Seadrill Limited

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the CDREL fourth quarter 2023 earnings release call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Lydia Mabry, Director of Investor Relations. Please go ahead.

Thank you, Operator. Welcome to CEDRIL's fourth quarter and full year 2023 earnings call. With me for the call today are Simon Johnson, our President and Chief Executive Officer, Grant Creed, Executive Vice President and Chief Financial Officer, Tamir Ali, Executive Vice President and Chief Commercial Officer, and Marcel Wiegers, Senior Vice President of Operations. Today's call may include forward-looking statements that involve risks and uncertainty. Actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or year, and we assume no obligation to update them. Our latest forms 20F and 6K, filed with the U.S. Securities and Exchange Commission, provide a more detailed discussion of our forward-looking statements and the risk factors affecting our business. During today's call, we may also refer to non-GAAP measures. Reconciliations to the nearest corresponding gap measures are in the earnings release filed with the SEC and available on our website, federal.com slash investors. Our use of the term EBITDA corresponds with the term adjusted EBITDA as defined in our earnings release. Now, let me turn the call over to Simon.

Thank you. Today, I will address our recent accomplishments, near-term positioning, and future potential. Samir will then discuss our commercial activity and outlook, and Grant will review our financial results and 2024 guidance. Then we will open the call to questions. Seizure is a leading offshore driller. We consistently execute on our stated strategy, achieving financial and operational results that allow us to deliver industry-leading total shareholder returns relative to our offshore floated peers. We were the best performing equity in the peer group in the 2023 calendar year. And we've brought back over $340 million worth of sea drill shares through our ongoing repurchase program. Throughout the year, we continued our efforts to simplify and strengthen our business. We operated a modern floater-focused fleet concentrated primarily in the Golden Triangle. We achieved minimum efficient scale through our aqua drill acquisition, adding four drill ships with near-term contracting exposure. We secured leading-edge contracts for term work and announcing two major Brazil awards representing $1.1 billion in firm revenue at rates our peers would envy. And we followed that with another announcement of a benchmark rate in late January for the US Gulf of Mexico. We have long telegraphed and prepared for headwinds in 2024, first calling attention to them on our second quarter 2023 earnings call. Our trade rivals seem to be recognising varying degrees of emerging white space, supply chain pressures and inflationary capital expenditure and OPEX trends in 2024. At CEDRIL we continue to manage and mitigate the impact these trends may have on our operational and financial results. We aim to secure the right contracts for the right rigs in the right place at the right rates. Moving, for example, the West Polaris to a term contract in Brazil, a growing market for the industry and a key operating region for CEDRAL, where we've clustered rigs and benefit from economies of scale. We made early decisions to implement wage increases and retention programs, securing talent that's critical to our continued delivery of safe, efficient operations. We invest in our drilling crews' continued development, providing high-fidelity simulator-based training programs that allow them to practice and prepare for real-life scenarios in an immersive classroom environment. We maintain active dialogue with key vendors on supply chain requirements and realities, proactively ordering long lead time items to minimize schedule risk and to improve our ability to recover from unplanned events. Lastly, to the extent we're able, we've begun performing special periodic surveys and related work on an accelerated schedule to limit the interruption to our fleet's revenue profile and coincide with a broader transition year. We're commencing a transition to a more continuous approach to required rig classification in coming years. Going forward, we anticipate that we will see less time out of service for five yearly surveys. For 2025, we continue to de-risk our outlook and build greater earnings visibility through term contracts and optimised maintenance schedules. Our active fleet is now over 60% contracted for the year 2025, and that number will rise higher as we approach recontracting windows. Additionally, reduced maintenance obligations limit future out-of-service days and related impact to revenue and margin. We remain steadfast in our belief in a long and enduring offshore drilling up cycle. As the world's population continues to grow in both size and wealth, so too will the attendant demand for hydrocarbons, as they remain some of the most economic, efficient and reliable sources of energy. Increasingly, we expect offshore will be the source of supply of rising oil and gas demand, given the size and strength of its reserves, though rig supply remains constrained as most industry participants express reluctance to reactivate the thin inventory of stacked assets until customer terms and contract economics justify the time and capital investment needed. The resulting delta between supply and demand reaffirms our view that this will be a multi-year cycle. We're not alone in this, as third-party analysts expect drill ship demand to increase by nearly 20% in 2025 compared to 2023. At the firm level, we believe our ability to maintain a strong balance sheet and generate healthy cash flow allows us to withstand any near-term adversity and capitalise on mid to longer-term opportunities that will develop as the cycle progresses, creating continued value for our customers and shareholders. Based on current market conditions, we believe we can deliver meaningful EBITDA expansion and free cash flow generation from our existing business in 2025 and beyond. Let's elaborate on what that might look like in four simple steps using high-level estimates and round numbers. So let's begin with 2023 reported EBITDA of $495 million. First, 2023 actuals only included nine months of Aquadrill contribution. Future results will benefit from the full year. Second, we're on track to deliver our stated synergies of $70 million of value per year in respect to the Aquadrill transaction, largely associated with the elimination of third-party rig management fees. As many of you are aware, Legacy Aquadrill was more of a rig owner than operator, subcontracting drillers to operate rigs on their behalf. When we acquired the company, we acquired those contracts, effectively paying industry competitors to perform a job we do ourselves every day. As the rigs transition to new contracts through 2024, we will eliminate those management fees and see immediate bottom line impact. Third, repricing near-term contracts to market rates supports further EBITDA expansion. The West Polaris will see meaningful EBITDA improvement when it moves from India to its new leading edge contract in Brazil at the end of the year, despite India being a much lower cost operating environment. Finally, repricing should become particularly impactful when we mark the market of three rigs we currently operate in Brazil on long-dated legacy contracts booked in the fourth quarter of 2022. These three rigs have a current average disclosed day rate of just over $250,000 per day. Were they to secure contracts at rates like that awarded to the West of Riga, they would earn nearly twice as much revenue and, assuming costs remain the same, approximately $250 million more in annual EBITDA. Should the market improve, as we believe it can, that number could be even higher. So bringing this together, you can see how we can materially improve from our 2023 baseline. We believe this level of EBITDA expansion and resulting cash flow generation is both reasonable and realistic. We should soon benefit from a full year's contribution from the legacy Aquadrill fleet and the elimination of third-party rig management fees, and we will continue to see impact of near and longer-term repricing as rigs roll off existing contracts. We remain confident in the value we can create in the coming years. We actively manage our business in a way that reflects tomorrow's realities and tomorrow's opportunities, which Samir and Grant will discuss in more detail. With that, I'll turn the call to Samir.