Transocean Ltd (Switzerland)

Good day and welcome to the Q1 Transocean Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brad Alexander, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Valerie. Good morning and welcome to Transocean's first quarter 2020 Earnings Conference Call. I'll be of our press release covering financial results along with supporting statements and schedules including reconciliations and disclosures regarding non-GAAP financial measures are posted on our website at deepwater.com. Joining me on this morning's call are Jeremy Thigpen, President and Chief Executive Officer, Mark May, Executive Vice President and Chief Financial Officer, and Roddy Mackenzie, Senior Vice President of Marketing and Contracts. During the course of this call, Transocean may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon the current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for more information regarding our forward-looking statements, including the risks Thank you very much I'll now turn the call over to Jeremy

Thank you, Brad, and welcome to our employees, customers, investors, and analysts participating in today's call. Before we dive into the results, I would just like to inform our listeners that we are continuing to work safely and remotely to do our part to prevent the spread of COVID-19. Therefore, please forgive us if the audio quality is different from speaker to speaker and if the Q&A section is a bit choppy as we are all on our remote phone lines. As reported in yesterday's earnings release, for the first quarter, Transocean generated adjusted EBITDA of $235 million on $807 million in adjusted revenue. While revenue efficiency for the quarter fell just short of our guidance of 95%, primarily attributable to our Norwegian operations, lower than guided costs across the enterprise enabled us to deliver adjusted EBITDA results that exceeded our expectations. These results are reflective of our first full quarter of operations from the Deepwater Corcovado and Deepwater Mykonos. which both commenced multi-year campaigns with Petrobras in Brazil during the fourth quarter of last year. Also in the first quarter, the Deepwater Asgard commenced her new contract with Beacon Offshore Energy in the U.S. Gulf of Mexico. With Beacon already exercising the first two options, she is now contracted to work into the fourth quarter of this year. The Transocean Leader started a campaign with Premier in the U.K. in March and is scheduled to remain on contract in the middle of the year. Additionally, we have a number of contracts we previously announced that either have commenced or are about to commence operations. In Canada, the Barron's has commenced operations with Equinor. This initial campaign is expected to run into the third quarter of the year, with the possibility that Equinor could exercise following options extending through the year. In the UK, we have worked with our customer Chrysor, who is drilling with the 712, to delay their drilling campaign into the fall. allowing us to substitute for the 712 with either the Paul B. Lloyd or the TransOcean Leader following their current campaigns. As we have repeatedly demonstrated over the years, we will quickly and thoughtfully evaluate the future of the 712 and her value in our fleet. The Discoverer Inspiration, which just completed a successful five-year campaign with Chevron, has now begun her contract with Talos in the Gulf of Mexico. Her superior drilling performance with Chevron was instrumental in her contracting immediate follow-on work that keeps her working into the third quarter. In Trinidad, the DD3 is in the process of going through acceptance testing with Shell. I want to commend our operations teams for their diligence in delivering top-tier performance to ExxonMobil in Equatorial Guinea, completing the mobilization to Trinidad, and crewing this rig to ensure we deliver the asset to our customer as expected, despite the challenges presented by COVID-19. The performance of the TransOcean employees is not unique to our operations in Trinidad. I want to personally thank and recognize all of our offshore teams for their sacrifices, including many extended hitches, and our onshore teams for facilitating uninterrupted global operations and managing the vast array of COVID-19 challenges. In every jurisdiction where we work, we have confronted and overcome obstacles, including but not limited to travel bans and required quarantines to and from countries for crew changes, flight cancellations and scheduling changes, obtaining critical inventory and parts, safety and health checks of all personnel on board, maintaining a safe work area and living quarters while still following social distancing recommendations, and where required, crew isolations and evacuations. I am beyond proud of the entire Transocean team and their efforts to ensure operations safely continue. We have kept our fleet on contract and operated to Transocean's high standards for safety, reliability, and efficiency. Even in the instances where our customers or non-TransOcean rig personnel were unable to reach the rig, including our only instance of a force majeure, which occurred in India and was resolved after approximately one week. We have kept our fleet operational for our customers. This is a direct result of the extraordinary efforts of our organization to charter flights and contract boats when conventional travel was unavailable, locate and book necessary accommodations to ensure employees had places to stay before and after crew changes, and closely coordinate with suppliers and freight forwarders to keep our rigs stocked with necessary supplies. Additionally, we have done this while keeping our onshore personnel throughout the world safe by following local protocols for social distancing and other precautions. Transocean's onshore employees have been able to productively and successfully work remotely and will continue to do so until such actions are deemed no longer necessary by government and health officials. This is a reflection of our continued commitment to safety, with our top priority remaining the health of our employees and our customers. For this, I say thank you to the entire team at Transocean. Looking at our fleet, we've recently taken the action