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spk04: Good day and welcome to the Velar second quarter 2022 earnings call. All participants will be in a 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 touchtone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Tim Richardson, Director of Investor Relations. Please go ahead, sir.
spk02: Welcome, everyone, to the Volaris Second Quarter 2022 Conference Call. With me today are President and CEO Anton Dibovic, Interim CFO and Vice President, Investor Relations and Treasurer, Aaron 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 make 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, last week, 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.
spk07: Thanks, Tim, and 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. I will then provide an update on the outlook for the offshore drilling market, highlight some of our recent contract awards, and discuss our strategy for maximizing shareholder value during the unfolding industry upcycle. After that, I'll hand the call over to Darren to discuss our financial results and guidance. As always, our primary focus is on delivering safe, reliable, and efficient operations to our customers, and we celebrated notable safety achievements during the quarter, with several rigs reaching recordable free milestones, including Jacob Valera 76, which has not had a recordable incident in four years. This is a fantastic accomplishment, and I congratulate the crews of the Valera 76 and support teams on their dedication to working safely. In terms of operational efficiency, we continue our demonstrated track record of delivering strong performance to our customers, achieving 97% revenue efficiency during the quarter and 98% during the first half of the year. This is particularly impressive given the commencement of new contracts for several rigs during the first half of the year, allowing reactivations and shipyard projects. While operating and safety performance can be adversely impacted during periods of increasing activity with rig reactivations and contract startups, we remain committed to maintaining our high levels of performance by adhering to our safe systems of work and continuing to develop the expertise of our people. We've implemented additional onboarding programs, including a new hire training program in the U.S. Gulf that utilizes one of our stack rigs to introduce new personnel especially those who are new to the industry, to the offshore working and living environment. Training and assessing foundational operational and safety protocols in an immersive offshore environment will help to better prepare these new employees for deployment onboard our working rigs. These types of measures are particularly important given the ongoing and expected future increases in activity levels in the industry. As we stated previously, the first half of 2022 was a transitional period for us, as we incurred reactivation costs to put three drill ships and one semi-submersible back to work on multi-year contracts that were secured last year. I am proud of the entire Valeris team for successfully executing these major reactivations concurrently, particularly considering the many challenges faced over the past year. These four rigs have all now returned to work largely on time and within our prior reactivation cost guidance for these four projects and will contribute to a meaningful increase in earnings in future periods. Turning now to the market. Despite the recent volatility in equity prices across the energy sector, the fundamental outlook for our industry remains highly constructive. The lack of investment in new sources of production over the past several years has contributed to a tight supply picture that has been exacerbated by geopolitical instability and an increased focus on energy security. Against this backdrop, spot Brent crude prices have been above $100 per barrel for most of the past five months, and medium and longer-term commodity prices remain constructive for investment in offshore projects. Two-year forward Brent crude prices are currently above $80 per barrel, and five-year forward prices are above $70 per barrel, levels at which almost all undeveloped offshore resources are expected to be profitable. As a result of the supportive commodity price environment, offshore upstream capex is expected to see double-digit growth over the next couple of years, and offshore project sanctioning is anticipated 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. The constructive macro environment and increased upstream spending has led to an increase in both contracting and tendering activity across both floater and jack-up markets. On a trailing 12-month basis, rig years awarded for benign environment floaters are approximately 75% higher than the previous 12 months. Rig years of open demand at tender or pre-tender stage, as of the quarter end, were approximately 65% and 40% higher than six months ago and 12 months ago, respectively. A meaningful portion of this increase is attributable to the large Petrobras tender for up to eight rigs for long-term work