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spk00: Good day, everyone, and welcome to today's Q3 2022 Transocean Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. You may withdraw yourself from the queue by any time by pressing star and 2. Please note this call may be recorded. I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Allison Johnson, Investor Relations.
spk01: Thank you, Shannon. Good morning, and welcome to Transocean's third quarter 2022 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, Huynh 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.
spk03: Thank you, Allison, and welcome to our employees, customers, investors, and analysts participating on today's call. As reported in yesterday's earnings release, for the third quarter, Transocean delivered adjusted EBITDA of $268 million on $730 million in adjusted revenue, resulting in an adjusted EBITDA margin of approximately 37%. Our overall performance was supported by strong bonus revenue and the transition to higher day rates on several of our rigs. As usual, this was truly a team effort. As such, I would like to extend a sincere thank you to the entire Transocean team for their commitment every day that deliver best-in-class service to our customers and the best possible results for our shareholders. On our second quarter earnings call, I addressed the ongoing energy security concerns that have become an area of international focus following the Russia-Ukraine conflict. Access to affordable, reliable energy sources is essential to global economic prosperity. The sabotage of the Nord Stream pipeline carrying gas from Russia to Europe further underscores the importance of a reliable and diverse energy supply chain. A vicious cycle of poor shareholder returns and the downturn and aggressive ESG investment mandates led to chronic underinvestment and reserve replacement, which ultimately affects production. Consequently, we are facing a risk of sustained oil and gas shortages globally. Separately this year, soaring inflation and rising interest rates have, for the first time in almost eight years, shifted investor sentiment toward energy stocks, oil and gas in particular. This shift, coupled with the recent effects of systemic underinvestment in energy, have further exposed the impracticality of a swift global transition from fossil fuels. In the mid to long term, demand for all sources of energy will continue to grow, and it's imperative that new sources of supply are discovered and developed to meet this demand. And while hydrocarbons will undoubtedly over time lose market share to renewables in the overall energy mix, most believe that volumetric demand for oil and gas will continue to increase. In fact, RISDAD Energy recently estimated that 63 million barrels per day of new supply are needed to avoid a shortfall in 2030. This cannot be accomplished without significant investment in additional exploration and development, including in the offshore basins requiring our assets and expertise. Accordingly, we as the market leader in offshore drilling have a necessary and important role to play in the ongoing energy expansion for the foreseeable future. Let's now turn to the fleet. As reflected by the new fixtures in our October 13 fleet status report, we observed heightened demand for our services again in the third quarter. I'm pleased to share that we added an incremental $1.6 billion in backlog since the release of our July fleet status report, bringing our total backlog to $7.3 billion. Importantly, these fixtures come from five separate regions, confirming that the recovery of the offshore drilling market is indeed global. And as I will discuss in more detail in a few minutes, we continue to see a steadily increasing number of tenders in addition to numerous direct negotiations with our customers. I now provide a summary of our recent fixtures. First, I'd like to briefly recap two awards discussed on our second quarter earnings call as these two important contracts are now reflected in our backlog numbers. In the Gulf of Mexico, we signed a contract with a major operator for two years on the Deepwater Conqueror in direct continuation of the current program at a very favorable rate of $440,000 per day, with up to an additional $39,000 per day for managed pressure drilling, integrated services, and our technology products. The contract represents approximately $320 million in firm backlog and takes the rig off the market through Q1 2025. Also discussed in our previous call, in Brazil, the Petrobras 10,000 received a nearly six-year contract starting at $399,000 per day, and escalating annually to $462,000 per day. As a reminder, the rate does not include an additional fee for the customer's anticipated use of our patented dual activity technology, which remains valid through May of 2025. The contract will commence directly following the end of the current term in October 2023 and adds an estimated $915 million to our backlog. Now to the remainder of our recent fixtures. In the Gulf of Mexico, Murphy Oil awarded the Deepwater Asgard a one-well contract plus a one-well option at a rate of $395,000 per day, anticipated to commence in the fourth quarter. I'm pleased to say that the option has since been struck and closes the small gap before the rig moves to its next program, a one-year contract