Q1 2024 Diamond Offshore Drilling Inc Earnings Call

May 8, 2024

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Diamond Offshore Drilling's first quarter 2024 earnings conference call.

Ladies and gentlemen, thank you for standing by welcome to the Diamond offshore drilling first quarter 'twenty 'twenty four earnings conference call.

Operator: At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Kevin Bordosky, Senior Director of Investor Relations. Please go ahead. Thank you, Mr.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During this session you would need to press star one on your telephone.

And then here in all the major message advising your hands, it's right to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.

Speaker Change: I'd like now to turn the conference over to Kevin Port Dusky Senior director of Investor Relations. Please go ahead.

Kevin Bordosky: Thank you, Michelle. Good morning or afternoon, everyone, and thank you for joining us. With me on the call today are Bernie Wolford, President and Chief Executive Officer, Dominic Savarino, Senior Vice President and Chief Financial Officer, and John Richards, Senior Vice President and Chief Operating Officer. Before we begin our remarks, I remind you that information reported on this call speaks only as of today, and therefore, time-sensitive information may no longer be accurate at the time of any replay of this call.

Kevin Bordosky: Thank you Michele good morning, or afternoon to everyone and thank you for joining us.

Kevin Bordosky: Some of the information referenced in our call today is included in a slide presentation that you can find in the Investor Relations section of our website under Calendar of Events. In addition, certain statements made during this call may be forward-looking in nature. These statements are based on our current expectations and include known and unknown risks and uncertainties, many of which we are unable to predict or control. These risks and uncertainties may cause our actual results or performance to differ materially from any future results or performance expressed or implied by these statements.

Speaker Change: With me on the call today are Bernie Wolford, President and Chief Executive Officer, Domenic salary, you know senior Vice President and Chief Financial Officer, and John Richard Senior Vice President and Chief operating Officer.

Kevin Bordosky: These risks and uncertainties include the risk factors disclosed in our 10-K and 10-Q filings with the SEC. Further, we expressly disclaim any obligation to update or revise any forward-looking statement. Please refer to the disclosure regarding forward-looking statements incorporated in our press release issued yesterday evening. And please note that the contents of our call today are covered by that disclosure. In addition, please note that we will be referencing non-GAP figures on our call today. You can find a Reconciliation to Gap Financials in our press release issued yesterday. And now, I will turn the call over to Bernie.

Speaker Change: Before we begin our remarks I remind you that information reported on this call speaks only as of today and therefore time sensitive information may no longer be accurate at the time of any replay of this call.

Speaker Change: Some of the information referenced on our call. Today is included in our slide presentation that you can find in the Investor Relations section of our website under calendar of events.

Bernie: In addition, certain statements made during this call may be forward looking in nature.

Kevin Bordosky: These statements are based on our current expectations and include known and unknown risks and uncertainties many of which we are unable to predict or control.

Kevin Bordosky: These risks and uncertainties may cause our actual results or performance to differ materially from any future results or performance expressed or implied by these statements.

Bernie: These risks and uncertainties include the risk factors disclosed in our 10-K and 10-Q filings with the SEC.

Kevin Bordosky: Further we expressly disclaim any obligation to update or revise any forward looking statements.

Kevin Bordosky: Refer to the disclosure regarding forward looking statements incorporated in our press release issued yesterday evening and please note that the contents of our call today are covered by that disclosure.

Kevin Bordosky: In addition, please note that we will be referencing non-GAAP figures on our call today.

Bernie: You can find a reconciliation to GAAP financials in our press release issued yesterday.

Kevin Bordosky: And now I will turn the call over to Bernie.

Bernie: Thanks, Kevin and good.

Bernie G. Wolford: Good day to everyone, and thank you for your interest in Diamond Offshore as we present our results for the first quarter of 2024. Today, I'll provide an update on the previously reported Great White Incident. Highlights from the first quarter include perspective on the deepwater drilling market and opportunities for our fleet. Dominic will then walk through our financial results and guidance for the second quarter and full year before I wrap up and open the floor for questions. I will begin with an update on the Great White. On March 15, the Great White arrived at Kishoren Port, where it is now undergoing repairs.

Bernie: Good day to everyone and thank you for your interest in Diamond offshore as we present our results for the first quarter of 2024.

Bernie G. Wolford: Today I'll provide an update on previously reported great wide incident.

Bernie G. Wolford: Highlights from the first quarter, our perspective on the deepwater drilling market and opportunities for our fleet.

Bernie G. Wolford: Dominic will then walk through our financial results and guidance for the second quarter and full year before I wrap up and open the floor for questions.

Bernie G. Wolford: I will begin with an update on the great White.

Bernie G. Wolford: On March 15, the great what arrived in <unk> Port where it is now undergoing repairs.

Bernie G. Wolford: Prior to departing the well location, the rig's crew safely recovered the Lower Marine Riser Package, or LMRP, from the seabed. Since arriving in Kishore, we have dismantled the LMRP, made repairs to damaged equipment, and significantly progressed the rebuild of the LMRP. Over the next four to five weeks, we expect to complete all repairs, including the rebuild, commissioning, and testing of the LMRP and BOP. As of today, we are more than 90% complete with the shipyard scope and progressing in line with our previously guided estimate for time out of service.

Bernie G. Wolford: Prior to departing the well location the rigs crew safely recovered the lower marine riser package or <unk> from the seabed.

Bernie G. Wolford: Since arriving in cash or we have dismantled the LMR P made repairs to damaged equipment and significantly progressed, the rebuild of the LMR P O.

Bernie G. Wolford: Over the next four to five weeks, we expect to complete all repairs, including the rebuild commissioning and testing of the <unk> and <unk>.

Bernie G. Wolford: As of today, we are more than 90% complete with the shipyard scope and progressing in line with our previously guided estimate for time out of service. We currently expect the rig to be back on the well location in the first half of June.

Bernie G. Wolford: We currently expect the rig to be back at the well location in the first half of June. Dominic will provide additional information about the estimated repair costs and insurance recovery in his remarks. Before moving on, I'd like to recognize the extraordinary work by our team in response to the incident and the quality of the ongoing collaboration with our client and local authorities.

Bernie G. Wolford: Dominic will provide additional information about the estimated repair costs and insurance recovery in his remarks.

Bernie G. Wolford: Before moving on I'd like to recognize the extraordinary work by our team in response to this debt and the quality of the ongoing collaboration with our client and local authorities.

Bernie G. Wolford: Turning now to our financial results, total revenue and adjusted EBITDA for the first quarter were $275 million and $64 million, respectively. During the first quarter, we safely handed the Auriga back to the rig owner after managing the rig since March of 2021. The VILA remains under our management through August, while it completes its current contract with an operator in the U.S. Gulf of Mexico. At the contract's end, management of the villa will transfer back to the rig owner.

Bernie G. Wolford: Turning now to our financial results total revenue and adjusted EBITDA for the first quarter were $275 million and $64 million respectively.

Bernie G. Wolford: During the first quarter, we safely handed a rig back to the rig owner after managing the rig since March of 2021.