offshore Brazil commencing in 2023. We anticipate that Brazil will be a significant driver of offshore demand over the next several years, and we are well positioned to benefit by adding a third rig to the strategic basin following our recent contract award for drill ship Valaris DS-17. We continue to see a strong pipeline of tenders and inquiries from our customers in West Africa, where we have an excellent operating track record, with three drill ships already operating in the region and a further three stacked drill ships nearby in the Canary Islands. And finally, we also see several opportunities in the Gulf of Mexico, both on the US and Mexican side of the Gulf, with the US opportunities primarily requiring drill ships. while the Mexican opportunities are well-suited for our active semi-submersible in the region, Polaris DPS5. It is worth noting that contracts and lead times tend to be shorter, and therefore demand visibility is lower in the U.S. Gulf as compared to South America and West Africa, and we could see incremental demand appear quickly if the market remains strong. On the jack-up side of the business, we have seen a notable increase in activity since the start of the year. primarily driven by increased demand in the Middle East. On a trailing 12-month basis, jack-up rig years awarded are more than 70% higher than the previous 12 months, and rig years of open demand at tender or pre-tender stage as of the quarter end were approximately 10% and 30% higher than 6 months ago and 12 months ago, respectively. As a result, active utilization for jack-ups has increased to approximately 90%. and pricing and contract terms for modern benign environment jackups continue to improve. Recently, we were awarded a four-year contract with Brunei Shell Petroleum for the Volaris 115, which represents the largest backlog award for a benign environment jackup outside of the Middle East this year. We've also been awarded a one-year extension with BP Offshore Indonesia for Volaris 106, and several shorter-term contracts for Volaris 107 offshore Australia and Volaris 144 in the U.S. Gulf, demonstrating the global nature of the region pickup inactivity. While the benign environment jack-up market has improved meaningfully this year, we continue to see near-term softness in the harsh environment jack-up market. We expect that this will continue into next year, and we may see some rigs go idle later this year as we enter the seasonally weaker winter months and rigs complete the current programs. However, we anticipate that an increase in project sanctioning expected offshore Norway later this year and a strong pipeline of activity in the UK North Sea for work commencing in mid-2023 and beyond will help to better balance the harsh environment jack-up market in future years. Moving now to our fleet strategy. In 2021, we set out to build our contract backlog by reactivating our high-quality stack rigs for long-term contracts at Attractive Economics. We achieved this goal by winning contracts for four of our preservation stack floaters, which have all now been reactivated and returned to work largely on time and within our reactivation cost guidance range on average. Having secured this backlog and given greater demand for our high-quality rigs, we increased our hurdle rates for future investments and will remain disciplined in only returning additional stacked rigs to the active fleet for opportunities that provide meaningful returns, such as our recent contract award for Volaris DS17. This 540-day contract with Equinor Offshore Brazil has a total contract value of approximately $327 million. including an $86 million upfront payment to cover mobilization, capital upgrades, and a contribution towards our reactivation costs. We have proven our ability to win work and reactivate our preservation-stacked assets, and we still have 11 high-quality modern assets remaining, including three uncontracted high-spec drillships, Polaris DS-7, DS-8, and DS-11. These rigs are well-suited for many of the attractive opportunities we see in the market today, but we will remain disciplined in exercising our operational leverage. It is also worth noting that we have options to take delivery of new-build drill ships for Larus 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. Scale is beneficial for a driller, as it allows onshore support costs to be spread over a larger fleet. Adding Velaris DS17 in Brazil will provide a critical mass of three active floaters at each point of the Golden Triangle, and is part of our strategy to focus our efforts on those basins that are expected to drive significant shares of future demand. We continue to regularly assess our fleet for retirement and divestiture candidates. During the quarter, we recorded a gain on asset sales of $135 million, primarily related to the sale of Jacobs Polaris 113 and 114, each of which had been stacked for more than six years for a combined $125 million. We will continue to evaluate our fleet, whether for acquisitions or divestitures, for opportunities to create shareholder value. Another source of shareholder value is Arrow