to responsibly recycle four older stacked assets, the Polar Pioneer and the Songa D from our harsh environment fleet, and the 711 and 714 from our midwater fleet. All of these assets were at least 35 years old, and with the significant cost required for their respective reactivations, coupled with the perceived future marketability of these less capable units, we determined that they no longer have sufficient option value to warrant retention. Needless to say, given the current uncertainty in the industry, we hope and expect to see similar moves across the industry. I would now like to make a few comments about COVID-19 and its perceived impact to Transocean's industry-leading $9.6 billion backlog. As I mentioned earlier, we do not have any rigs that are currently in a force majeure status as a result of COVID-19. As a reminder, the strength of our backlog enabled us to bolster our liquidity over the past few years by securitizing the two largest parts of our backlog, that combined eight contracts with Shell and Equinor. These contracts were strong, not just from a day rate perspective, but the quality of the customers and the strength of the terms and conditions in the contracts. While we are and will continue to do everything we can to prevent the spread of COVID-19, not just on these rigs, but on all of our rigs, we take comfort in the fact that these eight contracts provide for significantly longer remediation periods than is standard in the industry. I would again like to emphasize we will continue to remain vigilant in doing everything we can to keep our rigs COVID-19 free and will continue taking the necessary actions in that pursuit. I'd also like to take this opportunity to say that our customers have been extremely supportive and complimentary of our efforts and our protocols throughout this pandemic and have worked closely with us to safely continue to operate through this crisis. Turning to our market outlook, in response to the steep decreases we have seen in oil prices in the past three months, customer budgets have been significantly reduced. So while our backlog remains a source of strength, our near-term outlook for new work and escalating day rates is obviously tempered. Having said that, we've been encouraged to see that our customers are not canceling projects that were likely to proceed earlier in the year, but rather looking to defer and postpone their sanctioning, generally by 9 to 12 months. When we look out over the next 18 months, we now see more than 80 projects with a total duration of almost 90 rig years. We fully recognize that the current oil price does not support commencement of these projects, But as oil prices recover, these offshore projects will once again become economically viable, and we continue to believe that offshore represents a better investment opportunity for our customer base than their onshore projects. In response to the current market conditions, and similar to the steps we took during the previous downturn to preserve our margins, Transocean will take the necessary steps to reduce expenses commensurate with the decline in our fleet activity. Fortunately, through a purposeful and disciplined marketing strategy, we came into 2020 with only one idle rig. and the remainder of our active fleet effectively fully booked in the first half of the year with some roll-offs thereafter. We have taken the opportunity discussed previously with the 712 to transfer future work onto the Lloyd of the Leader to allow us to more efficiently run our fleet. Where other similar opportunities present themselves, we will look to capitalize on these situations. In an effort to further manage our costs, we will also be decisive in immediately cold stacking and in some cases recycling assets that do not have foreseeable contracting opportunities. Additionally, as evidenced by our first quarter performance, we have already initiated actions to reduce other non-essential operating and SG&A expenses, to reduce our support costs, and defer all non-essential CapEx and internal initiatives. Our cost structure is scalable based on activity levels, and we will remain diligent in adjusting it as our drilling activity dictates. As we await higher oil prices and the commencement of new projects, we are working diligently with our customers who have near-term options to best align our interests with theirs in an effort to keep our fleet active. Having said that, it is important for us to generate cash with any new contracts. Therefore, we will continue to exercise discipline in our contracting. We are very happy that we started 2020 with almost 100% of our marketable fleet contracted into the back half of the year. This now affords us the opportunity to focus on operations with a number of months to strategically determine how to best manage our fleet. In the event market weakness continues throughout the year, we will act decisively to assure our fleet is either operational or stacked to protect our liquidity. We're also determining how best to manage the anticipated delivery of the Deepwater Atlas later this year. Despite the dislocation between oil supply and demand and the unprecedented decline in oil prices, there remains significant customer interest regarding the Atlas and her potential to become the industry's second 20,000 PSI Ultra Deepwater Drill Ship. As such, we will continue to work closely with our customers and the shipyard, which is currently challenged to meet its year-end delivery schedule due to disruptions created by COVID-19, as we move closer to delivering this state-of-the-art asset to the industry. In conclusion, we are disappointed that the broad recovery we are expecting at the end of the year is not likely to be delayed into 2021. However, we are committed to our customers and working with them to find the right contractual solutions to enable their programs while operating safely at the highest performance levels with the industry's most capable assets. We positioned ourselves as a clear leader in harsh environment and ultra-deep water drilling and will continue to strategically refine our fleet to further enhance that position. As such, we expect that our market fleet will remain the industry's most utilized as we successfully navigate this extended downturn. Mark?