Bernie G. Wolford: The velar remains under our management through August while it completes its current contract with an operator in the U S Gulf of Mexico at.

Bernie G. Wolford: At the contracts and management of the whaler will transfer back to the rig owner.

Bernie G. Wolford: Turning now to backlog, as previously announced, we secured $713 million of new backlog during the quarter, which equates to 4.2 rig years of work spread across three rigs. These include two of our seventh-generation drill ships, the Black Lion and the Black Hornet, which were each contracted for two-year extensions in the U.S. Gulf of Mexico at substantially higher day rates, and the Patriot, one of our moored, harsh-environment semis, which was contracted for a 60-day two-well P&A campaign in the U.K. that commenced in early March.

Bernie G. Wolford: Turning now to backlog as previously announced we secured $713 million of new backlog during the quarter, which equates to $4 two rig years of work spread across three rigs.

Bernie G. Wolford: These include two of our seventh generation Drillships, the Black line and Black Hornet, which are each contracted for two year extensions in the U S. Gulf of Mexico at substantially higher day rates and the Patriot one of our more harsh environment semis, which was contracted for a 60 day two well PNA campaign in the UK.

Bernie G. Wolford: K that commenced in early March.

Bernie G. Wolford: The Black Lion and Black Hornet contract extensions will start in direct continuation of their current contracts and provide firm work through the third quarter of 2026 and the first quarter of 2027, respectively. Under these new contracts, the Black Line and Black Hornet will each be positioned to generate approximately $115 million in annualized rig-level EBITDA, contributing significantly to our cash flow over the coming years. Since the end of the first quarter, we are pleased to announce that the Black Rhinos have secured a one-well job in the Ivory Coast with an independent operator.

Bernie G. Wolford: The Black line and Black Hornet contract extensions will start in direct continuation of their current contracts and provide firm work through the third quarter of 2026 in the first quarter of 2027, respectively.

Bernie G. Wolford: Under these new contracts, the black line and Black Hornet will each be positioned to generate approximately $115 million in annualized rig level EBITDA contributing significantly to our cash flow over the coming years.

Bernie G. Wolford: Since the end of the first quarter, we are pleased to announce that the black Rhino secured a one well job and the Ivory coast with an independent operator.

Bernie G. Wolford: The campaign is estimated to take 30 days and is planned to commence late this year after the RIG Special Periodical Survey, or SPS, and Managed Pressure Drilling Upgrade. The total prepaid contract value associated with this job is approximately $18 million with a daily rate in line with recent global drill fixtures, including mobilization and demobilization elements. With our contracting success year to date, we have significantly increased the visibility of our revenues for 2024 and beyond.

Bernie G. Wolford: The campaign is estimated to take 30 days and is planned to commence late this year. After the rig special periodical survey, our Sps and managed pressure drilling upgrade.

Bernie G. Wolford: The total prepaid contract value associated with this job is approximately $18 million with a day right in line with recent global drillship fixtures, including mobilization and demobilization elements.

Bernie G. Wolford: With our contracting success year to date, we have significantly increased the visibility of our revenues for 2024 and beyond.

Bernie G. Wolford: For the full year 2024, excluding cold stacked rigs, 88% of our marketed capacity is contracted. 91% if you include priced offshore. Similarly, 49% of our 2025 marketed capacity is contracted. If you include price to option, this number rises to 73%.

Bernie G. Wolford: For the full year 2024, excluding cold stacked rigs, 88% of our marketed capacity is contracted.

Bernie G. Wolford: 91% if you include priced options.

Bernie G. Wolford: Similarly, 49% of our 2025 marketed capacity is contracted.

Bernie G. Wolford: If you include priced option this number rises to 73%.

Bernie G. Wolford: Now I'll turn to our view on the markets in general and opportunities for diamond. During the first quarter, 32 rig years of floating rig demand were booked across the industry with an average per rig duration of approximately 1.1 years. This average duration is without Priced Options Extensions, Sublets, and the recent 10-year JV Fix.

Bernie G. Wolford: Now I'll turn to our view on the markets in general and opportunities for Diamond.

Bernie G. Wolford: During the first quarter 32 rig years of floating rig demand, we're booked across the industry with an average per rig duration of approximately $1 one years.

Bernie G. Wolford: This average duration is without priced options extensions sublets and the recent 10 year JV fixture.

Bernie G. Wolford: We believe the broader trend towards longer-term contracts will continue as the year progresses. According to recent data from S&P Global, as of mid-April, open demand from floating rig tenders was approximately 56 rig years compared to 42 rig years a year earlier, representing an increase of more than 30 percent. This uptick in tendering activity, coupled with concern over future rig availability, has pushed day rates for high-specification, ultra-deepwater drilling rigs into the high $400,000 to the low $500,000 per day range.

Bernie G. Wolford: We believe the broader trend towards longer term contracts will continue as the year progresses.

Bernie G. Wolford: According to recent data from S&P global as of mid April open demand from floating rig tenders was approximately 56 rig years compared to 42 rig years, a year earlier, representing an increase of more than 30%.

Bernie G. Wolford: This uptick in tendering activity, coupled with concern over future rig availability has pushed dayrates for high specification ultra deepwater drilling rigs into the high 400 to low $500 per day range.

Bernie G. Wolford: For our fleet, we are tracking 53 contract opportunities, totaling 55 rig years of demand, with commencement dates from now through the end of 2025. This demand is split between DP and Morg Riggs at 66% and 34%, respectively. Demand for floating rigs across the Golden Triangle remains strong, while the UK sector of the North Sea has been more volatile, as some operators are deferring decisions on specific programs due to concerns brought about by the extension of the Energy Profits Levy and anticipated national elections.

Bernie G. Wolford: <unk> fleet, we are tracking 53 contract opportunities totaling 55 rig years of demand with commencement dates from now through the end of 2025.

Bernie G. Wolford: This demand is split between DP and moored rigs at 66% and 34% respectively.

Bernie G. Wolford: Demand for floating rigs across the Golden triangle remains strong while the U K sector of the North Sea has been more volatile as some operators are deferring decisions for specific programs due to concerns brought about by the extension of the energy profits Levy and anticipation anticipated national elections.

Bernie G. Wolford: Some of these deferred programs were 2024 opportunities for the Patriots. It is now likely that the Patriots will be idle following its current contract until late this year or early next when it commences its contracted long-term P&A campaign.

Bernie G. Wolford: Some of these deferred programs or 2020 for opportunities for the Patriot It.

Bernie G. Wolford: It is now likely that the Patriot will be auto following its current contract until late this year or early next when it commences its contracted long term P&I campaign.

Bernie G. Wolford: Demand in the region ticks up in 2025, and we remain optimistic about the Endeavour's opportunities following its current campaign as we pursue four opportunities for work both in and outside the UK. Finally, the Black Rhino is competing for multiple opportunities across the Golden Triangle, commencing after its SPS and short-term job in the Ivory Coast. It is notable that during the SPS, we are installing an MPD system.

