value for the shareholders. So.
We're going to continue pushing down that track.
<unk>.
In terms of seasonality I think you're basically right in budget season, right now for the major operators, so they're kind of going through that churn and then typically what we see is a lot of interest there in the fourth quarter.
When people start thinking about what other fixtures they'll make in 'twenty four and you can start putting on tenders.
You may or may not be aware, but.
There is there is some of the big operators are out for tender just note and theres more expected for kind of multi year multi rig multi country head of tenders. So expect to see several of those and many a time, yes. The other thing I'd say to that they're making bigger commitments now for longer periods of time and they just take more time to process that <unk>.
And executing so I wouldn't read anything else into it other than that.
Okay.
Super helpful. Everybody. Thank you.
Thanks, Greg Happy Halloween.
And our next question comes from Eddie Kim with Barclays.
Hi, Good morning, just wanted to ask about the day rate progression that we saw earlier this year.
It seemed almost like a foregone conclusion.
We see an announcement of a term contract at 500000, a day before year end and I know, we still have two months left but increasingly feels like that expectation is shifted to early next year. Instead would you agree with that and based on your conversations with customers today and if so any particular reason for that.
Kind of an air pocket of contracting activity that we've been seeing.
The past few months that pushed the timing out of it.
I would say our customers are violently opposed to de rate that starts with a five at this point in time.
We've been disappointed that we haven't seen one.
I do feel like there is that's kind of become the new ceiling for our customers.
That they don't want to see any of its pushed through to that number and they certainly don't want to be the first to agree to a contracted that of that day rate, but it's going to happen to Eddie.
I don't know if it's going to happen over the next two months.
There are some opportunities out there that we're pushing but it will happen yeah. No doubt I'd also add that as you look at that the kind of the average drillship fixture across the market of all the 23. So far that said by 367000 to date Transocean is average across the 23 fixtures, but ours is 400.
15th so what kind of like you know, 10%, 15% higher than the average and when you when you turn out to the semi Submersibles. We go from $3 36 to $3 90, twos were 17% higher.
On the sami's down without fixtures so look.
It is certainly not what's holding that back.
As Jeremy said.
The customers, obviously are looking to exercise as much capital discipline as the con, which we totally respect but certainly.
Certainly for US scoring day rates in the high four hundreds is a good business.
Any day of the week.
Got it.
There is.
Just my follow up is on the deep water cooler could you just remind us the cash outlays related to this rig over the next 12 to 18.
12 months I should say I believe there is the ship shipyard payment to take delivery of the rig earlier. This month, how much was that and what do you expect to be the kind of that the all in activation costs for the rig to make it completely drill ready before its contract with Petrobras.
So Eddie we we put 20% drawn when we <unk>.
Purchased a rig about a year ago. So the final payment, which we made in early October was the remaining 80% $160 million.
I said in my prepared comments, so we tend to spend about $200 million on preparing the rig for Brazil. As you know because Petrobras says I'm just wondering if IMAX, Iran. With the rig has to be able to do what equipment, including NPD.
And we will be.
Taking the rig into Brazil sometime in June July August of next year.
Okay got it.
Right.
Mark.
The <unk> 10 million related to the Aquila, that's capex guidance for fourth quarter rate and then.
Thought I heard an additional $105 million of Capex for next year did I hear that correct.
Hum.
Correct, yes.
Okay.
Okay understood. Thanks for that clarification I'll turn it back.
Okay.
And we have our next question from Kurt <unk> with benchmark.
Hey, good morning, everybody.
Good morning, Kurt.
Appreciate the color.
So in the just.
Just in the context of <unk>.
Terms and conditions.
And it looks like you have a you referenced a number of opportunities where you're going to see three to five year kind of contract terms again that kind of historically wouldn't necessarily jive with a.
Landmark you know new new high day rate right, usually trades. Some some term for for right. So I'm just kind of curious as to you know those dynamics.
How youre thinking about them in again in the context of you.
As a management team trying to maximize returns and maximize cash flow as we go into this next upcycle.
Yeah, I would say we covered it a bit in the prepared remarks, and I think a bit last quarter to Kurt but I mean, we sit at the team and really evaluate each rig in each opportunity and there are times with certain rigs, where you say you know what we don't want to fix this rig to a longer term contract that we believe is going to be a discount to market by the end of that contract.
