Diamond Offshore Drilling, Inc.

Good morning and thank you for standing by. Welcome to the first quarter 2023 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. 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 or afternoon to 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. Some of the information referenced on 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. 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 first quarter of 2023. I'd like to start by recognizing that during the first quarter, Diamond reached its one-year anniversary of relisting on the New York Stock Exchange. Since relisting, we have seen significant trading liquidity in our shares, and our shareholder base has grown to nearly 200 institutional investors. Today, I will cover financial and operating highlights for the first quarter, our operational outlook for the remainder of 2023, and our view on the market for our services. I will also provide more detail on our commercial successes achieved after the first quarter, and then turn it over to Dominic to provide a review of our first quarter financials as well as guidance for the upcoming quarter. Our results for the quarter reflect growth in both revenue and adjusted EBITDA. Total revenue and adjusted EBITDA for the quarter were $232 million and $21.7 million, respectively. These improvements were driven primarily by the Ocean Black Hornet moving to a substantially higher day rate during the first quarter. The first quarter was an active one for our company. I'm pleased to report that our rig crews and operations support team delivered revenue efficiency of 95.9% across our fleet during the quarter. This efficiency number is notable considering the startup of the Ocean Great White, which safely commenced operations west of the Shetlands in late March, and the re-delivery of the Endeavor following completion of its special survey. These important milestones give us three harsh environment rigs working in the region and are a testament to our team's project management capability. In addition, we successfully commenced operations with a new client in the U.S. Gulf of Mexico utilizing the seventh generation drill ship Vela, and we received a well-based performance bonus in Senegal for the third consecutive quarter. Our industry-leading safety excellence was recognized by the IADC North Sea Chapter as it recently declared Diamond Offshore the winner in two categories among the active rig fleets in the North Sea. We won Best Safety Performance in the Floating Rigs category and also Best Safety Performance for an Individual Floating Rig, the Ocean Patriot. These awards demonstrate the company's commitment to honor safety and protect all, and are a direct result of the hard work and dedication of the men and women who crew and support the Diamond Offshore Fleet in the UK. Finally, at quarter end, we made the determination to categorize the Ocean Monarch as held for sale. This decision reflects our continuing commitment to capital discipline and our strategic focus on maximizing shareholder returns. Turning to the market outlook, We maintain our constructive outlook for our business as the up cycle in the offshore drilling sector continues to be supported by strong cash flows realized by oil and gas companies, continued evidence of growing demand, and oil price forecasts well above production break-even costs and FID hurdles. These factors have prompted a significant recovery in offshore upstream capital expenditures. According to S&P Global, new tender demand for floating drilling rigs for the 12 months ended March 31, 2023, was at its highest level since 2012. Industry analysts expect offshore upstream capex spend to grow approximately 10% year-over-year on average from 2023 to 2025, approaching $200 billion by 2025. We anticipate these investments will grow further as the pursuit of supply diversity remains a global priority and gains further momentum. The ongoing pivot to offshore basins as a source of incremental supply is driving the market for our services. Additional capital being deployed for exploration and appraisal may further extend this cycle of investment. Next, 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, continues to impact brownfield prospects offshore the UK. However, there are a number of shorter-term programs starting later this year and early next, plus up to two significant new programs offshore the UK starting in 2024 or 2025. Overall, for the UK, we expect one additional semisubmersible to be contracted in 2023 and and an additional unit late in 2024. Although positive signs have emerged on the back of recent contract announcements in Norway, demand there remains relatively soft in 2023. This has prompted a number of high specification rigs to leave the region for attractive opportunities in other areas, a trend that continues with a recent award in the news for work offshore Namibia. In Australia, a consortium for work offshore the southeast coast and a development campaign on the northwest shelf will likely add a further two rig years of demand in the region. Also, owing to a mix of P&A development and exploration work commencing later in 2024, a further three rig years of demand may materialize. Southeast Asia remains relatively flat with incremental demand for one to two floaters late this year and into 2024. We expect India to grow modestly, adding one semi-submersible and one drill ship in 2024. West Africa is emerging as one of the key areas driving future demand growth. West Africa's semi-submersible demand is being driven primarily by opportunities in Namibia, Equatorial Guinea, and Nigeria. We expect semi-submersible demand to grow by up to two units in 2024. Drill ship demand in the region is expected to grow by up to three rigs in 2024, driven primarily by activity in Angola, the Ivory Coast, Namibia, Ghana, and Equatorial Guinea. East Africa, particularly Mozambique, has a potential for further upside to drill ship demand. 