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spk04: And welcome to the VERARIS first quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Tim Richardson, Director of Investor Relations. Please go ahead.
spk01: Welcome, everyone, to the Volaris First Quarter 2022 Conference Call. With me today are President and CEO Anton Dibovic, Interim CFO and Vice President, Investor Relations and Treasurer Darren Gibbons, and other members of our Executive Management Team. We issued our press release, which is available on our website at volaris.com. Any comments we made today about expectations are forward-looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially from our expectations. Please refer to our press release and SEC filings on our website that define forward-looking statements and list risk factors and other events that could impact future results. Also, please note that the company undertakes no duty to update forward-looking statements During this call, we will refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information and required reconciliations. As a reminder, yesterday we issued our most recent fleet status report, which provides details on contracts across our rig fleet. An updated investor presentation and arrow drilling presentation will be available on our website after the call. Now, I'll turn the call over to Anton Divovits, President and CEO.
spk03: Thanks, Tim. Good morning and afternoon to everyone, and thank you for your interest in Valeris. During today's call, I will start by providing an overview of our operational and financial performance during the quarter. Next, I'll provide some commentary on the current state of the offshore drilling market and discuss how we're managing our fleet and our business to maximize shareholder value. Finally, I'll provide an update on Arrow Drilling, our 50-50 joint venture with Saudi Aramco. After that, I'll hand the call over to Darren to discuss our financial results and 2022 guidance. The heart of our business and our primary focus every day is on delivering safe, reliable, and efficient operations to our customers. We celebrated a few notable safety milestones during the quarter, with three rigs achieving three years without a recordable incident. and another two rigs reaching this milestone since quarter end. We also recognize that the recent IADC North Sea Chapter Safety Awards receiving the best safety performance award for jackups in 2021. Winning this award was particularly gratifying considering some of the additional challenges faced last year, including rig reactivations and the impact of the pandemic. On the operations efficiency side, I'd like to thank the Volaris team for continuing to deliver the strong performance that our customers have come to expect from us, achieving 99% revenue efficiency during the quarter. This is a fantastic effort and continues our excellent operational track record, having achieved more than 98% revenue efficiency over the course of 2021. These results are the product of our dedicated offshore crews, robust systems and processes, and a culture that is underpinned by our values, including safety and excellence. We are committed to maintaining these high levels of performance, and to this end, we continue to develop and implement additional technologies that enhance our ability to monitor and manage performance across the fleet. These include the Valeris operating system, our in-house digital platform that interfaces with our personnel management and training systems, a licensed drill application, which provides real-time monitoring of the training, competency, and performance of our drillers, and the Valaris Intelligence Platform, which allows us to aggregate, stream, and visualize rig equipment sensor data, enabling our remote technical support center to monitor the performance of critical rig equipment. We also remain focused on developing expertise in our people and have stepped up these efforts. with additional onboarding and leadership training programs for our offshore crews. These are particularly important given the ongoing and expected future increases in activity levels in the industry. As we have mentioned previously, the first half of 2022 is a transitional period for us, as we incur reactivation costs to put three drill ships and one semi-submersible back to work on long-term contracts that were secured last year. I'm proud of the entire Volaris team for the progress that has been made in executing these major projects concurrently, particularly considering the pandemic, personnel, and global supply chain challenges. I'm pleased to report that the Volaris DPS-1 completed its reactivation and mobilization project and returned to work last week. We continue to expect that the remaining three floaters will be on contract by the middle of the year. We are now a substantial way through these reactivation projects and anticipate that financial results will improve meaningfully once they are completed. These four regs are expected to generate a combined annualized EBITDA of more than $100 million based on contractual day rates, which were set around 12 months ago. Importantly, as I will discuss in a few moments, we retain significant operational leverage to the improving market through our remaining high-quality stacked assets. Turning now to the market, demand for hydrocarbons has rebounded strongly from the impact of COVID-19 and is forecast to exceed 2019 levels by early 2023. In recent years, E&P companies have generally prioritized shareholder returns and deleveraging balance sheets over investment in new sources of production, resulting in OECD oil inventories well below their five-year average. In addition, OPEC Plus supply-side measures and heightened geopolitical tensions have combined to drive oil prices