Transocean Ltd (Switzerland)

2021 Transocean Earnings Conference call. At this time, we are assembling today's audience and plan to be underway shortly. We appreciate your patience. Please remain on the line. Please stand by. Good day and welcome to the Q4 2021 Transocean Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Cale Dillingham. Please go ahead, sir.

Thank you, Cynthia. Good morning and welcome to Transocean's fourth 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, Chief Executive Officer, Keelan Adamson, President and Chief Operating Officer, Mark May, Executive Vice President and Chief Financial Officer, and Roddy McKenzie, Executive Vice President and Chief Commercial Officer. 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 current expectations and certain assumptions and therefore are 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 with our team. During this time, to give more participants an opportunity to speak, 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, Cale, and welcome to our employees, customers, investors, and analysts participating in today's call. As all of you are acutely aware, the past seven years have been unbelievably challenging for our industry. And with the global spread of multiple variants of the COVID-19 virus, the past couple of years have exacerbated those challenges and introduced complexities and uncertainties never before experienced in offshore drilling. Through it all, due to the resilience, commitment, and expertise of the Transocean team, we have delivered the same consistent, high level of service that our customers have grown to expect from us by proactively adapting to the unique circumstances of each customer, project, and operating jurisdiction. We've also been able to accomplish extraordinary results in the face of dynamic environments by taking the necessary actions to ensure the safety of our employees and all parties aboard our rigs who help to generate our superior operational results. Although the pandemic has presented unique challenges, we did what we have always done and will continue to do, create technical and logistical solutions that enable our customers to execute their drilling campaigns as efficiently as possible. In fact, in 2021, we surpassed both our internal and our customers' expectations as we generated the highest uptime performance in the history of Transocean and earned a record number of customer bonuses due to outstanding operating performance. As reported in yesterday's earnings release, for the fourth quarter we delivered adjusted EBITDA of $250 million on $671 million in adjusted revenue. This strong operating performance was driven by our team of experienced professionals and resulted in a fleet-wide revenue efficiency of over 94.5% for the quarter and 97% for the year, our highest annual revenue efficiency rate in Transocean's history. Our record-setting annual revenue efficiency is even more impressive considering the specific operational challenge we faced last quarter that resulted in unplanned downtime for the Deepwater Pontus in the U.S. Gulf of Mexico. I'm pleased to report that there were no injuries and the rig is once again operational. Despite this event, we still delivered fleet uptime above 97% and generated $185 million in operating cash flow in the fourth quarter. Now turning to the fleet. Starting in the U.S. Gulf of Mexico, I'm pleased to announce Chevron added one well with the Deepwater Conqueror at a rate of $335,000 per day immediately following completion of the current program. With nearly six years of continuous service with Chevron, the rig is now anticipated to remain on contract through December 2022. Also in the Gulf, the Discoverer Inspiration secured one firm well plus two option wells with Inven. The firm term carries a rate of $290,000 per day, with the two option wells at escalating rates of $300,000 and $310,000 per day. The firm work is in direct continuation of the Inspiration's current contract with Hess and is expected to take the rig through September. If both options are exercised, the Inspiration will be fully booked through the end of the year. Remaining in the Gulf, the Deepwater Invictus secured a one-well extension with BHP at an increased day rate of $305,000 per day. The additional well keeps the rig busy through September 2022 and continues several years of continuous service for BHP. Rounding out the Gulf of Mexico, the Deepwater Asgard has been awarded a two-well contract at a rate of $395,000 per day, excluding any integrated services. The campaign is planned to commence immediately following current operations. As one of seven 7th generation premium 2.8 million pound hook load drill ships in our fleet, the Asgard affords our customers maximum flexibility for their well programs. Heading south to Trinidad, the Development Driller 3 completed a successful campaign with BHP in December. Given the strong and well-deserved reputation of the rig, we are in advanced discussions on multiple opportunities for work commencing in the next few months. Moving down to Brazil, in December, Petrobras recognized Transocean with a 2020 Best Supplier Award for Operation of Drilling Rigs. While this award reflects performance for calendar year 2020, we continued providing Petrobras with excellent service throughout 2021 and into 2022. We are proud of the hard work and dedication our crews on the Petrobras 10,000, Deepwater Mykonos, and Deepwater Corcovado displayed over the last two years in Brazil. Over in Norway, we added a one well extension to the TransOcean Spitsbergen campaign at a rate of $305,000 per day that occupies the rig through September 2022. The agreement also contains provisions for additional work at escalating rates through 2023, according to the commencement period. And finally, in the UK, the Paul B. Lloyd secured a one well contract with UK independent Serica Energy at a day rate of $160,000 per day commencing this summer. As we look toward upcoming opportunities for 2022 we're encouraged by the market and industry trends we observed about developing throughout the past year. Oil prices, while volatile remain highly supportive of steadily increasing offshore activity defying uncertainties brought by new coven variants indeed now in the $90 per barrel range prices remain substantially above most offshore field break evens. Numerous factors have contributed to the rise in commodity prices. Cheaply, the industry is separate from structural underinvestment and reserve replacement, a metric that affects future production capabilities. If capital that would have been allocated to traditional sources of energy is increasingly being returned to shareholders through dividends or share repurchases or directed to green energy initiatives such as wind and solar. According to the International Energy Forum, global oil and gas discoveries fell to a 75-year low in 2021, as upstream investment declined a staggering 23% from pre-pandemic levels. Additionally, recent energy consumption levels have proven resilient as vaccines became more readily available and various restrictions continue to be eased. Oil demand bounced back in 2021 and is expected to exceed pre-pandemic highs this year at greater than 100 million barrels per day. Finally, OPEC Plus production discipline last year kept supply in check as the group committed to stay with its gradual production plan, despite pressures from large consumers like the United