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. South America is the other corner of the golden triangle driving demand growth. In Latin and South America, drill ship demand could grow by eight or more rigs through 2024. Brazil is driving the bulk of this new demand with Guyana, Suriname, and Colombia contributing. We expect Mexico, and the rest of the Latin American region to remain relatively flat through 2024. Finally, in North America, we see drill ship demand remaining relatively flat with one incremental program in 2023 and possibly another in 2024. It is worth noting that day rates in the region remain biased to the upside due to the likely 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 exploration success in the region. Translating this to a global perspective and factoring in some conservatism to allow for slippage in start dates, options not exercised, and potential adverse final investment decisions, we foresee incremental demand for semi-submersibles growing by four to six units through 2024 and incremental demand for drill ships growing by 7 to 10 units through the same period. A portion of this demand is already reflected in the number of open tenders we have in-house today. Speaking of the strength in the markets, we have had great success in securing additional contract backlog. Yesterday, we announced $212 million of new contract awards across multiple geographies and rig tops. These new contracts are in addition to our $1.6 billion backlog reported as of April 1, 2023. With these commitments, we now have 59% of 2024 marketed capacity contracted. This excludes priced options, which could take our 2024 commitments to 70%. These awards reflect not only the continued strength of the drill ship and semi-markets, but also Diamond Offshore's reputation for performance and our strategic approach to the markets. Starting with the Ocean Black Hawk, we have secured work with Anadarko Petroleum Corporation, a wholly owned subsidiary of Occidental in the U.S. Gulf of Mexico. The rig was awarded a one-year contract with a one-year priced option and is expected to commence mid-fourth quarter of 2023 after conclusion of the RIG's current contract, expected to be in early July, followed by five-year regulatory surveys, new contract preparations, including the installation of an MPD system, and mobilization from Las Palmas. Total firm term contract value, including mobilization but excluding any managed pressure drilling services, is expected to be approximately $162 million. Occidental previously utilized the Ocean Blackhawk for eight years prior to the rig working for Woodside on its current campaign in Senegal. It should also be noted that the rig should see a reduction in base operating expense of at least $30,000 per day as compared to current levels in Senegal. Diamond also had contracting success in the UK North Sea with the Ocean Patriot securing a two-well contract with an estimated duration of 60 days and a total contract value of approximately $10 million. The contract is expected to commence in September of this year. A potential second new contract currently under negotiation would fill out the remaining availability in late 2023 and keep the rig contracted through the winter season. The Ocean Endeavor was awarded an extension covering two wells, with an estimated duration of 120 days with its current client. Total contract value for the extension is approximately $24 million and is expected to commence mid-contract in early November 2023, after which we will revert to the current contract rate for the balance of the contract term. Further, the Ocean Great White had its first option well exercised by its current client with an estimated duration of 60 days, Total contract value for the option well is approximately $16 million and is expected to commence in mid-January 2024 after completion of the initial five-well firm period. There are priced options for up to seven additional wells remaining. Securing these wins at improved day rates with quality customers further demonstrates the strength in the market and the value our team is delivering to clients and shareholders. I would like to thank all Diamond employees, both onshore and offshore, for going above and beyond in securing this backlog. The continued strength in global markets provides Diamond Offshore further upside opportunities in 2024. Our next drill ship up for repricing will be the Ocean Black Rhino, currently working offshore Senegal with anticipated availability late in the second quarter of 2024. Given the continued demand for top tier drill ships and relatively constrained supply, great opportunities exist for the Ocean Black Rhino to secure work at rates that are significantly higher than the current contract. Also, as previously mentioned, we're pursuing multiple opportunities for the Ocean Onyx in Southeast Asia and Australia. Commencement for these projects is anticipated to take place in the first half of 2024. Growing demand in Brazil, West Africa, and Australia continue to put upward pressure on day rates while providing substantial opportunities for drill ships and semi-submersibles alike. Through the first quarter, the resilience, breadth, and depth of the up cycle has only become more evident. With that, I will turn the call over to Dominic before returning with some concluding remarks.