higher, creating a constructive environment for investment in new projects. While the conflict in Ukraine has led to increased volatility in spot oil prices, given the longer lead times for offshore projects, our customers tend to be more focused on medium and longer-term commodity prices than what is happening in the spot market. Two-year Ford Brent crude prices are currently above $80 per barrel, and five-year Ford prices are around $70 per barrel, levels that are highly constructive for offshore project demand. Research from RISDAT indicates that virtually all undeveloped offshore resources are profitable at $70 per barrel, and almost 80% are profitable at $50 per barrel. As a result of the constructive commodity price environment, offshore upstream capex is expected to see double-digit growth over the next couple of years, and offshore project sanctioning is expected to increase meaningfully over the same period. with more FIDs expected in 2022 and 2023 than any other year since the start of the industry downturn in 2014, according to industry research. Increased upstream spending is expected to lead to more demand for offshore drilling services, and we have already seen a meaningful improvement in utilization and day rates over the past 12 months, particularly in the floater market. Several recently announced contract awards have been made at or above $300,000 per day. While many of these have been for shorter-term programs in the U.S. Gulf, more recently we have seen day rates at these levels offshore Australia, South America, and West Africa. Very recently, we were awarded a two-well contract with a major operator offshore Angola in the Republic of Congo for drill ship Filaris DS-12, The new contract, as further detailed in our recently updated Fleet Status Report, is anticipated to take place during the first quarter of 2023, in direct continuation of its current contract, and has a total contract value of $26.2 million. The day rate under this contract, at a level not seen in the past seven years for drill ship work offshore West Africa, is a testament to the demonstrated operational track record of the DS-12 and provides further evidence of the improvement in floated day rates across geographies. Looking forward, we continue to see a strong pipeline of tenders and inquiries from our customers across each of the major deepwater regions in South America, West Africa, and the Gulf of Mexico. This includes the recently announced tender from Petrobras for up to eight rigs for long-term work offshore Brazil commencing in 2023, which we expect will include some rigs that are incremental to its currently contracted fleet. This is in keeping with reports that Brazil is seeking to double production by 2030 and with offshore resources that can deliver production at attractive economics. We anticipate that Brazil will be a significant driver of offshore demand over the next several years. On the jack-up side of the business, we've seen a notable increase in activity since the start of the year. Rig years awarded for the first quarter of 2022 were more than 50% higher than during the same period last year. And expected rig years of work at tender or pre-tender stage are approximately 75% higher than 12 months ago. Increased demand in the Middle East is attracting rigs from other regions. and is expected to help improve the overall supply and demand balance for benign environment jackups going forwards. Active utilization for benign environment jackups has increased to approximately 85%, and we are seeing pricing continue to improve, albeit at a slower pace than high specification floaters, due to the highly fragmented nature of supply and competition from local contractors in a number of markets. Just recently, we added two additional contracts that improved day rates on the Volaris 107, which is operating in Australia, taking this rig's work program out to the fourth quarter of this year. We continue to see some softness in the harsh environment jack-up market. While current utilization rates for harsh environment jack-ups are in the mid-80s, contract durations continue to be relatively short, resulting in a competitive bidding environment. We anticipate that an increase in project sanctioning expected offshore Norway in 2022 and a strong pipeline of activity in the UK North Sea for work commencing in the mid 2023 will help balance the harsh environment jack up market in future years. Moving now to our fleet strategy. We will continue to actively manage our fleet and our contracting activities to position Volaris for success. In 2021, we set out to build our contract backlog, first by securing additional work for our active rigs, and then by reactivating some of our high-quality stack fleet for long-term contracts at Attractive Economics. We achieved this goal, and as of our most recent fleet status report, have increased our contract backlog to more than $2.4 billion from just over $1 billion at the beginning of 2021. These backlog additions have added to our earnings visibility, laying the foundation for increased earnings in the future. Having secured this backlog and given constructive developments in demand for the high-quality assets that we operate, we further increased our hurdle rates and will remain disciplined in only returning additional stack rigs to the active fleet for opportunities that provide meaningful returns. We have proven our ability to win work for preservation stacked assets, and we still have 11 high-quality modern assets remaining, including three uncontracted high-spec drill ships, Valeris DS-7, DS-8, and DS-17. These rigs provide operational leverage to an improving market, and we are currently pursuing a number of attractive opportunities which would allow us to contract and begin reactivation of at least