Diamond Offshore Drilling, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the third quarter 2023 Diamond Offshore Drilling Inc. Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would 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 like now to turn the conference over to 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-K and 10-Q 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 day to everyone, and thank you for your interest in Diamond Offshore as we present our results for the third quarter of 2023. Today I will cover recent contract awards, highlights for the third quarter, and perspectives on the market. Dominic will walk through our financial results, operations highlights for the quarter, and guidance for the fourth quarter and full year before I wrap up and open the floor for questions. I'm pleased to report that our rig crews and operations support team delivered exceptional safety results with revenue efficiency of 95% across our fleet during the quarter. This efficiency number is notable given the high number of transitions within the fleet as some rigs departed shipyards and commenced new contracts, while others finished contracts and commenced shipyard projects. A big thank you to our teams for their commitment to our safety pledge, honor safety, protect all. Also, we achieved a significant financing milestone during the quarter. As previously announced, we closed a $550 million bond offering that replaced our previous debt at a lower interest rate. Our balance sheet is now stronger with debt maturities extending to 2030. I couldn't be prouder of our finance team for delivering this improved capital structure. Today, I will highlight four key strengths that underpin Diamond's opportunities for success. First, We are positioned to deliver increased value from our harsh environment assets, both DP and MORD, as markets for those units continue to improve. Second, our Better Than Forecast Q3 financial performance will improve our full-year results, so we are raising full-year guidance. Third, our lower anticipated shipyard days in 2024 versus 2023 set the stage for improved financial performance through more available revenue days at higher rates. And fourth, we remain well positioned for multiple opportunities with our top tier NPD equipped seventh generation drill ships rolling off contract in the second half of 2024. Let's dive deeper into each of these, starting with the first point, delivering increased value from our harsh environment assets. Yesterday, we announced $240 million in new contract awards. After the quarter end, we were awarded a long-term plug-in abandonment, or P&A, campaign for our moored harsh environment semi, the Patriot, and our customer exercised their third option well for the Great White following the exercise of their second option well earlier in Q3. The new Patriot contract, which commences in early 2025, comes with both a higher day rate and significant term. With contract duration based on 35 wells, the contract represents roughly three years of farm work with priced options that could extend it to four years in total. Both the contract execution lead time and term of the Patriot Award are notable, and we believe indicative of future market tightness in the UK region. Regarding my second point, our Q3 financial performance, total revenue, and adjusted EBITDA for the quarter were $245 million and $28 million, respectively. These results were above our guidance for the quarter, primarily due to an additional 17 days of work for the Courage prior to contract end, a one-well early termination fee on the APEX, which subsequently proceeded in direct continuation to its next contract, commendable rig level expense management, and the deferral of certain contract prep costs for the Black Hawk. This speech should translate into improved performance relative to our prior guidance for the full year 2023. Dominic will provide further detail on these results and guidance in his remarks. Referring now to my third point, lower shipyard days in 2024 as compared to 2023. At the conclusion of 2023, five out of our 10 actively marketed owned rigs will have completed their five-year special periodical surveys, or SPSs, in the last 18 months. Looking forward, we have only two rigs with these surveys due in 2024, the Black Rhino and Black Hornet, and one rig, the Black Lion, with an SPS due in 2025. As a result, we plan to spend significantly less time in the yard next year and thus benefit from more days available to earn higher day rates. Now to my fourth and final point. We are well positioned for multiple opportunities in 2024. The upcycle in offshore drilling sector continues to be supported by persistent, strong commodity prices and projections for significant year-on-year growth in final investment decisions, or FIDs. This optimistic outlook continues to be confirmed by subsea tree awards in the third quarter. Additionally, we anticipate that the number of exploration wells drilled in 2024 will increase by approximately 20% as compared to 2023, which is indicative of our client's commitment to investment in deepwater. Taken together, these strengths set the stage for continued improvement in our financial performance for the next few years. I would now like to turn to the markets more generally and look ahead to opportunities for future contracts in the near term. In the UK sector of the North Sea, there have been a number of positive developments. Last week, the UK government awarded 27 new licenses in the 33rd oil and gas licensing round for areas that have the potential to be brought into production quickly. Also, we have seen a surge in P&A campaign tenders over the past several months. Today, we have visibility of some 4,000 days of uncontracted P&A demand scheduled to commence before the end of 2025. More recently, a number of drilling and P&A opportunities have emerged with 2024 start dates, in part due to the scarcity of available supply anticipated for 2025. We are pursuing multiple opportunities for the Patriot with commencement dates in 2024 and are optimistic that we will secure one or more of these prior to its long-term P&A contract. Turning to drill ship opportunities. Later in the second half of 2024, we will have two MPD-equipped seventh-generation drill ships with availability for contracts at higher day rates. The Black Rhino is currently working for Woodside, offshore Senegal, with the end of its campaign anticipated in early July of next year to be closely followed by its SPS and MPD upgrade project. Next up, the Black Lion, which is currently working for BP in the U.S. Gulf of Mexico, will have availability commencing in the fourth quarter of 2024. The rig has a great performance record and is ideally suited for opportunities in the U.S. Gulf of Mexico commencing in that timeframe. All in, we are tracking 10 opportunities for these rigs, all with commencement dates in the back half of 24, and expect us to secure contracts for both in that timeframe. Wrapping up, we continue to see contracting lead times increasing. and average contract durations currently standing at 360 days are at their highest point in over five years. The industry remains in a period of demand expansion and Diamond is ideally positioned to capitalize on these opportunities. I will now turn the call over to Dominic before returning with some concluding remarks.