Seadrill Limited

Welcome to CEDRIL's second quarter 2023 earnings call. With me today are Simon Johnson, our president and chief executive officer, Grant Creed, executive vice president and chief financial officer, and Samir Ali, executive vice president and chief commercial officer. Before we begin, I would like to remind you that some of today's comments are forward-looking statements within the meaning of federal securities laws. They involve risks and uncertainty, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or year. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest form 6K filed with the U.S. Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website. Later in the call, following our prepared remarks, we will host a question and answer session. Please limit yourself to one question and one follow-up to permit more participation. Now, let me turn the call over to Simon.

Hello, everyone, and thank you for joining us on today's call. For the second quarter of 2023, CEDRAL reported adjusted EBITDA of $159 million on $414 million of revenue, which resulted in the industry-leading adjusted EBITDA margin of 38.4%. We benefited from a full quarter's contribution from contracted rigs acquired via aqua drill transaction. A larger fleet size along with continued solid performance from existing operations drove the 56% increase in revenue and 87% increase in adjusted EBITDA from the prior quarter. We've had a lot of activity at Cdrill over the past 18 months that has simplified and strengthened our business. This includes monetising non-core assets, streamlining our operating structure, enhancing scale and capacity, high grading our fleet and establishing a more efficient capital structure. So before Samir discusses commercial activity and outlook and Grant reviews financial results, I want to spend the initial part of today's call reintroducing you to C-Drill. At C-Drill, we strive to operate at scale, achieved through a combination of market selection and fleet refinement supported by capital discipline. Why do we care about scale? Because, simply put, scale supports success. It affords contracting flexibility, lowers our cost to operate and helps us attract and retain critical talent. We're able to offer customers a more complete rigged portfolio with options on technologies, pricing and availability, which makes us more commercially competitive. We can share shore-based support, people and spare parts across a larger base of operations, as well as performance gains and best practices, improving overall efficiency. Lastly, we can invest in developing local talent, providing them employment stability and career pathways in the countries where we operate. Size differs from scale. If we exclude the three jackups we have listed for sale, Cedral operates an 18 rig fleet. While we may be smaller than certain other global drillers, we are still the fourth largest listed contractor. And by focusing our floating rigs in key operating markets, we achieve significant local scale. Globally, our customers are increasingly desirous of better resourced, resilient contractors who can support their success through time, drilling contractors with scale, contractors like Cdrill. We concentrate our rigs around good rocks and attractive geographies, resilient to changes in oil price and market fortunes, achieving scale in markets that matter. Today, Cdrill is the leading international driller in Brazil, the number one operator of rigs in Angola, and an established presence in the Gulf of Mexico. We have strong exposure and leverage to these three regions. They represent nearly 70% of our $2.6 billion quarter-ending backlog and are home to 12 of our 14 active floaters, or nearly 80%. Early in the cycle, you may see us take advantage of relocating rigs where they have the best opportunities. Though our focus remains Golden Triangle Plus, we remain open to contracting in other attractive hydrocarbon bases where we can capitalise on rising rates build a more formidable backlog or to establish a pathway to scale. Currently, we market a modern floater fleet, having reduced exposure to non-core asset categories through opportunistic divestitures to become more pure play. Continued fleet refinement creates economies of scale. It's more efficient to market, operate and support a fleet of like assets with similar rig designs and equipment packages. In July, we completed the successful sale of three tender-assisted rigs acquired via the AquaDrill transaction, generating approximately $85 million in proceeds. These rigs neither fit with our fleet nor our strategy, serving niche shallow-water region-specific applications. We also announced plans to sell three jack-up rigs, which would mark a near-complete exit from the jack-up business, following the sale of seven jack-ups in Saudi Arabia last October. The transaction would simplify our fleet and our financials since it involves divesting our associated joint venture interest. These are the same rigs our commercial teams worked tirelessly to extend last quarter. By selling jackups with contracts, as we've done in previous transactions, we create value for potential buyers and our shareholders. We are economic dispassionate asset owners. We continuously evaluate the strategic fit of rigs within our fleet. We don't fall in love with the steel. Operating at scale requires more than concentrating the right rigs in the right regions. It requires discipline. We maintain a well-managed balance sheet and conservative capital structure. Our debt refinancing lowered our cost of capital, reducing annual interest expense by over 600 basis points and nearly $50 million compared to 2022. Additionally, it extended maturities by several years and removed restrictive covenants. At Seadrill we focus on being the best driller, not the biggest. We create the most value for our customers by delivering safe, efficient operations and, in turn, we create the most value for our shareholders by building a business that generates meaningful free cash flow. We announced today that, after careful consideration, our board of directors authorised a $250 million share repurchase program, allowing us to return excess capital to shareholders after exhausting other uses. Their decision reflects confidence in our strategy to operate at scale, supported by our demonstrated commitment to market selection, fleet refinement and capital discipline, and the positive market outlook. As always, we benefit from the guidance and support of our highly experienced independent directors, including notable industry leaders who have led organisations through similar periods of evolution. I'm excited about what we're doing here at CEDRAL. Around the globe, across functions, our employees show a bias towards action, They're committed, they're creative, and they get stuff done. So thank you, team, for your continued contributions to making seed rule better every day. With that, I'd like to pass it to Sameer to review our recent contracting activity approach and outlook.