one of these rigs in the near term. It is also worth noting that we have options to take delivery of new-build drill ships Valaris DS-13 and DS-14 by year-end 2023 for a shipyard price of approximately $119 and $218 million, respectively, providing further operational leverage to the floater market. We highlighted in our last quarterly earnings call that included in our backlog is approximately $428 million related to an eight-well contract awarded by Total Energies to drill ship DS-11 for work on the North Platte Deepwater Project in the U.S. Gulf of Mexico. In February, Total Energies decided not to sanction and therefore withdraw from the North Platte Project. Since our last call, the contract has been novated to Equinor, which is the partner on the project. No material changes to the contract resulted from the novation, including with respect to the termination provisions, in the event the project does not receive FID. If the contract were to be terminated, the early termination fee and contractual reimbursements would be more than sufficient to cover expenses incurred and commitments made by the LARIS. Further, given that commencement of operations is not scheduled until mid-2024, we expect that there would be other attractive projects for a high-specification drill ship like DS-11, based on the opportunities and day rates we are seeing in the market today. We continue to take a rational approach to fleet management, including regularly assessing our fleet for retirement and divestiture candidates. In this regard, we recently sold two jackups, Valeris 113 and 114, to ATIS for a total of $125 million, a value which is highly accretive to our shareholders. Each of these rigs had been stacked for more than six years and would have required meaningful capital to reactivate. We have also sold legacy jackup Valeris 67, which will be responsibly retired from the offshore drilling fleet. We now have only four legacy jackups remaining in our fleet. Moving now to Arrow Drilling, our 50-50 joint venture with Saudi Aramco that owns and operates jackup drilling rigs in Saudi Arabia. Saudi Arabia is the largest market for jackup drilling rigs in the world, and Arrow and Valeris combined hold nearly a 40% share of Saudi Aramco's offshore rigs currently under contract. Arrow is an important strategic asset for Valeris. We not only have a 50% equity interest in the joint venture, but also have notes receivable totaling $443 million from Arrow. However, since it is unconsolidated, we believe the value inherent in Arrow is not fully reflected in our enterprise value. As a reminder, Arrow owns a fleet of seven jack-up rigs operating under long-term contracts with Sadia Ramco that have an associated contract backlog of approximately $1 billion. These rigs are guaranteed high levels of utilization for life, so long as they meet Aramco's specification requirements. Arrow also leases eight jack-up rigs from Valeris through bare boat charter arrangements, each also operating under contracts with Saudi Aramco. Substantially, all operating costs for the leased rigs are incurred by Arrow, meaning the lease revenue represents nearly a 100% margin for Valeris. Finally, Arrow intends to add 20 new-build jackups to its fleet over the next decade. New-build rigs 1 and 2 are scheduled to be delivered in the first or second quarter of next year, and Arrow is expected to place orders for new-build rigs 3 and 4 later this year. Each of these new-builds will be backed by an initial eight-year contract with Saudi Aramco at a day rate set to achieve a six-year EBITDA payback on the total price of the rig. Following the initial contract, each new build will be contracted for at least eight more years in aggregate, with pricing set every three years utilizing a market pricing mechanism. Given the economics of the initial contracts, the new build rigs are expected to be financed by cash from Arrow Operations and third-party financing. Arrow is actively exploring financing options for the new builds and financing is expected to be secured prior to delivery of new build rigs one and two. We do not expect that Valeris or Aramco will need to provide any additional financing to Arrow to fund the new build program. Further information on Arrow can be found in a separate investor presentation on the Valeris website. I will conclude my remarks by reiterating some of the key points. First, we remain focused on our core business, which is safely delivering our services to our customers. Amidst the challenging environment, the Valaris team continues to deliver both operations and projects at an exceptionally high level. Second, we entered the year in a transitional period, with four major reactivation projects ongoing. The first is now completed, and the remaining three are making excellent progress. We continue to anticipate that our financial results will improve meaningfully as these reactivation projects are completed and the RIGs commence their long-term contracts. Third, we retain significant operational leverage to the improving market through our high-quality stack fleet, and we will only reactivate RIGs for opportunities that provide meaningful returns on investment. And lastly, we will continue to assess the fleet for retirement and divestiture candidates, and will act opportunistically to divest assets if the transaction makes economic sense and is accretive to shareholders. In summary, Valaris is well-positioned to capitalize on opportunities that arise during an industry upcycle, and the Valaris management team and board are highly focused on maximizing earnings and driving meaningful free cash flow by following our strategy of being value-driven, focused, and responsible in our decision-making. I'll now hand the call over to Darren to take you through the financials.