Bernie G. Wolford: Demand in the region ticks up in 2025, and we remain optimistic for the endeavors opportunities. Following its current campaign as we pursue for opportunities for work both in and outside the U K.

Bernie G. Wolford: Finally, the black Rhino is competing for multiple opportunities across the Golden triangle commencing after its Sps and short term job and the RV coast.

Bernie G. Wolford: It is notable that during the Sps, we're installing an MPD system.

Bernie G. Wolford: When that is completed, all four of our black ships will feature owned NPD systems, securing their position at the high end of technical specifications among competing seventh-generation drill ships. We are in active discussions on a number of opportunities and expect the Black Rhino to secure additional work without a gap between contracts. Changing subjects, we are well positioned to capture further upside through marketing rights recently secured for three 7th generation stranded Newbill drillships.

Bernie G. Wolford: When that is completed all four of our black ships will feature owned MPD systems, securing their position at the high end of technical specifications, among competing seventh generation Drillships.

Bernie G. Wolford: We are in active discussions on a number of opportunities and expect the Blackrock to secure additional work without a gap between contracts.

Bernie G. Wolford: Changing subjects, we are well positioned to capture further upside through marketing rights recently secured for three seventh generation stranded Newbuild drillships.

Bernie G. Wolford: We have entered into an agreement with the owners of the Dorado and Draco to market these rigs in Brazil, Latin America, West Africa, Malaysia, and Indonesia. The Dorado was delivered from the shipyard in April and subsequently moved to Malaysia, while the Draco is expected to be delivered from the shipyard in the third quarter. In addition, we secured marketing rights for the former West Libra, now known as the Title Action, for the U.S. Gulf of Mexico region.

Bernie G. Wolford: We have entered into an agreement with the owners of the Dorado and drive go to market. These rigs in Brazil, Latin America, West Africa, Malaysia, and Indonesia.

Bernie G. Wolford: The Dorado was delivered from the shipyard in April and subsequently move to Malaysia, while the <unk> is expected to be delivered from the shipyard in the third quarter.

Bernie G. Wolford: In addition, we secured marketing rights for the pharma are less Libre now known as the title action for the U S Gulf of Mexico region.

Bernie G. Wolford: The rig is currently expected to be delivered in the first quarter of 2025. These are exciting opportunities that could generate meaningful income and increase our exposure to the seventh-generation drill ship market during a period when our own units are likely to be fully committed. If we are successful in securing work for these rigs, we would manage the rigs on behalf of their respective owners and earn fees that would be accretive to our EBITDA projections without an increase in required working capital. And with that, I'll turn the call over to Dominic before returning with some concluding remarks.

Bernie G. Wolford: The rig is currently expected to be delivered in the first quarter of 2025.

Dominic: These are exciting opportunities that could generate meaningful income and increased our exposure to the seventh generation drillship market during a period when our own units are likely to be fully committed.

Dominic: If we are successful in securing work for these rigs we would manage the rigs on behalf of their respective owners and earn fees. So it would be accretive to our EBITDA projections without an increase in required working capital.

Bernie G. Wolford: And with that I'll turn the call over to Dominic before returning with some concluding remarks.

Dominic A. Savarino: Thanks, Bernie, and good morning or afternoon to everyone. In my prepared remarks this morning, I'll provide a recap of our results for the first quarter. An update on the estimated financial impact of the Great White Incident, guidance for the second quarter, and updated full year 2024 guidance. For the first quarter, we reported revenue, excluding reimbursable revenue, of $259 million as compared to $280 million in the prior quarter, and adjusted EBITDA of $64 million as compared to $72 million.

Dominic: Thanks, Bernie and good morning or afternoon to everyone.

Dominic A. Savarino: In my prepared remarks. This morning, I'll provide a recap of our results for the first quarter.

Dominic A. Savarino: An update on the estimated financial impact of the great White incident guidance for the second quarter and updated full year 2020 for guidance.

Dominic A. Savarino: The quarter-over-quarter decrease in revenue was primarily attributable to the completion of one of the managed rig contracts and the return of that rig to its owner, and the Great White being off contract for two months in the first quarter as a result of the LMRP incident, although partially offset by the Courage and Blackhawk operating for the full quarter on new, higher day rate contracts.

Dominic A. Savarino: For the first quarter, we reported revenue, excluding reimbursable revenue of $259 million as compared to $280 million in the prior quarter.

Dominic A. Savarino: And adjusted EBITDA of $64 million as compared to $72 million.

Dominic A. Savarino: The quarter over quarter decrease in revenue was primarily attributable to the completion of one of the managed rig contracts and the return of that rig to its owner.

Dominic A. Savarino: And the great white being off contract for two months in the first quarter as a result of the LMR P incident.

Dominic A. Savarino: Partially offset by the courage and Blackhawk operating for the full quarter on new higher day rate contracts.

Dominic A. Savarino: Our revenue in the first quarter came in just under our guidance of $260 to $270 million, despite the fact that our guidance did not include the adverse impact on revenue of the Great White Incident. The revenue generated from the remainder of the fleet exceeded our expectations for the quarter as a result of additional revenue days for the Patriot and strong revenue efficiency across the remainder of the fleet in the second half of the quarter. Contract drilling expense for the first quarter was $184 million, compared to $189 million in the prior quarter.

Dominic A. Savarino: Our revenue in the first quarter came in just under our guidance of $260 million to $270 million. Despite the fact that our guidance did not include the adverse impact on revenue of the great White incident.

Dominic A. Savarino: The revenue generated from the remainder of the fleet exceeded our expectations for the quarter as a result of additional revenue days for the Patriot and strong revenue efficiency across the remainder of the fleet in the second half of the quarter.

Dominic A. Savarino: Contract drilling expense for the first quarter was $184 million compared to $189 million in the prior quarter.

Dominic A. Savarino: The decrease was primarily attributable to lower charter and other operating expenses for the managed rig, partially offset by higher operating costs for The Courage and Blackhawk as they worked the full quarter after commencing new contracts in the fourth quarter of 2023, and the recording of the one-time expense of $8 million for the insurance deductible associated with the Great White Incident. Our resulting adjusted EBITDA of $64 million exceeded our guidance of $45 to $55 million by almost 30 percent.

Dominic A. Savarino: The decrease was primarily attributable to lower charter and other operating expenses for the managed rigs partially offset by higher operating costs for the courage and Blackhawk as they work to the full quarter after commencing new contracts in the fourth quarter of 2023.

Dominic A. Savarino: And the recording of the one time expense of $8 million for the insurance deductible associated with the great White incident.

Dominic A. Savarino: Our resulting adjusted EBITDA of $64 million exceeded our guidance of 40 $45 million to $55 million by almost 30%.

Dominic A. Savarino: Our guidance beat was attributable to the Patriot Revenue and Fleet Revenue Efficiency performance I mentioned earlier, as well as the occurrence of lower repairs and maintenance costs in the quarter. Our adjusted EBITDA results for the quarter have been normalized to remove the one-time $10 million charge for the insurance deductible, $8 million of which was recorded in contract drilling expenses, and $2 million of which was recorded as a loss on the disposition of assets.

