Diamond Offshore Drilling, Inc.

Good day, and thank you for standing by. Welcome to the Q3 2022 Diamond Offshore Drilling Earnings Conference call. 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, and you will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Bordosky, Senior Director of Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, everyone, and thank you for joining us. With me on the call today are Bernie Wolford, President and Chief Executive Officer, and Dominic Savarino, Senior Vice President and Chief Financial Officer. Before we begin our remarks, I remind you that certain 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. 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. These risks and uncertainties include the risk factors disclosed in our 10 and 10 filings with the SEC. Further, we expressly disclaim any obligation to update or revise any forward-looking statements. 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-GAAP figures on our call today. You can find a reconciliation to GAAP financials in our press release issued yesterday. And now, I will turn the call over to Bernie.

Thanks, Kevin. Good morning or afternoon to everyone, and thank you for your interest in Diamond Offshore as we present our results for the third quarter of 2022. I'd like to start the call by thanking the entire Diamond team for achieving a strong quarter through their unrelenting focus on delivering safe and efficient operations. Our commitment to the customer and industry-leading operational excellence, what we call the Diamond difference, are the differentiators that drive return business and our strong contract backlog. Today I will cover our financial highlights for the quarter, our view of the macro environment, and outlook for the remainder of the year. I will then turn it over to Dominic to cover our financial results as well as provide some additional information regarding our 2023 guidance. Our results for the quarter reflect growth in both revenue and EBITDA. Total revenue and EBITDA for the quarter were $226.1 million and $18.4 million, respectively. These improvements were driven primarily by higher utilization in the third quarter. Turning to our operating highlights, I'm pleased to report that Diamond had third quarter revenue efficiency of 97.3% across our fleet. particularly impressive given the above average number of rig moves and BOP runs during the quarter. Our safety performance continues to improve as compared to both the previous quarter and year. I couldn't be prouder of our crews for delivering this exceptional performance. In July, the Ocean Blackhawk commenced its contract for Woodside Offshore Senegal. Hats off to the men and women who were laser-focused on delivering a safe, on-time, and successful startup for our customer, notably while earning a performance bonus on their very first well. In October, the managed drill ship Vela successfully commenced its one-well contract in the Gulf of Mexico with Woodside, which will be followed by a five-well contract plus options with a subsidiary of Beacon Offshore. We have experienced recent achievements in other areas as well. For example, Diamond continues to progress making our rigs more fuel efficient and reducing our carbon footprint. We recently analyzed historical fuel usage data for our black ships, comparing closed bus and open bus electrical plant operations. Closed bus operations facilitated savings of up to 20% in fuel usage over comparable activities in an open bus configuration. Please note all of Diamond's large DP rigs are equipped to support closed bus operations, and we continue to work closely with our clients to maximize time in closed bus configurations to reduce fuel usage and greenhouse gas emissions. The remainder of 22 promises to be an active period for the company. The Ocean Great White recently arrived in Scotland to continue its preparation for the previously announced contract with BP. We are on track for contract commencement in the first quarter of 2023. The Ocean Endeavor recently arrived in Norway to replace eight diagonal braces and conduct a five-year special hull survey to assure high rig availability for the future. Turning now to the market outlook, the macro environment continues to drive the developing growth cycle in our business, with supply concerns driving investment. despite governmental actions targeting inflation. Oil and gas supply fundamentals are historically tight on the heels of years of underinvestment in upstream capital projects. We anticipate relative strength in oil prices to continue for the foreseeable future, with long-dated Brent futures now trending upward. Energy security priorities are driving a further leg of investment aimed at securing energy supplies close to home in a responsible manner. We believe securing sufficient supply will be a multi-year undertaking. Commodity prices have remained elevated this year, with the U.S. Energy Information Administration projecting Q4 Brent averaging $93 per barrel and full-year 23 Brent averaging $95 per barrel. This has led to significant cash flow generation by our existing and potential customers, which supports their ability to fund dividends while making meaningful increases to upstream capital investments. RISDAD predicts that total offshore greenfield project commitments will be approximately $138 billion in 2023 compared to $72 billion in 22, representing a 92% increase year over year. We believe this surge in spending will in turn lead to increased demand for our services spanning multiple years. We have recently seen a meaningful increase in the number of fixtures for floating rigs. According to IHS Market, the number of new fixtures increased 44% quarter over quarter to 35 fixtures in the third quarter. These fixtures represent 37 rig years of demand compared to 16 rig years in the second quarter, with 60% of awarded work going to drill ships for campaigns approaching two years in duration. The majority of these are for work in the Golden Triangle, that is the U.S., South America, and West Africa, all areas where we have an established operating presence. With rig supply tightening in most markets, we saw direct negotiation opportunities double in the third quarter as compared to the second quarter. In the U.S. Gulf of Mexico, where drill ship capacity is nearly sold out, we are seeing opportunities emerge for direct negotiations on term work commencing in 2024. The tightening supply-demand balance supported our high level of commercial success in the third quarter. We secured $778 million of additional backlog during the quarter. This attributed to the previously announced contracts on the Ocean Black Hornet, Ocean Apex, Ocean Great White, and the managed rigs, the Auriga and Vela. These commitments added six rig years of backlog and will materially increase revenue as we progress through 2023. We also look forward to repricing opportunities for our seventh generation drill ship, the Ocean Black Hawk, which is anticipated to finish its current contract in Senegal early in the second half of 2023. After the end of the quarter, we received notification of award of a new drilling program with Petrobras in Brazil for the Ocean Courage. The Ocean Courage was awarded a four-year project with an unpriced option for an additional four years. The total value of the firm term of the award is approximately $429 million, including a mobilization fee and the provision of certain additional services. The contract for this work is expected to be signed imminently and commence late in the fourth quarter of 23 after the RIG concludes its current contract and completes new contract preparations. Upon contract execution, this will grow our current backlog from $1.6 billion to just over $2 billion. This award is a testament to the exceptional performance of our crews and allows Diamond to continue serving the world's largest operator of deepwater drilling rigs. These backlog additions and growing demand are game changers. We set the stage for meaningful improvements in EBITDA and cash flow in 2023 and beyond. It takes an entire organization focusing on the right things to deliver successful outcomes. I'm very proud to be surrounded by the high caliber men and women of Diamond Offshore that our customers count on to deliver energy responsibly. I will now turn the call over to Dominic before returning with some concluding remarks.