Seadrill Limited

Welcome all to our second quarterly earnings call this calendar year and the first call of the 2023 financial period. On the line today, Grant and I are joined by Leif Nelson, our Chief Operating Technology Officer, and Sameer Ali, our Chief Commercial Officer. Grant and I will shortly take you through our prepared remarks before we open up for a Q&A session. For further information regarding today's presentation on the first quarter earnings, I invite you to read the full earnings release published to the market earlier today, which is accessible on the CEDRAL website. On slide two, you'll find a disclaimer relating to today's presentation. This outlines important points around forward-looking statements made in the earnings report and to be discussed on this call, which are based on current expectations and are subject to certain risks and uncertainties. There are many factors that could cause actual performance and results to differ materially. For further information, please take the time after the call to read this disclaimer and refer to the full quarter earnings report as well as our other SEC filings. In addition, please note that we'll be referencing non-GAAP measures on our call and a reconciliation of operating income to adjusted EBITDA can be found in today's full earnings release. We've started this year strongly with an adjusted EBITDA more than doubling on a quarter-on-quarter basis to $85 million. This represents a 32% EBITDA margin. The significant improvement in financial performance was mainly due to a full quarter of operations for our drill ships operating in Brazil. As of today, Cedral's backlog stands at approximately $2.6 billion, which is especially strong in the context of our fleet size. This backlog total includes the three-month extension secured for the West Neptune, which added $39 million, reflecting our longstanding relationship with OLOG. We ended the quarter with an adjusted net cash position of $133 million. Going forward, free cash flow generated by the enterprise will be a key metric. Across our own fleet, We had good operational performance, with technical utilisation coming in at 96%, while our economic utilisation was 95%. As CEDRAL stands today, we have a fleet of 22 units, including 13 ultra-deepwater floaters. We are delighted that most floaters are contracted, including all of our 10 high-specification drill ships, primarily deployed across the Golden Triangle. Ultra and our fleet, our two harsh environment units, continue operations on the NCS. We have three benign jackups operating through our Qatari joint venture, and lastly, 110 resist units operating in Thailand. Finally, we're proud to announce that we've received a B rating under the Carbon Disclosure Project framework, the equal highest rating amongst all offshore drillers, which reflects our commitments to minimizing our impact on the environment. I'll be covering ESG in a little more detail later in the presentation. Moving to slide four, I will touch on the market backdrop. Despite some volatility recently, the price of Brent has generally remained above the $70 mark and oil and gas market fundamentals continue to be supportive for offshore drilling. Many analysts expect oil demand year on year to increase by around 1.5 to 2 million barrels per day in 2023. Whilst on the supply side, OPEC announced further production cuts earlier this year. Coupled with the healthy economics of offshore projects, This demand-supply balance is a positive read-across for our activity in the sector. Taking a close look at offshore drilling, in the benign ultra-deepwater floater segment, marketed utilisation for drill ships has remained around the 95% mark, while leading-edge day rates continue to increase, with a recent fixture close to $500,000 per day. In our view, we expect to see a five-handle fixture at the leading edge in the second half of the year as the market tightens further. Brazil continues to be the main driver of floated demand, with petrobras in particular moving to secure more capacity. In the near term, we anticipate additional requirements for Brazil and results from ongoing petrobras tenders, leading to more rigs mobilising to the region from different geographies. We also forecast incremental floated demand offshore Africa, with active requirements for Angola, Nigeria, Namibia and Mozambique. To round off the Golden Triangle outlook, Gulf of Mexico demand visibility is typically limited with a lot of contracting activity undertaken via direct negotiations. However, this region is effectively sold out and we remain positive about its utilisation outlook. With that all said, although demand is very important, we continue to believe that supply-side discipline amongst drillers is the most salient factor as to how this upcycle progresses. Turning to the harsh environment segment, we have one CJ70 jack-up on long-term contract with ConocoPhillips and one floater, the West Phoenix, operating with VAR Energy on the NCS that is currently estimated to roll off in the second half of 2024. On the supply front, we've seen a string of announcements about floaters exiting the North Sea for contracts outside the region, including notably Namibia and Australia, with more announcements to follow soon. On the demand side, anticipated requirements in 2024 and 2025 are beginning to materialise. Furthermore, we are seeing interest in the West Phoenix for harsh environment operations outside the North Sea. Altogether, we view these dynamics as supportive for our re-contracting prospects next year. Overall, we are very optimistic about market developments in offshore drilling and continue to believe that we're in the constructive early stages of a multi-year up cycle. I'll now hand over to Grant, who will outline our first quarter financials, then cover a few points on a capital structure and set out our guidance for the full year of 2023. Over to you, Grant.