Drilling. our unconsolidated 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 rigs in the world, with approximately 75 rigs either under contract or contracted for future work. And this number is expected to increase to more than 90 after completion of ongoing tenders, which would represent approximately one in four benign environment jackups currently contracted worldwide. We remain highly focused on highlighting what we believe is a significant value inherent in Arrow, and we have potential catalysts approaching with new build rigs one and two scheduled to be delivered in the first half of next year and orders for new build three and four expected to be placed later this year. As a reminder, each of the new builds will be backed by an initial eight-year contract with SideA Ramco 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 third-party financing and cash from Arrow operations. Arrow continues to actively explore financing options and expects financing to be secured prior to delivery of the first two new builds. We do not expect that either Volaris 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 Volaris website. I'll conclude my remarks by reiterating some of the key points. First, we remain focused on extending our demonstrated track record of delivering safe and efficient operations to our customers. and are taking additional steps to maintain our high standards of safety and operating performance in light of increasing activity. Second, the fundamental outlook for our industry remains highly constructive, as evidenced by increasing contracting and tendering activity across both floaters and jackups. And third, we have proven our ability to contract and effectively reactivate our high-quality stack rigs. We retain significant operational leverage to the improving market, and we will continue to reactivate further rigs for opportunities that provide meaningful returns on investment, such as the recently announced contract for Volaris DS17. In summary, Volaris 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. We'll now hand the call over to Darren to take you through the financials.
spk01: Thanks, Anton, and good morning and afternoon, everyone. In my prepared remarks today, I will provide an overview of second quarter results, our outlook for the third quarter, and updated guidance for full year 22, and then briefly review our financial position. I would also highlight our second quarter results press release, which includes our trailing five-quarters analysis for the income statement, balance sheet, and cash flows, as well as various supplemental data. Additionally, we published an updated fleet status report last week and recently began 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 where contractually allowed. As Anton mentioned earlier, the return of four reactivated floaters to the active fleet is expected to significantly improve our financial results in future periods. And we were pleased to announce a fifth contract for one of our preservation stacked floaters, Flores DS17, in early July. As mentioned on our first quarter conference call, Reactivation costs for the four floaters reactivated to date are expected to average $40 to $45 million per rig. This includes all costs to reactivate the rigs, but does not include mobilization costs or costs for contract or region-specific upgrades, for which we would generally expect to be compensated. We anticipate that future floater reactivations, including Velaris DS17, will be in the range of $65 to $75 million on average. This estimate is higher than our reactivations to date due largely to inflation, both personnel and goods and services related, and the need for additional spare parts following the four reactivations already completed. Additionally, global supply chain issues are extending the time required to reactivate a floater to approximately 12 months versus nine months previously. which is also contributing to an increase in expected reactivation costs. However, given the improving market and lack of available supply, the economics of returning a preservation stack rigged to work are meaningfully improved, as evidenced by the DS-17 contract, which has a total contract value of $327 million, including $86 million prior to contract commencement, to cover mobilization and capital upgrades, as well as a portion of the reactivation costs. The initial contract alone on the DS-17 is expected to provide a meaningful return on our net reactivation spend, and we will continue to seek further attractive opportunities to return our three remaining uncontracted drill ships, Polaris DS-7, DS-8, and DS-11 to the active fleet. As a reminder, the majority of reactivation 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 EBITR 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. Moving now to the second quarter results. Adjusted EBITDA in the second quarter was $29 million compared to negative $31 million in the prior quarter. And adjusted EBITDA adding back one-time reactivation costs was $54 million compared to $31 million in the prior quarter. While adjusted EBITDA for the second quarter