Thank you, Jeremy, and good day to all. During today's call, I will briefly recap our first quarter results and then provide guidance for the second quarter. Lastly, I'll provide an update on our liquidity forecast through 2021. As reported in our detailed press release, for the first quarter of 2020, We reported a net loss attributable to controlling interest of $392 million, or $0.64 per diluted share. After adjusting for unfavorable items associated with impairment charges on the previously announced total retirements and loss on the retirement of debt, we reported adjusted net loss of $187 million, or $0.30 per diluted share. Further details were included in our press release. I'd like for the first quarter to include adjusted EBITDA of $235 million, reflecting the continued conversion of our industry-leading contract backlog to cash and our persistent focus on costs. Fleet-wide revenue efficiency of 94.4%, reduced fleet-wide operating days of 2,419 for the quarter, as compared to the fourth quarter of 2019, and a net decrease in long-term debt of approximately $117 million Thank you for joining us today. Thank you for joining us today. and interest through maturity. We ended the first quarter with a total liquidity of approximately $3 billion, including unrestricted cash and cash equivalents of $1.5 billion and approximately $200 million of restricted cash dedicated for debt service and $1.3 billion from the undrawn revolving credit facility. Consistent with last year, due to the timing of interest and tax payments and the unwinding of some accruals, We did not generate operating cash flow during the first quarter. But consistent with 2019, we fully expect to generate significant positive operating cash flow in the second quarter and full year 2020 as revenue recognition and generation and customer collections remain strong. Let me help provide an update on our 2020 financial expectations. For the second quarter of 2020, we expect our adjusted contract building revenues to be approximately $785 million. The sequential decline reflects low activity as a result of the reduced duration of the Discoverer India's contract coupled with the delay in transfer of the CryoSource drilling program from the 712 to either the Paul B. Lloyd or Transocean Leader. This work is scheduled to resume in the second half of the year. For the full year 2020, we now anticipate adjusted contract revenue of approximately $3 billion. The change from our previous forecast is due to contracts being deferred and contract adjustments recently negotiated with our customers. We expect second quarter O&M expense to be approximately $545 million. The slight increase quarter over quarter relates to the additional expenses incurred as a result of maintaining uninterrupted operations during the COVID-19 pandemic. These include but are not limited to overtime costs, charter flights and contract boats for crew changes, hotel costs for extended quarantine prior to and after and a number of others. We anticipate full year O&M expense of approximately $2 billion. This is approximately $100 million of net savings as a result of operating of activity related operating expenses throughout the remainder of 2020 offset by approximately $45 million of anticipated costs associated with our responses to COVID-19. We expect G&A expense for the second quarter to be approximately $44 million. Additionally, our forecasted G&A expense for the year is now approximately $175 million, a $10 million decrease from our prior guidance. Net interest expense for the second quarter is expected to be approximately $147 million. This forecast includes capitalized interest of approximately $12 million and interest income of $3 million. We anticipate full-year net interest expense to be approximately $590 million, with $49 million of capitalized interest and $13 million of interest income. Capital expenditures, including capitalized interest, for the second quarter are anticipated to be approximately $55 million. This includes approximately $32 million for our new-build drill ships under construction and $23 million of maintenance capex. For the full year, we expect capex to be approximately $840 million, which includes approximately $740 million for our two new-build drill ships and $100 million for maintenance. Our cash taxes for the second quarter are expected to be approximately $12 million and approximately $50 million for 2020. Turning now to our projected liquidity for December 31, and others, including our undrawn revolving credit facility and the potential securitization of the deepwater titan, our end-of-year 2021 liquidity is estimated to be between $1.2 and $1.4 billion. This liquidity forecast includes an estimated 2020 capex of $840 million, which goes previously, and a reduced 2021 capex expectation of $815 million. The 2021 CAPEX includes $750 million related to our new builds and $65 million for maintenance CAPEX. Please note that our CAPEX guidance excludes any speculative reactivations or upgrades. In conclusion, while safety and operational integrity are our prime areas of focus, we are acutely aware of the rapidly changing offshore drilling environment. With that in mind, as we complete the contracts, we will rapidly resize operations including OVAID and GNA to respect the reduced operating fleet size. I will now turn the call back over to Brad. Thank you, Mark.