with an independent operator at a rate of $440,000 per day. With the addition of these two contracts, the rig is now busy through January 2024. In Suriname, the Development Driller 3 received a one-well contract with Total Energies at a rate of $345,000 per day, excluding additional services. The firm contract, which is expected to commence in Q1 2023, also includes two one-well options at $360,000 per day and $370,000 per day, respectively. In Norway, our joint venture, Harsh Environment Semi, the Transocean Norge, was awarded a 17-well contract with Wintershaw DEA and OMV, at day rates escalating from $350,000 per day to $430,000 per day, resulting in an initial $73 million contribution to our backlog. But assuming that the components of the program receive final investment and government PDO approvals, which we expect, the backlog potential is $437 million based upon an average market leading regional day rate for the full term of $408,000 per day. Also in Norway, Equinor exercised a one-well option on the Spitsbergen at a rate of $316,000 per day. The option extends the current firm term through September 2023, bridging the gap between the end of the current contract and the commencement of the RIG's follow-on contract, also with Equinor. In the UK, Harbor Energy exercised a one-well option on the Paul B. Lloyd Jr. at a rate of $175,000 per day, extending the contract through September of 2023. If all options are exercised, the Paul B. Lloyd will be contracted through June of 2024. In India, Reliance Industries exercised a one-well option on the KG-1 at $330,000 per day. The rig will move to perform this work and then return to complete the current campaign. With the addition of this well, the rig is now contracted through October 2023. Looking forward, we expect the global recovery for the offshore drilling market to continue on a pace consistent with the past several quarters. The offshore CAPEX budgets of the majors have increased for the second consecutive year, and we're seeing this reflected in tender and contracting activity. Importantly, these budgets are increasingly directed to offshore deepwater. Year-to-date, the majors have contracted nearly 31 rig years on deepwater drill ships, when compared to 20.5 rig years for jackups. Drill ship day rates have continued their upward trajectory and moved comfortably above the $400,000 per day mark. As an example, in just 10 months, the Deepwater Conqueror saw rates increase $105,000 per day, excluding integrated services like MPD. And if we look at the third quarter of 2020, the average drill ship fixture was $184,000 per day. Last quarter, the average was $393,000 per day, an increase of 113%. Taking a closer look at the global market environment, Active utilization in the Gulf of Mexico is expected to remain effectively 100% as we estimate eight programs to be awarded with commitments in the next 18 months. As a direct result of this limited active supply, we continue to see our customers favor direct negotiations with an increasing propensity toward multi-year programs. Also, I'm pleased to share that last week, the Deepwater Atlas commenced its inaugural campaign with Beacon Offshore Energy. Needless to say, we are extremely excited to kick off this development with one of our two new eighth-generation drill ships. The Atlas will perform the drilling campaign with Beacon for the first 255 days of its contract before the installation of its 20,000 PSI BOP stack. The Atlas will then return to operations with Beacon for another 275 days as the industry's first, or perhaps second, closely following our deepwater titan, 20,000 PSI floating rig. Next, contracting activity in Latin and South America remains strong with a number of open tenders. In Brazil, Petrobras alone could contract an additional 12 rigs to long-term work. several of which would likely come from outside the country. The much anticipated results of the Petrobras pool tender have been announced, and we are pleased to confirm that the Deepwater Corcovado and Deepwater Orion are among the seven rigs that Petrobras selected for this work, at day rates of $399,000 per day and $416,000 per day, respectively. The period for public comment has passed, and we anticipate contracts will be signed in the coming weeks, at which time we estimate we will add approximately $1 billion to our backlog. Additionally, Petrobras' BMS 11 prospect is expected to be awarded by the end of the year, with the award for the Buzios field development anticipated in the first quarter. These two multi-year tenders could put an additional five rigs to work, further limiting the pool of available rigs and tightening the global market, as we expect most, if not all, of the rigs necessary to deliver these projects will be mobilized from outside the region. In addition to Petrobras' requirements, Shell, Equinor, and Total Energies will be tendering for their respective programs in Brazil. each requiring a minimum of one year, with anticipated commencements in the 2024-2025 timeframe. In India, we anticipate in the next few months, ONGC will re-tender for previously tendered work that was not awarded. The new tender is expected to be for two rigs, each with 21 months of firm term, with commencement scheduled for mid-2023. With extremely limited local supply, we expect strong day rates to