And there are other rigs we want if we want to keep that rig in kind of test the market on short term working to continue to push day rates as much as we possibly can now the risk in that as you get some idle time every now and then you get some white space as we do right now with the Invictus, but that is the rig that we are continually used to push rates and got us to where we are today. So so with some of our rigs. We will we will continue to take that strategy.
Other rigs, we'd like to walk them up into into three or five year contracts at what might be a discount towards the tail end of that towards the tail end of that contract because it gives us that firm backlog that visibility to future cash flows. So it's really this portfolio management approach that we've talked about on previous calls and we continue to do that with each opportunity. Yeah. I think it was just.
We also very specific about what we target in terms of the specification of the rig matching up with the.
We've been quite purposeful and trying to keep a couple of them available.
So that later in the cycle that the operators can still get their hands on high specification top spec rigs and of course that might come a little extra cash.
Got you. Thanks, thanks for that so.
I guess my follow up question here as you kind of referenced or you addressed some of the questions earlier on about a little bit of a lull in new contract announcements as we kind of progress through the second half of the year.
But is there also an element of now or are you seeing an element where the oil companies are kind of looking at the same rig availability profile and everybody else kind of season and basically now at a point, where they are making decisions to push off.
Project start time beyond 2024, because they just can't get.
The rates are that they will.
<unk>.
Yeah.
I think there's probably an element of that that if you for example, if you're.
We're going to do a P&A program. Then obviously you would prefer to be able to push that to a point that you think dayrates will be lower or you find the right rig with a specification rig that can do the work and you can get a reasonable rate.
I think cat if you look at what's going on with the majors and I realize that not all of the information is public but if you look at what's going on with the majors youre going to see several fixtures made in the next short while that are for multiple years.
And they're on higher spec rigs. So these guys are in the market today.
Kind of working diligently towards placing the right assets when they need them. So I tend to think it's a little counterintuitive that you see there is a lot more direct negotiations stuff going on today that you don't necessarily see in the tender.
Market as such.
I, just think you're going to continue to see.
I wouldn't even say it with a death. It's just good in terms of long term contracts, you're going to continue to see steady fixtures being made for multiple years and you think about where we were like just one year ago.
We were looking at and activity chart literally how do you know a couple of handfuls of rigs that had.
The longer term stuff on it now we're talking about somewhere in the region of kind of 15 to 17 of our rigs have got more than two years outlook on them and of course by the end of the year or in Q1 next year, we expect that to get up to 20 years old. So I mean I. Just think this is the transition period because you just.
Have fewer short term opportunities but longer.
And larger number of long term opportunity. So this is just the kind of the natural ebb and flow of it Jeremy was talking about.
That's great really appreciate it thank you.
Thanks Kurt.
And our next question comes from David Smith, with Pickering Energy partners.
Hey, good morning, and thank you for taking my question.
Good morning, Dave.
This is actually a question about cough. So please bear with me a second.
But the average reported ultra deepwater rate in Q3, $406 5000, a day.
I know that doesn't include Reimbursable with our contract termination.
Multiplying that rate times the in service date reported.
So just about a $44 million different.
The reported ultra deepwater revenue of $516 million.
Delta for the ultra deepwater fleet had been averaging around $20 million last several quarters I just want to verify if Q3 was just a big step up in the Reimbursable revenues with it.
Likely similar amount of cost.
Yeah, David let's take this massive offline I don't want to go through when we try not to talk about the macro right would you be concerned about.
Rick I reconcile this with your airports.
Absolutely and then quick follow up if I may the support cost $67 million was a little step up versus the prior run rate was there anything anomalous or is this a good run rate to use.
Well, we do have higher Reimbursable no question about that and we've seen more and more customers requesting that we buy.
Five things perform services on their behalf so much easier for them. So.
As an example, if you look at the Petrobras contracts signed two or three years ago very low in repo suppose you look at the ones now much much higher so yes, there is a higher run rate of Reimbursable, but like I said, we can give those to you offline and give you the math.
Perfect ill circle back with a big picture question. Thank you.
And our last question comes from Scott Gruber with Citigroup.
Yes.
Yes, good morning, I had a question on <unk>.
Capex for for next year, but.
The base maintenance spend for next year at about 90 million sounds rather benign.
Not seeing much inflation in service cost or if it's really a reflection of the initiatives around how you guys manage maintenance spend that let's keep the Linda laid on spending.
So a couple of things there Scott one.
That's $90 million includes some contract crack of about $10 million. So the rest of about 80% is actually a little bit lighter than you would think it is.
We have seen some inflation no question about that but as you know we do have.