was slightly higher than our prior guidance of approximately $25 million, there were a few large one-off items that impacted our second quarter results that I will discuss shortly. Revenues for the second quarter were $413 million compared to $318 million in the prior quarter. Excluding reimbursable items, revenues increased to $385 million from $291 million, primarily due to a $51 million fee related to the termination of the Volaris DS-11 contract, as well as higher utilization and average day rates for both the floater and jacket fleets. Aside from the DS-11 termination fee, floater revenues increased due to Volaris DPS-1 and DS-16 returning to work following reactivation projects. and Volaris DPS-5 returning to work following a special periodic survey. This was partially offset by idle time between contracts for Volaris MS-1 and mobilization time for Volaris DS-12, which moved from its previous contract offshore Angola to its current operating location offshore Mauritania in Senegal in April. Jackup revenues increased primarily due to more operating days for Volaris 249, which commenced a contract offshore New Zealand during the first quarter. This was partially offset by Volaris 141 rolling off contract in April prior to commencement of a three-year airboat charter agreement with Aero Drilling that is expected to begin later this month. Contract drilling expense for the second quarter was $362 million compared to $331 million in the prior quarter. Excluding reimbursable items, contract drilling expense increased to $334 million from $305 million, primarily due to more operating days for the floater fleet, increased costs related to certain claims, and costs associated with the Volaris DS-11 contract termination. This was partially offset by lower rig reactivation costs, which decreased to $24 million in the second quarter from $61 million in the first quarter as reactivated rigs returned to work. As of quarter end, we increased our accrual with respect to certain litigation claims by approximately $25 million to reflect the change in the projected value of these claims against us. We also incurred one-time costs due to the termination of the Volaris DS-11 contract and recognized an impairment charge of $35 million related to capital expenditures incurred to date on the DS-11 upgrade project. Moving to our shore base costs, General and administrative expense of $19 million was in line with the prior quarter, and onshore support costs, which are included within contract drilling expense in the income statement, increased slightly to $30 million from $29 million. The sum of these two categories provides our total onshore support costs, which increased modestly to $49 million in the second quarter from $48 million in the prior quarter. Depreciation expense decreased marginally to $22 million from $23 million in the prior quarter. Other income increased to $149 million in the second quarter from $9 million in the prior quarter. Second quarter other income included a gain on sale of assets of $135 million, primarily related to the sale of Jacobs, Polaris 113, 114, and 136, as well as additional proceeds received in the second quarter on the sale of a rig in a prior year, compared to a $2 million gain on sale of assets related to the sale of Jackup Solaris 67 in the prior quarter. Tax expense was $20 million in the second quarter compared to a tax benefit of $1 million in the first quarter. The second quarter tax provision included $6 million of discrete tax expense, primarily related to income from the DS-11 contract termination. The first quarter tax provision included $15 million of discrete tax benefit, primarily related to a reduction in liabilities for unrecognized tax benefits associated with tax positions taken in prior years. Adjusted for discrete items, tax expense of $14 million in the second quarter was in line with the first quarter. By way of an update, 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 third quarter 2022 outlook. We expect total revenues will be in the range of $430 to $440 million as compared to $413 million in the second quarter. Third quarter revenues are anticipated to benefit from a full quarter of revenue for reactivated rigs, Volaris DPS-1 and DS-16, and a partial quarter for Volaris DS-4 and DS-9, which commenced their contracts in July with Exxon Offshore Angola and Petrobras Offshore Brazil, respectively. As a result of these contract startups, total and active utilization for the floater fleet is anticipated to increase meaningfully in the third quarter and beyond. We anticipate that third quarter contract drilling expense will be in the range of $335 to $345 million as compared to $362 million in the second quarter, including approximately $31 million of onshore support costs. The expected decrease is primarily driven by one-time costs incurred in the second quarter and lower reactivation costs, which are anticipated to be partially offset by higher operating costs, reflecting higher activity levels, particularly for the floater fleet. Finally, third quarter general and administrative expense is expected to be $21 to $23 million compared to $19 million in the prior quarter. Adjusted EBITDA for the third quarter is expected to be $70 to $75 million compared to $29 million in the second quarter. and adjusted EBITDA is expected to be $80 to $85 million compared to $54 million in the second quarter. Reactivation costs in the third quarter relate primarily to the beginning of the DS-17 reactivation project. Moving now to capital expenditures. Second quarter CapEx was $61 million, of which $15 million was maintenance CapEx and $46 million related to enhancements and upgrades. Enhancements and upgrades include $8 million of reactivation costs and $38 million of contract or region-specific upgrades, including $22 million for Volaris DS11, which was impaired following the contract termination. Third quarter capex is expected to be $50 to $55 million, of which $25 to $30 million is expected to be maintenance capex, and the remainder is expected for enhancements and upgrades. The enhancements and upgrades are primarily related to completion of the VALORIS DS4 and DS9 reactivation projects. Moving now to full-year 2022 guidance. Revenues are expected to be $1.57 to $1.6 billion. Contract drilling expense is anticipated to be $1.35 to $1.38 billion, inclusive of $105 to $110 million of reactivation expense. approximately $20 million of which is anticipated in the second half of the year, primarily related to the reactivation of LORIS DS-17. 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 $130 to $150 million and adjusted EBITDA of $240 to $260 million for full year 2022. Adjusted EBITDA for the second half of the year is expected to be $135 to $155 million as compared to negative $2 million in the first half. An adjusted EBITDA for the second half of the year is expected to be $155 to $175 million, as compared to $84 million in the first half, demonstrating the expected improvement in financial performance in the second half of the year and beyond, following a transitional period in which we incurred reactivation costs to put several rigs back to work. Our 2022 adjusted EBITDA guidance is lower than our prior guidance of $160 to $190 million, primarily due to increased costs related to certain claims, reactivation costs for Volaris DS-17, which was not contemplated in our prior guidance, and delayed contract commencements, partially offset by the net impact of the Volaris DS-11 contract terminations. In terms of our value drivers, our updated guidance translates to expected full-year 2022 operating margin exclusive of onshore support and G&A expense of $300 to $320 million for the active fleet, or $410 to $430 million when adjusting for one-time reactivation costs of $105 to $110 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 this tax fleet. We expect that 2022 capital expenditures will be $200 to $210 million, which is lower than our prior guidance of $225 to $250 million, primarily due to the removal of any remaining CapEx for the Volaris DS11 20K upgrade following the contract termination. partially offset by CapEx for Velaris DS17 as we reactivate the rig for a contract that is expected to start in mid-2023. Capital expenditures for the second half of 2022 are expected to be $100 to $110 million, including approximately $55 to $60 million of maintenance CapEx and $45 to $50 million of enhancements and upgrades. Enhancements and upgrades include remaining costs for reactivated drill ships Velaris DS4, DS9, and DS16, as well as costs for Velaris DS17. We anticipate the capital upgrades exclusive of capitalized reactivation costs for Velaris DS17 will total approximately $55 million. These upgrades will be fully reimbursed by the customer and include the addition of managed pressure drilling as well as upgrades to the choke and kill line and riser tensioner equipment. Approximately $10 million is expected to be incurred in 2022, with the remainder in the first half of 2023. Our guidance continues to assume reactivations announced to date, but does not include any potential incremental reactivations for the rest of the stacked fleet. While second half 2022 CapEx is expected to be in the range of $100 to $110 million, We anticipate receiving approximately $90 million in upfront payments from customers over the remainder of the year related to capital reimbursements and mobilization fees. To be clear, this is in addition to the $51 million termination fee received in July related to 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 adjusted EBITDA reported in our quarterly filings. And for some of our contracts, these represent a meaningful portion of the total contract value. While we anticipate that financial results will improve meaningfully in the second half of this year, there may still be some volatility in earnings over the next several quarters depending on the timing of reactivation costs for Volaris DS17, reactivation costs for any additional rigs we may reactivate, and whether we find work for some of our harsh environment jack-up rigs that are set to roll off contract later this year. Now, I'll move to second quarter results as well as the third 