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spk04: Good day and welcome to the Valeris Second Quarter 2024 Results Conference 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 touchtone phone. 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 Nick Georgis, Vice President, Treasurer, and Investor Relations. Please go ahead.
spk06: Welcome everyone to the Valeris Second Quarter 2024 Conference Call. With me today are President and CEO Anton Dibovitz, Senior Vice President and CFO Chris Weber, Senior Vice President and CCO Matt Line, and other members of our Executive Management team. We issued our press release, which is available on our website at Valeris.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. Earlier this week, we issued our most recent Fleet Status Report, which provides details on contracts across our rig fleet. An updated Investor presentation will be available on our website after the call. Now, I'll turn the call over to Anton Divovits, President and CEO.
spk02: Thanks, Nick, and good morning and afternoon to everyone. During today's call, I will begin with an overview of our performance during the quarter and provide an update on the offshore drilling market. I will then hand the call over to Matt to discuss the floater and jackup markets in more detail and provide some additional color on recent contract awards, as well as our contracting outlook. After that, Chris will discuss our financial results and guidance before I finish with some closing comments. To begin, I want to highlight some key points about our business that we will cover in more detail during this call. First, in the second quarter, we built on our great start to 2024 and would like to congratulate the entire Valeras team on delivering another excellent quarter of safety, operating, and financial performance. Second, we continue to execute our commercial strategy, securing attractive new contracts and building our backlog. This past quarter marks the seventh consecutive increase in our backlog, which now totals more than $4.3 billion. Third, we maintain our conviction in the strength and duration of this upcycle and see strong customer demand for projects that are expected to commence in 2025 and 2026. Turning to operations, our success continues to be built on the foundation of strong safety and operating performance. In the second quarter, we delivered fleet-wide revenue efficiency of 99% without a lost time incident, a great achievement by the entire Valeras team. This achievement is even more impressive considering that we had several rigs either starting new contracts or changing operating locations during the quarter, including Valeras DS7 following its reactivation, DS17 moving countries to drill a frontier exploration well in Argentina, and the Stavanger and 123 commencing new contracts in the North Sea following -of-service periods for contract preparation and survey work. In addition, we had several rigs celebrate safety milestones during the quarter, and I would like to congratulate the Valeras 249 team for reaching two years without a recordable incident, as well as the Valeras DS10 and 106 teams for each reaching one year without a recordable incident. Well done to everyone involved. We also continued to build on our strong track record of reactivating rigs for contracts that benefit our financial results by returning Valeras DS7, one of our seventh generation drill ships, to work on a long-term contract offshore West Africa. The DS7 reactivation project was delivered on time and began its contract on schedule, marking our sixth drill ship reactivation completed since 2022. Successfully reactivating rigs for attractive contracts has played a large part in our earnings growth story, and we still have organic growth capacity to meet increasing customer demand with Valeras DS11, DS13, and DS14, the highest specification drill ships in the global fleet that have yet to be reactivated. Moving to our financial performance, adjusted EBITDA increased to $139 million in the second quarter, up meaningfully from $54 million in the first quarter. Adjusted EBITDA, adding back one-time reactivation costs, was $150 million. These results were better than our guidance primarily due to the team achieving 99% revenue efficiency during the quarter, certain contracts extending longer than previously anticipated, and the timing of costs that are now expected to be recognized in subsequent quarters. Chris will provide further details in our financial results and guidance a little later. Turning now to the broader offshore drilling market, the combination of increasing global demand for hydrocarbons and OPEC Plus effectively managing supply has led to relatively stable oil prices so far this year, with SPOT Brent crude prices largely trading above $80 per barrel. Looking out further, the five-year Brent Ford price is around $70 per barrel, a level at which more than 90% of undeveloped offshore reserves are expected to be profitable. As a result, commodity prices remain very supportive for continued investment in long-cycle offshore projects. In addition, leading indicators of offshore rig demand, including global upstream capex and project