spk02: Thanks, Anton, and good morning and afternoon to everyone. In my prepared remarks today, I will provide an overview of first quarter results, our outlook for the second quarter, and updated guidance for full year 2022. In addition, I will briefly review our financial position and capital structure. I would also highlight our first quarter results press release. which includes a trailing five-quarter analysis for the income statement, balance sheet, and cash flows, as well as various supplemental data. Additionally, we published an updated fleet status report yesterday and have begun disclosing individual contract day rates and other forms of compensation. We will continue to publish day rate and other compensation information for all contracts and contract extensions on a go-forward basis, so long as our contract with the customer allows it. As Anton mentioned earlier, we are currently in a transitional period while we incur one-time reactivation costs to return three drill ships and one semi-submersible to the active fleet. We anticipate that financial results will improve meaningfully as we complete these reactivations, with these four contracts expected to contribute a combined annualized EBITDA of more than $100 million. Now that we are further along in the reactivation process of our four floaters, we estimate that reactivation costs will average $40 to $45 million per rig, while future floater reactivations will likely be higher than that range. However, given the improving market and lack of available supply, we are now asking customers to reimburse a portion of the reactivation costs for future projects, which we expect will more than offset the increased reactivation costs. The floater market has improved significantly since these contracts were negotiated, and we are well positioned to benefit due to our three remaining uncontracted drill ships, Volaris DS7, DS8, and DS17. As Anton mentioned earlier, we are pursuing a number of attractive opportunities to reactivate at least one of these rigs, and we would expect these opportunities to pay back our reactivation costs within the first year of the contract. As a reminder, our reactivation cost estimates include all costs to reactivate the RIG, but do not include mobilization costs or costs for contract or region-specific upgrades for which we would generally expect to be compensated. Most of these costs are recognized in our income statement, with the remainder recognized as capital expenditures. As we have done previously, we have presented our results on both an EBITDA and EBITDAR basis, as we believe reactivation expenses should be treated like growth capital expenditures, with the income statement portion backed out of EBITDA when analyzing our results. Volaris's compelling value proposition is built on four key components, and we believe that it's important to value Volaris on a sum-of-the-parts basis. We have presented analysis in our press release broken out by these four components. First, our active fleet of 33 rigs, which includes rigs currently being reactivated, is generating positive cash flow today. Second, our leased and managed rigs, comprised of eight rigs we leased to Arrow Drilling under bare boat charter agreements, and two rigs that we manage on behalf of a customer in the U.S. Gulf of Mexico. Third, the stacked fleet, which includes many high specification assets. which we have already demonstrated the ability to win work for and provides operational leverage to the continued improving market. And finally, Arrow Drilling, our unconsolidated 50-50 joint venture with Saudi Aramco. Moving now to the first quarter results. Adjusted EBITDA in the first quarter was negative $31 million compared to positive $3 million in the prior quarter, and adjusted EBITDA, adding back one-time reactivation costs, was $31 million compared to $40 million in the prior quarter. Revenues for the first quarter were $318 million compared to $306 million in the prior quarter. Excluding reimbursable items, revenues increased to $291 million from $283 million, primarily due to higher utilization for the jackup fleet and higher average day rates for the other segment, partially offset by lower utilization for the floater fleet. In the jackup segment, Volaris 249, 117, 144, and Norway each commenced new contracts, either in the first quarter 22 or late in the fourth quarter 2021. This was partially offset by idle time between contracts for Volaris Viking and 107. In the other segment, revenues increased primarily due to higher day rates for managed rigs Mad Dog and Thunder Horse, which were each awarded two-year contract extensions with BP in the US Gulf of Mexico, effective from late January. In the floater segment, revenues declined primarily due to Velaris DPS 5 being out of service for most of the first quarter while undergoing a five-year survey prior to starting the first of several new contracts. Contract drilling expense for the first quarter was $331 million compared to $286 million in the prior quarter. Excluding reimbursable items, contract drilling expense increased to $305 million from $264 million, primarily due to higher rig reactivation costs, which increased to $62 million in the first quarter from $37 million in the prior quarter, as we prepare four floaters for long-term contracts that are expected to commence in the second quarter. First quarter reactivation costs were higher than our prior