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 Volaris. Arrow EBITDA increased to $31 million in the second quarter from $22 million in the prior quarter, primarily due to an increase in utilization in the second quarter. Arrow's third quarter 2022 EBITDA is expected to decrease to $16 million to $18 million in primarily due to lower revenues as a result of out-of-service days related to planned maintenance for certain rigs and higher contract drilling expense associated with this maintenance. Aero's full-year 2022 EBITDA is expected to be in the range of $85 to $95 million. Finally, I will provide a brief overview of our financial positions. As of quarter end, we had cash and cash equivalents of $554 million plus $24 million of restricted cash, representing a $31 million decrease during the quarter. This was primarily due to an increase in networking capital and $61 million of capital expenditures in the quarter. The increase in networking capital was due primarily to a ramp-up in operating activities and the $51 million BS-11 termination fee that was in accounts receivable at quarter end and subsequently collected in July. These were partially offset by $145 million of net proceeds from the sale of assets, primarily related to Jackups for LARS 113 and 114. In closing, we will continue to be highly disciplined in exercising our operational leverage by judiciously returning our high-quality stacked rigs to the active fleet only for opportunities that provide meaningful returns. Our recent contract award for Velaris DS17 demonstrates the strength of contract economics for our high-quality rigs in the current market and provides a glimpse of the future earnings potential of the Velaris fleet. We remain focused on executing on our key priorities, the first, winning additional backlog for the active fleet, and second, reactivating our high-quality stacked rigs for opportunities that provide meaningful returns. We will also look to act opportunistically to create shareholder value through M&A or additional asset transactions if they make sense. And we will maintain our focus on having an industry-leading cost structure and strong balance sheet. By executing on these priorities, we will maximize earnings, drive meaningful free cash flow as the market recovers, and employ a disciplined approach to capital allocation, including returns to shareholders when free cash flow generation supports them. We've now reached the end of our prepared remarks. Operator, please open the line for questions.
spk04: Thank you. And we will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble the roster. And our first question today will come from Greg Lewis with BTIG. Please go ahead.
spk00: Yeah, hi. Thank you, and good morning, everybody, and thank you for taking my questions. You know, I was hoping to talk a little bit about those – it looks like we have about three rigs that are rolling off in the spring of 2023 – I guess a couple questions there. One is, do any of those rigs have existing options that's going to keep them working beyond that? And then as we look at the opportunities, I guess those rigs are in West Africa and Brazil. As we think about the opportunities for those rigs, any kind of color you can give us around you know, I don't know, duration and or, you know, I don't expect you to give us pricing, but really any kind of color you could give us around how we should directionally think about those rigs, knowing that they've been on contract for a little while here and rates have moved higher.
spk07: Hey, Greg, good question. I think we're talking about floaters here. So the DS-15.
spk00: Yeah, just the drill ships, not even the semi.
spk07: Yeah, yeah. CS15 in Brazil does have some options on it, and obviously we have a high expectation that given the activity levels in Brazil, that rig will continue with Total. The rigs in West Africa, there are a lot of interesting opportunities. As we said, there's a strong pipeline of tenders coming out in West Africa. So for us, the focus is making sure we – We find the right opportunity for those rigs to roll on. There's certainly plenty of work. It's an attractive time to have rigs available for the market. And making a bit of a balance between the right longer-term program. I think recent fixtures that we've seen by us and others in the kind of 18-month, two-year range is about where the market is on floated-term fixtures, some a little bit longer, including in Brazil, stretching out to three and four years. But it may be a combination of taking some short-term work to bridge to the right long-term opportunity. Obviously, we'd prefer to just roll into the next long-term opportunity, but we're just going to have to see how that plays out. But there's definitely interest. They're attractive rigs. They have a great operational track record. The customers who have them like them, and we'll just have to see how that market plays out.
spk00: Okay, great. And then just... Okay.
spk01: Greg, I would just quickly, I would add, you know, we have started disclosing options in the fleet status report. So you can see both DS-10 and DS-15 do have options.