Dominic A. Savarino: Our guidance beat was attributable to the Patriot revenue and fleet revenue efficiency performance I mentioned earlier as well as the incurrence of lower repairs and maintenance costs in the quarter.

Dominic A. Savarino: Our adjusted EBITDA results for the quarter had been normalized to remove the onetime $10 million charge for the insurance deductible $8 million of which was recorded in contract drilling expense and $2 million of which was recorded as a loss on the disposition of assets.

Dominic A. Savarino: Absent this adjustment, Adjusted EBITDA still came in at the high end of our guidance despite the Great White earning no revenue in February or March. Operating cash flow for the first quarter was $59 million, with free cash flow of $38 million, as compared to negative free cash flow of $22 million in the fourth quarter of last year. The improvement in free cash flow was primarily a result of a release of working capital and lower capital expenditures.

Dominic A. Savarino: Absent this adjustment adjusted EBITDA still came in at the high end of our guidance. Despite the great White, earning no revenue in February or March.

Dominic A. Savarino: Operating cash flow for the first quarter was $59 million with free cash flow of $38 million as compared to negative free cash flow of $22 million in the fourth quarter of last year.

Dominic A. Savarino: The improvement in free cash flow was primarily a result of a release in working capital and lower capital expenditures.

Dominic A. Savarino: Turning now to The Great White and our updated estimate of the financial implications of the unintentional release of the LMRP. As Bernie noted, the Great White is making good progress on the repairs and is estimated to be back on location and earning a day rate in the second half of June. Simultaneously, we have begun the process of filing an insurance claim for the incident and anticipate beginning to receive reimbursement from our insurance underwriters in the second quarter.

Dominic A. Savarino: Turning now to the great White and our updated estimate of the financial implications of the unintentional release of the <unk>.

Dominic A. Savarino: As Bernie noted the great White is making good progress on the repairs and is estimated to be back on location and earning day rate in the second half of June.

Dominic A. Savarino: Simultaneously, we have begun the process of filing the insurance claim for the incident and anticipate beginning to receive reimbursement from our insurance underwriters in the second quarter.

Dominic A. Savarino: After taking into account lost revenue, repair costs, insurance proceeds, including loss of hire insurance, and our deductible, we now estimate that the overall EBITDA and cash flow impact will be approximately $25 to $30 million, a slight decrease compared to previous expectations. This impact can be broken down into the following three components.

Dominic A. Savarino: After taking into account lost revenue.

Dominic A. Savarino: Fair costs insurance proceeds, including loss of hire insurance and our deductible. We now estimate that the overall EBITDA and cash flow impact will be approximately $25 million to $30 million, a slight decrease compared to previous expectations.

Dominic A. Savarino: First, a decrease in top-line revenue of $32 to $35 million, approximately half of which was recognized in the first quarter, with the remainder being recognized in the second quarter. Second, a net increase in contract drilling expenses of $3 to $6 million attributable to the insurance deductible, partially offset by the expected reimbursement of a portion of operating expenses as part of the insurance claim. And finally, an increase in other operating income due to the expected receipt of a loss of higher insurance of $10 to $11 million, all of which should be recognized in the second quarter.

Dominic A. Savarino: This impact can be broken down into the following three components.

Dominic A. Savarino: First a decrease in top line revenue of $32 million to $35 million approximately half of which was recognized in the first quarter with the remainder being recognized in the second quarter.

Dominic A. Savarino: Second our net increase in contract drilling expenses of $3 million to $6 million attributable to the insurance deductible, partially offset by the expected reimbursement of a portion of operating expenses as part of the insurance claim.

Dominic A. Savarino: And finally, an increase in other operating income due to the expected receipt of loss of hire insurance of $10 million to $11 million all of which should be recognized in the second quarter.

Dominic A. Savarino: In addition, we anticipate an increase in capital expenditures of $15 million to $20 million related to the incident, all of which we anticipate to be subject to recovery and reimbursement under our insurance policy.

Dominic A. Savarino: In addition, we anticipate an increase in capital expenditures of $15-$20 million related to the incident, all of which we anticipate to be subject to recovery and reimbursement under our insurance policy. I would now like to turn to guidance for the second quarter and full year 2024. On our earnings call last quarter, given the recency of the Great White Incident, we presented our initial guidance for 2024 by excluding any financial impact from the Great White event.

Speaker Change: I would like to now turn to guidance for the second quarter and full year 2024.

Dominic A. Savarino: On our earnings call last quarter, given the recency of the great White incident, we presented our initial guidance for 2024 by excluding any financial impact from the great White event.

Dominic A. Savarino: Now that we have better visibility into the estimated impact and how the various components will be accounted for in our financial results, we are updating our full-year 2024 revenue, adjusted EBITDA, and capital expenditure guidance to take into account the negative impact of the Great White Incident, offset by various positive outcomes across our fleet. Our full-year 2024 revenue guidance, excluding reimbursable revenue, is now $925 to $945 million, and our full-year 2024 adjusted EBITDA guidance is now $225 to $245 million.

Dominic A. Savarino: Now that we have better visibility into the estimated impact and how the various components will be accounted for in our financial results. We are updating our full year 2020 for revenue adjusted EBITDA and capital expenditure guidance to take into account the negative impact of the great wide incident offset by various positive outcomes across.

Dominic A. Savarino: Our fleet.

Dominic A. Savarino: Our full year 2020 for revenue guidance, excluding Reimbursable revenue is now $925 million to $945 million and our full year 2024, adjusted EBITDA guidance is now $225 million to $245 million.

Dominic A. Savarino: This revised adjusted EBITDA guidance is a considerable increase to our prior guidance, as our prior guidance of $230 to $250 million did not take into account the previously disclosed $25 to $30 million adverse impact from the Great White Incident, and our new guidance does. Our updated adjusted EBITDA guidance of $235 million at the midpoint compares favorably to the prior effective guidance of $212 million at the midpoint. The overall increase in guidance is largely driven by higher revenue as a result of certain rigs being on contract for more days than originally anticipated and lower operating costs.

Dominic A. Savarino: This revised adjusted EBITDA guidance is a considerable increase to our prior guidance as our prior guidance of $230 million to $250 million did not take into account the previously disclosed $25 million to $30 million adverse impact from the great White incident.

Dominic A. Savarino: Our new guidance does.

Dominic A. Savarino: Our updated adjusted EBITDA guidance of $235 million at the midpoint compares favorably to the prior effective guidance of $212 $212 million at the midpoint.

Dominic A. Savarino: The overall increase in guidance is largely driven by higher revenue as a result of certain rigs being on contract more days than originally anticipated and lower operating costs.

Dominic A. Savarino: We are pleased that we have been able to increase our full-year adjusted EBITDA guidance. Further, this increased guidance is substantially de-risked as 100% of our adjusted EBITDA guidance for the remainder of this year is represented by already contracted work or priced options that are likely to be exercised. We have removed any additional contribution from the Patriot for the remainder of 2024 as opportunities for additional work this year have not materialized.

