Diamond Offshore Drilling, Inc.

Good day and thank you for standing by. Welcome to the Q4 2022 Diamond Allshore 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. You will then hear an automated message advising 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 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 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 fourth quarter of 2022. I'd like to start by thanking our crews around the world for delivering on our Finish Strong safety campaign in the fourth quarter, enabling us to achieve our best safety performance of the last four years. 2022 was a pivotal year for Diamond Offshore. We relisted on the New York Stock Exchange, secured $1.3 billion in new contract awards, successfully started up two managed drill ships, and secured work to reactivate the ocean great white, all while continuing to deliver industry-leading operational excellence for our customers. Today, I will cover financial and operational highlights for the fourth quarter, our operational outlook for 2023, and our view of the markets and the macro environment. I will then turn it over to Dominic to provide a detailed look at our fourth quarter financials, as well as guidance for 2023. We continued our high level of commercial success during the quarter, securing $482 million of backlog with associated commitments totaling more than 4.4 rigged years. Adjusted EBITDA for the fourth quarter was $12.5 million on total revenue of $223.2 million. Dominic will provide further details on these results in his remarks. Turning to our operating highlights, I'm pleased to report that our rig crews and operational support teams delivered revenue efficiency of 96% across our fleet during the quarter. This efficiency number is impressive, especially considering the integration and startup of the seventh generation drill ship, Vela, which performed at a high level on its first well under our management. The fourth quarter was a busy one for Diamond Offshore. The Ocean Great White arrived in Scotland to continue its preparation for the previously announced contract with BP. We signed a new four-year contract for the Ocean Courage with Petrobras in Brazil, and the Ocean Black Hawk and Ocean Black Rhino combined efforts to earn a well-based performance bonus for the second consecutive quarter. The first quarter of 23 has been productive for the company. The Ocean Great White recently moved from Kishore and Port to nearby sheltered waters offshore the west coast of Scotland to commence sea trials and customer acceptance testing. We expect contract commencement to occur within the next month. Also, the Ocean Endeavour is expected to complete its shipyard scope next week when it will transit to its next well location for our customer. Looking forward, in Australia, the Ocean Apex is scheduled to mobilize to Singapore late in March to undergo a five-year special hull survey and certain regulatory and customer-required upgrades. We currently estimate the out-of-service time for this project, including round-trip transit, to be approximately 110 days. Turning now to the market outlook, the offshore drilling sector continues to be supported by improving market fundamentals. Demand for oil and gas is expected to outpace supply through at least 2026. In addition, oil and gas companies have materially increased their capital budgets for 2023 and we expect a continuation of this trend over the next three years. These, combined with the effect of long-term stacking and years of rig retirements, have prompted a sustainable upcycle in the deepwater sector of offshore drilling, the likes of which we have not seen for the past 10 years. For instance, in February 2023, outstanding tenders for deepwater rigs, as reported by S&P Global, represented 49 rig years of demand. a 63% increase as compared to 30 rig years of demand a year ago. Next up, I would like to offer comments regarding the markets where we compete, starting with the North Sea. The UK government's Energy Profits Levy, or EPL, has had an unsettling effect on brownfield prospects offshore the UK. In addition, Norwegian demand remains soft in 2023. This has prompted a number of high specification rigs to leave the region for attractive opportunities in other areas. A trend we expect will continue through 2023. However, there are a number of shorter term programs starting later this year and early next, plus two significant new programs offshore UK starting in 2024 or 2025. These latter programs benefit from investment credits to offset the energy profits levy. Overall for the UK, we expect one additional semi-submersible to be contracted in the region in 2023, an additional unit late in 2024. We recently announced our class intention to early terminate the Ocean Patriot contract and reallocate capital related to that program to other areas due to the energy profits levy tax changes in the UK. We expect the rig will remain on contract into early July of this year before being terminated. Our contract calls for a $12.5 million payment upon early termination. We are pursuing a number of attractive alternative work programs for the Ocean Patriot and are optimistic that the RIG will find work commencing in the third or fourth quarter of 2023. In Australia, we see two remaining semi-submersible opportunities yet to be awarded for commencement late in 2023, totaling three RIG years of work. Looking forward into 2024, a consortium of work offshore the East Coast and possible exploration opportunities on the Northwest shelf could add a further three combined rig years of demand. We are hearing our customers express some near-term concern related to the process of securing environmental permits and the related permit approval backlog, but envisage this to be resolved as we progress through 2023 and not impact demand in 2024. Southeast Asia remains relatively flat with incremental demand for one additional semi-submersible late this year and potentially one incremental drill ship in 2024. We expect India to grow slowly, adding one semi-submersible and one drill ship in 2024. West Africa semi-submersible demand is being driven primarily by opportunities in Namibia, Equatorial Guinea, and Nigeria. We expect demand to grow by up to two units in 2024. Drill ship demand in the region is suspected to grow by two to four rigs in 2024, driven primarily by activity in Angola, the Ivory Coast, Namibia, Ghana, Guinea-Bissau, and Mauritania. East Africa, particularly Mozambique, has potential for upside drill ship demand as well. We see modest increases in semi-submersible demand in the Mediterranean and Black Sea, with potentially one incremental unit through 2024. Drill ship demand in the region is expected to be relatively flat. In Latin America, we expect semi-submersible demand to exceed regional supply by two units in 2024. Drill ship demand could grow by six or more rigs over the same period. Brazil is driving the bulk of the new demand in the region with Guyana, Suriname, and Colombia contributing. We expect Mexico and the rest of Latin America region to remain relatively flat through 2024. Finally, in North America, we see drill ship demand remaining relatively flat with one incremental rig in 2023 and possibly another in 2024. It is worth noting that the rates in the region are under pressure to the upside due to the potential exodus of certain sixth and seventh generation units for opportunities in Brazil and West Africa. Canadian harsh environment semi-submersible demand remains a wild card, but with upside potential subject to commercial success in the region. Translating all of this to a global perspective and factoring in conservatism to allow for slippage in start dates, options not exercised, and potential negative final investment decisions, we foresee incremental demand for semi-submersibles growing by four to seven units through 2024. and incremental demand for drill ships going by six to 10 units through the same period. Increased rig demand is already being reflected in the number of currently open tenders and continued upward pressure on contract day rates. The strength in global markets stands to materially benefit Diamond Offshore. The Ocean Black Hornet was the first of our four black ships to transition to a leading edge rate in February. Next up for repricing will be the Ocean Black Hawk currently working offshore Senegal with anticipated availability in the fourth quarter of this year. Thereafter, the Ocean Black Rhino, also working offshore Senegal, will have access to repriced market rates when it rolls off contract in the second quarter of 2024. We're currently pursuing multiple opportunities for the Ocean Blackhawk in the Golden Triangle with commencement from the third quarter of 2023 onward. As previously mentioned, we're pursuing a number of opportunities for the Ocean Patriot. We're also pursuing multiple opportunities for the Ocean Onyx in Southeast Asia and Australia. Commencement for these projects, the majority of which are in the supply-constrained Australian market, are anticipated to take place late in 2023 or early 2024. This is later than previously anticipated in part due to recent delays in regulatory approvals related to environmental permits. I will close by highlighting that the conditions are in place for a continuation of this upcycle. Particularly, four key indicators are signaling a continuation of this upcycle. First, relatively strong oil prices and long-dated futures. Second, growth in the number of open rig tenders. Third, year-on-year growth in our clients' capital budgets. And lastly, continued growth in average rig contract durations. Taken together, these bode well for a sustained cycle of increasing demand. I will now turn the call over to Dominic before returning with some concluding remarks. Over to you, Dominic.