guidance. During the first quarter, we incurred approximately $4 million of additional costs related to an incident involving Volaris DS16, which broke free from its moorings during gale force winds, causing minor damage to the rig. The remaining variance represents higher than estimated costs across the four reactivation projects, primarily due to additional identified work scopes that were not included in the original reactivation budgets. Aside from reactivation costs, the sequential quarter increase in contract drilling expense was primarily due to an increase in personnel costs and higher repairs and maintenance spend during DPS 5's special survey. Moving to our shore base costs. General and administrative expense increased marginally to $19 million from $18 million in the prior quarter, and onshore support costs, which are included within contract drilling expense in the income statement, also increased slightly to $29 million from $28 million. The sum of these two categories provides our total onshore support costs, which increased to $48 million in the first quarter from $46 million in the prior quarter. Depreciation expense decreased to $23 million from $25 million in the prior quarter. Other income decreased to $9 million in the first quarter from $21 million in the prior quarter. First quarter other income included a $2 million gain on sale of assets related to the sale of Jacob Velaris 67 compared to a $21 million gain on sale of assets related to the sale of Jacob's Velaris 22, 37, and 142 in the prior quarter. The remaining other income variance is primarily due to lower reorganization-related professional fees in the first quarter as compared to the prior quarter. Tax benefit decreased to $1 million in the first quarter from $31 million in the fourth quarter. The first quarter tax provision included $15 million of discrete tax benefits primarily related to a reduction in liabilities for unrecognized tax benefits associated with tax positions taken in prior years. The prior quarter tax provision included $30 million of discrete tax benefits primarily related to a reduction in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and deferred tax benefits associated with Swiss tax reform. Adjusted for discrete items, tax expense of $13 million in the first quarter compared with a tax benefit of $1 million in the prior quarter. The increase in tax expense is primarily due to our jurisdictional mix of earnings and a reduction in deferred tax valuation allowances in the prior quarter. Of note, we still expect to receive a tax refund of $97 million related to the CARES Act, though the timing of this receipt remains uncertain. Moving now to our second quarter 2022 outlook. We expect total revenues will be in the range of $355 to $370 million as compared to $318 million in the first quarter. Second quarter revenues are anticipated to benefit from each of the four reactivated floaters commencing contracts during the second quarter. Volaris DPS-1 started its contract with Woodside Offshore Australia in late April. DS16 is expected to start its contract with Oxy in the U.S. Gulf of Mexico in the coming days, and we anticipate that both DS4 and DS9 will start their respective contracts with Petrobras Offshore Brazil and Exxon Offshore Angola by the middle of the year. Also, Flores DPS5 started a new contract with Cosmos in the U.S. Gulf in late March after completing its five-year special survey. As a result of these contract startups, operating days for the floater fleet are expected to increase by approximately 45% on a sequential quarter basis and are anticipated to increase further as we experience the full quarter impact of these new contracts in the third quarter and beyond. We anticipate that second quarter contract drilling expense will be in the range of $315 to $325 million as compared to $331 million in the first quarter, including approximately $31 million of onshore support costs. The expected sequential quarter decrease is primarily driven by lower reactivation costs, which are anticipated to decline in the second quarter as our four floater reactivation projects wind down and these rigs go back to work. Lower reactivation costs are expected to be partially offset by higher operating costs, reflecting higher activity levels, particularly for the floater fleet. Finally, second quarter general and administrative expense is expected to be $19 to $21 million as compared to $19 million in the first quarter. As a result, adjusted EBITDA for the second quarter is expected to be approximately $25 million as compared to negative $31 million in the first quarter, and adjusted EBITDA is expected to be $45 to $50 million compared to $31 million in the first quarter. Moving now to capital expenditures. First quarter CapEx was $38 million, of which $12 million was maintenance CapEx and $26 million related to enhancements and upgrades. The enhancements and upgrades include $13 million of reactivation costs and $13 million of contract or region-specific upgrades, primarily related to Volaris DS4 and DS11. Second quarter CapEx is expected to be $100 to $110 million, of which approximately $25 million is expected to be maintenance CapEx, and the remainder is expected for enhancements and upgrades. The enhancements and upgrades are anticipated to include approximately $15 million of reactivation costs, with the remainder for contract or region-specific upgrades, the majority of