be announced when contracts are ultimately awarded. Moving to the harsh environment market, in the third quarter, 3,924 days were contracted in the North Sea market, including Norway and the UK. It's the highest incremental days added since the third quarter of 2012. Of the contracted days, 72% were in Norway, where we are beginning to see the supply of rigs decline, as demand from outside Norway could pull up to four rigs out of the North Sea market in 2023. This is a result of the opening of new harsh environment regions, including the South Atlantic and the Bass Strait south of Australia. In the UK, policies to improve energy reliability and security are expected to drive incremental investment in the sector, including offshore oil and gas. The active market is nearly sold out for 2023, and we are seeing longer-term opportunities that have not been typical in the UK in recent years, including programs longer than one year in duration for Ithaca, Equinor, and Inquest. In the near term, it's likely shorter-duration opportunities will require rigs to come from outside the country, applying even more strain on the rig availability in Norway. On that topic, earlier this week, we signed a conditional letter of award, or CLOA, for the bearants for work in the UK, commencing in the first quarter of next year. Final signature is expected by the end of the month, and the CLOA provides for cancellation fees in the event of termination. With the recent multi-year awards for our transition NORGA and several of our competitors' rigs in Norway, we expect the number of available high-spec rigs in-country to diminish very quickly. Based on our internal analysis, we expect the Barron's to be one of several rigs that will leave Norway in the next few months for work elsewhere, removing the highest specification available assets remaining from the Norwegian market. Presently, there are 24 Norwegian AOC-compliant semis and just 18 of those in-country. Current demand supports around 15 floaters and is expected to increase as projects sanctioned under the tax incentives come online. Consequently, we anticipate the Norwegian market will not have enough rigs to fulfill customer requirements by 2024. In Australia, there are two programs with durations greater than one year expected to commence in the next 18 months. We believe this requires up to two incremental rigs. One opportunity is in the Bass Strait in southern Australia, and due to extreme marine conditions, requires a harsh environment semi. Separately, Woodside is tendering for a DP more rig for its program. As we prepare our assets for the future, we continue to invest in technologies that add value for Transocean and our customers. Last quarter, we installed the first crane anti-sway rotator in our fleet onto the Deepwater Colossa. This technology further reduces the exposure of our personnel to hazards associated with lifting and moving equipment and frees them up to complete other activities. We look forward to fully utilizing the tool in operations and installing units onto other assets across our fleet. We've also agreed with one of our customers to deploy the second kinetic blowout stopper in our fleet and anticipate it being operational in the first quarter of 2023. As a reminder, KBOS is a pyromechanical device that is designed to shear and seal any object in the wellbore in milliseconds. Importantly, this technology significantly reduces the risk of non-shearables across the BOP. As an update to our emission reduction initiatives, we've now adopted and implemented a fuel additive on four of our rigs, with agreements for implementation on four additional rigs. When these installations are complete, we will be utilizing the additive on over 40% of our contracted fleets. The additive optimizes fuel consumption, thereby lowering our emissions and reducing our costs. Field tests utilizing the additive suggest fuel consumption can be reduced by up to 6% depending upon engine loads. At this time, we're tracking operational statistics to better analyze real-world reductions in savings. In summary, the demand for our assets and services remain strong, and accordingly, our outlook for our high-specification floating fleet is the most optimistic it has been in recent years. Increased cash flows from higher dairy contracts will enable us to continue to address our balance sheet, As we transition our focus from extending our liquidity runway to actually deleveraging and positioning the company for the future. As the supply of high specification floaters remains extremely limited, we anticipate there will be more opportunities to begin reactivating our cold stack fleet. As always, we will continue to prudently examine all opportunities to place our cold stack rigs back into the market and thoroughly assess each potential reactivation on a case-by-case basis to ensure that each creates value for the company and our shareholders. Finally, we echo the sentiment heard across broader oilfield services and reaffirm our view that we have definitely entered a multi-year upcycle. As always, we will continue to focus on delivering the safe, reliable, and efficient operations upon which we have built our reputation as the leading provider of high-specification, ultra-deepwater, and harsh environment drilling services. I now turn the call over to Mark.
