Q3 2023 Valaris Ltd Earnings Call
Speaker 1: Good day and welcome to the Velaris third quarter 2023 results conference call. All participants will be enlisted.
Good day and welcome to the Polaris third quarter 2023 results conference call.
All participants will be in listen only mode.
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Speaker 1: After today's presentation, there will be an opportunity to ask questions.
After todays presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded.
I would now like to turn the conference over to Darin Gibbons.
Speaker 1: I would now like to turn the conference over to Darren Gibbons.
Speaker 2: Vice President of Investor Relations and Treasurer. Please go ahead. Welcome everyone to the Velares third quarter 2023 conference.
Vice President of Investor Relations and Treasurer. Please go ahead.
Welcome everyone to the Valores third quarter 2023 conference call with me today are president and CEO Anton deposits.
Speaker 2: With me today, our President and CEO , Anton DeBovitz.
Speaker 2: Senior Vice President and CFO Chris Weber, Senior Vice President and CCO Matt Line, and other members of our executive management.
Senior Vice President and CFO, Chris Weber, Senior Vice President and C. C O Mount line and other members of our executive management team.
Speaker 2: We issued our press release, which is available on our website at velouris.com
We issued our press release, which is available on our website at Dolores dotcom.
Speaker 2: Any comments we make today about expectations are forward-looking statements and are subject to risks and uncertainty?
Any comments, we make today about expectations are forward looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially from our expectations.
Speaker 2: many factors could cause actual results to differ materially from our expectations.
Speaker 2: Please refer to our press release and SEC filings on our website that define forward-looking statements and list risk factors and other events that could impact future results.
Please refer to our press release, and our SEC filings on our website that define forward looking statements and list risk factors and other events that could impact future results.
Speaker 2: Also, please note that the company undertakes no duty to update forward-looking...
Also please note that the company undertakes no duty to update forward looking statements. During this call we will refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information and required reconciliations.
Speaker 2: During this call, we will refer to GAAP and non-GAAP financial methods.
Speaker 2: Please see the press release on our website for additional information and required reconciliation.
Speaker 2: As a reminder, last week we issued our most recent fleet status report, which provides details on contracts across our rig.
As a reminder, last week, we issued our most recent fleet status report, which provides details on contracts across our rig fleet.
Speaker 2: an updated investor presentation and arrow drilling presentation will be available on our website after the call.
An updated investor presentation, and Aero drilling presentation will be available on our website after the call.
Speaker 2: Now I'll turn the call over to Anton Dubovitz, President and CEO . Thanks, Darren, and good morning and now...
Now I'll turn the call over to Anton Debits, President and CEO.
Darren and good morning, and afternoon to everyone.
Speaker 3: During today's call, I will start by providing an overview of our performance during the quarter, and then provide some high-level commentary on the outlook for the offshore drilling market and our fleet strategy.
During today's call I will start by providing an overview of our performance during the quarter and then provide some high level commentary on the outlook for the offshore drilling market and our fleet strategy.
Speaker 3: I'll then hand the call over to Matt to discuss the floater and jackup markets in more detail and to provide an overview of our contracting outlook for 2024.
I'll, then hand, the call over to Matt to discuss the floater and Jackup markets in more detail and to provide an overview of our contracting outlook for 'twenty 'twenty four.
Speaker 3: After that, Chris will discuss our financial results and guidance, including preliminary guidance for 2024. And finally, I'll wrap up the call with some closing comments.
After that Chris will discuss our financial results and guidance, including preliminary guidance for 'twenty 'twenty four and finally I'll wrap up the call with some closing comments.
Speaker 3: Before we get into the details of the quarter, I want to highlight some key points about our business going forward that we will discuss in more detail in this call.
Before we get into the details of the quarter I want to highlight some key points about our business going forward that we will discuss in more detail in this call.
Speaker 3: First, the outlook for Valarice is positive, with increasing demand and constrained supply setting up a strong and sustained upside.
First the outlook for Polaris is positive with increasing demand and constrained supply setting up a strong and sustained up cycle.
Speaker 3: Second, we've had great contracting success over the past 12 months and retain significant operating leverage to the improving market. Consequently, we expect a meaningful improvement in our full-year results in both 2024 and 2025, driven by prior and ongoing reactivations and repricing of legacy contracts.
Second we've had great contracting success over the past 12 months and retain significant operating leverage to the improving market. Consequently, we expect a meaningful improvement in our full year results in both 'twenty 'twenty, four and 'twenty twenty-five driven by prior and ongoing reactivation and repricing of legacy contracts.
Speaker 3: And finally, we have demonstrated our commitment to capital returns. And when our business begins generating meaningful and sustained free cash flow, we intend to return at all your shareholders unless there is a better or more value accretive use for it.
And finally, we have demonstrated our commitment to capital returns and when our business begins generating meaningful and sustained free cash flow. We intend to return at all to shareholders unless there was a better or more value accretive use for it.
Speaker 3: Moving to our third quarter operations, we're pleased that the LARIS DS-17 commences contract with Equinol of Shore Brazil during the quarter, following its reactivation and expected will contribute meaningful earnings and cash flow going forward.
Moving to our third quarter operations.
We're pleased that Polaris Dia 17 commenced its contract with Ecuador offshore, Brazil, Jordan the quarter following its reactivation and expect it will contribute meaningful earnings and cash flow going forward.
Speaker 3: We're excited to be partnering with Echronora on their flagship Bakalau project in Brazil and to increase our presence in this strategic base.
We're excited to be partnering with Ecuador on their flagship Bacalao project in Brazil and to increase our presence in this strategic basin.
Speaker 3: We will soon have four drill ships working off shore Brazil, following the recent arrival of Valarys DS8, which is about to commence customer acceptance ahead of its two and a half year contract with Petrobras.
We will soon have four drillships working offshore Brazil. Following the recent arrival of Polaris D. S. Eight which is about to commence customer acceptance ahead of its two and a half year contract with Petrobras.
Operating safely is always our top priority. So we're proud to be honored by the center for offshore safety, which recognize the Valero its basic training program with its 2023 safety leadership Award.
Speaker 3: Operating safely is always our top priority. So we're proud to be honored by the Center for Offshore Safety, which recognized the Valera's Basic Training Program with its 2023 Safety Leadership Award.
Speaker 3: As demand for our services continues to improve, we are hiring an increasing number of men and women that are new to the industry.
As demand for our services continues to improve we are hiring an increasing number of men and women that are new to the industry.
Speaker 3: The Valarice Basic Training Program, which utilizes one of our stack rigs in the US Gulf of Mexico to provide basic training for new hires, is an innovative initiative to prepare new employees to work safely offshore.
The Valero basic training program, which utilizes one about stacked rigs in the U S. Gulf of Mexico to provide basic training for new hires is an innovative initiative to prepare new employees to work safely offshore.
Speaker 3: Remaining on the subject of safety, I'd like to congratulate the crews of the Valarice 76 for recently celebrating five years without a recordable incident. A fantastic achievement made possible by their dedication to building a safety first culture and adhering to our safe systems of work on a daily basis.
Remaining on the subject safety I'd like to congratulate the crews of the Polaris 76, four recently celebrating five years without a recordable incident, a fantastic achievement made possible by the dedication to building a safety first culture and adhering to a safe systems of work on a daily basis.
Speaker 3: Now turning to our financial performance for the quarter. We generated adjusted EBITDA of $40 million and adjusted EBITDA adding back one time reactivation cost of $91 million.
Now turning to our financial performance for the quarter, we generated adjusted EBITDA of $40 million and adjusted EBITDAR, adding back one time reactivation costs of $91 million our results in the quarter were impacted by unplanned floater downtime events in a few rigs one of which will also impact the fourth quarter.
Speaker 3: A result in the quarter were impacted by unplanned floated downtime events on a few rigs, one of which will also impact the fourth quarter, as well as delayed contract start-ups for the Valarys DS-17 and 107.
As well as delayed contract start ups full of Polaris Dia 17 and 107.
Speaker 3: While our Florida Revenue Efficiency for the Quarter was below our expectations, our year-to-date Fleet-wide Revenue Efficiency is strong at 97 percent, and will remain committed to delivering safe and efficient operations.
While our flow to revenue efficiency for the quarter was below our expectations our year to date fleet wide revenue efficiency is strong at 97% and we remain committed to delivering safe and efficient operations.
Speaker 3: A couple of weeks ago, we announced that arrow drilling had secured highly attractive financing from a syndicate of local Saudi Arabian banks to finance the deliveries of its first two new build rigs, Kingdom 1 and Kingdom 2.
A couple of weeks ago, we announced that Aro drilling had secured highly attractive financing from a syndicate of local Saudi Arabian banks to finance the deliveries of its first two newbuild rigs Kingdom, one in kingdom too.
Speaker 3: Kingdom 1 was recently delivered from the shipyard, and we anticipate that it will commence it made in contract later this month, while Kingdom 2 is now expected to be delivered and commence its contract in the first quarter of 2024.