Valerie, we're now ready to take questions. And as a reminder to the participants, please limit yourself to one initial question and one follow-up question.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach your equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll now take our first question from Ian McPherson of Simmons. Please go ahead.

Thanks. Good morning, guys. Jeremy, I understand that it sounds like you're contemplating the possibility of flexing the Atlas towards maybe stretching that depending on your ability and the market conditions to do so, but it doesn't look like that's reflected in your CapEx guidance for this year. Can you just walk us through your decision triggers for Thank you for accepting that rig on schedule versus what levers you have to possibly defer that.

Yeah, good question, Ian. There are a lot of moving parts, as you can imagine. Of course, you've got both the Atlas and the Titan under construction at the moment, and the shipyards are challenged. They've been hit pretty hard with COVID-19, specifically in the shipyards, which have caused some disruptions. They've had some disruptions from some of the equipment providers in terms of delays providing product. And so we're doing our best to juggle both assets. Of course, the Titan already has the contract with Chevron, so we're obviously mindful of that. As I mentioned in my prepared comments, it's quite honestly been a bit surprising and pleasantly surprising to me to see that our customers who were previously interested in securing the Atlas and upgrading her to a second 20K rig are still very much interested. I would say one of the customers is looking at potentially delaying the start of their program by a few months but haven't changed their resolve in terms of moving forward. And our other customer wants to move forward at the pace that they originally expressed before we were all hit with this pandemic. And so we're working both sides of it right now, Ian. My guess is that the delivery of the Atlas does slip a little bit, whether that's later this year or early next, to be determined. But we're just we're just working right now as best we can with customers the shipyards and the OEMs To work on the timing of that Okay, got it.

Well, you know, I have to say it's it's been impressive to us to see that Offshore contractors like you all have been able to continue operating through the past several months with them, you know without a great deal of interruption and So I would echo your kudos to your crews and your platform for keeping the rigs running. But it also seems to me that there's an added layer of costs for logistics, you know, extra evacuations or isolating crews, etc. And although your O&M guidance for this year has come down a little bit, I imagine that's a little bit activity related. Has there been a squeeze on your margins associated with The disruption of this of this virus and is any of that subject to negotiation for callbacks or how are you sharing that that cost if it is in fact material to you?

Ian, I'll let Mark handle that but I will tell you we are incurring additional cost as you as you rightly point out and Mark can give more specifics and ultimately yes we will be talking to our customers about recouping some of that or all of that but but go ahead Mark.

Yeah that's exactly right and good morning In my comments, I actually mentioned that we anticipate about $45 million of additional costs this year, mainly around overtime, hiring charter flights or contract boats, and hotel costs. Some of this is re-billable to the customers. Some of it may be. We're still in negotiations with customers, but we haven't landed on that yet. So you can expect to get a better update by the next quarter.

That's helpful. Well, good luck with everything. Thank you, guys.

Thank you.

Thank you.

Thank you. We'll move to our next question from Connor Lina from Morgan Stanley. Please go ahead.

Yeah, thanks. I was wondering if we could discuss what your contract terms generally look like, and I appreciate I'm asking you to generalize over many different contracts, but it occurs to me that you have not really faced many contract cancellations, unlike some of your peers. Can you discuss generally what the terms of cancellation for convenience look like in most of your contracts?

Yes, sure. Let me just, they all are different as you properly point out, and it really matters as to whether we, when we negotiated the contract. So if you think about the eight contracts that I referenced in my prepared remarks that really make up the bulk of our backlog, especially from a cash flow perspective, those were negotiated before the initial downturn began in 2014 at a time when drilling contractors had far more leverage. But in terms of a little more specifics, let me just hand it over to our Senior VP of Marketing and Contracts, Roddy.

Yes, so we have not seen the terminations that our competitors have seen and primarily that is due to stronger terms and conditions in the contracts. Now even the contracts that we signed during the downturn, we've been pretty adamant that our customers cannot dissolve or get out of the contracts without some sort of compensation coming back to us. Where we've been particularly difficult on the terms and conditions is really to avoid the situation where we get spurious terminations that happen quickly. It makes the customers think twice about whether it is necessary to terminate. That combined with the stuff that Mark and Jeremy just went over in terms of our operations and our HR teams doing a fantastic job at making sure that we are able to continue operations Thank you very much. Yes, we may be a little bit difficult on the terms and conditions, but we do that to protect ourselves from dramatic swings and activity. We kind of wish that everyone else would do the same, but that's up to them. But from our point of view, we do make sure our contracts are not easily cancelable.