Dominic A. Savarino: We are pleased that we've been able to increase our full year adjusted EBITDA guidance.

Dominic A. Savarino: Further this increased guidance is substantially de risked as 100% of our adjusted EBITDA guidance for the remainder of this year is represented by already contracted work or priced options that are likely to be exercised.

Dominic A. Savarino: We have removed any additional contribution from the Patriot for the remainder of 2024 as opportunities for additional work this year have not materialized.

Dominic A. Savarino: Full year 2024 CapEx is now expected to be between $135 to $145 million after taking into account the additional capital expenditures for the Great White. Turning to our second quarter guidance, we expect revenue, excluding reimbursable revenue, to be between $230 to $240 million, and adjusted EBITDA to be between $55 to $65 million. Again, both ranges, inclusive of the negative financial impact we anticipate, will be recorded in Q2 from the Great White event. Capital expenditures for Q2 are expected to be between $30 and $35 million.

Dominic A. Savarino: Full year 2020 for Capex is now expected to be between $135 million to $145 million after taking into account the additional capital expenditures for the great White.

Dominic A. Savarino: Turning to our second quarter guidance, we expect revenue, excluding reimbursable revenue to be between $230 million to $240 million and adjusted EBITDA to be between $55 million to $65 million again, both ranges inclusive of the negative financial impact we anticipate will be recorded in.

Dominic A. Savarino: Q2 from the great White event.

Dominic A. Savarino: Capital expenditures for Q2 are expected to be between 30% and $35 million.

Dominic A. Savarino: Looking forward to the end of 2024 and beyond, our visibility to estimated future earnings and cash flow is increasing as a result of our recent contract awards and our growing backlog at higher average day rates. In addition to our adjusted EBITDA guidance in 2024 being increased and de-risked, we have 73% and 41% of available days in 2025 and 2026, respectively, committed through firm contracts and priced options we expect to be exercised.

Dominic A. Savarino: Looking forward to the end of 2024 and beyond our visibility to estimated future earnings and cash flow was increasing as a result of our recent contract awards and our growing backlog at higher average day rates.

Dominic A. Savarino: In addition to our adjusted EBITDA guidance in 2024 being increased and de risked we have 73% and 41% of available days in 2025, and 2026, respectively committed through firm contracts and priced options, we expect to be exercised.

Dominic A. Savarino: The weighted average drill ship and semi-submersible day rate in our 2025 backlog is $475,000 and $267,000 per day, respectively, with a total weighted average day rate across the entire fleet of $356,000 per day. This compares favorably to the $305,000 per day earned in the first quarter of this year. This level of contract coverage and average day rate growth positions us well for the next three years, yet it still provides plenty of room for positive operational leverage as recontracting opportunities arise.

Dominic A. Savarino: The weighted average drillships and semi submersible day rate in our 2000 22025 backlog is 475002 hundred $67000 per day, respectively with total weighted average day rate across the entire fleet of $356000 per day.

Dominic A. Savarino: This compares favorably to the $305000 per day earned in the first quarter of this year.

Dominic A. Savarino: This level of contract coverage and average day rate growth positions us well for the next three years, yet still provides plenty of room for positive operational leverage as re contracting opportunities arise.

Dominic A. Savarino: The continued strong operating performance across our fleet has us on track for our net leverage ratio and other requirements under our credit facility and bond indenture to be met by the end of 2024, giving us additional flexibility with regard to our capital allocation strategy. That concludes my prepared remarks. I will now hand it back to Bernie for some closing comments.

Dominic A. Savarino: The continued strong operating performance across our fleet has us on track for a net leverage ratio and other requirements under our credit facility and bond indenture to be met by the end of 2024, giving us additional flexibility with regard to our capital allocation strategy.

Dominic A. Savarino: That concludes my prepared remarks, I will now hand, it back to Bernie for some closing comments.

Bernie: Thank you Dominic.

Bernie G. Wolford: The demand landscape remains compelling for our business. The high-specification deepwater rig supply-to-demand balance continues to tighten.

Bernie: The demand landscape remains compelling for our business the highest specification deepwater rig supply to demand balance continues to tighten.

Bernie G. Wolford: This is resulting in strong contracting conditions that should benefit our available and marketed fleets. We've made a strong start to 2024, securing $731 million in contract awards, and sharing our improved financial outlook for the year and significantly improved earnings visibility into 2025. We look forward to delivering our guided results along with further EBITDA and free cash flow improvements in 2025. We appreciate your interest in Diamond Offshore and will now open the call to questions.

Bernie G. Wolford: This is resulting in strong contracting conditions that should benefit our available and marketed fleet.

Bernie G. Wolford: We have made a strong start to 2020 for securing $731 million in contract awards.

Bernie G. Wolford: Sharing our improved financial outlook for the year and significantly improved earnings visibility into 2025.

Bernie G. Wolford: We look forward to delivering our guided results along with further EBITDA and free cash flow improvements in 2025.

Speaker Change: We appreciate your interest in Diamond offshore and will now open the call for questions.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And our first question comes from Eddie Kim with Barclays. Your line is now open.

Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be any routes.

Operator: Your question. Please press star one again, please standby, while we compile the Q&A roster.

Operator: And our first question comes from Eddie Kim with Barclays. Your line is now open.

Eddie Kim: Hi, good morning. I just wanted to touch on the marketing arrangements for the three-stranded new builds. Would Diamond get a say as to the day rate secured on those contracts, and then separately, just with regard to the management arrangement, if those rigs are contracted, does that cover just the initial job, or is that management contract somewhat indefinite? Just any comment on the marketing agreement would be great.

Eddie Kim: Hi, Good morning, just wanted to touch on the marketing arrangements on the three stranded newbuild.

Eddie Kim: Yes.

Eddie Kim: With Diamond.

Eddie Kim: As to the the day rate secured on those contracts and then separately just with regards to that the management.

Eddie Kim: Arrangement, if those rigs are contracted does that cover just just the initial job or is that management contract.

Eddie Kim: Somewhat indefinite just just any color on those.

Eddie Kim: On the marketing.

Eddie Kim: Agreement would be great.

Eddie Kim: Okay.

Bernie G. Wolford: Hey Eddie, yeah, thanks for the question. You know, if we're successful in earning a contract for the rigs, they will be managed and crewed by Diamond Offshore employees, and from our customers' perspective, the rig will be a Diamond Offshore rig. Diamond will market the rig to customers within the stated regions and pursue contracting opportunities in line with how we would market our own diamond rigs. Commercial proposals will be evaluated, and submitted with the owner's input and consent, with Diamond being the focal point for commercial and contractual negotiations.

Speaker Change: Hey, Thanks for the question.

Bernie G. Wolford: If we're successful in earning a contract for the rigs that will be managed and crew by diamond offshore employees and from our customers' perspective, the rig will be a diamond offshore rig.

Bernie G. Wolford: Dominant market the rigs to customers within the stated regions in pursuit contracting opportunities in line with how we would market our own diamond rigs commercial proposals will be evaluated submitted with the owners' input and concert with diamond being the focal point for commercial and contractual.