Thank you, Simon. I'll begin with our fixtures in the second quarter. In Qatar, an operator exercised options for the West Tukana checkup in direct continuation, committing the rig until the third quarter of 2025. In Indonesia, An operator exercise an option for the West Capella drill ship, extending its contract by approximately two months through August of 2024. Lastly, in Angola, a client exercise an option for two Sauna drill drill ships. The multi-well extensions will secure the Sauna Alcangela through January 2025 and the West Gemini through May 2025. These extensions represent a material uplift to the rig's current day rates. However, I would highlight that these were fixed-priced options, and they do not reflect current market rates, which are higher. Excluding cold-stacked assets, 97% of our active fleet is contracted through 2023. Right now, we have five to seven floaters with upcoming availability, and we are currently looking to recontract them over the next 12 to 18 months. Two floaters, the West Polaris and the Savon, Louisiana, finished their existing contracts by year-end. A third, the Westariga, finishes in the first quarter of 2024. Late next year, we may have an additional two to four floaters available for work, subject to customer decisions to extend previously negotiated options. As rigs roll off contract, we may take the opportunity to relocate them to more attractive markets. Don't be surprised if we willingly accept idle time to reposition rigs for the right opportunities. Inter-country mobilizations get more difficult and more costly the longer you wait. We balance our near-term exposure to rising day rates in our recovering market with solid, long-term contracts that generate consistent cash flow. Five of our rigs are contracted through much of 2025, including four in Brazil. The West Saturn, which showcases rig automation and emissions technologies, is on contract through 2026. And in Norway, the West Alara, a harsh environment jackup, is contracted into the first quarter of 2028. We take a portfolio approach to our recontracting. By staggering end dates, we intend to create a smooth contract expiration profile that balances near-term market exposure with revenue certainty. In the early phases of a market recovery, we prefer not to book contracts with too much durations. When you consider our key operating geographies duration tends to vary Brazil thinks in years West Africa and months and the Gulf of Mexico and days, yes, this is somewhat oversimplified but illustrative all the same. Frankly, right now we're not seeing demand for many long term contracts outside of markets like Brazil, where they are still the norm. While some IOCs may choose to secure rates in a tightening market. For now, we see long-dated contracts as being the exception rather than the rule. Looking ahead, we expect continued development of the offshore drilling market, particularly where we have focused within deepwater. Drill ship utilization is trending above 90%, and in our key operating regions within the Golan Triangle, utilization is closing in on 100% as demand outpaces supply. Assuming limited rig additions to the existing sideline capacity, like stacked rigs and stranded assets, or what we refer to as not-so-new builds, the market is poised for a sustained upcycle. And now I'll turn the call over to Grant.