States, for further increases. Further, there is growing uncertainty and evidence of OPEC Plus' ability to even meet production levels. While oil balances and prices have displayed some volatility due to the market's concerns about demand and inflation, the majority of indicators point toward a sizable, bullish inventory imbalance in the next 12 to 24 months. In January, many analysts revised their oil price forecast up from prior projections for later this year and next. We're now seeing a growing number of projections ranging from around $90 per barrel, which we've already achieved, to more than $100 per barrel between now and the third quarter. The positive outlook for energy markets is also becoming clear for offshore drilling, particularly in the regions in which we've concentrated our fleet. From January 2021 to January 2022, the number of floaters on contract globally increased to 114 rigs, up from 98. This trend should continue as industry analysts project global demand measured in rig years will increase approximately 6% per year on average through 2026. We anticipate as demand continues to strengthen, the upward trajectory of day rates will accelerate as utilization is driven higher. To that point, active utilization for 6th and 7th gen drillships had surged to over 90% globally, up from the low mid-80s toward the latter half of last year. Many of these high specification assets are concentrated in the U.S. Gulf of Mexico, where we continue to see the most significant growth in day rate trajectory. Throughout 2021, we observed a pronounced increase in day rates of the ultra-deepwater fleet, with rates in the Gulf climbing from the low $200,000 to well over $300,000 per day. Historically, the Gulf of Mexico has served as a barometer for the offshore deepwater drilling industry, and we are excited to see the healthy progression of day rates. We are also observing a considerable uptick in direct negotiations to secure ready-to-work assets in the region. With the majority of the active fleet contracted through the better part of 2022, we anticipate supply will remain tight. Several rigs are planned to enter the region over the next year, including our two new builds, the Deepwater Atlas and the Deepwater Titan. However, these floaters will arrive already contracted for various programs. Looking at other markets, Brazil accounted for approximately 34% of floater awards in 2021, absorbing the majority of the active fleet in the region. Consequently, floaters from other areas will be required to meet additional demand, which should remain strong over the next several years as the number of project approvals is expected to double in 2022 from 2021 levels and remain generally robust through 2026. In addition to the many Petrobras prospects on the horizon, medium to long-term opportunities with IOCs and other NOCs, including Equinor, Shell, PetroNAS, and TotalEnergies, are expected to commence in 2023. Given our experience and operational track record in Brazil, we believe we are very well positioned for these incremental opportunities. In West Africa, while regional demand and utilization levels continue to lag the U.S. Gulf and Brazil, we remain encouraged by the number of opportunities surfacing in the area. Floater demand is anticipated to be between 12 and 15 rig years annually through 2025, with a substantial portion of demand driven by Angola and Ghana. If this demand materializes, we will expect the number of rig years required for opportunities in the region will reach pre-pandemic levels later this year. In Norway, the Norwegian Petroleum Directorate recently confirmed that 2021 was a record-breaking year for the country with the highest oil and gas revenues in history, driven by a combination of higher production of oil and gas, robust demand, and strong commodity prices. The NPD anticipates production in Norway will continue to increase over the next two years, with new discoveries and field development projects coming online. This outlook matches broader expectations for a stronger Norwegian market from 2023, as a record level of sanctioning is expected by year-end due to the expiring tax incentives. In fact, one projection estimates a 255% increase in project sanctioning on the Norwegian continental shelf from 2021 to 2022. In summary, we are very excited for a stronger 2022, and our outlook remains as positive as it did when we spoke at the end of the third quarter. In fact, our outlook has been further reinforced by recent fixture trends and various indicators, including customer conversations, industry analyst reports, and market projections for commodity supply demand balances. We are also encouraged by the additional consolidation of our competitors, including the planned merger of Maersk and Noble announced in November, and the ongoing restructuring of the Cedral Group. We anticipate these transactions will further enhance the overall health of the industry. As our recent fixtures suggest, customers value the assets, expertise, and consistency of performance that TransOcean provides. In the context of a steadily rising market, we will continue to manage our portfolio of rigs prudently to obtain the optimal combination of rate and term. This also applies to potential reactivations as the market demands. If the market ultimately supports reactivations, it's important to note that Transocean currently has 13 sixth and seventh gen stacked or idle rigs. Therefore, we are best positioned to capitalize on the uptick in demand. We will evaluate these opportunities on a case-by-case basis, ensuring that the financial return results in value creation for all stakeholders. As day rates increase, the substantial cash generating capability of our fleet will contribute meaningfully to the strengthening of our balance sheet. And as we have consistently demonstrated, our team will also execute deleveraging and liquidity enhancing actions when appropriate, ensuring we conduct transactions in the right way. The recent Court of Appeals dismissal of a challenge to our successful exchange transactions in 2020 is a clear example that underscores our ability to effectively implement sound strategies in the best interest of the company and our shareholders. We will continue making prudent use of our capital and other options available to best position the company moving forward. In conclusion, it is increasingly clear that the strategic rationalization of our fleet over the past seven years has created a competitive advantage for Transocean. When combined with our experienced crews and shore-based support teams, we remain the logical choice for our customers' most challenging environments, and we are proud to have positioned ourselves as the clear leader in ultra-deep water and harsh environment drilling. Our industry-leading $6.5 billion backlog provides us with the visibility to future cash flows to continue to invest in our people, the maintenance of our assets, and new technologies, which we continue to deploy across our fleet. And with all signs pointing toward a continually improving market, characterized by the increasing scarcity of the most capable rigs and related increases in day rates, we are growing increasingly confident that the recovery will progress as anticipated. We expect increasing utilization of our fleet and will continue to execute on our strategic priorities to further strengthen our position as the industry leader in offshore drilling. Mark?