Bernie G. Wolford: Negotiations.

Bernie G. Wolford: With respect to your question about the management of the rigs beyond the marketing agreement, our anticipation is that as marketing agreements lead to managed contracts, those obligations would continue through the term of the managed contract, but by no means indefinite. The marketing agreements themselves are indefinite, subject to certain conditions that might result in the ultimate termination of those.

Speaker Change: With respect to your question about the.

Bernie G. Wolford: Management.

Bernie G. Wolford: Management and other rigs beyond the marketing agreement, our anticipation is that as marketing agreements lead to manage contracts those obligations would continue through the term of the managed contract but by no means indefinite the marketing agreements themselves are indefinite.

Bernie G. Wolford: Subject to certain conditions that might result in the ultimate termination of those.

Bernie G. Wolford: Okay, I understood it. And with regard to the kind of margin on the management contract, I mean, is it fair to assume that the margins would be similar to what you earned for the Auriga and the Vela? Or how should we think about the margins on that?

Speaker Change: Okay understood and then just with regard to the kind of margins on the mandate.

Bernie G. Wolford: On the management contract I mean is it fair to assume that the that.

Bernie G. Wolford: That the margins would be Sim.

Bernie G. Wolford: Similar to.

Bernie G. Wolford: What you earn for the Eureka and develop or.

Bernie G. Wolford: How should we think about the margins on that.

Bernie G. Wolford: Yeah, Eddie, before I get to that, I should point out the management agreement would be for the firm term plus any options. With regard to the margins, they would be similar to what we were earning previously or currently combined. If all three units were working under these new marketing rights, then we would expect a contribution on the order of 35 to $45 million annually to EBITDA.

Bernie G. Wolford: Yes.

Bernie G. Wolford: Before I get to that I should point out the management agreement would be for the firm term plus any options.

Bernie G. Wolford: With regard to the margins they would be similar to what we were earning.

Bernie G. Wolford: Previously our currently combined if all three units were working under these new marketing rights. Then we would expect contribution on the order of $35 million to $45 million annually to EBITDA.

Eddie Kim: Okay, that's great. And if I could just squeeze one in here,

Eddie Kim: Okay got it great and if I could just squeeze one in here that short term contract you announced for the Black Rhino. The total contract value 18 million works out to 600000, a day, but I believe you said that included some mobe and <unk> and that kind of a clean rate is closer to where leading edge.

Bernie G. Wolford: The short-term contract you announced for the Black Rhino, the total contract value of $18 million, works out to $600,000 a day. But I believe you said that included some MOAB and DMOAB, and that kind of the clean rate is closer to where Leading Edge is today. Is that clean rate kind of in the mid to high $400,000 or the low $500,000? It's in the mail.

Speaker Change: Is today.

Bernie G. Wolford: Is that clean rate kind of in that mid to high four hundreds are the low five hundreds.

Bernie G. Wolford: It's in the mid to high 400s.

Bernie G. Wolford: It's in the mid to high four hundreds.

Eddie Kim: Okay, I got it. Great. Thank you for all the color. I'll turn it back.

Speaker Change: Okay got it great. Thank you for all the color I'll turn it back thanks.

Operator: Thank you, Eddie. The next question comes from David Smith with Pickering Energy. Your line is now open.

Speaker Change: Thank you Eddie.

Speaker Change: One moment for the next question.

Operator: The next question comes from David Smith with Green Energy. Your line is now open.

David Christopher Smith: Hey, good morning. Congratulations on the quarter and on bucking the trend by improving your 24-hour outlook.

David Christopher Smith: Hey, good morning, congratulations on the quarter, and then bucking the trend by improving their 24 outlook.

Bernie G. Wolford: Thank you, David. Thank you, Dave.

Eddie Kim: Alright, Thank you David Thanks, Dave.

David Christopher Smith: Just going back to the management rights, I wanted to ask if those agreements include a potential path to ownership, and if so, could you provide any high-level color on the timing or valuation?

Speaker Change: Circling back to the.

Speaker Change: Management right.

David Christopher Smith: Wanted to ask.

David Christopher Smith: If those agreements include a potential pack ownership and and if so could you provide any high level color on the timing of evaluation.

Bernie G. Wolford: Yeah, the current marketing rights do not include any specific provisions that would lead to some kind of ownership potential in the future. Obviously, should we be successful in marketing the rigs and ultimately managing the rigs, it does somewhat improve our chances or our relative position, I would say, but there are no explicit rights at all.

Speaker Change: Yes, the current marketing rights do not.

Bernie G. Wolford: <unk> include any specific provisions that would.

Bernie G. Wolford: Lead to some kind of ownership.

Bernie G. Wolford: Potential in the future obviously.

Bernie G. Wolford: Should we be successful in marketing the rigs and ultimately managing the rigs.

Bernie G. Wolford: It does somewhat improve our chances are our relative position I would say, but there is no explicit rights at all.

David Christopher Smith: Okay, I do appreciate that. And then, second, for the endeavor, I think you referenced four opportunities that you're pursuing. I was hoping you could give any color about the duration of those and, you know, really how you think about the potential for that rig to work through most of 25.

Speaker Change: Okay I do appreciate that.

David Christopher Smith: And then secondly for.

David Christopher Smith: The endeavor I think you referenced four opportunities that youre pursuing.

David Christopher Smith: And if you could give any color about the duration of those.

David Christopher Smith: How you think about the potential for that rig to work through through most of 'twenty five.

Bernie G. Wolford: Sure, you know, two of those opportunities are in the first quarter of 25, ranging from seven months to two years in duration. The balance of those opportunities start in the second quarter of 25, ranging in duration from just over two months to nine months in duration. So it's a bit of a mixed bag, Dave.

David Christopher Smith: Sure.

David Christopher Smith: Two of those opportunities are first quarter 'twenty five ranging from.

Bernie G. Wolford: Seven months to two years in duration.

Bernie G. Wolford: The balance of those opportunities start in the second quarter of 2005 range in duration from just over two months to nine months in duration. So it's a bit of a mixed bag.

Bernie G. Wolford: <unk>.

Bernie G. Wolford: You know, we're still chasing every single one of those. Some of those are already tendered, and the bids are under evaluation. Others are in the stages of pursuing a bid opportunity that's already out on the market, but hasn't yet closed. So a bit of a mixed bag.

Bernie G. Wolford: We're still chasing every single one of those some of those are already tendered and the bids are under evaluation others are in the stages.

Bernie G. Wolford: Stages pursuing a bid opportunity that's always that already out on the market, but hadn't yet closed so bit of a mixed bag.

Bernie G. Wolford: And obviously, pricing will be adjusted in line with term, as we would prefer term over ultimate short-term pricing power.

Bernie G. Wolford: And obviously.

Bernie G. Wolford: Pricing will be adjusted in line with term.

Bernie G. Wolford: We would prefer term over over ultimate short term pricing power.

Operator: Next, Fredrik Stene, thank you for the call.

