Transocean Ltd (Switzerland)

Good day and welcome to the Q1 2021 Transocean Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lex May, Manager of Investor Relations. Please go ahead.

Thank you, Shelby. Good morning and welcome to Transocean's first quarter 2021 Earnings Conference Call. A copy 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 McKenzie, Senior Vice President of Marketing, Innovation, and Industry Relations. During the course of this call, Transocean Management 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 our forward-looking statements and for more information regarding certain risks and uncertainties that could impact our future results. Also, please note that the company undertakes no duty to update or revise forward-looking statements. Following Jeremy and Mark's prepared comments, we will conduct a question and answer session. During this time, to give more participants an opportunity to speak on this call, please limit yourself to one initial question and one follow-up. Thank you very much. I'll now turn the call over to Jeremy.

Thank you, Lex, and welcome to our employees, customers, investors, and analysts participating in today's call. As reported in yesterday's earnings release, for the first quarter, Transocean delivered adjusted EBITDA of $245 million on $709 million in adjusted revenue, resulting in an adjusted EBITDA margin of over 35%. Despite the many challenges over the past year, we have continued to deliver best-in-class operations for our customers, picking up in 2021 essentially where we left off in 2020. As you may remember from our last call, we delivered the best overall annual operational performance in Transocean's history. This performance continued into the first quarter of 2021 as we delivered over 97% uptime across our global fleet, achieving one of the strongest operational quarters in company history in both uptime and safety performance. I cannot stress enough how proud I am of the dedication exhibited by our employees to deliver these amazing results. For that, I say thank you to our entire team at Transocean for their devotion each and every day to deliver best-in-class service to our customers. Turning now to the fleet, starting in the Gulf of Mexico, I am pleased to announce the Deepwater Asgard was awarded a three-wheel fixture with Beacon Offshore Energy following its successful 2020 campaign. And, as compelling evidence of improving market conditions, this most recent fixture includes two wells priced at $240,000 a day, with a third well, which requires managed pressure drilling, priced at $280,000 a day. This award adds over $30 million in backlog and provides us with the opportunity to reactivate a warm-stacked asset in the Gulf of Mexico. The campaign is expected to commence in June and should continue through October and includes a one-well option. While we are still not earning the day rates we want or need to provide the appropriate returns to our shareholders, this fixture clearly demonstrates both the tightening market in the Gulf of Mexico and Transocean's ability to command premium rates based upon our industry-leading assets and services. As you may know, the Asgard is one of the most technically advanced and well-respected assets in the U.S. Gulf of Mexico. As such, we're excited to get her back on contract at what is currently a market-leading day rate. And we're actively bidding the Asgard into multiple follow-on opportunities in the Gulf of Mexico, reinforcing our belief that the offshore recovery is starting to take shape. Moving down to Trinidad, the DD-3 continues to demonstrate operational excellence with Shell and is set to start her next fixture with BHP directly after completing her current contract in June. Including options, the DD-3 could remain on contract with BHP in Trinidad through September. And because of her stellar reputation and versatility, we are bidding her into multiple opportunities around the world. Continuing our journey further south to Brazil, the Petrobras 10,000 is scheduled to conclude her contract with Petrobras in September. As such, we're in the middle of discussions with Petrobras about a possible long-term extension. Jumping over to Norway, the Transocean Norga was just awarded another one-well extension by Equinor at $297,000 per day plus bonus. The rig is now expected to remain on contract through June and is actively being bid into multiple opportunities in the robust Norwegian market. This state-of-the-art rig has developed a strong operational reputation and continues to draw customer interest from both NOCs and independents. Also in Norway, the Transocean Barons is scheduled to commence her campaign with MOL Norga next week, which is expected to run to the fourth quarter and possibly beyond. Again, we remain encouraged by the Norwegian market's resilience and future outlook. Turning now to West Africa, as we noted on last quarter's call, the Deepwater Ski Roast was awarded Total's Rig of the Year thanks to its superior operational performance. As additional confirmation that our