which is related to Volaris DS-11. Moving now to full-year 2022 guidance. Revenues are expected to be $1.5 to $1.55 billion. Contract drilling expense is anticipated to be 1.25 to 1.3 billion dollars, inclusive of approximately 80 to 85 million of reactivation expense, substantially all of which is expected to be incurred during the first half of the year. We continue to estimate G&A expense of $80 to $85 million, which combined with $120 to $125 million of support costs included within contract drilling expense provides total onshore support costs of approximately $200 to $210 million in 2022, unchanged from our prior guidance. The sum of these items provides adjusted EBITDA of $160 to $190 million and adjusted EBITDA of $240 to $270 million. In terms of our value drivers, this translates to expected full-year 2022 operating margin exclusive of onshore support and G&A expense of $325 to $350 million for the active fleet, or $410 to $435 million when adjusting for one-time reactivation costs of $80 to $85 million. Operating margin for our leased and managed rigs is expected to be $75 to $80 million, and we expect carrying costs of approximately $45 million for the stacked fleet. Our 2022 capital expenditures guidance of $225 to $250 million remains unchanged from our fourth quarter conference call. This guidance continues to assume reactivations announced to date but does not include any potential incremental reactivations for the rest of the stacked fleet. As Anton noted, we will remain highly disciplined when evaluating opportunities for future reactivations. Based on current contract lead times, particularly for floaters, if we were to reactivate additional rigs in 2022, it would have a negative impact on 2022 EBITDA and CapEx, but would increase earnings and cash flows in future years. While 2022 CapEx is expected to be in the range of $225 to $250 million, we anticipate receiving approximately $160 million in upfront payments from customers in 2022 related to capital reimbursements and mobilization fees, of which approximately $90 million is associated with DS-11. As a reminder, these and any other upfront customer payments and the related revenues are not included in the contract backlog, average day rates, or EBITDA reported in our quarterly filings. And for some of our contracts, these represent a meaningful portion of the total contract value. Based on this guidance and our current market outlook, and as we've mentioned, we expect that financial results will improve meaningfully as we complete our four floater reactivations in the second quarter and capitalize on opportunities to return additional high-quality stacked rigs to the active fleet in this improving market for contracts that provide meaningful returns. Now I'll move to first quarter results as well as the second quarter and full year 2022 outlook for Arrow Drilling, our 50-50 joint venture with Saudi Aramco. As a reminder, Arrow is not consolidated in the financial results of Valaris. Arrow EBITDA increased to $22 million in the first quarter from $11 million in the prior quarter, primarily due to higher utilization. Arrow's second quarter 2022 EBITDA is expected to be relatively in line with the first quarter. Arrow's full-year 2022 EBITDA is expected to be in the range of $80 to $90 million. This is lower than our prior guidance range of $90 to $100 million, primarily due to a later-than-expected startup for Velaris 140 and an expected delay in delivery of the first new build rig to early 2023. Finally, I will provide a brief overview of our financial position. Velaris has the strongest balance sheet in the offshore drilling sector. As of quarter end, we had cash and cash equivalents of $578 million plus $30 million of restricted cash, which does not include the $125 million received in our recently completed sale of the Volaris 113 and 114. Our only tranche of debt is our $550 million senior secured note due in 2028. The coupon for the note is 8.25% if paid in cash, 10.25% if paid half cash, half pick, and 12% if we elect to pick the entire interest payment. The second interest payment of $23 million was paid in cash this month, and we will pay the next installment in cash in November of this year. As we've previously mentioned, the note provides a peri-passu debt basket of $275 million and junior secured debt capacity of the greater of $200 million or 8% of total assets. In closing, our industry-leading balance sheet, best-in-class operational performance, and high-quality modern fleet position us well to capitalize on contracting and strategic opportunities as they arise. We will continue to be disciplined in our allocation of capital as we focus on driving increased earnings and maximizing cash flow from our growing active fleet, and we will only reactivate further stacked assets for opportunities that provide meaningful returns. We will also be value-driven, as demonstrated by our recent sale of stacked jackups for LARs 113 and 114 for a total of $125 million, a transaction that is highly accretive to our shareholders and well above the value implied by our enterprise value for those rigs and the rest of our benign environment jackups. We will continually assess our fleet for retirement and divestiture candidates, and where it makes economic sense to do so, we will sell rigs or responsibly retire them. We've now reached the end of our prepared remarks. Operator, please open the line for questions.
