Transocean Ltd (Switzerland)

Good day, everyone, and welcome to Q1 2023 Transocean's earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question by pressing star and one on your touchtone phone. Please note this call is being recorded. It is now my pleasure to turn today's program over to Allison Johnson, Director of Investor Relations. Please go ahead.

Thank you, Gretchen. Good morning and welcome to Transocean's first quarter 2023 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, Allison, and welcome to our employees, customers, investors, and analysts participating on today's call. As reported in yesterday's earnings release, for the first quarter, TransOcean delivered adjusted EBITDA of $217 million on $667 million in adjusted contract drilling revenues, resulting in an adjusted EBITDA margin of approximately 33%. Our overall performance was supported by superb revenue efficiency of nearly 98% and is representative of our commitment to operational excellence. During the quarter, we booked nearly $900 million of contract backlog, disrupting the first quarter lull observed in years past. In fact, this is more than double the backlog added in the first quarter of 2022 and more than seven times what we added in the first quarter of 2021. We believe this is another clear indication of the sustainability of this constructive market environment, particularly in light of the record backlog we booked last year. Turning to the individual fixtures. In Lebanon, the Transocean Barrens was awarded a one-well contract with Total Energies at a rate of $365,000 per day. The approximately 65-day contract is expected to commence in direct continuation of the RIG's current program and provides for up to three option wells at rates between $375,000 per day and $390,000 per day. As discussed on our fourth quarter 2022 earnings call, in January, the KG2 was awarded a 910-day contract in Brazil at approximately $439,000 per day, including integrated services. The contract is expected to start in the third quarter of this year. In Australia, the transition endurance was awarded a multi-well contract for plug-in abandonment work with an independent operator at a rate of $380,000 per day. The contract also provides for up to five option periods, the first of which has already been exercised at the same day rate. The remaining four options are at a rate of $390,000 per day. The contract is expected to commence in January of 2024, and including the exercise option, firm work now extends through February 2025. If all options are exercised, the rig may remain in Australia through at least the fourth quarter of 2025. On the Norwegian continental shelf, the Transocean Enabler was awarded a 19-well contract with Equinor for work on the Johan Casberg Field in the Barents Sea at $377,000 per day, as adjusted for currency exchange rates. The contract, which is expected to commence in April of 2024, also provides for up to eight option wells at $420,000 per day. Also in Norway, the Transocean Courage was awarded a nine-well contract with Equinor at a rate of $350,000 per day, as adjusted for currency exchange rates. The contract is expected to start in direct continuation of the RIG's current program. And finally in Norway, Wintershell DEA exercised four one-well options on the Transocean Norga, at rates of $338,000 per day, $358,000 per day, $358,000 per day, and $408,000 per day, respectively, again, as adjusted for currency exchange rates. Following our latest fleet status report, Wintershell DEA exercised a fifth option well at $358,000 per day, keeping the rig working through the third quarter of 2024. Also, subsequent to our latest lead status report, the transition endurance was awarded a two-well contract in Norway at a rate of $385,000 per day. The contract is expected to commence in July 2023. These harsh environment fixtures and the KG2 award complement the prolific ultra-deepwater fixtures we announced in the second half of 2022 and keep us on track to deliver yet another strong year of backlog additions. Moreover, these harsh environment fixtures highlight the predicted tightness in the supply of higher specification harsh environment semisubmersibles that we've anticipated for some time now. Of note, the Endurance is the sixth semisubmersible to depart the Norwegian continental shelf in the past 18 months, joining most recently the TransOcean Barrens, which is now operating in the UK. With the departure of the Endurance, there are now just 13 active semisubmersibles remaining in Norway that have the certifications required to participate in petroleum operations. And we currently expect at least two more rigs to leave the region within the next 18 months. As we've discussed on previous calls, demand for rigs capable of drilling in harsh environments is no longer solely dependent upon geographic regions that have historically utilized harsh environment rigs. Rather, demand is increasingly coming from other areas, including Australia, the Mediterranean, and Namibia. As we see multiple upcoming long-term developments on the horizon in Norway, the departure of these assets from the region is meaningful. If demand continues to materialize as we expect, by the end of 2024, we anticipate that future projects in Norway will require several of these assets to return. And to lure them back, significant mobilization fees and higher day rates may be required. Perhaps the most interesting new market for our harsh, high-specification harsh environment semis is Australia. With numerous programs planned for overlapping operational windows, there appears to be strong competition among operators to secure the best and most capable rigs. As a result, we're observing an increased willingness from our customer base to pay higher mobilization and other contract preparation costs. And if current tenders proceed as expected, we could see one or two new contract awards in Australia by the end of the second quarter. Turning to the benign environment rig market, over the last year, we've observed a marked increase in day rates for ultra-deepwater drill ships, which are now predominantly between $400,000 a day to $450,000 per day across the global fleet. We believe this demonstrates a more widespread understanding by all market participants of current market rates. Sixth and seventh gen drill ship utilization remains at nearly 100%. We expect these utilization levels will be sustained as drill ship demand is anticipated to rise throughout 2023. And we believe that as a result, day rates will continue to trend upward, especially for the