sanctioning, are expected to see strong growth over the next few years, bolstering our view that we are in a structural upcycle. According to RESTAD, deepwater upstream capex is expected to increase at a compound annual growth rate of 9% over the next three years, which is anticipated to drive further growth in floater demand. Average day rates for drill ships have continued to increase compared to 6 and 12 months ago. Just past the halfway point of this year, we have already seen six fixtures above $500,000 per day, compared to just two for all of last year. And these fixtures have spanned the U.S. Gulf of Mexico, Brazil, West Africa, and Asia, evidence of the broad-based growth in customer demand. The strength of the market is further demonstrated by a recently announced multi-year contract for Volaris DS17, which added nearly $500 million of contract backlog at a leading-edge day rate. This contract includes a standby period where the customer will pay a day rate to keep the rig while they wait to commence their new drilling program. This new contract is a testament to the quality of our crews and operations, the capabilities of the rig, and the collaborative nature of our relationship with Equinor, who have made investments in innovative safety and automation technology on the DS17. Our priority remains maximizing the profitability of our fleet by keeping our active rigs highly utilized and securing the best contract economics possible. With this in mind, we are laser-focused on filling as many uncontracted days in 2024 as we can and securing term work commencing in 2025 and beyond that will further support expected earnings and cash flow growth. Moving to shallow water, the benign environment jackup market remains tight, with marketed utilization of 93%. Several rigs from the first round of Saudi Aramco suspensions earlier this year have already made an orderly transition into the international benign environment jackup market, and leading-edge day rates are still north of $150,000 per day, as evidenced by recent fixtures. The working rig count offshore Saudi Arabia is anticipated to move slightly lower going forward, with up to five additional rigs expected to be suspended. In connection with the second round of suspensions, Arrow recently received notices from Saudi Aramco to suspend the drilling contracts for Valaris 147 and 148. Discussions are ongoing with Aramco whether other Valaris leased rigs or Arrow-owned rigs could be subject to the suspensions instead of Valaris 147 and 148, along with the effective date for these suspensions. While we currently estimate the suspensions could adversely impact our full-year 2024 EBITDA by up to $10 million, these two contracts represent just $35 million of our $4.3 billion dollars in contract backlog. Taking a step back, the suspension of up to five additional rigs by Saudi Aramco does not change our view of the market, as they represent approximately 1% of the global market at Jackup Fleet. For harsh environment Jackups, the supply-demand balance in the North Sea improved meaningfully in the latter half of 2023. Our rigs are fully contracted for 2024, and we currently have less than one rig year of availability across our nine active rigs in the region in 2025. We see strong customer interest for programs that line up well with this limited availability. Before I finish, I'd like to briefly comment on our capital return objectives. With positive industry fundamentals driving increasing day rates and contract durations, we're in a strong market to be adding contract backlog. As I noted earlier, we continue to make major strides on this front, which supports our earnings and cash flow growth. Looking ahead, we expect to generate meaningful and sustained free cash flow in 2025 and beyond, and we intend to return all future free cash flow to shareholders unless there is a better or more value-accretive use for it. Now I'll hand the call over to Matt to discuss the floater and jackup markets in more detail, and to provide an overview of our recent contracting success and
spk11: our contracting outlook. Thanks Anton, and good morning and afternoon everyone. Since the beginning of the second quarter, we secured new contracts and extensions with associated contract backlog of approximately $715 million. These awards have increased our total backlog to more than $4.3 billion, a 42% increase compared to a year ago, and our seventh consecutive quarter of backlog growth. Importantly, this growing backlog has been secured at higher day rates as seen in the increased average daily revenue within our quarterly results, and the average day rates included within our backlog. This is particularly evident for our drill ship fleet. Over the past 12 months, drill ship backlog has increased by nearly 50% to more than $2.5 billion. In addition, we have increased the average day rate for our drill ships within backlog to $414,000 a day, from $338,000 per day. These averages exclude the impact of meaningful upfront payments we have secured on several of our drill ship contracts, and we expect the average day rate within our backlog to increase as we roll legacy day rate contracts to market rates. Our recent contract awards