Makes sense. Thanks for the color. Maybe sort of shifting gears here on the COT side of things, it seems like you guys have been running pretty efficiently, and so I'm curious. If activity comes down further beyond the variable cost affiliated with the rig itself, what options do you have to actually further reduce your operating costs? Can you walk through any opportunities there?

Let me hand that one over to Mark.

As I mentioned, Connor, on the Montpelier Commons and Jordan mentioned the same thing, we have some long-term contracts that run through next year, the year after that, the year after that. You're not going to see any changes with that. But as we do have contracts that are run off later this year or next year, we will take action to right-size the business to reflect the reduced footprint of the operating regs. So I cannot get into actual numbers right now, but insofar we have folks supporting a reg in a certain jurisdiction and there's no reg operating in that jurisdiction, clearly we'll then have to make a decision with regard to how do we Thank you. If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. We'll take our next question from Taylor Verger of Tudor Pickering Holt.

Please go ahead.

Hey, good morning. Thank you. Jeremy, you talked about working with some of your customers that have near-term options, but also in the initial stages of a downturn, we tend to see a bunch of blend and extend type arrangements. This downturn seems to be a bit different where liquidity is at such a huge premium for, frankly, every offshore driller out there. And so I'm curious if you could just share what your appetite would be for a blend and extend type arrangement moving forward.

I'll start and then I'll hand it over to Ray for his thoughts. I will just offer some color on the market. This has been a very interesting couple of months. I would say at the outset of this pandemic, the number one focus area for us and our customers and all the other service providers was how do we make sure to maintain safe and healthy operations on the rig? And so everybody really came together around that. And then once Once our customers started to feel comfortable with the, and I mentioned they've been very complimentary of the way we've handled this, and the team deserves, I mean, not me, the operations team, the HR team, the travel team deserve a lot of kudos. They've just done some Herculean work. But once our customers started to get comfortable that we had this fairly well contained and with the proper protocols in place, then it started to, the conversation started to shift toward, hey, could you help give us a little relief? And relief was different for everybody, whether that was, you know, Thank you for joining us today. We have seen that which is encouraging actually because it means that there is additional work to be performed for several of the operators. So we have a couple of requests to do that.

But let me assure you we will not be taking on Any Blend and Extends that the extension equivalent day rate would be at cash break even or somewhere like that. We really view that now more than ever, your costs should include all overheads, all amortization of shipyards, all things associated with mobilizations and none of those should be given away for free. We're very disciplined, as Jeremy said before, that we never did that in the downturn. We always try to maintain that we would have cash flow positive contracts, not just from a local OPEX point of view, but from a corporate OPEX point of view as well. So we kind of feel now more than ever that it's essential for drillers, if they wish to have any degree of viability, to ensure those costs are fully captured and remunerated. Yep, blender extends are possible, but you're not going to see them at bargain basement numbers from our point of view.

Okay, that's really helpful. A follow-up, I wanted to ask about Brazil. Obviously, we've seen a big capex reduction announcement from Petrobras, and it's a bit unclear, at least to me, what that means for their planned rig needs over the next at least year. At the same time, a lot of the ISCs that acquired acreage there, frankly, haven't really gotten going yet. Thank you for joining us.

That we will contain COVID-19 globally and get the economy going again and create demand again for oil and gas. I think everything's going to get pushed to the right for a period of time. And I don't think Brazil's any different. I think, you know, we've already seen some tenders delayed from Petrobras. We've seen the IOCs who are still moving forward, but have kind of stalled a bit. as they wait to see how this unfolds. I think around the globe in every geomarket, for the most part, you're going to see a bit of a delay. But, Roddy, I don't know if you want to add anything specific to Brazil on that.

Yeah, sure. I mean, in relation to the offshore drilling rigs, our part of the business saw a huge contraction over the last few years in Brazil. So when you talk about the overall capex cuts within Petrobras, it's interesting to note They haven't really had many terminations of existing drilling contracts because they had essentially got to a low ebb of contracts. And in fact, right now, there's four major tenders out there at the moment that, depending on how you count it, could be anywhere from eight to 10 rig years awarded to in excess of 20 rig years. So it's interesting that Petrobras has not canceled very many contracts. They are still continuing on with these tenders. and we kind of feel that our end of the business is not going to be dramatically negatively impacted in Brazil because it really was negatively impacted in the few years prior. So we still think that there's going to be contracts awarded. What I probably say is that there are several rigs that are coming off contract in Brazil in the next year or two and it's more likely that those rigs would be extended rather than seeing a significant influx of rigs. Reason simply being that there's no money to bring rigs into Brazil unless it's fully compensated by the operators at this time. So moving rigs into Brazil, mobilizations and then of course complying with local standards is pretty significant rig by rig. It's our view that none of the contractors will be willing to subsidize that anymore, and we would expect that the local rigs that are already in there would pick up a lot of the work, and any rigs coming from outside would be at pretty significant day rates. So it might be a little bit of time before we see a significant influx again, but it's certainly not all doom and gloom on the drilling rig outlook in Brazil. In fact, it's probably neutral compared to where it was.