spk02: Thank you, Jeremy, and good day to all. During today's call, I will briefly recap our third quarter results, provide guidance for the fourth quarter, and conclude with preliminary expectations for 2023, including our latest liquidity forecast. As is our practice, we will provide more specific guidance when we have our 2022 year-end call in February of next year. As we reported in our press release, which includes additional detail on our results, for the third quarter of 2022, We reported a net loss attributable to controlling interest of $28 million, or $0.04 per diluted share. During the quarter, we generated adjusted EBITDA of $268 million and improved our adjusted EBITDA margin to approximately 37%. We also generated cash flow from operations of approximately $230 million. Looking closer at our results, during the third quarter, we delivered adjusted contract drilling revenue of $730 million at an average day rate of 304%. Revenues above our previous guidance due to a combination of more than anticipated operational days, an early termination payment on the Equinox, and higher reimbursables, partially offset by lower than expected revenue efficiency. Upgrading and maintenance expense for the third quarter was $411 million. Costs came in below our guidance due primarily to the timing of certain maintenance activities and other costs. We ended the third quarter with total liquidity of approximately $2.1 billion, including unrestricted cash and cash equivalents of approximately $954 million, approximately $387 million of restricted cash for debt service, and $774 million from our undrawn revolving credit facility. I will now provide an update on our expectations for the fourth quarter. We expect adjusted contract-ruling revenue of approximately $600 million, based upon an average week-wide revenue efficiency of 96.5%. The quarter-over-quarter decrease is attributable to somewhat lower activity in the fourth quarter. We expect fourth quarter O&M expense to be approximately $440 million. This is higher than the prior quarter due to the timing of certain maintenance activities. We expect G&A expense for the fourth quarter to be approximately $54 million. The quarter-over-quarter increase is attributable to professional, accounting, and legal fees. Net interest expense for the fourth quarter is forecast to be approximately $104 million. This includes capitalized interest of approximately $16 million. Capital expenditures and capital additions for the fourth quarter, including capitalized interest, are forecast to be approximately $575 million. This includes approximately $540 million for our new-build drill ships and $35 million of maintenance capex. Cash taxes are approximately $9 million for the fourth quarter. Now I'd like to provide an overview of our financial expectations for 2023. We currently forecast adjusted contract revenue to be between $2.9 and $3 billion. Furthermore, we believe our full year 2023 O&M expense will be between $1.8 and $1.9 billion. Finally, we expect G&A costs to be around $200 million. Our expected liquidity in December 2023 is projected to be between $1 billion and $1.2 billion, reflecting our revenue and cost guidance, and including the $600 million capacity of our evolving credit facility, and restricted cash of approximately $300 million, which is reserved for debt service, as well as anticipated secured financing of our second eighth-generation drill ship, the Deepwater Titan. This liquidity forecast includes a 2023 CapEx expectation of $260 million. The 2023 CAPEX includes approximately $150 million related to our new builds and $100 million for maintenance CAPEX. The new build CAPEX includes mobilization, capitalized interest, costs related to the 20K BOP upgrades, and capital spares. Our 2023 CAPEX guidance includes contract preparation costs for the Deepwater Orion, reflecting our expectation that we will successfully contract the rig with Petrobras under its full tender. As always, our guidance excludes any speculative RIG reactivations or upgrades. In conclusion, RIG day rates are now above levels necessary to generate cash flows that help support deleveraging our balance sheet. As Jeremy mentioned, we are beginning to benefit from the strengthening market as the RIGs roll off their legacy contracts onto the higher day rates. While our focus is on deleveraging, we will also take prudent actions that contribute to our financial flexibility. In this regard, As we have previously highlighted in our presentation materials, we will continue to evaluate the potential for an opportunistic refinancing of some of our outstanding secured bonds into one or more new bonds with the objective of extending maturities and increasing near-term liquidity. As you would expect, the terms, timing, and occurrence of any transaction are dependent upon a variety of factors, particularly market conditions at the time of such transaction. At this time, we do not expect to engage in exchange transactions such as the one we executed in the third quarter. And absent any material increase in the trading price of our shares, we do not plan to utilize our ATM equity sale program in the near future. We reiterate that creating value for our shareholders remains our priority, and we will assess all future actions through this lens. This concludes my prepared comments. I'll now look back over to Alison.