Kingdom, one was recently delivered from the shipyard and we anticipate that it will commence its maiden contract. Later this month, while kingdom. Two is now expected to be delivered and commence its contract in the first quarter of 'twenty 'twenty four.
Speaker 3: The delivery and start-up of the first two new builds will mark an important milestone in the growth story of Arrow and is expected to lead to a substantial increase in 2024 earnings.
The delivery and startup of the first two new builds will mark an important milestone in the growth story of Arrow and is expected to lead to a substantial increase in 'twenty 'twenty four earnings.
Speaker 3: We are pleased that ARA has been able to secure financing for these rigs at highly attractive terms, demonstrating both the strength of the ARA business and its relationship with local lenders in Saudi Arabia.
We are pleased that arrow has been able to secure financing for these rigs at highly attractive terms demonstrating both the strength of the Aero business and its relationship with local lenders in Saudi Arabia.
Chris will provide further details on the financing terms a little later.
Speaker 3: Chris will provide further details in the financing terms a little later.
Turning our attention to the market the outlook for our industry and Polaris is positive.
Speaker 3: Turning our attention to the market, the outlook for our industry in Valeris is positive. Commodity prices remain supportive, with spot Brent crude above $85 a barrel, buoyed by tight supply and the recent escalation in geopolitical risk.
E T prices remain supportive with spot Brent crude above $85, a barrel buoyed by tight supply and the recent escalation in geopolitical risk.
Speaker 3: More importantly, five-year Ford prices are now around $70 a barrel. A level at which more than 85% of undeveloped offshore reserves are estimated to be profitable.
More importantly, five year forward prices are now around $70, a barrel a level at which more than 85% of undeveloped offshore reserves are estimated to be profitable.
Speaker 3: The supportive commodity price and attractive break events for most offshore projects provide customers with the confidence to invest in long cycle offshore projects.
The support of commodity price and attractive breakeven for most offshore project provide customers with the confidence to invest in long cycle offshore projects.
Speaker 3: Data from RISDAT indicates that offshore upstream CAPEX is expected to grow at a compound annual growth rate of approximately 8% through 2026, which is anticipated to lead to increased demand for offshore drilling services.
Data from rice that indicates at offshore upstream Capex is expected to grow at a compound annual growth rate of approximately 8% through 2026, which is anticipated to lead to increased demand for offshore drilling services.
Speaker 3: While the demand outlook over the next several years is robust, customers are being measured in how they approach their drilling programs, weighing their capital spending in a rise in cost environment against the desire to return capital to sharehold.
While the demand outlook over the next several years is robust customers are being measured in how they approach their drilling programs weighing the capital spending in a rising cost environment against the desire to return capital to shareholders.
Speaker 3: Looking at the benign environment flow to market, active utilization for sixth and seventh generation drill ships remains in the mid-90s. And we see a number of longer term opportunities commencing in late 2024 and beyond that provide further evidence that we are in a strong and sustainable upside.
Looking at the benign environment floater market active utilization for sixth and seventh generation Drillships remains in the mid nineties, and we see a number of longer term opportunities commencing in late 'twenty 'twenty four and beyond that provide further evidence that we are in a strong and sustainable up cycle.
However, when considering lengthening contract lead times customer quiet upgrades and repositioning rigs for work, we expect gaps and schedules across the industry during 'twenty 'twenty four.
Speaker 3: have a win considering length and then contract lead times, customer-quite upgrades, and repositioning rigs for work, we expect gaps and schedules across the industry during 2024.
Speaker 3: Looking at pricing, leading edge day rates continue to be in the mid to high 400s. We may see a wide range of rates in the near term, depending on the specific circumstances of each opportunity. However, we continue to expect that we will see an upward trajectory in the medium term as stacked and new build capacity continues to diminish and the total supply and demand balance continues to tighter.
Looking at pricing, leading edge day rates continue to be in the mid to high four hundreds we may see a wide range of rates in the near term depending on the specific circumstances of each opportunity. However, we continue to expect that we will see an upward trajectory in the medium term as stacked newbuild capacity continues to diminish.
And the total supply and demand balance continues to tighten.
Speaker 3: We believe that two to three year programs are likely to be awarded at or close to leading edge rates. While we may see lower rates for some of the five year plus opportunities, as some may be willing to accept a lower rate to secure long-term duration and backlog.
We believe that two to three year programs are likely to be awarded at or close to leading edge rates. While we may see lower rates for some of the five year plus opportunities as some may be willing to accept a lower rate to secure long term duration of backlog.
Speaker 3: Similarly, we may see lower rates on some of the shorter term gap fill jobs, as contractors are willing to bid more aggressively to avoid rigs going idle for a period.
Similarly, we may see low rates on some of the shorter term gap fill jobs as contractors are willing to bid more aggressively to avoid rigs going idle for a period.
Speaker 3: For Valaris, we are focused on maximizing the profitability of our fleet by keeping our active rigs highly utilized and securing the best contract economics possible in each unique bidding situation, whether through the day rate or meaningful upfront payments.
For Polaris, we are focused on maximizing the profitability of our fleet by keeping on active rigs highly utilized and securing the best contract economics possible in each unique bidding situation, whether through the day rates or meaningful upfront payments.
Speaker 3: We've made a deliberate effort to secure upfront payments on certain reactivation contracts.
We've made a deliberate effort to secure upfront payments on certain reactivation contracts.
Speaker 3: While moving more of the total contract value into an upfront payment may lower the headline day rate, upfront payments are not subject to operational risk, improve the overall return profile of the contract, and drive shareholder value.
While moving more of the total contract value into an upfront payment may lower the headline day rate upfront payments are not subject to operational risk improve the overall return profile of the contract and drive shareholder value.
Speaker 3: For example, the Valaris DS-17 contract included an $86 million upfront payment out of a total contract value of $327 million and has a total effective day rate of over $600,000.
For example, the wheat the Valero Dia 17 contract included an $86 million upfront payment out of a total contract value of $327 million and has a total effective day rate of over $600000.
Speaker 3: Another example of a contract with a meaningful upfront payment is the DS-7, which has a total effective day rate of approximately $430,000.
Another example of a contract with a meaningful upfront payment is the D. S. Seven which has a total effective day rate of approximately $430000.
Speaker 3: This contract is expected to provide a cash payback on our reactivation costs of less than one year and is anticipated to generate annualized EBITDA of $95 to $100 million.
This contract is expected to provide a cash payback on our reactivation cost of less than one year and is anticipated to generate annualized EBITDA of $95 million to $100 million.
Speaker 3: Taking a step back for a minute, it's worth remembering that when Valaris relisted in May 2021, we had only 4 out of 11 drillships contracted, with minimal contract backlog.
Taking a step back for a minute it's worth remembering that when Valero re listed in May 'twenty 'twenty. One we had only four out of 11 drillships contracted with minimal contract backlog since.
Speaker 3: Since then, we have won six contracts for stacked drillships, increasing our drillship backlog tenfold to more than $1.7 billion.
Since then we have one six contracts for stack drillships, increasing our drillship backlog tenfold to more than $1.7 billion.
Looking forward with three Drillships currently on legacy day rate contracts in the low to mid two hundreds that are expected to re contract at higher market rates in 'twenty 'twenty four and a further two that are expected to re contract in 2025, which we anticipate will be a key driver of earnings growth going forward.
Speaker 3: Looking forward, we have three drill ships currently on legacy day-rate contracts in the low to mid-200s that are expected to recontract at higher market rates in 2024 and a further two that are expected to recontract in 2025, which we anticipate will be a key driver of earnings growth going forward.
Speaker 3: We maintain further operating leverage to the strong floater market with our one remaining uncontracted stacked drillship, Folaris DS11, and attractive purchase options for new-build drillships Folaris DS13 and DS14, which we currently intend to exercise.
We maintain further operating leverage to the strong Florida market without one remaining uncontrolled stacked drillship Polaris D. S 11, and attractive purchase options for Newbuild Drillships, <unk>, DS 13, and DS 14, which we currently intend to exercise.
Speaker 3: We will continue to remain disciplined in how we exercise our operational leverage. And additional rigs will only be reactivated for opportunities that are expected to generate a meaningful return on our reactivation costs over the initial firm contract.
We will continue to remain disciplined in how we exercise our operational leverage and additional rigs will only be reactivated for opportunities that are expected to generate a meaningful return on our reactivation costs over the initial firm contract.
Speaker 3: Before I hand the call over, I'd like to take this opportunity to thank the entire Valeris team, offshore and onshore, for the focus and commitment that they bring to work every day to deliver safe and efficient operations to our customers.
Before I hand, the call over I'd like to take this opportunity to thank the entire Polaris team offshore and onshore for the focus and commitment that they bring to work every day to deliver safe and efficient operations to our customers now I'll hand, the call over to Matt to provide more detailed commentary on the floater and jackup markets by region and our contracting.
Speaker 3: Now, I'll hand the call over to Matt to provide more detailed commentary on the floater and jackup markets by region and our contracting outlook for 2024. Thanks, Anton. And good morning and afternoon, everyone.
Outlook for 'twenty 'twenty four thanks Anton.