performance is a key differentiator, we are in the middle of discussions with our customer about a possible six-well option expected to last for more than a year for the rig. And finally, looking at the Asia-Pacific region, just last week, the Deepwater Nautilus began her 90-day campaign with POSCO. This contract will keep the rig active through July. We are actively bidding the Nautilus into multiple follow-on opportunities in the Asia-Pacific region. Looking forward, we are encouraged by the relative stability in oil prices, as they've remained persistently above $60 per barrel since early February. As the COVID-19 vaccines are distributed around the world, we expect that global demand for hydrocarbons will continue to recover, and as global oil inventories decline, prices are likely to push even higher. Most importantly, we believe our customers also subscribe to this view. Their confidence in improving oil market fundamentals has resulted in accelerated planning for new or previously delayed projects, many of which are expected to commence later this year. Taking a closer look around the global market environment, starting in the U.S. Gulf of Mexico, activity is expected to increase with several projects starting late this year and in early 2022, with awards expected in the next several months. Importantly, if all of these projects move forward as expected, we believe that the entire Gulf of Mexico fleet of active rigs will be sold out later this year. This is something that the industry hasn't even contemplated since 2014, and clearly supports a meaningful inflection in day rates from current levels. It's important to note that we are not only responding to more tenders, we are also engaging in far more direct negotiations, particularly with customers operating in the Gulf of Mexico. In fact, one IOC has recently submitted a request for a proposal for multi-year contracts for two of our highest spec rigs. And there are other indications that there will be more projects moving forward. Independents and IOCs are both requesting information on available assets in this region, with an urgency not seen in quite some time. In fact, operators are increasingly entertaining paid mobilizations and reimbursement of project-specific rig upgrades, another important data point that indicates improving market conditions. The increased level of activity we are seeing in the U.S. Gulf of Mexico corresponds to the belief that many of our customers are redirecting their focus to offshore projects from onshore shale opportunities. This is the result of pressure our customers are facing to generate cash flow and acceptable economic returns while maintaining spending discipline, something that shale has not been able to deliver. We also believe the focus on carbon emissions are playing into investment decisions for our customers. We believe that this shift from shale and oil sands to offshore could also be influenced by the fact that, according to NOIA, one barrel of oil from the deepwater Gulf of Mexico has the lowest carbon intensity of any other oil in the United States. Remaining in the U.S. Gulf of Mexico, we remain optimistic about our new-build drill ships, the Deepwater Atlas and the Deepwater Titan, on order from CEMCOR Marines Drone Shipyard, which are expected to commence their maiden projects with Beacon Offshore, Energy, and Chevron, respectively. That said, global supply chain disruptions related to the pandemic are expected to result in delays in deliveries from the shipyard for both rigs, thus affecting the timing of our capex spend, which Mark will provide additional details on, as well as a delay in the commencement of each rig's maiden drilling campaign. As you might expect, the delay has a fairly broad impact, and we are in ongoing discussions with Femcor with a range of potential outcomes, Since we are actively engaged in discussions with all parties, we are unable to provide any additional detail at this time. However, I can tell you that the conversations with Chevron, Beacon, and CEMCOR remain constructive. In Brazil, Petrobras continues to award contracts, adding long-term fixtures for several projects. They also recently launched several additional multi-year tenders for the Campos and Santos basins that should absorb many, if not all, of the available rigs in Brazil. Based on Petrobras' tendering activity and the incremental demand forecasted from the IOC, we expect the recount of Brazil to rise steadily over the next couple of years. We are also optimistic that a handful of successful exploration wells in the pre-salt fields by the IOC will signal a welcome return of activity in Brazil to levels not seen in several years. In Norway, we're excited about the opportunities unfolding as a result of the government's enactment of favorable tax incentives for oil and gas projects sanctioned during the next two years. We anticipate this market will continue to remain in balance as more projects are brought forward to capitalize on the favorable investment incentives. With much of the Norwegian fleet