spk00: Yeah. Okay. And then the other question I wanted to ask you is, and you touched on it around reactivations, you know, I guess lead times are upwards of 12 months. And so, I mean, I guess at this point that almost is pushing reactivations out into 2024. You know, I guess my question is, have conversations started yet, you know, whether it's Volaris or I know that people talk across the industry. Are we starting to see – are there starting to be conversations from rig op, from customers about potentially – you know, doing those long-term contracts for work in 24 and beyond that could actually see announcements of reactivations here over the next couple quarters, or are we still kind of in early days on reactivations of RIGs?
spk07: No, I would say that, you know, we're having discussions about term contracts that include reactivations. Just for perspective, when we reactivated the four major reactivations Last year, we were planning on the order of nine months for those reactivations. And, you know, as I said in my prepared remarks, very proud of the team for actually delivering on time and on budget on, you know, overall on those projects, because this is an industry that's replete with horror stories when it comes to reactivating rigs. It's one thing this organization does extremely well is... is deliver rigs and operational prowess to deliver those rigs back to the market. Right now, we're planning on about 12 months. That's what we're planning on for the DS-17, given longer lead times, supply chain challenges. But the opportunities that we're having discussions with customers, obviously, as you said, we have some short-term rigs rolling off during 23, and we're looking at those. But a number of the opportunities that we're bidding and tendering are, you know, all the way through 23. For example, if you look at where the Petrobras tenders are, and there are a number of opportunities that people are already talking about for late 23 and moving into 24. So there's a range, and I think our customers are well aware of, you know, from our discussions with them with the lead times that it is going to take to bring additional capacity back to market, and they're planning accordingly.
spk00: Okay, super helpful. Thank you very much.
spk04: Thanks, Greg. And our next question will come from Frederick Stein with Clarkson's Plateau Securities. Please go ahead.
spk03: Hey, guys, and congratulations on another quarter. Hope you've had a nice summer as well. So my question relates to how we should think about your remaining stacked assets and also the two new builds that you have And I think maybe even more so, this is something that should be viewed in conjunction with what's going on in Brazil right now. Obviously, your comments is quite forward leading in terms of how that region is going to contribute to demand going forward. So I was wondering if you had any preferences around how you would bid in these stacked assets. and are you already looking at opportunities for those two rigs at yard and if you are do you have any idea of how long it would take them to get them call it ready to drill uh before they're or after they're delivered and do you have any flexibility on that delivery date etc anything that you could kind of give me on on that front would be super helpful sure perfect um no thanks for the question look let me let me take a
spk07: take a step back for a second. Look, our priority is always to make sure that we have a high degree of utilization on the active fleet to the question we just had, which is making sure we don't have significant gaps or trying our best to make sure we don't have significant gaps and rigs that are active on water on the fleet and to roll those first. You know, after that, we start looking at the stacked rigs, which we've demonstrated ability to bring back to market. So DS-7, DS-8, DS-11. and looking for work for those. And I'd say that DS13 and DS14 as new builds come after that. We have until the end of 2023 in order to make those decisions. I think in order of timing, you're looking, you know, on par with a reactivation of a cold stack rig to bring that rig back to market. There have been some discussions with customers. You know, some customers would like to take out a new build or have some very specific requirements contract of technical requirements. But, you know, as far as our, as we look through our priority list, it's, it's about being disciplined about when we take rigs out, when your opportunities, making sure that they're attractive opportunities and generate significant cash. And it does start with rolling the active fleet and going to the attractive kind of stack rigs and then looking at the new build options. You know, that being said, you know, just north of at $119 million, the DS 13 is certainly a, um, you know, a remaining purchase price that you would say was in the money, and likely you could look at DS14 the same way. But everything else being equal, those are probably, you know, later on on the stream for us.