And good morning and afternoon everyone.
Speaker 3: Since the beginning of the third quarter, we have been awarded new contracts and extensions with associated contract backlog of approximately $800 million.
Since the beginning of the third quarter, we've been awarded new contracts and extensions with associated contract backlog of approximately $800 million.
Speaker 3: These awards have increased our total backlog to approximately $3.2 billion, representing a 40% increase over the past 12 months.
These awards have increased our total backlog to approximately $3 2 billion, representing a 40% increase over the past 12 months.
Speaker 3: A key driver of this backlog increase was the Volaris DS7 contract, which has a total contract value, including an upfront payment, of $364,000.
A key driver of this backlog increase was the florist D. S. Seven contract, which has a total contract value, including an upfront payment of $364 million. This equates to an effective rate of approximately 430000 for work offshore West Africa, which is our lowest cost operating region and includes no additional services.
Speaker 3: This equates to an effective rate of approximately 430,000 for work offshore west...
Speaker 3: which is our lowest cost operating region and includes no additional service.
Speaker 3: In addition, we were recently awarded a 250-day extension on the Vlars DS-15 with total energies of shore Brazil at a day rate of 400,000. The extension includes options for up to 440 days and an implied average day rate in the high 400.
In addition, we were recently awarded a 250 day extension on the Florist D. S 15, with total Energy's offshore Brazil at a day rate of 400000. The extension includes options for up to 440 days at an implied average day rate in the high four hundreds it's worth noting that these rates do not include <unk>.
Speaker 4: It's worth noting that these rates do not include MPD or additional services, and an additional rate will be charged when these services are provided.
MPD or additional services and an additional rate will be charged when these services are provided.
Speaker 4: Moving now to some commentary on our major markets, we currently see 25 to 30 opportunities for all to-deborder floaters with expected duration of greater than one year. They are anticipated to commence over the next few years.
Moving now to some commentary on our major markets. We currently see 25 to 30 opportunities for ultra deepwater floaters with expected duration of greater than one year. They.
They are anticipated to commence over the next few years.
We estimate that approximately half of these opportunities will need to be met by either incremental reactivation of stacked and stranded newbuild rigs or active rigs moving regions.
Speaker 4: We estimate that approximately half of these opportunities will need to be met by either incremental reactivations of stacked and stranded new build rigs or active rigs moving region.
Speaker 4: which, as we said, we don't expect to see a lot of, given many currently contracted rigs will likely be retained by their existing custody.
Which as we said we don't expect to see a lot of given many currently contracted rigs will likely be retained by their existing customers.
Speaker 4: We see continued opportunity in Brazil through 2024 and 2025 with three ongoing tenders across multiple operators and expect contract awards for some of the existing opportunities by year end.
We see continued opportunity in Brazil through 24, and 25 with three ongoing tenders across multiple operators and expect to contract awards for some of the existing opportunities by year end, we see further demand in Brazil coming to market in 2024 with Commencements in 2025 with potential for up to five incremental additions to.
Speaker 4: We see further demand in Brazil coming to market in 2024 with commencement since 2025, with potential for up to five incremental additions to the fleet of short Brazil.
The fleet offshore Brazil.
Speaker 4: There is a strong pipeline of opportunities in the Mediterranean and West Africa for work commencing in late 2024, 2025 and 2026.
Theres, a strong pipeline of opportunities in the Mediterranean in West Africa for work commencing in late 'twenty 'twenty four 'twenty 'twenty five and towards 26 with approximately 17 requirements.
Speaker 4: with approximately 17 requirements, more than half of which are likely to require incremental rigs. These include some multi-year opportunities that could help to increase demand for a limited supply of available rigs. While visible demand in the Gulf of Mexico is lower than in other areas of the Golden Triangle, we continue to see a constructive supply and demand picture in the region and expect future demand to keep the majority of rigs in place.
More than half of which are likely to require incremental rigs. These include some multi year opportunities that could help to increase demand for our limited supply of available rigs while visible demand in the Gulf of Mexico was lower than in other areas of the Golden Triangle, We continue to see a constructive supply and demand picture in the region and expect future demand.
Keep the majority of rigs occupied.
Speaker 4: Based on our current market outlook, we believe that most, if not all, of the supply stacked and new build drill ships in the global fleet will be needed to meet growing future demand. In addition, we continue to believe it is highly unlikely that we will see another floater new build cycle in the foreseeable future given high build costs, long lead times, and limited shipyard availability.
Based on our current market outlook, we believe that most if not all of the supply stacked and Newbuild drillships in the global fleet will be needed to meet growing future demand.
In addition, we continue to believe it is highly unlikely that we will see another floater newbuild cycle in the foreseeable future given high build costs long lead times and limited shipyard availability on.
Speaker 4: On the jack-up side of the business, demand continues to steadily increase, with the contracted jack-up count currently at its highest level since mid-2015. As a result, active utilization for jack-ups is above 90%, with both average and leading-edge day rates continuing to trend upward.
On the Jackup side of the business demand continues to steadily increase with the contracted Jackup count currently at its highest level since mid 2015 as a result active utilization for Jackups is above 90% with both average and leading edge day rates continuing to trend upwards.
Speaker 4: Since the beginning of last year, demand growth for benign environment jackups has primarily been driven by the Middle East, with Saudi Arabia, Qatar and the UAE all increasing their rig counts. More recently, we have also seen a return of longer-duration opportunities in Southeast Asia, including Malaysia, Thailand and Vietnam.
Since the beginning of last year demand growth for benign environment Jackups has primarily been driven by the middle East with Saudi Arabia, Qatar and UAE, all increasing their rig counts more recently, we have also seen a return of longer duration opportunities in southeast Asia, including Malaysia, Thailand and Vietnam.
Speaker 4: We anticipate that rigs from outside the region will be needed to satisfy some of this demand, which should enable day rates to increase as contractors moving rigs in from other regions, will seek to recover mobilization costs either through upfront payments or the day rates.
We anticipate that rigs from outside the region will be needed to satisfy some of this demand, which should enable day rates to increase as contractors moving rigs in from other regions will seek to recover mobilization costs, either through upfront payments or the day rate.
We also continue to see a strong demand for high spec jackups in Trinidad.
Speaker 4: We also continue to see a strong demand for high-spec jackups and Trinidad.
Speaker 4: and were recently awarded a one-year extension on the Volaris 118 and an additional short-term program for Volaris 249 offshore Trinidad.
And were recently awarded a one year extension on the Polaris 118, and an additional short term program for Valores 249 offshore Trinidad.
Speaker 4: As outlined in our second quarter call, the outlook for harsh environment Jacob Market in the North Sea continues to be challenging through the end of 2024. Jacob opportunities in Norway in particular are very limited and we do not expect any of our end class rigs to be working offshore in Norway in 2024.
As outlined in our second quarter call the outlook for harsh environment Jackup market in the North Sea continues to be challenging through the end of 2024 jackup opportunities in Norway. In particular are very limited and we do not expect any of our N class rigs to be working offshore Norway in 2024.
Speaker 4: Due to the relatively weak near-term demand outlook, we expect to see a further reduction in available supply either through rigs being stacked, as we did with the Velaris Viking, or by contractors moving rigs to other regions for attractive opportunities, such as our recent contract for Velaris 247 Offshore Australia. While
Due to the relatively weak near term demand outlook, we expect to see a further reduction in available supply either through rigs being stacked as we did with the Polaris Viking whereby contractors moving rigs to other regions for attractive opportunities such as our recent contract with Lars to 247 offshore Australia.
While 2024 in the North sea may be challenging.
Speaker 4: We are seeing an increase in tender activity and durations for opportunities commencing in 2025. For example, the Vilaris-123 recently secured a minimum 170-day contract with TACA commencing in late 2024, starting at a day rate in the low 140s and increasing to the low 150s and 25s.
We are seeing an increase in tender activity and durations for opportunities commencing in 2025 for example, the valores one twenty-three recently secured a minimum 170 day contract with Tacker commencing in late 2024, starting at a day rate in the low one forties and increasing to the low 100 fifty's in 'twenty five.
Speaker 4: representing an improvement on recent fixtures in the region. In addition, we recently signed a nearly four-year contract for VLARA 72, a 40-plus-year-old standard-duty jackup, to undertake a P&A program for E&I in the East Irish Sea.
[noise], representing an improvement on recent fixtures in the region.
In addition, we recently signed a nearly four year contract for Florida, 72, a 40 plus year old standard duty Jackup to undertake a P&A program for Eni in the East Irish Sea.
As we look to 'twenty 'twenty four we currently have four of our 13 active floaters with meaningful contract availability.
Speaker 4: As we look to 2024, we currently have four of our 13 active floaters with meaningful contract available.
Speaker 4: However, given that the one-year priced option on the Vilaris DS-16 is below current market rates, it is reasonable to expect this option will be exercised, leaving just the DS-4, DS-10 and DPS-5.
However, given that the one year priced option on the Valores D. S. 16 is below current market rates. It is reasonable to expect this option will be exercised leaving just the D. S. Four D. S 10, and D. P S five valores.