Speaker Change: Makes sense makes sense. Thank you for the color.

Operator: One moment for the next question. The next question comes from Noelle Parks with Tui Brothers Investment. Your line is open.

Operator: One.

Speaker Change: The next question.

Noel Parks: The next question comes from Noel Parks with Tuohy Brothers investment your line is open.

Noel Parks: Hi, good morning.

Noel Parks: Just wondering if you maybe could.

Noel Parks: And a little bit on your thoughts on what you see as far as regional activity trends you talked a bit about.

Noel Parks: Some of the regulatory matters.

Noel Parks: Are having an impact.

Operator: Sure.

Noel Parks: Sure. None in particular to comment on for the U.S., Brazil, or West Africa. As I mentioned in my prepared remarks, in the U.K., the extension of the energy profits levy has been a source of concern for clients and potential clients, as well as an expectation that the UK will hold national elections sometime before the end of this year, all of which have created some volatility and concern on their parts as to how their profits may be taxed and how their opportunities may be presented in years going ahead in the UK energy sector.

Noel Parks: None in particular to comment on for the U S, Brazil or West Africa as I mentioned in my prepared remarks in the U K the extension of the energy profits Levy.

Noel Parks: Has been a source of concern for our clients and potential clients as well as an expectation that the UK will hold national election sometime before the end of this year all of which.

Noel Parks: I have created some volatility in concern on their part as to how their profits may be taxed and how there are opportunities may be presented in years going ahead in the UK sector. So it's.

Noel Parks: So it's somewhat uncertain. For the bigger programs and the P&A programs, we see those going ahead. For some of the smaller, what I would call brownfields or legacy development areas, we've seen some of those programs deferred until 25 until there's more clarity on regulatory activity. In Australia, we've seen great progress in our clients being able to secure their environmental permits, and the backlog and risk that was well recognized a year and six months ago has largely cleared. Back to the UK, we are certainly seeing increased demand on the P&A front, and that P&A demand doesn't seem to be impacted by the uncertainty around further development activity.

Noel Parks: Somewhat uncertain for the bigger programs.

Noel Parks: The PNA programs. So we see those going ahead for some of the smaller.

Noel Parks: What I would call brownfield, our legacy development areas, we've seen some of those programs deferred until 'twenty five until there's more clarity.

Noel Parks: On regulatory activity.

Noel Parks: In Australia, we saw.

Noel Parks: Seeing great progress and our clients being able to secure their environmental permits and that that backlog and risk that was well recognized by year and six months ago has largely cleared.

Noel Parks: <unk>.

Noel Parks: Back to the UK, certainly see an increased demand on the PNA front and that PMA demand doesn't seem to be impacted by that.

Noel Parks: Uncertainty around further development activity.

Speaker Change: Great. Thanks, a lot.

Operator: One moment for the next question.

Noel Parks: One.

Speaker Change: The next question.

Operator: Operator, we were expecting a likely participant, Greg Lewis from BTIG, because we had missed him last quarter, but I don't see him on our list today. Greg, if you're on the call, please know that we can't see you in the queue.

Speaker Change: Operator, we were expecting the.

Operator: Lastly participant.

Operator: Lewis from <unk>, because we had missed it last quarter, but I don't see them on a role today.

Operator: Greg if perhaps you're on the call.

Operator: Please know that we can't see you in the queue.

Operator: Okay.

Operator: Our next question comes from Josh Jane with Daniel Energy. Your line is open. Thanks, good morning.

Operator: Next question comes from Josh Jayne with Daniel Energy Your line is open.

Josh Jane: Thanks, Good morning.

Josh Jane: Good morning, Josh.

Josh Jane: So I don't want to beat a dead horse, but just to go back to the three new build rigs, could you talk about why this was the right path for Diamond instead of, like, with the agreements that you signed, instead of pursuing some sort of path to ownership for, you know, all three, potentially one of the rigs? Was ownership a consideration or an option in your discussions? Or was it because you're a capital constraint today? Or maybe you could just talk me through the discussions and how you were thinking about this being the best path forward for those rigs and Diamond?

Josh Jane: So I don't want to beat a dead horse, but just to go back to the three Newbuild rigs could you talk about why this was the right path for diamond instead of.

Josh Jane: With the agreements that you signed instead of pursuing some sort of.

Josh Jane: <unk> ownership.

Josh Jane: Four.

Josh Jane: All three potentially one of the rigs was ownership of consideration or an option in your discussions or.

Josh Jane: Was it was it because you are capital constrained today or just maybe just talk me through the discussions and how you were thinking about this being the best path forward for those rigs in diamond.

Speaker Change: Sure the <unk>.

Bernie G. Wolford: The first part of that question as to us pursuing the marketing rights and why it's right for diamond. Largely, that's because we have the global scale; we have the people, processes, and systems that allow us to take on those rigs and market those rigs and provide great services for our clients without much adding to our infrastructure and costs, and particularly that's important. With our expectation that all of our black ships are likely to be committed in the not too distant future, we would have no availability in the drill ship market to make offerings to our clients. With regard to, you know, the path to ownership. Josh Wee.

Josh Jane: First part of that question too.

Bernie G. Wolford: US pursuing the marketing rights and why it's ripe for Diamond.

Bernie G. Wolford: Largely that's because we have the global scale, we have the people processes and systems that allow us to take on those rigs and market those rigs and provide great services for our clients.

Bernie G. Wolford: Without much add to our infrastructure and costs.

Bernie G. Wolford: Particularly.

Josh Wee: That's important.

Bernie G. Wolford: With our expectation that all of our black ships are going to be are likely to be committed and.

Bernie G. Wolford: In the not too distant future and so we would be have no availability in the drillship market to make offerings to our clients with regarding to path to ownership.

Bernie G. Wolford: Josh.

Bernie G. Wolford: We have looked at ownership of these assets and other assets similar to these that we're well aware of working in the market today. In some cases, simply put, the bid-ask spread has been too wide for us to cover. In other cases, as our equity has continued to trade at prices that might indicate a per drillship value of $300 million, our equity currency is really not priced to support a potential acquisition right now.

Josh Wee: We have looked at ownership of these assets and other assets similar to these.

Bernie G. Wolford: That were that were well aware of.

Bernie G. Wolford: Working in the market today.

Bernie G. Wolford: In some cases.

Bernie G. Wolford: Simply put the bid ask spread has been too wide for us to cover in other cases.

Bernie G. Wolford: As our equity has continued.

Bernie G. Wolford: <unk> that process that might indicate a per drillship value of $300 million.

Bernie G. Wolford: Yes.

Bernie G. Wolford: Our equity currency is really not priced to support a potential acquisition right now we remain generally interested in acquiring assets like these and we will continue to pursue those opportunities but.

Bernie G. Wolford: We remain genuinely interested in acquiring assets like these, and we'll continue to pursue those opportunities, but it does little good to try to negotiate a path to ownership when there's a large disparity between the bid-ask premium at this stage.

Bernie G. Wolford: It does little good to try to negotiate a path to ownership when there is a large disparity.