spk01: Thanks, Mark. Shannon, we're now ready to take questions. As a reminder to the participants, please limit yourself to one initial question and one follow-up question.
spk00: Thank you. At this time, if you'd like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We'll pause for just a moment to allow everyone the opportunity to signal. And we'll go ahead and take our first question from Thomas Johnson with Morgan Stanley.
spk06: Hi, thanks and congratulations on the strong quarter here. First question on the reported O&M expense. Obviously, well below the guided number. Some helpful commentary there on maintenance timing, which is not atypical, but it would be helpful just to get some you know, additional color on the impact of kind of FX in the quarter? Obviously, that was noted in the press release. I guess, A, could you guys give us a ballpark number of, you know, the possible tailwinds from the strengthening U.S. dollar there? Maybe, you know, rough outlines on the percent of kind of OpEx that is non-USD just in an average quarter? Thanks. Thanks.
spk02: Thomas, this is Mark. Good morning. Obviously, the U.S. dollar has strengthened. That has an impact on our costs. But the main reason for the cost increase is some of the supply chain challenges. And the timing of the maintenance expand is tied to supply chain hiccups. We've mentioned this in previous quarters that some of our – Major vendors are having difficulty in meeting delivery schedules, and as such, some of our planned maintenance expenses get pushed out from quarter to quarter. As you've seen, our fourth quarter earnings got to be higher because of the shortfall in Q2 and Q3, so there should be some catch-up in the fourth quarter. Regarding the modeling questions, I suggest you speak to Alison afterwards.
spk06: Great, thanks. That's helpful. And then last one, just on the Deepwater Titan, I know prior commentary has been around possibly being able to issue up to $400 million of secured against that asset once it's delivered and on contract. Obviously, that is a constructive number there. So I guess, A, could you kind of provide any updated outlook for a plan for the Deepwater Titan and just, you know, for helping us think through additional liquidity, you know, maybe when typically would you be able to issue secured against a ship after it's commenced its initial contract? Thanks.
spk02: Yes, Thomas. So we expect the rig to be delivered in the fourth quarter, probably later in the fourth quarter. Thereafter, the rig will mobilize the US car from Mexico. Once the rig leaves Singapore, we plan to start working on a secured transaction. We said in the past that we could raise up to $400 million. That's conservative. I would say it's between $400 and $500 million. And as the market has stabilized over the last, call it, two and a half, three weeks, we feel highly confident that we can achieve that. So you can expect to see this financing completed in the first quarter of next year, right before the rig starts operating for Chevron.
spk06: Great. Thanks. I'll turn it back now.
spk00: Thank you. And our last question comes from Eddie Kim with Barclays.
spk07: Hi, good morning. So we've seen day rates increase pretty dramatically here in just the past four months. But if I look at all the contracts with day rates at or above 400 a day, and we count about 15 of them, nearly all those have either been in the Gulf of Mexico or Brazil. So my question is, when can we expect to see day rates at a similar level? in other regions like West Africa or Asia Pacific, for example? And is there something structural about those regions that are making day rate increases a little harder to come by?