Referred to as care agreements with most of our Oems and part of the agreement is a cap on the inflation.
Each year net cap ranges around 2% so everyone. If inflation is core of 5% which is.
It clearly is at the moment, we're not experiencing all of that with a lot of our spend.
So.
Next year is also a likely year when it comes to S.
Sps as for rigs that are older. So youre not going to see a lot of money being spent on that.
And we've also maintained our rigs fairly well throughout the down cycle. So we're not gonna have a catch up in 'twenty three 'twenty four 'twenty five and beyond so I think this is this is what you can expect from us going forward.
Capex has been very high because of new boots.
On a sustaining basis, we've been saying this for a long time.
We don't expect to see very big numbers.
From us going forward.
Right.
And just a quick follow up on on the SPS side, you will have a few more it looks like in the 25 and 26 and I know you're not spending as much on the <unk>.
10 year Sps this cycle as you did last cycle, but just kind of ballpark what would have a 10 year Sps running now.
It all depends on the asset because you know with these agreements we have 10 year contracts with these Oems so part of the B B.
The benefit to Transocean with regard to these agreements is that the rig equipment stays certified 24 seven 365.
So the cost benefit because we pay a day rates to our vendors.
Cost benefit is that we can do for the Drillships, we couldn't do the Sps as well.
While the rig is working.
For the five year and 10 year, obviously were.
This past halfway with these contracts, we will start to look at renegotiating vessel.
Terminating this so whatever we decide to do with regard to those agreements.
Yes.
Even through 15 or beyond but clearly for us the five and 10 year is not a big number and most importantly for the Drillships noble out of service time for the semi cycle, but we do have to take those rigs into the dry dock because we have to inspect the hull of the pontoons.
And.
The under carriage other rigs and that can be 15 to 20 days.
Got it I appreciate the color. Thank you.
Thanks.
And our next question comes from Fredrik Stene with Clarksons <unk> Securities.
Hey, Jeremy and hope, you're all well I wanted to.
Circling back to the market here.
Here.
Weighing short to medium term nurses.
Long term outlook and I think repeat too much aligned in what we think about.
A market that is going to be.
Highly sustains.
Long up cycle, but.
Based on somehow estimates for.
Sure.
Drillers in general has been revised downwards now for 24 and proxy firewall then also.
A few months.
This seems to be some concerns at least 24 will be call it a bit.
Volatile and I knew you partially touched upon it wind.
White space and all of that.
I just wanted to confirm.
Confirm that what's happening.
Behind the scenes, our underlying and then maybe in particular in relation to your comments about.
Longer term work taking longer to finalize.
The white space that where we might see on a few rigs in 'twenty four for you on peers.
Sure.
As a result of.
Closed.
What can we say.
<unk> and contact and startups and multimedia result awful.
Thing changing in how you look at these markets in the long run.
People need time to decide.
The consequence of that is it's a bit of.
White space, although it shouldn't be taken out some kind of a weak market.
Sorry, if I hope all of them are expenses.
Hopefully I don't know if it makes sense that makes sense.
Yes, no that makes sense, yes, so really that's the exact that's it that's.
That's exactly our view is that you.
For example, we talked about a couple of rigs. So if we take that then.
The exploration. So it's based on IC was a winner and one of the tenders that just did not get consummated so.
She would've.
Assuming that had gone ahead, there was some technical issues on wells that are they decided not to do that but assuming that had gone ahead. She would be booked and then we'd be busy getting ready for the contract. So I really don't think the fact that you have a couple of spots of white space are indicative of the market I think it's more indicative of just a confluence of events. So for example.
Simple in the U S that we really had no hurricanes this year upsetting any of the activity, which is great right, but normally that.
That does have an impact on the length of term for for some of these rigs.
And likewise, you delayed some of the other places we had.
Instances, where options, where perhaps not taken on rigs.
In one case actually because the results were so good that they decided not to drill the extra wells.
So that's kind of like a victim of our success, but.
Other instances, where you know either some political stuff happens or there's some delay on trees or something like that and options won't take it. So I think like if we think back to where we were last year, we had tons of white space.
And a lot of it got filled because we quote unquote dull.
Got lucky.
In terms of programs running longer this year things have not run longer they've really gone either.
You have to plan. Our we've delivered ahead of time, so on a macro view, that's actually a really positive thing because it means that the well cost for the operators are coming down again.
And we think that's positive for building.