already contracted, opportunities for 2022 and beyond are now beginning to appear on our radar, voting well for the continued high utilization and strong day rates for our assets. Looking now at the UK, we are witnessing a surge in market opportunities and are actively responding to a number of new tenders that emerged over the past couple of months. Current opportunities could add over five rig years of work that would start within the next 12 months. And due to the lack of warm assets in this market, available assets could command increasingly stronger day rates. If this happens, given the prohibitive cost of reactivating a cold stack rig, we could find ourselves in an environment in which hot rigs from Norway are being attracted to this market to perform some of the work anticipated over the next year. Turning to West Africa, our customers are becoming more willing to consider programs in this region. In fact, we're seeing multiple opportunities emerge for both short- and long-term work. Additionally, we are eagerly awaiting both Total's and Exxon's awards for multi-year programs in Angola that would add a minimum of three and a half rig years of work beginning in 2022. We believe we are well-placed to capitalize on one or more of these opportunities. In the Asia-Pacific region, which includes Australia, we see several short- and medium-term opportunities starting in the second half of this year and carrying over into next. We are encouraged by the continued volume of opportunities this region has generated. In fact, this morning, we also secured additional work for the Deepwater Nautilus in Southeast Asia that is in direct continuation of its current contract and will keep the rig busy into 2022. In summary, we believe we are in the early stages of a sustained recovery for offshore drilling. We are very encouraged by the improving macro environment and the ongoing conversations with our customers for opportunities emerging in the second half of 2021 and into 2022. On last quarter's call, we noted that the volume of opportunities was now back to pre-pandemic levels. This trend has not only continued, but further strengthened in certain parts of the world. I'd now like to take a moment to discuss the recent industry consolidation. As you may know, many of our peers have recently emerged from restructuring, and as expected, we are now starting to see much-needed consolidation, with the first major transaction recently announced between Noble and Pacific Drillings. We welcome these actions as it improved the industry structure, and we expect it to drive more disciplined behavior, including, but certainly not limited to, contracting practices and accelerating the retirement of more floating assets. We believe we will continue to see further consolidation, which in turn could lead to more rig retirements and a more balanced market. The stage is being set for a strong recovery in offshore drilling, with demand for rigs increasing and the marketable supply of rigs simultaneously decreasing. If the market plays out the way we currently think it will, day rates could, and for Transocean should, significantly increase as we move into 2022 and beyond. Our fleet of high specification floaters is exceptionally well positioned to capitalize on the recovery, ultimately providing us with the opportunities to generate sufficient cash flow to meaningfully deliver the balance sheet when opportunities arise. While we are increasingly encouraged by the market dynamics and take comfort in our approximately $7.4 billion backlog, we will remain pragmatic and prudent in our operational and financial planning, recognizing that there are always going to be unforeseen challenges. In conclusion, Transocean has strategically assembled the highest specification floating fleet in the industry, with the industry's most experienced crews and shore-based support team. We maintain the largest contracted floating fleet with the largest and certainly highest quality backlog, providing us with the visibility to future cash flows that we need to continue to invest in the training of our valued employees and the maintenance of our assets. As such, we are best positioned to overcome challenges and benefit from the oncoming market recovery. We're seeing data points now that confirm our belief a full-scale recovery in the deepwater market is beginning to emerge later this year. Indeed, as oil inventories continue to deplete, our customers need to replenish the reserves through high-quality, cash-flow-generating projects seen offshore. We are proud to have positioned ourselves as the industry leader in harsh environment and ultra-deepwater drilling and will continue to deliver best-in-class operating performance while strategically continuing to refine our fleet to further enhance our position. And, as always, we remain committed to creating value for our shareholders. Needless to say, we are encouraged by various market data points and will continue to execute our strategic priorities to further enhance our position as the industry leader. Mark?