spk04: Yeah, hi, this is Roddy. I'll take that one. Yes, we've seen the first move in rates coming in the US Gulf of Mexico followed up with long-term and higher day rates in Brazil. In West Africa, we're actually beginning to see that. There's been a couple of fixtures that are closer to those numbers. Most recently, you'll see stuff in Angola getting around that 400 and above mark. What we're actually looking at now in terms of a market outlook is a tighter and tighter market from our point of view that there's just not as many capable assets available. I think you're going to see a pretty substantial move in those markets as well. Asia typically is a little bit lower specification. If you look at the tenders in Asia, you look at the assets that are there, they are typically the sixth gen and the fifth gen assets. That's usually the last place for day rates to start moving. They also happen to be coupled with particularly low operating costs. Even though you may not see the highest day rates in those regions, you will see very solid EBITDA margins created by those contracts. So I think in summary, you're kind of seeing this ripple effect across the markets, primarily because these rigs move between markets. Because they're mobile, because they're capable in all these different jurisdictions, you simply see them moving first in the ones where they're in the highest demand. I think you'll actually see some of the lower specification rigs getting better and better day rates as the market gets tighter and tighter. That's typically the way things go in an upturn. I look super encouraged by Brazil. Rig counts potentially going from around 28 rigs in Brazil in this timeframe to in excess of 40 rigs within the next 12 to 18 months.
spk07: be very interesting to see if the if the industry is capable of producing that number of assets in brazil but uh uh yeah it's super encouraging things got it that's very helpful thank you um and just my follow-up is on on reactivation uh so one of your competitors earlier this week said reactivation economics are very attractive at current day rates the transition is is understandably in a little bit of a different situation just given the leverage on the balance sheets so You may have other more pressing priorities for that reactivation expense. So just curious if that is impacting your decision at all in pulling the trigger on a reactivation here, even if you are coming across contracts today with a sufficient level of pricing and term. Or maybe a simpler way of asking is, if TransOcean had been debt-free for the past year, year and a half, would we have seen a reactivation by now?
spk02: Let me start, and then I'll have Roddy come in as well. We've said consistently, I think over the last four or six quarters, that we will reactivate rigs to contract. Hence, you have not seen us do this. With the most recent Petrobras tenders, we have bid in some of our coal-stacked rigs, and there's a good possibility we'd be able to achieve one or two of those rigs on contract. Those contracts at those rates and the mobilization fees will allow us to fully pay back the cost to retrograde the rig long before the end of the contract. So we're very comfortable doing this and, you know, balance sheet leverage or not, it's not going to prohibit us from reactivating rigs.
spk04: I think I would add to that and say that previous administrations that are competition may have gone down that track, but certainly what we're hearing across the board is that nobody's willing to speculatively reactivate those rigs. But what you are seeing is reactivations for contracts that support that. So, you know, to Mark's point, I think we've been really clear on that over the entire cycle that we will not reactivate on speculation, but we will do it to contract and we will ensure that that contract, you know, fully pays that reactivation. So I actually just don't see that that's going to be an issue to Mark's point in terms of, you know, does our financial requirements prohibit us? Certainly not, because we're only bidding on things that are cash flow positive over the term of that contract.
spk07: Got it. Thank you. I appreciate all that color. I'll turn it back.
spk00: We'll take our next question from Frederick Steen with Clarkson Securities.
spk05: Hey, guys, and congratulations on a strong performance this quarter. And now it's cash flow's I would say. So I think some of my questions have been touched upon already, but I wanted to circle a bit back to the day rate side. You know, a few quarters back when you guys were, you know, pushing the 400K mark in Yuzco for Mexico, I think it was at least, you know, with the operators' reluctance in a way to actually see something starting with a forehand or that they were trying to package this into other types of, you know, or ways to recognize this revenue, you know, high mob fees, but lower clean day rates, etc. So now we've pushed towards or up into the mid 400s. It's starting to get global for sure. And I think for me, I'm wondering, you know, when are we going to see this five handle? I'm of the firm opinion that we are short on rigs, on floaters in the Golden Triangle, and that we need to see reactivations. But now there's this battle between operators. Again, what are their willingness to pay? How do they envision the future? Are they understanding the lack of capacity, et cetera? So I was wondering, do you have any thoughts on that? whether or not the trend that we see now can continue or if you want to or if you need to have a battle with the companies once again to start to see five handles.