spk03: Thank you. I had seemed to be a bit troubled with the line. I'm not sure if that's on my side or not, so you were a bit... choppy, but I'll see if the U.S. line maybe works better on the transcript there. And if not, we can just revert back later so I get the full story.
spk06: Happy to follow up offline.
spk04: Yeah.
spk06: Thanks.
spk08: Thanks, Frederik.
spk04: And our next question will come from David Smith with Pickering Energy Partners. Please go ahead.
spk05: Good morning. Thank you for taking my questions.
spk07: David?
spk05: Good morning, David. Seeing something on the floater side, it feels like we haven't seen in a while, which is longer contract terms at higher and higher leading edge stay rates. It seems clear that there is more demand for deepwater term from operators. I'm curious from what you're seeing if that's a greater mix of demand for multi-well development programs Or is it a shift where, you know, term demand is coming more from operators that, you know, they're seeing port availability shrink and they're locking in rigs to ensure, you know, that they have the availability to execute plans for 23 and 24?
spk07: That's a good question, Kevin. I think what we have seen is, you know, there is an increasing activity level. You know, there is a tender pipeline. But what we have not seen is overall a significant increase in contract durations. I think everybody, you know, including on the customer side, has been quite thoughtful about, you know, making long-term commitments, although they have work and they see it in their pipeline. So, you know, other than the Petrobras tender that's out right now, one of the losses for four-year contracts is about the, you know, the longest contract terms we've seen, you know, really that folks are looking for. But, you know, even on, you know, kind of step-up developments and those development programs, you know, deep order, you know, ultra-deep rigs are more in the order of two years plus options or, you know, three years. So I think that's fairly indicative of where the market is. And we haven't reached the place in the market where folks are securing beyond that in order to lock down lock down their rigs. And I think part of that's because they are still some attractive, including our stack rigs that are available and can be brought back to the market. And I think part of it is also after, you know, let's say a very difficult seven years, people being a little more cautious about making very long-term commitments on rig programs. But that doesn't take away from the fundamentals and the overall strength that we see in the markets. You know, I was looking at some data this morning, for example, about, you know, the mix between exploration and development. And if you talk about in order of, you know, round numbers, 90 ultra-deepwater floaters are in the market. About 30 of those are working on exploration programs. Now, they're not all rank exploration by this data, and some of them are step-outs. But the fact that that exploration is happening is another good sign for us in the market. But, yes, you're very correct in your observation that the overall contract terms are – length and durations are not where they were at the height of kind of the last market cycles. But we're still getting into a developing, growing market. So let's see how that plays out.
spk05: I appreciate it. And the follow-up is, you know, in the past, when we've seen visible demand grow while forward availability shrinks, we tend to see more demand come through direct negotiations versus the tender process. So I'm curious about what you're seeing in the mix of your conversations. You know, if it's predominantly bidding, you know, tenders, or if you're seeing a greater mix of direct negotiations.
spk07: There's definitely be more discussion in and around tenders about, you know, direct negotiations. I think there's also a geographic component to it, and I think we did make some statements in the prepared remarks. So in more regulated environments, for example, in Brazil and especially, you know, West Africa, if you look at Angola, Nigeria, you know, the tender processes are required. When you look at the Gulf of Mexico, there's much shorter-term visibility just because direct negotiations are much more prevalent. You don't have the same regulatory environment. So it is somewhere, as we said, where we can see, you know, while in discussions you can see the additional demand and folks have a need for the regs, you may see additional demand and more direct negotiations. Historically, they have been and they will be more direct negotiations. So I think there's a real geographic component as well to it.
spk05: For sure. I appreciate it. I'll circle back in with you. Okay. Thanks.
spk04: And there are no further questions at this time, so this will conclude the question and answer session. I'd like to turn the conference back over to Tim Richardson for any closing remarks.
spk02: Thanks, Cole. And thank you to everyone on the call for your interest in Volaris. We look forward to speaking with you again when we report our third quarter results. Have a good day.
spk04: And ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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