Larger demand as we go forward, it's just slightly unfortunate because some of those rigs, but on the short term contracts that we talked about but they're really good upside with substantial portion of our fleet migrating to the long term contracts those things are not going to be an issue anymore as we step into it.
Later in 'twenty, four and 'twenty five.
Hi.
Very helpful and just a follow up on that now that we're seeing from <unk>.
White space.
And in 'twenty four for various reasons.
Think all else equal that pets.
Delayed.
Pace at which our capacity will be.
Reactivated are there from from cold stacked or from yard.
That's for the market as a whole, but also on your own them since you're controlling moles still bad.
The cold stack okay.
<unk>.
Yeah, so like.
A good example might be what's happened in Brazil, So obviously I can't really talk about.
It looks like shows that have yet to be made but there is rumors that you know there was a switch by a winner of a particular project that they decided to put forward assets that are already on the market rather than bringing two assets from the shipyard.
So that that would be a consequence of while it makes sense to place. Your active fleet ahead of reactivating, our standing up and Newbuild rigs so.
That's probably the best example to date that are.
There is there is still plenty of discipline amongst the drillers that did not bringing out rigs at all costs, they're basically saying hang on a minute. This makes sense for us to keep that capacity off the market and to place our active rigs so.
Thank you, you'll you'll see that that kind of ebb and flow as we go forward but.
Yeah for the most part that that probably little adjustments like that make a lot of sense.
Our position has always been we are not in a hurry to reactivate the rigs we are only going to do it when it makes economic sense when we have the contract that to Jeff.
Generally justifies.
And the money to do that so again.
Thank you.
The only real consequence of any.
Shortness of work in the near term is it.
Those rigs will be delayed from coming out of the yard and certainly we will not be reactivating speculatively. So we will still look to contract on that.
Alright. Thank you. Thank you everyone very much for the comprehensive call.
Super helpful. That's always so.
I guess I wish you all a good day.
Poking into VIX maintaining spread here.
And do we have a final question from David Smith, with Pickering Energy partners.
Hey, Thanks for letting me back in.
That's your question.
Focusing on some of these five year plus programs that operators are looking to fill.
I expect they're looking for a discount to leading edge rate yeah, maybe they could get those discounts with with rates that got really solid return for our reactivation or one of the new builds that were.
Bought from a yard earlier this year.
But when I look at those seven Gen rigs that are still clock or previously explained it.
The count but are owned by you I'm not including the Libra that can do new builds I think.
Those are going to cost a lot more.
My question to you and just given your view of demand when do you think we see these last six incremental seven Gen drillship.
Absorb those.
One smartphone by you.
And then what happens to the cost of incremental supply when those are gone.
Right. Okay. So don't take my word for it but.
I think Westwood energy had a had an article out recently that they expect utilization to reach 100%.
And the.
Kind of late 'twenty, four 'twenty five timeframe.
And then the following year in 2006, there they were projecting 104% to 105% utilization. So what that tells you is.
That's the timeframe in which you would expect to see all of those rigs reactivated so and their projections, you've basically got all of the stranded assets being brought by the yard put to work and there's a call on five to six additional cold stacked assets in that timeframe. So again.
Microsoft Bowls, a little biased but I.
I would say if you follow some of the commentary elsewhere.
You can point to that that 25 timeframe as being.
Completely sold out of active rigs.
Most all of the stranded assets either being deployed or are about to be contracted for future deployment and then we'll start thinking about.
When is the right opportunity to bring a stacked assets.
I'd also say the first part of your question and to address that the multiyear tenders.
That's clearly the cases that.
Looking to.
Secure capacity at a day rate that they feel is acceptable and works for the projects.
And you know there are some compromises and that one of the compromises being it's a lot easier to do a lower day rate. If you have the surety of a long term contract, but also I would not count as being seventh Gen rigs only I think youre going to see that the sixth Gen rigs are quite attractive for those so if you see what happened in Brazil, basically a lot of the <unk>.
<unk> went to work for long periods of time in Brazil, because they are perfectly adequate for those campaigns I think youre going to see the same thing on some of these long term five year deals is not necessarily.
The top spec rigs that are going to do it they're going to be fit for purpose rigs because again, that's how you get the right day rate for that asset for a long period of time.
Great point and great color. Thank you so much.
And we have now reached the allotted time for Q&A session I will now turn the call back over to Allison Johnson for closing remarks.
Thank you Mike 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 2023 results have a good day.
This does conclude today's program. Thank you for your participation you may now disconnect.
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