spk04: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Greg Lewis with BTIG. Please go ahead.
spk00: Hey, thank you, and good morning, good afternoon, everybody. Congratulations on those rigged sales. I feel like that's finding money in your pocket. In light of that, you mentioned your $550 million piece of debt that you have out, and clearly that's obviously well-funded trading above par. As we think about that $120 million extra money, and who knows, maybe there's opportunities to monetize other assets maybe that we thought might not have been working when you came out of restructuring a couple quarters ago. Is there an ability to kind of, or are there any penalties associated with maybe trying to retire some of that debt early?
spk02: Yeah, Greg, good morning. Thanks for the question. You know, I'd say on the 125, obviously the indenture has kind of your typical reinvestment rights. You know, as we think about our cash balance and liquidity position, you know, we still do have, you know, 11 stacked rigs that we can bring back to market. And, you know, obviously if we do so, if there's opportunities to do so that make sense, that's going to take, you know, some investment in order to do that. Our note does have a non-call period as well. We do have an ability, if we wanted to, to buy back notes in the open market, but it does have a non-call period that ends in, I think it'd be end of April of next year. And then it has kind of a typical step down provision. So I think we like the liquidity position we have, but we also today still have some potential investment that could earn meaningful returns in our stacked fleet. So we'll just have to kind of see what makes sense and how the market continues to unfold.
spk00: Yeah, yeah, no doubt. And clearly, it seems like there's increasing demand by the day. I did want to touch on Brazil. You mentioned it in your prepared comments. Clearly, Petrobras is in the market. We can debate how many are new, incremental, how many are resets. But I did want to ask you more around the IOCs in Brazil. Um, you know, you know, clearly you have one rig with, uh, you know, an IOC, um, that, that comes up for a new, uh, rolls off contract later this year. Um, you know, I guess it's a two part question. One is, you know, as you look out ahead to 23, if you could kind of maybe talk a little bit about the interest from, you know, you know, non Brazil or say what the IOC appetite for rigs in Brazil might look like, as well as given that that rig is already in country. Maybe if you could walk us through some of the dynamics and the costs associated with bringing a rig that maybe is outside of Brazil and maybe that financial benefit of already being in country, maybe a little bit of color on what that looks like.
spk03: Hi, Greg. This is Anton. Yeah, it's a really good question. Obviously, what we're seeing now in Brazil is, you would say, maybe the best of both worlds, which is a strong interest from the IOCs that are down there to continue what they're doing and even to extend their presence and grow their presence in Brazil, along with Petrobras, you know, which has publicly stated wanting to double production by 2030. And you've seen that hate rig tend to come out. There are some rigs that need to roll over, but we definitely see some incremental demand as part of that tender. So we're getting an increase in demand, you know, in Brazil and expect it to carry on that way going forward, obviously more so from the Petrobras side, but also from the IOC side, which is really good for the market, you know. Petrobras in Brazil have some very specific, Petrobras in particular, some very specific specification requirements. So it does take some capital expenditure to get a rig into that market. Once you're there and you're an incumbent and you have a rig, you know, in country, it obviously gives you quite a significant marketing advantage to carry on there. It's one of the reasons why we're very focused on taking the DS4 down there last year. You know, having a critical mass, you know, one of our strategies is to be focused on priority basins. and having a critical mass of rigs in the country that we can grow our position from was one of our focuses last year, and we're doing that, and we'll seek to increase that presence as we go forward.
spk00: Okay. Thank you very much.
spk03: Thanks, Greg.
spk04: Again, if you'd like to ask a question, please press star, then 1 at this time. This concludes our question and answer session. I would like to turn the conference back over to Tim Richardson for any closing remarks.
spk01: Thanks, Sarah, and thank you to everyone on the call for your interest in Velaris. We look forward to speaking with you again when we report our second quarter results. Have a good day.
spk04: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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