Speaker 4: Volaris DS4 recently received a six-month contract extension with Petrobras. This is the final priced option for the DS4 on its current contract.
Polaris D. S. Four recently received a six month contract extension with Petrobras. This is the final priced option for the D. S. Four on its current contract.
Speaker 4: which will keep the rig working into the third quarter of 2024.
Which we will keep which will keep the rig working into the third quarter of 2024.
Speaker 4: We are in advanced discussions regarding a multi-year opportunity for the rig, though we expect some out-of-service time between the end of its current contract and the start of its anticipated next program for contract preparation.
We are in advanced discussions regarding a multi year opportunity for the rig, though we expect some out of service time between the end of its current contract and the start of its anticipated next program for contract preparations.
Speaker 4: Valaris DS10 is due to completed existing contract with Shell offshore Nigeria towards the end of the first quarter.
While our S. D. S 10 is due to completed existing contract with shell offshore Nigeria towards the end of the first quarter and.
Speaker 4: and we believe it is well-placed for new opportunities in the region, many of which are expected to start in the second half of 2024.
And we believe it is well placed for new opportunities in the region. Many of which are expected to start in the second half of 2024.
With Valores D. P. S. Five we recently secured a minimum 100 day 10 day program with Eni offshore Mexico that is expected to commence in March of 2024 at a day rate of 345000.
Speaker 4: For the VALRS DPS-5, we recently secured a minimum 100-day, 10-day program with E&I offshore Mexico that is expected to commence in March of 2024 at a day rate of 345,000.
Speaker 4: The rig may be idle for up to six days between the end of its next program in the US Gulf and the start of its new contract off-shoremax.
The rig may be idle for up to six days between the end of its next program in the U S. Gulf.
And the start of its new contract offshore Mexico, we have a good track record of keeping the D. P. S. Five well utilized with relatively short term programs across the Gulf of Mexico.
Speaker 4: We have a good track record of keeping the DPS5 well utilized with relatively short-term programs across the Gulf of Mexico. And we see a number of opportunities in the pipeline that could keep the rig working through the majority of 2012.
And we see a number of opportunities in the pipeline that could keep the rig working through the majority of 2024 on the Jackup side. We currently have contract availability on six of our 28 active rigs three of these rigs are located in the North Sea and we are pursuing a mix of short term and longer opportunities outside of the north Sea.
Speaker 4: On the jackup side, we currently have contract availability on six of our 28 active rates. Three of these rates are located in the North Sea and we are pursuing a mix of short term and longer opportunities. Outside of the North Sea, we have some availability on both the Vilaris 247 and the 249 in the second half of 24, but have good line of sight into opportunities of short, straily, and turn it out respectively. That we believe will be.
We have some availability on both the Valores 247, and the $2 49 in the second half of 'twenty four but have good line of sight into opportunities offshore Australia in Trinidad respectively.
That we believe will keep these rigs working.
Speaker 4: Finally, we are pursuing near-term opportunities for Vilaris 144 in the US Gulf of Mexico, while looking for longer-term opportunities outside the region. In summary, we feel good about the 2024 contracting outlook, with only a small number of our rags with contract availability and a strong pipeline of opportunities.
Finally, we are pursuing near term opportunities for Polaris 144 in the U S Gulf of Mexico, and Mexico, while looking for longer term opportunities outside the region.
In summary, we feel good about the 'twenty 'twenty four contracting outlook with only a small number of our rigs with contract availability and a strong pipeline of opportunities.
Speaker 4: I will now hand the call over to Chris to take you through the finance.
I will now hand, the call over to Chris to take you through the financials.
Speaker 5: Thanks, Matt, and good morning and afternoon, everyone. In my prepared remarks, I will provide an overview of third quarter results, our outlook for the fourth quarter, and will also provide preliminary guidance for full year 2024.
Thanks, Matt and good morning, and afternoon, everyone. In my prepared remarks, I will provide an overview of third quarter results our outlook for the fourth quarter and will also provide preliminary guidance for full year 2024.
Stern, starting with our third quarter results revenue was $455 million up from $415 million in the prior quarter and adjusted EBITDA was $40 million up from $15 million in the prior quarter.
Speaker 5: Revenue was $465 million, up from $415 million in the prior quarter, and adjusted EBITDA was $40 million, up from $15 million in the prior quarter.
Speaker 5: adjusted EBITDAR, which adds back reactivation expense, was $91 million, up from $59 million in the prior quarter.
Adjusted EBITDAR, which adds back reactivation expense was $91 million up from $59 million in the prior quarter.
Adjusted EBITDA increased primarily due to more operating days and a higher average daily revenue for the Jackup fleet, which increased to $108000 from $99000 in the prior quarter.
Speaker 5: Adjusted EBITDA increased primarily due to more operating days and a higher average daily revenue for the jackup fleet, which increased to $108,000 from $99,000 in the prior quarter.
Speaker 5: results from the jack up fleet benefited from contract startups for Valerus 121 in the UK nor see and Valerus 249 offshore turn of dead as well as several rigs commencing new contracts at higher day rates.
Results from the Jackup fleet benefited from contract startups for Polaris 121 in the U K North Sea and Valero is 249 offshore Trinidad as well as several rigs commencing new contracts at higher Dayrates.
Adjusted EBITDA also increased due to Valero D. S 17, commencing its contract with Ecuador offshore Brazil in early September.
Speaker 5: Adjusted EBITDA also increased due to Valerous DS-17 commencing its contract with Ecuador off shore Brazil in early September , along with an increase in average daily revenue for the rest of the floater fleet during the third quarter.
Along with an increase in average daily revenue for the rest of the floater fleet during the third quarter.
Speaker 5: These items are partially offset by fewer floater operating days due to unplanned downtime as well as higher reactivation.
These items were partially offset by fewer floater operating days due to unplanned downtime as well as higher reactivation expense.
Speaker 5: Third quarter reactivation expense was $51 million compared to $44 million in the prior quarter, primarily due to the commencement of the Valerous DS7 reactivation project following its contract award in July .
Third quarter reactivation expense was $51 million compared to $44 million in the prior quarter, primarily due to the commencement of the Valero D. S. Seven reactivation project following its contract award in July.
Relative to our prior guidance third quarter results were below our expectation primarily due to the unplanned floater downtime and delayed contract startups from Polaris Dia 17 and 107.
Speaker 5: Relative to our prior guidance, third quarter results were below our expectation, primarily due to the unplanned floater downtime, and delayed contract startups from Valaris D.S. 17 and 107.
Speaker 5: The DS-17 contract started a little later than anticipated, primarily due to the integration of some first of its kind technologies on the rig. And the 107 was late starting its campaign off-shore news-eat New Zealand, due to a delay in the arrival of the heavy lift vessel hired to move the rig from Australia.
The Dia 17 contracts started a little later than anticipated primarily due to the integration of some first of its kind technologies on the rig and the window seven was late starting his campaign offshore Nosy New Zealand due to a delay in the arrival of the heavy lift vessel hired to move the rig from Australia.
Speaker 5: Cash from operations in the quarter was $48 million, and capital expenditures were $106 million.
Cash from operations in the quarter was $48 million and capital expenditures were $106 million.
Speaker 5: CapEx increased by $35 million versus the prior quarter.
Capex increased by $35 million versus the prior quarter. This.
Speaker 5: This was primarily due to higher reactivation and contract specific catbex driven by higher spin on the LARIS DS8 as catbex ramped up ahead of the rigs to parts from the shipyard in the fourth quarter.
This was primarily due to higher reactivation and contract specific capex driven by higher spend on Polaris D. S. Eight as Capex ramped up ahead of the rigs departure from the shipyard in the fourth quarter.
Speaker 5: Capac's also increased due to Valera 72, completing its SPS and contract preparation work prior to returning to its long-term P&A program with E&I.
Capex also in Greece increased due to Valero seventy-two completing as S. P S and contract preparation work prior to returning to its long term P&A program with Eni.
Speaker 5: In the third quarter, maintenance and upgrade cat-backs was $51 million, and reactivation and contract specific cat-backs was $55 million.
In the third quarter maintenance and upgrade Capex was $51 million and reactivation and contract specific Capex was $55 million, we had a total cash balance of $1 $1 billion at the end of the quarter.
Speaker 5: We had a total cash balance of $1.1 billion at the end of the quarter.
Speaker 5: $400 million of additional senior secured second-line notes due to 2030.
Cash increased by $252 million during the quarter, primarily due to the issuance of $400 million of additional senior secured second lien notes due two due 2030.
Partially offset by capital expenditures and share repurchases.
Speaker 5: The net proceeds from the issuance are expected to fund the purchase of new billed drill ships Valaris DS-13 and DS-14 and for general corporate purposes.
The net proceeds from the issuance are expected to fund the purchase of Newbuild Drillships Valera, DS 13, and DS 14, and for general corporate purposes.
Speaker 5: We are pleased that we were able to hit an attractive window earlier in the quarter in what has been a volatile period in the capital markets, financing the expected new bill purchases with notes that priced above par.