Bernie G. Wolford: The bid ask premium at this stage.

Josh Jane: Thanks. That's helpful. Maybe on that point about the equity valuation, as you think about where the fleet is today, where it's going to be earning in 2025 and 2026, how should we be thinking about the opportunities to likely return capital over the next couple of years, given where we are in the upcycle? Is there any chance that you could just offer some preliminary thoughts about that?

Speaker Change: Thanks that helps that's helpful. Maybe maybe on that point on the equity valuation.

Josh Jane: As you think about where the fleet is today, where it's going to be earning in in 'twenty five and 'twenty six.

Josh Jane: How should we be thinking about what your opportunities to likely returning capital over the next couple of years, given where we are in the up cycle is there any chance that you could just offer some preliminary thoughts about that.

Dominic A. Savarino: This is Dominic, Josh. There certainly is that possibility as we exit 2024 and get into 2025. We'll have the financial profile that meets our covenants in our RCF and our indenture that would give us the flexibility to be able to do that starting next year. That's a decision that the board will make at that point in time. We are focused on managing our liquidity and our balance sheet in a conservative manner, but certainly those discussions would take place, and we would have that opportunity once we meet those covenants by the time we exit this year.

Josh Jane: This is Dominic Josh Theres certainly.

Dominic A. Savarino: Is that possibility as we exit 2024 and get into 2025, we will have the.

Dominic A. Savarino: The financial profile that we meet our covenants in our Rcs in our indenture that would give us the flexibility to be able to do that starting next year.

Dominic A. Savarino: That's a decision that the board will take at that point in time, we are focused on managing our liquidity and our balance sheet in a conservative manner, but certainly those discussions.

Dominic A. Savarino: Would take place and we would have that opportunity once we.

Dominic A. Savarino: Meet those covenants by the time, we exit this year.

Bernie G. Wolford: Josh, I might add that, as a follow-up to your other question and part to this question, two things. One, we're keenly focused on cash flow and building our cash on the balance sheet. Secondly, with regard to potential acquisitions and my reference to how our equity was trading today on a per 7th gen equivalent, we're obviously very sensitive to pursuing deals that are accretive for our shareholders, and in some cases, that simply does not allow us to go to where the ask price is.

Speaker Change: And Josh I might add that.

Bernie G. Wolford: Part in follow up to your other question in part to this question.

Bernie G. Wolford: Two things one we're keenly focused on cash flow and building our cash on the balance sheet and secondly, with regard to potential acquisitions in my reference to how our equity was trading today on a per seventh gen equivalent.

Bernie G. Wolford: We're obviously very sensitive to pursuing deals that are accretive for our shareholders and in some cases that simply.

Bernie G. Wolford: Does not allow us to.

Bernie G. Wolford: To go to where the <unk> process.

Josh Jane: Sounds good; I appreciate it.

Speaker Change: Sounds good I appreciate it.

Operator: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Please stand by for the next question. The next question comes from Doug Becker with Capital One. Your line is open.

Josh Jane: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced please.

Doug Becker: Please standby for the next question.

Operator: The next question comes from Doug Becker with capital one your line is open.

Doug Becker: Thank you. Bernie, you mentioned Black Rhino is expected to secure additional work without gaps between contracts. I'm curious if that extends through the entire 2025 outlook. I'm really just trying to gauge what type of visibility you have for that rig next year.

Doug Becker: Thank you.

Doug Becker: Bernie you mentioned the black Rhino is expected to secure additional work without gaps between contracts I'm curious if that extends to the entire 2025 outlook and really just trying to gauge what type of visibility you have.

Doug Becker: For that rig next year.

Bernie G. Wolford: Yeah, thanks, Doug, for the question. Yes, it does extend to the 2025 outlook for the full year. I mean, to the extent of my comment regarding not having any gap, there may be a mobilization involved in getting from where we are to where the job is, depending on whether it's in West Africa, Brazil, or the US Gulf of Mexico. But we expect to be fully contracted for the year at this stage.

Bernie: Yes, Thanks, Doug for the question.

Bernie G. Wolford: Yes, it does extend to the to the 2025 outlook for the full year.

Bernie G. Wolford: I mean to the extent.

Bernie G. Wolford: My comment regarding not having any gap there may be a mobilization involved in getting from where we are to where the job is dependent on whether it's in West Africa, Brazil, or the U S Gulf of Mexico, but we expect to be fully contracted for the year at this stage.

Dominic A. Savarino: Now that really de-risks the outlook. Dominic, I was hoping you could talk a little bit about normalized operating costs. First quarter, the Rego was being released. I guess there were some efficiency bonuses, but just trying to think about the fleet going forward, any context on operating costs explicitly.

Bernie G. Wolford: So that really de risks the outlook.

Dominic A. Savarino: Dominic I was hoping you could talk a little bit about normalized operating costs.

Dominic A. Savarino: First quarter.

Dominic A. Savarino: <unk> was being released I guess, there were some efficiency bonuses, but just trying to think.

Dominic A. Savarino: About the fleet going forward, just any any context on operating cost explicitly.

Dominic A. Savarino: We can get into details about operating costs, although certainly we've seen costs from our guidance come down. We had some benefits in the first quarter from some deferral of costs that got pushed out later in the year from a repairs and maintenance perspective, but overall, our operating costs have come down slightly relative to our expectations. But we can talk more offline if we wanted to get into more details about the rig-by-rig view of that from a modeling standpoint.

Dominic: We can get into details about the operating costs although.

Dominic A. Savarino: Certainly we've seen some costs from from.

Dominic A. Savarino: Our guidance has come down we are.

Dominic A. Savarino: We had some benefits in the first quarter from some deferral of costs that got pushed out into later in the year from a repairs and maintenance perspective, but overall.

Dominic A. Savarino: Our operating costs have come down slightly relative to our to our expectations, but we can talk more offline. If we wanted to get into more.

Dominic A. Savarino: More details about our.

Dominic A. Savarino: A rig by rig.

Dominic A. Savarino: <unk> view of that from a modeling standpoint.

Doug Becker: Doug, I would add that our inflation expectations for the year are on the order of three to four percent, and that's baked into the guidance we provided today.

Dominic A. Savarino: Got it. Thank you very much.

Speaker Change: Doug I would add with that I would add that our inflation expectations for the year I think are on the order of 3% to 4% and thats baked in to.

Dominic A. Savarino: To the guidance we provided today.

Speaker Change: Got it well thank you very much.

Speaker Change: Thank you.

Bernie G. Wolford: I have no further questions at this time. I would now like to turn the call back to Bernie for closing remarks.

Speaker Change: I show no further questions at this time I would now like to turn the call back to <unk> for closing remarks.

Bernie G. Wolford: Thank you all for your participation in today's call. We certainly look forward to speaking with you again next quarter and wish you all a good day. Thanks and goodbye.

Bernie: Thanks, all for your participation in today's call. We certainly look forward to speaking with you again next quarter and wish you all a good day, thanks and goodbye.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.

Operator: Okay.

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