Got it. Well, thanks for the answers, guys.

Thank you. We'll move to our next question from Greg Lewis from BTIG. Please go ahead.

Yes, thank you, and good morning, everybody.

Good morning.

Jeremy, I guess just, you know, bigger picture question. I mean, you know, clearly the next couple of years are challenging, but, you know, whether it's two, three, four years from now, We'll make it through this in terms of the offshore rig market. So just kind of curious, given what you've seen over the last one to two years, as you think about what maybe like a normalized floater market looks like, if that's even the right word, as we think about, I mean, clearly rig retirements are going to happen again. They've already started. The market's still heavily oversupplied. I know it's still early in the sales cycle to think about, but whether it's how many rigs do we think need to be retired this time around or how you think about normalized, just kind of curious if you could give us any color around that.

Yes, sure. Greg, I don't think our position has changed. Over the last five years, we've set about reshaping our fleet. and kind of the premise behind that it was, listen, we want to own the highest quality assets in the ultra deep water and harsh environment space because that's where we think we can differentiate ourselves. And then we started to think about, okay, with these more efficient assets, are we going to need as many as we did during the last peak? And if you remember back in 2014, I think the total contracted floater fleet was approaching 260 floaters, something in that range. And we took the position that we're never going to get back to that, that the industry with these new more efficient assets may only need $180,000 to $200,000. On the high end, maybe $220,000. And so we really started to shape our fleet with that in mind. And if you look at what we've done over the course of the last five years with respect to the multiple retirements, as well as the acquisitions and the new builds that we've introduced to the fleet, that's really how we've been building Transocean. So we get through this pandemic. We hopefully get back to some more normalcy Global economies pick up, demand picks up, oil prices go back up into the, pick a number, $50, $60 range, and rigs start to go back to work. We still think somewhere around a 180 total contractor floater count still feels about right. In fact, entering this year, we felt pretty good that we were going to start making our way toward that. I think we entered the year with about 150 floaters under contract, somewhere in that range, or future contracted floaters. and we saw demand on the horizon in 2020, 2021 and 2022 that could easily get the global fleet up to a number that's approaching 180. And so, you know, if things get back to normal, I'll use air quotes as I say normal, we could easily see a fleet growing to that again. And really we take comfort in knowing that we've got Robert Thaddeus Vayda

Thank you very much. We applaud that, but I think that also bodes really well for the future viability of the business as people are now going to be looking at the ability to reactivate is now significantly diminished. Thank you very much. Thank you very much. and Robert Thaddeus Vayda.

And then just, Roddy, while I have you on the phone, this one's for you. You mentioned the 80 projects, the 90 rig years, the rough math is average year or one year. Is there any way to kind of sift through that? And really what I'm trying to get at is, As we think about those, is that going to translate into basically 80 rigs working or really buried in those 80 projects? Is there a lot of short-term work? Is there any kind of multi-year term work to skew it that way? Any kind of color you could give around that would be super helpful. Thanks.

Yeah, actually, I think what I was talking about was the The answer to the duration is that all of them are multi-year campaigns. I think even the shortest one is going to be at least 12 months. But again, the idea about the short-term campaigns, it really is kind of moving away a little bit because typically the short-term campaigns were the ones that were exploration in nature and then The contracts that continue happen to be the development campaigns because they are related to increasing production. I think in the near term, the retraction in the market you will see will be primarily around exploration type activities. So I would actually say you would see less short-term contracts right now because that's where a lot of the terminations have come from.

Greg, just to add to that, when I was mentioning the 80 different potential campaigns in the 90 rig years in my prepared remarks, That was really spread across the globe. And I think, obviously, Norway continues to be, or at least pre-pandemic, continues to be a very active spot with a lot of future activity on the horizon. But we were also seeing a tremendous pickup in the Gulf of Mexico, both the US and Mexico side, Brazil and West Africa, the Golden Triangle, if you will. I think of all those places, programs are still on the horizon. As we mentioned, they've just been pushed to the right a little bit in some areas. My personal belief is that West Africa is going to get hit hardest as a result of this pandemic as they're really struggling to contain it, whether it be a lack of medical resources, a lack of social distancing, just whatever it may be. But we think that area is really going to struggle, and so the delays there may be a little bit more than what we might see in other parts of the world. Perfect.