We are pleased that we were able to hit an attractive window earlier in the quarter and what has been a volatile period in the capital markets financing the expected newbuild purchases with notes that priced above par.
Speaker 5: Following the $400 million add-on, we have 1.1 billion of senior secured second-lead notes due to 2030 with a coupon of $8.38.
Following the $400 million add on we have $1 1 billion of senior secured second lien notes due 2030 with a coupon of eight and three eighths.
Speaker 5: In addition, our $375 million revolving credit facility remains fully available.
In addition, our $375 million revolving credit facility facility remains fully available.
Speaker 5: In the third quarter, we repurchased $85 million of shares and year to date, we have repurchased $171 million of shares, representing 2.6 million shares or 3.4% of our share count.
In the third quarter, we repurchased $85 million of shares and year to date, we have repurchased $171 million of shares representing 2.6 million shares or three 4% of our share count.
Speaker 5: remain on track to achieve our 2023 Sherry Purchase Target of $200 million by year in.
We remain on track to achieve our 2023 share repurchase target of $200 million by year end.
Now I'll move to a brief overview of Aero Drillings financials. As a reminder, arrow is not consolidated in the financial results of <unk>.
Speaker 5: Now I'll move to a brief overview of Arrow Drillings financials. As a reminder, Arrow is not consolidated in the financial results of Valera.
Aero EBITDA increased to $24 million from $17 million in the prior quarter, primarily due to more operating days and lower repair costs, resulting from less out of service time for planned maintenance.
Speaker 5: Arrow, EBITDA increased to $24 million from $17 million in the prior quarter, primarily due to more operating days and lower repair costs resulting from less out of service time for planned maintenance.
Speaker 5: arrows fourth quarter EBITDA is expected to increase to thirty to thirty two million dollars from twenty four million dollars in the third quarter primarily due to the impact of new build kingdom one which is expected to commence its maiden contract later this month
[noise] arrows fourth quarter, EBITDA is expected to increase to $30 million to $32 million from $24 million in the third quarter, primarily due to the impact of Newbuild Kingdom, one which is expected to commence its maiden contract later this month.
Speaker 5: As Anton mentioned earlier, Aero recently secured highly attractive financing in the form of a $359 million term loan with a syndicate of local Saudi Arabian banks to finance the deliveries of its first two new build rigs, Kingdom 1 and Kingdom 2. The loan mature in eight years requires equal quarterly amortization payments during the term with a 50% balloon payment due at each maturity in 2031 and 2032.
As Anton mentioned earlier Aero recently secured highly attractive financing in the form of a $359 million term loan with a syndicate of local Saudi Arabian banks to finance the deliveries of its first two newbuild rigs Kingdom, one in kingdom to the loan matures in eight years requires each.
<unk> quarterly amortization payments during the term with a 50% balloon payment due at each maturity in 2031 and 2032.
Speaker 5: As a reminder, these new builds are backed by 16 years of guaranteed work with the Ramco.
As a reminder, these new builds are backed by 16 years of guaranteed work with Aramco.
Speaker 5: Day rates for the initial eight-year contracts will be determined using a pricing mechanism that targets a six-year payback for construction costs on an EBITDA base.
Day rates for the initial eight year contracts will be determined using a pricing mechanism that targets a six year payback for construction costs on an EBITDA basis.
Speaker 5: These initial contracts will be followed by a minimum additional eight year term reprised every three years based on a market pricing mechanism. Moving now to our
These initial initial contracts will be followed by a minimum additional eight year term repriced every three years based on our market pricing mechanism.
Moving now to our fourth quarter 2023 outlook.
Speaker 5: We expect total revenues will be in the range of $480 to $490 million that's compared to $465 million in the third quarter.
We expect total revenues will be in the range of $480 million to $490 million as compared to $455 million in the third quarter.
Revenues are expected to increase primarily due to a full quarter of operations for Valero Dia 17, and 107 following contract startups.
Speaker 5: Revenues are expected to increase primarily due to a full quarter of operations for the Valarist D.S. 17 and 107 following contract start-up.
Speaker 5: These are expected to be partially offset by fewer operating days for Valeris DS-12, which will mobilize from West Africa to the Mediterranean ahead of its next contract, which is expected to commence offshore Egypt around the end of the year.
These are expected to be partially offset by fewer operating days for Valero D is 12, which will mobilize from West Africa to the Mediterranean ahead of its next contract, which is expected to commence offshore Egypt around the end of the year.
We expect that contract drilling expense will be a $405 million to $415 million as compared to $391 million in the third quarter, primarily due to higher operating costs for Polaris Dia 17, and 107 following their contract startups.
Speaker 5: We expect that contract drilling expense will be $405 to $415 million as compared to $391 million in the third quarter, primarily due to higher operating costs for Valarice DS17 and 107 following their contract start-up.
Speaker 5: This is anticipated to be partially offset by lower reactivation expense as Valaris DS8 departed the shipyard for Brazil in late October .
This is anticipated to be partially offset by lower reactivation expense as Valero D. S. Eight that part of the shipyard for Brazil in late October.
In addition, operating costs for Valero D. S 12 are expected to decrease in the fourth quarter as it will spend part of the quarter mobilizing from West Africa to Egypt ahead of its upcoming contract.
Speaker 5: In addition, operating costs for Valeris DS-12 are expected to decrease in the fourth quarter as it will spend part of the quarter mobilizing from West Africa to Egypt ahead of its upcoming contract.
General and administrative expense is expected to be approximately $28 million up from $24 million in the prior quarter, primarily due to an anticipated increase in professional fees as certain costs that were expected to be incurred in the third quarter had been delayed to the fourth quarter.
Speaker 5: General and administrative expenses are expected to be approximately $28 million, up from $24 million in the prior quarter, primarily due to an anticipated increase in professional fees, as certain costs that were expected to be incurred in the third quarter have been delayed to the fourth quarter.
Speaker 5: As a result, we expect adjusted EBITDA to be $45 to $50 million and adjusted EBITDA to be $85 to $90 million.
As a result, we expect adjusted EBITDA to be $45 million to $50 million and adjusted EBITDAR to be $85 million to $90 million.
Speaker 5: This is below what was implied by our prior guidance. Primarily due to a delayed startup for Valerus 108, ahead of its upcoming three-year bear boat charter with Arrow.
This is below what was implied by our prior guidance, primarily due to a delayed start up for vote for Valero 108 ahead of his upcoming three year bareboat charter with Arrow.
Speaker 5: The floater downtime that Anton mentioned earlier and the timing of reactivation and survey costs as summer shifting from 2024 into the fourth quarter.
The floater downtime that Anton mentioned earlier, and the timing of reactivation and survey costs as summer shifting from 2024 into the fourth quarter.
Speaker 5: CapEx on the fourth quarter is expected to be approximately $110 million compared to $106 million in the third quarter.
Capex in the fourth quarter is expected to be approximately $110 million compared to $106 million in the third quarter may.
Speaker 5: Maintenance and upgrade capex is expected to be approximately $50 million, including upgrades to Valera's 76, ahead of its five-year bear boat charter to Arrow.
Maintenance and upgrade Capex is expected to be approximately $50 million, including upgrades to Valero 76 ahead of its five year bareboat charter to arrow.
Speaker 5: Reactivation and associated contract-specific CAPEX is expected to be approximately $60 million. And this includes approximately $20 million of DS8 CAPEX being accelerated from 2024 into the fourth quarter.
[noise] reactivation and associated contract specific capex is expected to be approximately $60 million and this includes approximately $20 million of DSA capex being accelerated from 2024 into the fourth quarter.
We expect expect approximately $30 million of customer reimbursements for Capex in 2023, most of which has already been received.
Speaker 5: We expect approximately $30 million of customer reimbursements for CapEx in 2023, most of which has already been received.
This capex guidance does not include assumed expenditures for exercising our options to purchase the Drillships Valero <unk> DS 13, and DS 14.
Speaker 5: This CapEx guidance does not include assumed expenditures for exercising our options to purchase the drill ships Valera's DS 13 and DS 14.
Speaker 5: Exercising the options on both rigs would increase fourth quarter cap X by approximately $370 million.
Exercising the options on both rigs with increased fourth quarter capex by approximately $370 million.
Speaker 5: The incremental capex covers the purchase price of the rigs and costs to prepare the rigs to be moved from South Korea to Las Palmas, where they would be stacked alongside the Larist DS11 until they are contract.
The incremental Capex covers the purchase price of the rigs and cost to prepare the rigs to be moved from South Korea to Las Palmas, where they would be stacked alongside Valera DSO 11 until they are contracted.
Yeah.
Speaker 5: I will now provide preliminary financial guidance for full year 2024. Similar to prior years, we will provide more specific guidance on our Q4 earnings call in February .
I will now provide preliminary financial guidance for full year 2024, similar to prior years, we will provide more specific guidance on our Q4 earnings call in February.
Speaker 5: This preliminary guidance does not account for any incremental reactivations for contracts that have yet to be executed. Therefore, it does not assume any additional contracted reactivations other than the completion of the Valeris DS-7 and DS-8 projects.