higher specification ultra-debolized fleet. In fact, by the end of the year, we expect leading edge rates to exceed $500,000 per day. Additionally, we've recently observed a change in the behavior of several of our customers due to their recognition of the increasing scarcity of high specification assets. This shift is occurring mostly behind the scenes through direct inquiry and negotiations as they seek to secure rigs for longer terms, in some cases in excess of three years. We anticipate this trend will continue for certain customers as access to available, desirable rigs becomes more difficult. Looking closer at each region, based on current activity and the open and planned Petrobras tenders, We believe Brazil will continue to be a large consumer of available rig supply. We anticipate Petrobras will secure six or seven floaters under the Pool 2 and Buzios tenders, including up to three from outside the region. If these awards materialize as expected, access to active and warm stacked rigs for use in other regions will be further constrained, likely resulting in increasingly favorable contract terms for qualified floaters. This has already occurred in India following the award of the KG2 under the Petrobras pool tender in early January. We believe that the KG2's departure from the Far East further highlights the limited available local supply of assets to meet the requirements of upcoming drilling campaigns, such as ONGC's two 21-month opportunities in India. Consequently, we may see assets mobilized from other regions for this work. In West Africa and the Mediterranean, floater demand is expected to trend upward over the next 18 months, with multi-year programs expected in Angola, Egypt, and Cyprus. Additionally, incremental work is emerging in Namibia, following recent discoveries by both Shell and Total Energies in the Orange Basin. Activity in the U.S. Gulf of Mexico has kept regional supply and demand largely in balance over the last several quarters. We're highly encouraged by the results of the lease sale concluded in late March, in which the number of deepwater blocks receiving bids increased by 30% from the last lease sale held in 2021. We anticipate the region will continue to have strong activity for the foreseeable future. Year to date, 34 rig years have been awarded for the global floater fleet as compared to 22 rig years this time last year. The quantity of programs awarded with a duration of one or more years has also increased with 11 awarded year to date, up from five last year. The outlook remains strong for the foreseeable future as over 80 rig years of work are expected to be awarded in the next 18 months. In fact, industry analyst reports estimate the offshore sector will experience its highest growth in more than a decade, with, according to Reistat Energy, more than $200 billion of new project investments during the next two years, with offshore activity comprising nearly 70% of all sanctioned conventional hydrocarbons in 2023 and 2024. As demand continues to improve, we will ensure that Transocean is differentiated from our competitors by providing the highest value for our customers and developing and deploying innovative technologies that further enhance our already safe, reliable, and efficient operations. Just last month, utilizing a combination of various automation technologies, which we've previously deployed within our fleet, the Transocean and Courage drilled an entire whole section for 21 consecutive hours in a fully automated mode. This achievement is an important milestone for automation technologies. We believe automation will further improve our operational performance, improving the quality and consistency of the wells we drill for our customers, further enhancing the safety of our personnel while also reducing emissions. As we continue to deploy automation technologies, we plan to aggregate and analyze the data to gain new insights into the performance of our equipment and processes to improve our overall operations. Congratulations to our team in Norway for this significant accomplishment. As we progress further into the sub-cycle, we will continue to deploy our portfolio of high specification, ultra deep water and harsh environment rigs to maximize value for our shareholders. Throughout the downturn, we practiced a thoughtful approach to contracting our assets and placed the right rig on the right opportunity at the right time. We utilize different asset classes, and we're patient so as not to lock up our best assets on long-term, low-day-rate contracts. We continue to believe this is the correct approach, and moving forward, we will continue to remain disciplined when contracting our fleet. With 12 total cold-stacked assets, we have the most operational leverage within our peer group and significant upside potential in a rising market, particularly given the quality of our assets. There are only 13 remaining sixth- and seventh-generation cold-stacked drill ships in the industry, and eight are in our fleet. Three of these, the Athena, Apollo, and Milos, are seventh-generation ultra-deepwater drill ships that are well-preserved in a relatively mild climate offshore Greece. We expect economics of reactivation will be cost-advantageous as compared to acquiring a stranded new build and preparing it for an initial contract. Recent stranded new build purchases suggest between $200 and $250 million to acquire the asset, plus the cost to reactivate, versus our current estimate of $75 million to $125 million to reactivate one of our existing cold-stacked rigs. In summary, our outlook remains unambiguously optimistic, reinforced by increased market tightness in various regions around the world and the continued upward trajectory of day rates. Our industry-leading backlog increased for the fourth consecutive quarter to currently about $8.6 billion. Additionally, the average day rate on our working benign environment roof fleet is beginning to reflect the high-quality backlog we booked over the last 18 months and is projected to cross the $400,000 per day mark later this year. As more of our rigs transition to higher day rate contracts, we will begin to utilize cash generated from our fleet to fulfill our commitment to our broader deleveraging efforts. Our focus remains on delivering safe, reliable, and efficient operations. With our strong year-to-date fleet uptime and revenue efficiency of nearly 98%, we continue to take positive steps toward ultimately strengthening our balance sheet and generating value for our shareholders. I'll now turn the call over to Mark.