spk03: So greedy, man. No, I think we agree with you in terms of shortage of active supply, definitely high specification assets. We're seeing it. I think our customers are finally realizing it, too. And we see that in the way that they're behaving. More direct negotiations. Certainly trying to, I wouldn't say hide their prospects or the rigs that they're interested in, but they see the lack of availability. So we're having far more direct negotiations, which is a good sign. You've seen day rates steadily improve. I mean, pretty dramatically. I think I said in my prepared remarks that over the last year, day rates have improved 113% for ultra deep water drill ships. And so we expect that trend to continue. Our customers feel it. They know it's coming. And so I'm not going to give you a date by when we would see a five handle, but we're definitely moving in that direction. And I'll turn it over to Roddy to add even more color.
spk04: I think I would add to that that those that have moved while the rates are still in the $400s, they've done so because it represents very good value for money. Don't forget that over our seven years of winter, the prospects that are being invested in now are break-evens in the $30s and $40s range. So even with a substantial increase in the rig rates, there's still economically very sound prospects. If you couple that to where you have a stable high commodity price as we've had for some time, albeit volatile, but it's volatile well above that investment level. I just think that you're going to see the scarcity of the rigs become more and more of an issue, particularly for specifications that customers need. So hard to see us going anywhere but up in terms of day rates. But certainly, as I often explain, the operators are kind of paying three quarters of a day rate today. We still haven't got back to what we would consider a full day rate. But I think you will see that over the next couple of years.
spk05: Super helpful. And I think we're of the same opinion here. And I would also add that you should allow to be greedy after you take care. So thank you, Greg.
spk03: I agree with you. Thank you.
spk00: And our next question, our final question, comes from Carl Blunden with Goldman Sachs.
spk08: Hi. Good morning. Thanks for the time. And congrats on the strong results this quarter. I was curious about the comment about not intending to use the ATM. You used it during 3Q, pretty similar stock price overall. And so just interested in understanding what has changed, maybe it's under expectations or comfort with liquidity, just any other color that would be helpful.
spk02: Carl, as you're probably aware, we evaluate this on a continuous basis. In the third quarter, we were expecting to have some expenses, which we felt we would need to show up our balance sheet. So we used the ATM. We feel comfortable now, as you've heard with my liquidity forecasts. on the prepared comments and we're very comfortable with where we are and we expect to transact with the titan transact potentially with the secured bonds and with those transactions we we think our liquidity is in a good place so we can revisit this if our stock price jumps to five dollars we could use the atm perhaps but at the moment we feel comfortable where we are that that's really helpful um
spk08: You mentioned also, Mark, thoughts around these extensions of the secured bonds. You could look to do that, extend it into one or more secured bonds. So presumably that means maybe a pooled contract or just the standard approach where you've had a bond backed by a rig and cash flows from a contract. As you think about that, what are the considerations that you're looking at when you think about the optimal outcome for Transocean?
spk02: Yes, as I said, the two benefits translation is a restructured amortization program. What that does is it utilizes the remaining part of those contracts, especially the shell contracts, because we put on six- and seven-year bonds against a 10-year contract. So we have tails of three or four years, which now gets utilized, which means the amortization being pushed out over that time period, which improves near-term liquidity. It also gives us more financial flexibility by having the bonds collapse into one or two larger bonds. So the balance sheet becomes a little bit less complex.
spk08: That's helpful. Thanks again for the time.
spk00: And ladies and gentlemen, that does conclude today's question and answer session. I'll turn the conference back over to Allison Johnson for any concluding remarks.
spk01: Thank you Shannon and thank you everyone for your participation on today's call. We look forward to talking with you again when we report our fourth quarter 2022 results. Have a good day.
spk00: Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect.
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