This preliminary guidance does not account for any incremental reactivation for contracts that have yet to be executed.
Therefore, it does not assume any additional contracted reactivation other than the completion of the Valero Dia seven and D. S eight projects.
Speaker 5: We currently forecast revenues to be between $2.25 and $2.35 billion, and adjusted EBITDA to range from $500 to $600 million, including approximately $30 million of reactivation expenses.
We currently forecast revenues to be between 2.25, and $2.35 billion and adjusted EBITDA to range from $500 million to $600 million, including approximately $30 million of reactivation expense.
Speaker 5: 2024 revenue in Nibidah are expected to benefit from a full year contribution from the Larist DS-17.
2020 for revenue and EBITDA are expected to benefit from a full year contribution from Valero Dia 17.
Speaker 5: and they are anticipated to increase meaningfully in the second half of the year versus the first half driven by contract startups for the DS8 and DS7 and the first half, as well as drill ships rolling to higher day rate contracts during the year.
And they are anticipated to increase meaningfully in the second half of the year versus the first half driven by contract startups for the DS eight and DS seven in the first half as well as Drillships rolling to higher day rate contracts during the year.
Speaker 5: As Matt discussed, we have a limited number of rigs with contract availability next year. At the midpoint of the revenue range, we currently have 83% of the revenue contracted, and if we include price options with rates well below current market, it would be 87%.
As Matt discussed we have a limited number of rigs with contract availability next year.
At the midpoint of the revenue range. We currently have 83% of the revenue contracted and if we include price options with rates well below current market it would be 87% I.
Speaker 5: I also want to highlight that the midpoint of this EBITDA guidance range is approximately four times higher than expected 2023.
I also want to highlight that the midpoint of this EBITDA guidance range is approximately four times higher than expected 2023.
Speaker 5: Full year 2024 capital expenditures, excluding any potential capex associated with Valarice DS-13 and DS-14 are expected to be approximately $290 to $330 million, compared to an anticipated $340 million in 2023.
Full year 2020 for capital expenditures, excluding any potential capex associated with Valera DS 13, and DS 14 are expected to be approximately $290 million to $330 million compared to an anticipated $340 million in 2023.
Maintenance and upgrade Capex is expected to be approximately $250 million with about $20 million being reimbursable.
Speaker 5: Maintenance and upgrade capex is expected to be approximately 250 million dollars, with about 20 million dollars being reimbursable.
Speaker 5: This covers SPS and contract preparation requirements, as well as capital spares.
[noise] discovers S P S and contract preparation requirements as well as capital spares.
Speaker 5: Like 2023, 2024 is expected to be a heavy year for JACCP SPS projects.
[noise] like 2023 'twenty 'twenty four is expected to be a heavy year for Jackup S. P. S projects the balance of approximately $60 million is for reactivation and contract specific capex, primarily related to Polaris D. S. Seven in DSA and.
Speaker 5: The balance of approximately $60 million is for reactivation and contract-specific CapEx, primarily related to Valeris DS-7 and DS-8.
Speaker 5: In addition, if we exercise the new build options as planned, we expect to spend a further $30 million to mobilize Valeris DS-13 and DS-14 from South Korea to Las Palmas.
In addition, if we exercise the newbuild options as planned we expect to spend a further $30 million to mobilize Valeric DS 13, and DS 14 from South Korea to Las Palmas.
Speaker 5: That concludes my review of our financial results and guidance. I'll now hand the call back to Anton for some closing remarks.
That concludes my review of our financial results and guidance I'll now hand, the call back to Anton for some closing remarks.
Thanks, Chris.
Speaker 3: I'll conclude by reiterating some of the key points from our prepared remark.
I'll conclude by reiterating some of the key points from our prepared remarks.
Speaker 3: First, the outlook for Valeris is positive, with increasing demand and constrained supply setting up a strong and sustained upcycle.
The outlook for Polaris is positive with increasing demand and constrained supply setting up a strong and sustained up cycle.
Speaker 3: Second, we've had great contracting success over the past year and remain focused on winning attractive work for our fleet.
Second we've had great contracting success over the past year and remain focused on winning attractive work for our fleet of.
Speaker 3: A total backlog currently sits at $3.2 billion, representing a 40% increase over the past 12 months, and provides over 80% contract coverage in 2024. And we expect this number to grow further by the end of the year.
Our total backlog currently sits at $3.2 billion, representing a 40% increase over the past 12 months and provides over 80% contract coverage in 'twenty 'twenty four and we expect this number to grow further by the end of the year.
Speaker 3: In addition, we retain significant operating leverage and line a site into attractive opportunities.
In addition, we retained significant operating leverage in line of sight into attractive opportunities.
Speaker 3: 2024 EBITDA is expected to be approximately four times higher than 2023, and we expect another material improvement in 2025, driven by recent and ongoing grillship reactivations and the repricing of rigs on legacy day rate contracts to higher market rates.
'twenty 'twenty four EBITDA is expected to be approximately four times higher than 2023, and we expect another material improvements in 2025, driven by recent and ongoing drillship reactivation and the repricing of rigs on legacy day rate contracts to higher market rates.
Speaker 3: And finally, we'll well on our way to returning the $200 million of sharey purchases we have targeted this year.
And finally, we are well on our way to returning the $200 million of share repurchases. We've targeted this year.
Speaker 3: As we look into the future, when our business begins to generate meaningful and sustained free cash flow, we intend to return it all to shareholders, unless there is a better or more value-accretive use for it.
As we look into the future when our business begins to generate meaningful and sustained free cash flow. We intend to return at all to shareholders unless there is a better or more value accretive use for it.
We've now reached the end of our prepared remarks, operator, please open the line for questions.
Speaker 3: We've now reached the end of our prepared remarks. Operator, please open the line for questions.
Thank you.
Speaker 1: We will now begin the question and answer session. You ask a question you may press star and then one on your touch tone phone.
We will now begin the question and answer session, who ask a question you May Press Star and then one on your Touchtone Fad.
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To withdraw your question. Please press Star and then kill.
Speaker 1: Our first question today will come from Eddie Kim of Barclays. Please go ahead.
Our first question today will come from Eddie Kim of Barclays. Please go ahead.
Speaker 6: Hi, good morning. Anton, in your prepared remarks, you mentioned that day rates for two to three year opportunities are likely to be at leading edge levels, but that five year opportunities are likely to be a bit lower. But we haven't seen that many five year contract signed to date, so just curious how many of these five year opportunities you're currently seeing, and if these opportunities are specific to a certain region, or if they're fairly broad.
Hi, good morning, and Todd.
In your prepared remarks, you mentioned that day rates for two to three year opportunities are likely to be at leading edge levels, but at five year opportunities are likely to be a bit lower.
We haven't seen that many are five year contracts signed to date. So just curious how many of these five year opportunities Youre current currently see it.
And if these if these opportunities are specific to a certain region or if they are fairly broad based.
Speaker 3: That's a good question Eddie. Yeah, a couple of things. We know that there are at least two IOCs that are looking at the potential for long-term jobs, beyond the two to three years that we're generally seeing in the market.
That's a good question Eddie Yeah, a couple of things we know that there are at least two IOC that are looking at the potential for long term jobs, you know beyond the two to three years that we're generally seeing in the market I think that's a really good sign off as the market continues to tighten.
Speaker 3: I think that's a really good sign of, as the market continues to tighten, their desire to lock down supply.
Their desire to lock down supply when.
Speaker 3: You know, when you see compound annual growth and demand, you know, 8% over the next few years, customers are focusing on making sure that they have attractive rigs for their opportunity.
When you see compound annual growth in demand you know, 8% over the next few years.
Customers are focusing on making sure that they have attractive rigs for their opportunities.
Speaker 3: You know, I think there is a rate tradeoff potentially for a very long term opportunity. Do you take a slightly lower rate to to to create a pace of earnings?
I think there is a great trade off potentially for a very long term opportunity do you take a slightly lower rates to two crew.
Create a base of earnings.
Speaker 3: You know, our perspective on it is we're very comfortable with where rates are and they in the mid 400s We expect them to grow and yes, would there be a rate trade off You know, potentially for for a long term opportunity, but not at any price And we've walked away from opportunities before because we didn't think they were Attractive for for driving shareholder value and we'll continue to do that So we will look at those opportunities in that context
Our perspective on it is we're very comfortable with where rates are and they're in the mid four hundreds we expect them to grow and yes would there be a rate trade off.
Potentially or for a long term opportunity, but not at any price and we've walked away from opportunities before because we didn't think they were.
Tractive for driving shareholder value and we'll continue to do that so we will look at those opportunities in that context. If it makes sense. You know is at a manageable tradeoff will will take it otherwise we will walk away from it and let somebody else Abbott.
Speaker 3: it makes sense, you know, as in a manageable trade-off, we'll take it. Otherwise, we'll walk away from it and let somebody else have it.
Got it got it that's a great sign and great to hear.
Speaker 6: Got it, got it, that's a great sign and great to hear. But my follow up is just on the remaining fact and it's stranded new build drill ship capacity you're currently seeing today in the market commentary. It was mentioned that most, if not all, this capacity is gonna be needed to meet growing demand.