Thank you, everybody.

Thank you. We'll move to our next question from Kurt Holleid of RBC. Please go ahead.

Hey, good morning, everybody. Hopefully all your families are healthy and safe. Thanks. Likewise, Kurt.

Appreciate that.

So, Jeremy, you know, it appears that a number of your competitors could be heading for

Chapter 11 Protection in the Not Too Distant Future. It sounds very clear to me based on the commentary from the press release and on the conference call here that Transocean is on very strong footing from a financial standpoint. Just kind of curious, you know, in your mindset, you know, when you think about the competitive landscape going forward and with some of your competitors potentially going through a Thank you, Kurt.

Pacific Sea Drill, Vantage all went through it and what we saw in that experience is that our customers clearly demonstrated a favoritism, if you will, a preference for the more established drillers with the more solid balance sheets and our thought is that they recognized that those companies had the cash to invest in the training of the people and the proper maintenance of the assets and that they were a lower risk option than an otherwise risky venture. And so what we saw during that first phase of restructuring a couple of years ago was that we won a disproportionate number of contracts. And so my expectation would be that as our competitors go through that restructuring phase, that once again our customers will look to the low-risk option, which is Transocean, both from an operations standpoint but also from a balance sheet standpoint. And so my expectation would be that we would be able to grow market share at premium day rates during that period of time. Once our competitors come out of restructuring and have the opportunity to demonstrate that they can still safely, reliably, efficiently operate, they will have a lower cost base. We recognize that. But my guess is they won't come through restructuring without any debt and probably not a lot of cash. And so they're going to need to ask for day rates that help them generate enough cash to continue to invest in their business and service their maturities, which are likely to be pushed out, but they're still going to have them. and so we're not at this stage overly concerned about it because what we've seen play out in the past didn't support that it gave any of those restructured competitors a competitive advantage. And Mark, I don't know if you want to add anything to that.

No, I think that's right, Jeremy. And look, our debt complex is trading awfully low now as well. So as I said previously, we've been opportunistic in the past. We've been aggressive in the past. And you can expect us to look at this and take the opportunity this time as well to do something on our DEG stack.

Awesome. That's great, Keller.

I appreciate that.

Maybe a follow-up I have would be for Mark. You know, in the liquidity forecast that you provided for the end of 2021, Mark, does that include any draw on the revolver?

So the forecast is 1.2 to 1.4. The midpoint obviously is 1.3, which happens to be the amount of our revolver. So if our forecast ends up being accurate, then there is no need to go on the revolver by the end of 2021.

All right, perfect. Thanks for that clarity. Appreciate it.

Thank you. We'll move to our next question from Mike Sabella of Bank of America. Please go ahead.

Hey, good morning, everyone.

So I know you guys have talked a lot about getting costs down, obviously a big focus, and there was some discussion around getting costs down off of the rig. I was wondering if we could kind of move on to the rig. Are there any strategies you guys are undertaking that could help bring down OPEX at the rig level, maybe through automation or renegotiating contracts with vendors that can pull costs down there?

As you know, since late 2014, 2015, we have aggressively looked for every opportunity to safely reduce our cost structure, both on the rigs and onshore. I think the team's done a fantastic job of right-sizing the business to fit the new reality. Obviously, we're going to go through that process again, given the impact that COVID-19 has had on oil prices and the business at large. I would say offshore, as it comes to our major spend components, from an equipment standpoint, we structured long-term what we call care agreements, healthcare agreements with all of our major OEMs across the entire rig. So every major component, we have long-term agreements with already predefined pricing that we obviously negotiated at a pretty steep discount. And so there's not a lot that can be done with those. Those are in place. They're multi-year. and really, honestly, having been an OEM myself, I know there's not a lot more for those guys to give. Not a lot we can do there. If you look at the other big spend components on the rig, you're really talking crew and fuel. From a crew standpoint, we continue to look at optimal crew sizes. We have worked very closely with one of our customers in the Gulf of Mexico to significantly reduce the number of personnel required on the rig. It's a tremendous savings, which mostly goes to our customer. Nevertheless, it makes our offshore operations lower cost and therefore projects more economically viable. So we have undertaken efforts to reduce the size of the crew, especially on our big dual activity 7th Gen rigs. And then on the fuel side, last year we introduced the industry's first hybrid power system onboard a floating asset, and that was on the TransOcean Spitsbergen. We are collecting data from that right now. We're about four months in and we are showing signs of pretty meaningful fuel reduction which obviously not only reduces our cost but also reduces our carbon footprint and makes us more environmentally friendly, if you will, in the delivery of our service. Those are really the big buckets. So is there opportunity? Yes. Is it going to be a game changer? Probably not because we've already rigged most of that low-hanging fruit. But let me turn it over to Roddy for some additional comments on that.