Thank you, Simon, and welcome again to everybody joining us today. Before I jump into the figures, please note that our Q1 results do not include the effects of our actual acquisition that closed on April 3rd. The operating results and the assets and liabilities of Aquadrill will be consolidated from April 3rd and presented as part of our next quarterly earnings. And our full year 2023 guidance, which I'll outline later in this presentation, includes the consolidation of Aquadrill for a period of nine months from the closing date to year end. Now to the key quarterly figures. Q1 revenue was $266 million, an increase quarter and quarter, primarily due to a full period of operations in respect of our four drill ships offshore Brazil. We also benefited from a higher day rate on the West Neptune and from the Savannah, Louisiana, achieving higher economic utilization. That was slightly offset by no further revenue from West Hercules, which demobilized and was returned to the rig owner in Q4. Moving to OPEX, Q1 OPEX was $219 million, a reduction quarter-on-quarter, mainly driven by the demobilization and re-delivery of the West Hercules to the rig owner, partly offset by a full period of operations for our drill ships in Brazil. As a result of these movements, we recorded adjusted EBITDA of $85 million, which marked a substantial increase compared to Q4. Further, this translated to an adjusted EBITDA margin of approximately 32%, which screens well compared to our peer group. On the balance sheet, unrestricted cash decreased to $376 million at the end of the period. This was largely driven by the settlements of liabilities for accrued expenditures in relation to our recent rigged startups in Brazil and voluntary prepayments made under our seconding debt facility of $150 million. This was partly offset by the receipt of $43 million in net proceeds in respect of our sale of Paratus Energy Services, which closed in February. Elsewhere on the balance sheet, the settlements of accrued expenditures and voluntary prepayments that I just outlined were the main drivers of the reduction in our current and non-current liabilities, respectively. I'll now take a moment to focus a bit more on our leverage and capital structure more broadly. Over the last year, we've been proactive in respect of our debt profile by making several mandatory and voluntary prepayments under our second lien debt facility, including those in Q1 that I highlighted on the previous slide. This put us in an adjusted net cash position of $133 million at the end of March, as mentioned by Simon earlier. We are delighted that we have delevered our balance sheet and in turn reduced our interest expense in light of the prevailing economic climate. Nevertheless, as said in our prior earnings call, we are now focused on further optimizing and simplifying our capital structure, and we believe that we are well positioned following closing of the acquisition. We are in active discussions with our board and capital market advisors as to the form this may take. On slide seven, you'll find our financial guidance for the full year of 2023, which includes the consolidation of Aquedrill into Cedral from April 3rd. We anticipate total operating revenues to be between $1.435 and $1.485 billion. Our adjusted EBITDA range stands at $435 to $485 million. And lastly, we expect CapEx and long-term maintenance to be between $210 and $250 million. I'd like to draw your attention to a footnote in the earnings release, which essentially says our 2023 EBITDA guidance includes net $12 million in non-cash costs related to the amortized mobilization revenues received and costs incurred prior to January 1, 2023. I'll now hand the line back to Simon.

Thanks, Grant. On screen, you'll see Cedarall's Ultra Deepwater floater fleet. During the last year, we pivoted strategically to this segment through two transformative M&A transactions in the belief that this part of the rig market will produce outsized growth and value for our shareholders. Now, taking a closer look at the fleet, all 13 floaters on screen are at least 10,000 foot capable in terms of water depth. We have 10 drill ships that are all dual activity and seven that are of seventh generation design which typically have better specification, require less maintenance spend, and deliver superior contract economics as a result. Lastly, on managed pressure drilling, CEDRAL is a trailblazer in this adaptive drilling technology, and we continue to be amongst the market leaders on this equipment, with six units currently outfitted across our fleet. We've contributed strongly to industry knowledge and technology in this important drilling approach, which will be increasingly vital for penetrating the deeper geological horizons in our targeted ultra-deepwater markets. Moving to the next slide, I want to focus on our ESG strategy, which has delivered our leading position as part of the carbon disclosure project. As a major offshore driller, we have a critical role to play in the global energy transition. Our aim at CEDRAL is to deliver oil and gas wells to our customers responsibly and with the best carbon footprint possible. In our latest sustainability report, we published CEDRAL's ESG framework with its contributions towards the United Nations Sustainable Development Goals. I won't outline all of the elements here, but there are two of particular focus for us, which I'll explain in a little bit more detail. First, on the environmental front, we are committed to adopting greenhouse gas reducing technologies. In offshore drilling, CEDRAL has developed the first methanol injection system for an offshore drilling rig, and we pioneered the introduction of MODU hybrid power technology. More recently, we installed a closed bus tire system on the West Satin, working for Econor in Brazil, enabling the rig to position itself dynamically with fewer engines running, which is a substantially more efficient operating mode, reducing fuel burn and emissions. We've also deployed the first version of NOV's DOOLS technology, which enables remote operation of the mud system, and we continue to advance automation of the drilling process. Second, I want to highlight our commitment to the development of our employers with the Sea Drill Development Academy, which we rolled out earlier this year. The program uses an enhanced facility that is owned and managed by Seedrill, complete with a state-of-the-art drilling simulator. Seedrill has a best-in-class workforce that is integral to the development of safe and efficient operations for our customers. And investments such as this one illustrate our commitment to operational excellence and also our employees' development and growth. Furthermore, in the expanding business environment, our ability to train our own people will be critical to service delivery quality and cost control. To wrap up, we're very pleased with our start to the year with a nearly fully utilised fleet and the closing of our Aquadrill acquisition in April on an accelerated timeline. The offshore outlook is promising and looking ahead into future quarters, we're focusing on further refining our fleet and enhancing our exposure to our core segments, including through organic transactions, if accretive, whilst optimising our capital structure to enable the implementation of a sustainable shareholder returns policy. We've demonstrated during the past 12 months that our management team has a bias for action and put simply, we fully intend to continue to deliver on what we promise. That brings an end to today's presentation. I'll now hand the line back to the operator who will handle the Q&A session to answer any questions that you may have for the management team.