My follow up is just on the remaining stacked in stranded Newbuild drillship capacity, you're currently saying today is the end market commentary. It was mentioned that most if not all of this capacity is going to be needed to meet growing demand.
Speaker 6: As you know that there are a lot of stacked rigs that are really old And there's also a lot of stranded new builds that are currently being built by less reputable shipyards So so just curious how many rigs You're thinking about it in both those buckets that could realistically be a part of the act
As you know there are a lot of stacked rigs that are really old and there's also a lot of stranded new builds that are that are currently being built by less reputable shipyards. So so just curious how many rigs you're thinking about it and both of those buckets that could realistically.
Be part of the active fleet.
Speaker 7: I'll let Matt take that one and maybe I'll come cover up after. Sure, look, I mean, maybe if we, uh, I've paid into the two segments, act drill ships and then stranded new builds fly, I'll take the second one first on the stranded new builds fly. I think we see approximately five rigs, which we see as credible entrance into the market over the term.
I'll, let Matt take that one and maybe I'll.
However, after sure look I mean, maybe if we bifurcate it into the two segments stack Drillships and then stranded newbuild supply.
I'll take the second one first on the stranded Newbuild supply I think we see approximately five rigs, which we see as credible entrants into the market over the term.
Speaker 7: two of which obviously represented by the DS 13 or 4.
Two of which obviously represented by that.
Yes.
13 and 14.
Speaker 7: which those two obviously represent also the highest spec 7th gen units and the only ones with 2 BOP.
Which that was too obviously represent also the highest spec seventh gen units and the only ones with <unk>.
Speaker 7: On the stack side, you could argue that there are probably up to 10, but I think if you narrow that down and you look at the behaviors of both ourselves and
On the stack side, you could argue that there are probably up to 10, but I think if you narrow that down and you look at the Paviour, So both ourselves and.
Speaker 7: And our competitors, people have a tendency to focus on the seventh gen side as a priority, knowing that customers continue to value specifications.
And our competitors people have a tendency to focus on the seventh Gen side is a priority knowing that customers continue to value specification.
Speaker 7: over all other things to provide them flexibility in what they do.
For all of the things to provide some flexibility in what they do so you look at that you've got about four stacked seven gen rigs with a range of of how a duration they've been stacked in their age so having to take into account where they are in their Sps cycle with respect to reactivation costs will play a factor in that.
Speaker 7: So you look at that, you've got about four stacked seven gen rigs with a range of how the duration they've been stacked and their age. So having to take into account where they are in their SPS cycle with respect to reactivation costs will play a factor in.
Speaker 3: So, you know, overall, what I'd say is that the number of attractive stacked and shipyard assets continues to diminish. If you look at, you know, the contracts that we have reactivated ship sport over the last couple of years, you know, priorities always to focus on utilizing our active fleet first.
So you know.
Overall, what I'd say is that the number of attractive Act and shipyard assets continues to diminish if you look at the contracts that we have reactivated ships for over the last couple of years. You know priority is always to focus on utilizing our our active fleet first and the reactor.
Speaker 3: And the reactivations from us as well as competitors have come from incremental demand that is coming to the market. You know.
Patients from us as well as competitors have come from incremental demand that is coming to the market you know.
Speaker 3: PiDemand has been 90% utilization on grulships for a significant period of time. And we continue to see incremental demand that's coming to the market over the next few years that is going to drive taking up that additional capacity. So yes, we feel comfortable that there is incremental demand that will take those attractive assets into the market over time.
Supply demand has been you know 90% utilization on our non drillships for a significant period of time and we continue to see incremental demand that's coming to the market over the next few years that is going to drive taking up that additional capacity. So yes, we feel comfortable that there is there was incremental demand.
That will take those attractive assets into the market over time.
Speaker 6: Got it, got it, great. Thank you both for all that color. I'll turn it back.
Got it got it great. Thank you both for all that color I'll turn it back.
Speaker 1: Our next question today will come from Kurt Hullied with Benchmark. Please go ahead.
Our next question today will come from Kurt <unk> with benchmark. Please go ahead.
Hey, good morning.
Speaker 7: I want to really appreciate you put into context total contract value. You know, relative to today, right? So, in that in that context, right? You know, 1 of your larger competitors. You know, made a comment that they're being violent opposition to. 500 K per day, kind of day rate dynamics, right? But taking that into a bigger context, right? What is.
Morning.
Okay.
Really appreciate you put into context, the total contract value.
Relative to today right.
So in that context, right one of your larger competitors.
Made a comment that theyre being violent.
Violent opposition to 500 K per day kind of day rate dynamics right.
That into a bigger context right what is.
Speaker 4: What is the dynamic at play currently with respect to?
What is the dynamic at play currently with respect to.
Speaker 8: The operator is understanding there's a constraint supply.
The operators understanding theres, a constraining supply.
Speaker 8: and marrying that up with their project needs, saying 24, 25 and understanding that no matter how they shake it out, they're going to have to pay more for what's coming down the budget.
And marrying that up with their project needs say in 'twenty, four 'twenty five and understanding that.
No matter, how they shake it out they're going to have to pay more for what's what's coming down the pipe.
Well I'll, let Matt talk.
Speaker 7: Thanks. So I mean, we feel really good about where the market sits today and the longevity this cycle. So I guess if we look at a couple of the supply metrics to kind of lead us down that path, which, you know, will directly relate to to continued improvement in the day rate, lead times for tendering for contracts are increasing.
Thanks.
So I mean, we feel really good about where the market sits today and the longevity of the cycle. So I guess, if we look at a couple of the supply metrics.
It kind of lead us down that path, which.
Directly relate to continued improvement in the day rate lead times for tendering.
Hendrik for contracts are increasing.
Speaker 7: And we're also seeing, as you were pointing out, customers increasing duration by connecting their programs to make it more attractive. And why would they be doing that would be if they see potential or they see supply decreasing.
And we're also seeing as you were pointing out customers increasing duration by connecting their programs to make it more attractive and why would they be doing that would be a C potential or they see supply decreasing which incentivize them to pick up rigs for longer to ensure they have the assets they need to drill.
Speaker 7: which incentivize them to pick up rakes for longer to ensure they have the assets they need to drill.
Speaker 7: Utilization is increasing, which is obviously resulting in a reduction in supply. And so, you know, looking at these main factors, from a supply side metrics, it paints a positive picture on the direction of the market.
Utilization is increasing which is obviously, resulting in a <unk> and a reduction in supply and so looking at the east main factors.
The supply side metrics it paints a positive picture on the direction of the market.
Speaker 3: I mean, I don't know about violent disagreement, but no operator wants to pay more for a rig than they have to, and we certainly don't want to put rigs to work for a dollar less than then we can achieve for it.
I mean, what I'll say I mean, I don't know about violent disagreement but no no operator wants to pay more for a rig then they have to and we certainly don't want to put rigs to work for for a dollar less and then we can achieve for it. So it comes down to simple economics, and supply and demand and day rates.
Speaker 3: So it comes down to, you know, simple economics and supply and demand and day rates, you know, seldom move in a in a nice clean parabola like you did in math class, you know, as the supply demand picture continues to tighten and incremental demand comes to the market, we have more, you know, commercial leverage and day rates, as we have seen, will continue to trend and move up. So, you know.
Sell to move in a in a nice clean parabola like you did in math class you know as the supply demand picture continues to tighten and incremental demand comes to the market. We have more commercial leverage and day rates as we have seen a will continue to trend in move up so you know but.
Speaker 3: what people's feelings about where they want rates to be are kind of neither here nor there in the grand scheme of things. If people want rigs and the demand continues, the supply continues to tighten and demand continues to increase, which is what we see happening, going into a sustained cycle, then rates will continue to move upwards.
What people's feelings about where they want rates to be all kind of neither here nor there in the in the Grand scheme of things.
People want rigs and that demand continues to supply continues to tighten and demand continues to increase which is what we see happening going into a sustained cycle then rates will continue to move upwards.
Speaker 8: Okay, great appreciate that. Now, my follow up is, you know, you've targeted 200Million dollars to share repurchase for 2024. what's your general sense of of what that share repurchase target could be for 20 to me? You earmarked for 23. what are you earmarking for 24?
Okay, Great I appreciate that my follow up is <unk>.
Targeted $200 million of share repurchase for 2024.
What's your general sense of what that share repurchase part of it could be for 'twenty two.
Okay.
Mark.
For 24.
Speaker 5: Yeah, so so thanks, Kurt. You know, one, you know, we think we're really demonstrating our commitment to returning capital shareholders.
Yes, so thanks Kurt.
One.
Really demonstrating our commitment to returning capital to shareholders.
Speaker 5: As we repurchase 171 million shares year-to-date, that's about 3.5% of our outstanding shares. Outstanding, and we're on track to execute on that $200 million target this year.
We.
We repurchased 171 million shares year to date, that's about three 5% of our outstanding shares outstanding and we're on track to execute on that $200 million target this year.