Yeah, you asked about, you know, things like automation on the rigs. And what I point out is there are opportunities there. But we carefully analyze that on an ongoing basis. We actually have several projects on the go at the moment to assess the viability of increasing automation on the rigs. But the truth of the matter is it involves investment. It involves buying equipment and it involves taking time out to install things. So the reality of the situation is unless those things are being compensated directly, Robert Thaddeus Vayda,

That's great, thanks. And then just a quick follow-up, if I could. We just talked for a bit about working capital. Are there levers you guys are planning on pulling this year to free up some cash from working capital? And Mark, you know, if we could just kind of talk through how you see working capital and the liquidity forecast that you gave.

Yes, we have an ongoing initiative right now with regard to looking across our fleet for inventory to be shared amongst rigs. We've initiated that last year. We've automated it recently. So if a rig needs something, it brings the central facility to see whether the material is there. If it is, then it gets shipped to that rig. We also, as we always are, we're very focused on revenue collections. So our team will focus at a target of 75 days We're at 77 days for this quarter, and we're vigilant with regard to chasing that. So those two items are clearly what we're looking at when it comes to working capital. But beyond that, there's so much else we can do on that front at this stage.

Great. If you could just, too, Mark, real quick, the $45 million I think you budgeted for, you know, kind of call it special COVID-type costs. Can you just talk us through the shape of that spend? I'm assuming it's pretty 2Q heavy, but I just want to understand it.

Yeah, it's mainly second quarter with some of it spilling over into the third quarter.

That's great. Thanks so much, guys.

Thank you. And we'll move to our next question from Sean Mecham of J.P. Morgan. Please go ahead.

Thank you. Jeremy, you announced some plans to scrap rigs. Your peers are starting to do some of the same. As you noted earlier, there's less cash in the system to fund long-term stacking programs compared to maybe the 2015 to 2017 downturn. Can you maybe just give us a sense of how much loader supply you think could come out permanently over the next 12 to 18 months?

It's difficult to say. You know, Sean, we've never been overly hung up on the total number of floaters that reside in a database. We've been more concerned about those that are active or could become active and marketable, you know, with some investment from either ourselves or from our peers. And so we've got this investor relations presentation, and I think we have this slide in just about every deck, but it kind of shows what we think is contracted supply, marketable supply, how many rigs need, you know, between $5 and $25 million, and Which rigs need more than $25 million in order to reactivate? And as you look through that schedule, I think we've identified 40 to 50 rigs that we don't think will ever get another contract. Just because one, they're old, they're technically less capable, and or it's going to require a massive reactivation fee to get them back up and running. And so I don't think this changes that story. I think maybe some of our competitors just finally throw in the towel and say, okay, we'll officially scrap it now. But Really, I'm not as concerned about the total number of supplies. I'm about Transocean having the best available assets in the industry. And so it'll certainly bring down the total supply number. We've already seen – I mean, we've announced some recent retirements. Some of our peers have as well. And my guess is you'll see more of that as we work through the next several months.

I appreciate that. That makes sense. So then just another way of thinking about it then, If we go through another 12 to 18 months of relatively low levels of activity, perhaps again lower than where we were coming into 2020, how many more of those rigs could push over the edge versus that 40 to 50 that you mentioned previously?

Sorry, ask it again.

So the question would be, the 40 to 50 rigs you've identified as being unlikely to ever come back, how much does that number increase if we go through another 12 to 18 month period with activity levels at or below where we were coming into 2020?

That's a good question. I don't know if that number necessarily increases, but it probably pushes some rigs even farther to the right before they can actually come out with the reactivation because the day rates just won't be there to support it. I think what you find is a much smaller active fleet globally and that those rigs that do stay active start to really push day rates up in a meaningful way before anyone can afford to reactivate any of the assets that are going to be cold stacked during this latest downturn.

Right. And the cost to activate those rigs, the cost as well will go up dramatically.

Yeah, I think that's right. Okay. Thank you very much.

Thank you. That is all the time we have for questions. Mr. Alexander, at this time, I'd like to turn the conference back to you for any additional or closing remarks.

Thank you, Valerie, and thank you to everyone for your participation on today's call. If you have further questions, please feel free to contact me. We look forward to talking with you again when we report our second quarter 2020 results. Have a good day.

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