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?