Speaker 5: We're going to provide a more detailed perspective on 24 return of capital plans on the fourth quarter call, but I want to reiterate what Anton mentioned. Our philosophy around return of capital is simple, and when this business is generating meaningful and sustained free cash flow, we're going to return it to all the shareholders unless we've got a more value-creative or better use for it.
We're going to provide.
More detailed perspective on 'twenty for return of capital plans on the fourth quarter call.
I want to reiterate what Anton mentioned you our philosophy around return of capital is simple when when when this business is joining meaningful and sustained free cash flow now railroad try at all to shareholders unless it got it.
Accretive or better use for it.
Speaker 3: You know, as we look forward, you know, that's going to include a dividend. You know, we'll flex for share repurchases, and we'll even look at special dividends if we get a significant liquidity event. Because, you know, as we said, you know, this team is dedicated to capital return to shareholders. I'll just reiterate that. You know, this is a board and a management group that is laser-focused on generating significant cash into an upcycle. And our philosophy is very, very simple. We will return it all to shareholders.
As we look forward.
And it included dividend it will flex with share repurchases and will even look at special dividends and if we got a significant liquidity event, because you know as we said.
This team is dedicated to capital return to shareholders.
Just reiterate that this is a board and a management group that is laser focused on generating significant cash into an up cycle and our philosophy is very very simple we will return it ultra shareholders unless there is clearly a more value accretive use for that cash with demonstrated that this year with what we've done and we will continue to.
Speaker 3: unless there is clearly a more value accretive use for that cash. We've demonstrated that this year with what we've done, and we will continue to deliver on that going forward. All right.
To deliver on that going forward.
Alright, I appreciate that thank you.
Thank you I would like to ask a question. Please press Star and then one our next question is from David Smith of Pickering Energy Partners. Please go ahead.
Speaker 1: If you would like to ask a question, please press star and then one. Our next question is from David Smith of Picker and Energy Partners. Please go ahead.
Speaker 9: Good morning and thank you. On the very, for Mr.
Hey, good morning, and thank you.
If I missed it.
Speaker 9: So, is there a mistake? Did you provide any color on the unplanned Q3 downtime for several flutters? If there is a comment or any lessons learned to help secure revenue session to the future?
Sorry, if I missed it did you provide any color on the unplanned Q3 downtime for several floaters.
No problem Greg.
And the lessons learned will help secure revenue efficiency in the future.
Yeah look I can I can give you some color.
Speaker 3: Yeah, look, I can I can give you some color, you know, obviously, the.
Obviously the the.
Speaker 3: The quarter and our downtime was below our expectations and we're focused every day on first delivering safely and second delivering efficiently for our customers. You know, these were largely and...
The quarter and our downtime was was below our expectations and were focused everyday on first delivering safely and second delivering efficiently for our customers.
These were largely.
Speaker 3: Three events on three floaters, subsea related, and it's a fact of this business that if you have an issue with a BOP, you know, by the time you pull it up to surface, fix it and send it down, it's a two-week event.
Three events on three floaters.
Subsea related and it's a fact of a fact of this business that if you have an issue with that with a V. O. P. You know by the time you pull it up to surface fix it and send it down it's a two week event. So this this corridor is not where we would want to be on our subsea downtime, particularly in revenue efficiency, but what.
Speaker 3: So, you know, this quarter is not where we would want to be on our subsidy downtown particularly, and revenue efficiency, but what I would point to is our track record, you know, year to date, 97% revenue efficiency across the fleet, and we will, you know, focus and make sure that we, you know, we rectify those issues and continue to deliver in the manner that people have become accustomed to those.
I would point to is our track record year.
Year to date to 97% revenue efficiency across the fleet.
And we will focus and make sure that we are you know we rectified those issues and continued to deliver in the manner that people have become accustomed to.
I appreciate that.
Speaker 9: And then switching over, you know, when I look at the global suite of jackups that are less than 25 years old,
And thanks for taking over.
When I look at the global.
Jack ups that are less than 25 years old.
Speaker 9: Very few idle today, very few are stacked, cold stacked, and you, I think you own most of them. Just given some of the leading edge rates we've seen pushing above 150,000 a day, certainly seems like that kind of rate plus duration could provide attractive economics on the reactivation. So I just wanted to ask if you also see it that way, and if there are any discussions on your radar that could see one or more of the jackups, greenlit for reactivation in the next year?
Very few idle today, Gary fewer stack called back and you think you are most of them.
Just given some of the leading edge rates, we've seen inflation of about 150000 a day.
It seems like that kind of rate plus duration.
Attractive economics on the reactivation. So I just wanted to ask you also see it that way.
Any discussions on your radar that could see one or more of the jackups greenlit for reactivation in the next year.
Speaker 3: I'll let Matt start with the market and then I'll come back on the philosophy afterwards.
I'll, let Matt start with the market and then I'll come back on the philosophy afterwards.
Yes.
Speaker 4: think what we're starting to see and I'm getting some of my remarks I mentioned you know middle Middle East dominating jack-up consumption in the past years and now we're starting to see the resurgence of Asia
I think we're starting to see.
My prepared remarks, I mentioned middle Middle East dominating jackup consumption in the past years and now we're starting to see the resurgence of Asia.
Speaker 7: And one of the things that makes it really interesting is the duration, the term of the opportunities that the suggesting, and also pushing out the contract lead times, because obviously there is some time required in order to reactivate and move the rates correct, correct market. So we're seeing signs of those opportunities materialize and
And one of the things that makes it really interesting is the duration of the term of the opportunities that are suggesting and also pushing out the contract lead times. Because obviously there is some time required in order to reactivate move the rates correct correct market. So we're seeing signs of those opportunities.
Materialize and I would say on a general basis, we are bidding or stacked rigs more often these days to fit certain opportunities, where we can provide guaranteed availability.
Speaker 7: I would say on, you know, on a general basis, we are bidding our stacked rigs more often these days to fit.
Speaker 7: certain opportunities where we can provide guaranteed availability.
Speaker 7: They will obviously take a secondary position to increasing the utilization of our active fleet, but as you saw in the prepared remarks, with limited availability in 24 and that utilization continues to improve, that's going to put pressure on evaluating and pushing forward with our stackjacks.
They will they will obviously take.
Secondary position to increasing the utilization of our active fleet, but as you saw in the prepared remarks with limited availability and 24 in fact utilization continues to improve that's going to put pressure on on evaluating and pushing forward with our stacked jackup fleets.
Speaker 3: Let me just emphasize a couple of points that Matt made. The first is about lead time. So generally, the reactivation of a jackup, and it's a shorter cycle market between tender and actual contracting. So you need the lead time in order to reactivate a jackup.
Let me just emphasize a couple of points. The first is about lead times. So generally the reactivation of a jackup and it's a shorter cycle market between tender and actual contracting. So you need the lead time in order to reactivate.
Speaker 3: The second thing is simply a capital allocation question for us. Up until now, it has been much more value accretive for us to enter into, you know, float to reactivations based on where the day rates are on the payback times. That being said, you're absolutely right now that jack up rates are increasing and the durations of those contracts, which gives you a better ability to recover that reactivation pass.
The second thing is simply a capital allocation question for us up until now it has been much more value accretive for us to enter into floater reactivation is based on where the day rates are and the payback times that being said you're absolutely right now that jackup rates are increasing and the durations.
Those contracts, which gives you a better ability to recover that reactivation cost, which you've put in the order depending on the rig of 'twenty, two maybe $30 million depending upon specifications. So now that we have longer duration contracts more prevalent outside the middle East there are more opportunities to see one of those jobs, making.
Speaker 3: which you put in the order, depending on the rig, of $20 to maybe $30 million, depending on specifications.
Speaker 9: one of those jobs making sense for a reactivation. So we like the assets we have. They're a great option for us to continue to play into the jackup up cycle. Up until now, it's been a capital allocation question where floaters have just been more value accretive. But yes, we're absolutely focused on and we continue to bid jackups into those opportunities to find the right opportunity to bring to bring them back. Great, I appreciate it and I'll turn it back.
Sense for reactivation, so we like the assets, we have a great option for us to continue to play into the Jackup cycle up until now it's been a capital allocation question, where were floaters have just been more value accretive, but yes, we're absolutely focused on and we continue to bid jackups into those opportunities to find the right opportunity.
It brings to bring them back.
Speaker 9: Great color. Appreciate it. And I'll turn it back.
Great color I appreciate it and I'll turn it back.
At this time, we will conclude our question and answer session.
Speaker 1: At this time, we will conclude our question and answer session.
Speaker 1: I'd like to turn the conference back over to Darren Gibbons for any closing remarks.
I'd like to turn the conference back over to Darren Gibbons for any closing remarks.
Speaker 2: Thanks, Allison, and thank you to everyone on the call for your interest in Volaris. We look forward to speaking with you again when we report our fourth quarter 2023 results. Have a great rest of your day.
Thanks, Allison and thank you to everyone on the call for your interest in Dolores We look forward to speaking with you again, when we report our fourth quarter 2023 results have a great rest of your day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.