include a multi-year contract with Equinor Offshore Brazil for drill ship Velares DS17. We are pleased to have secured a new contract in direct continuation of the RIG's current program at a very strong day rate. The customer's willingness to pay a standby rate while they wait to commence their new drilling program is a good indication of market strength as we look ahead to the second half of 2025 and 2026. Moving to shallow water, we have secured eight new contracts or extensions since the beginning of the second quarter, five of which were for RIGs in the North Sea. These include a two-year program for Velares 92 and approximately 300 days of work for Velares Norway, securing work for both RIGs for nearly all of next year, and further enhancing our 2025 contract coverage in the region. In addition, we secured a one-year contract for Velares 249 Offshore Trinidad at a day rate in the high 100,000s, representing a 10% increase from our previous contract award in the region. Moving now to an overview of the major markets. Starting with floaters, the contracted benign environment floater count reached 127 during the first quarter, its highest point since late 2016, and remained at this level during the second quarter. Marketed utilization of 86% for the benign environment floater fleet is at its highest point in nearly a decade. The strength of the market is evident in the day rates we have seen for recent contracts, particularly for high-specification seventh-generation drill ships, which comprise 12 of the 13 drill ships in Velares' fleet. Average day rates for seventh-generation drill ship contracts have increased from approximately $450,000 in the second half of 2023 to approximately $480,000 in the first half of 2024. And as Anton mentioned, we have seen an increasing number of fixtures above $500,000 in recent months. We continue to see a robust pipeline of opportunities for work commencing in the second half of 2025 and 2026. Looking at expected future demand and ongoing tenders, we are tracking approximately 30 floater opportunities with durations of at least one year, and the average firm duration for these opportunities is approximately 2.5 years. With the average lead times and durations for programs extending, the timing of contract awards can be hard to predict. However, we are confident that we will see a high conversion rate as tenders become contract fixtures. And we anticipate that roughly 20 of the 30 long-term opportunities that we are tracking will be awarded within the next 12 months, with several expected before the end of this year. We see the greatest number of opportunities for programs offshore Africa. We are currently tracking more than a dozen opportunities, including long-term tenders for work in several countries, including Nigeria, Angola, and Ghana. Taking Nigeria as an example, Ristad's forecast for deepwater capex through the end of the decade has more than doubled as compared to their forecast just two years ago. This increased activity is expected to be primarily driven by IOCs. And we anticipate that we may see contract awards for at least one of these ongoing tenders before the end of the year, with a further two expected to follow in early 2025. Offshore Brazil, there are currently 36 floaters contracted, including four rigs that have yet to commence contracts. Petrobras now has three ongoing tenders, Hancador, Sepia, and a recently issued tender for up to four rigs across multiple fields. While most of these awards are likely to go to rigs that are already in country, these work scopes will keep many rigs occupied into 2028 and 2029, showing the longevity of customer demand in Brazil. In addition, there is still potential for incremental demand through a combination of Petrobras and IOC programs. In the Gulf of Mexico, we see several long-term opportunities on the radar and expect this market to remain fairly balanced, with demand largely met by existing supply in the region. Outside of the major floater markets, we see potential for incremental demand from Suriname, which given its proximity to Guyana, could become a strong growth market over the next few years. In Namibia, we anticipate that the significant exploration success over the past couple of years could lead to some long-term development programs commencing later in the decade. And we have also seen an uptick in demand in Southeast Asia, with several operators looking at opportunities that could require incremental rigs in the region. Moving to shallow water, the global jackup market remains in a healthy place. The contracted rig count has increased in Southeast Asia, India, China and West Africa over the past six months. And we have already seen at least six rigs that were suspended in Saudi Arabia earlier this year find work in other regions. We expect that the remaining suspended rigs that elect to seek work outside Saudi Arabia can be absorbed with limited impact on the broader market. And the expected suspensions of up to five additional rigs in Saudi Arabia does not alter our view. In the North Sea, market conditions continue to improve with all 20 active jackups in the UK, Danish and Dutch sectors currently contracted. During the first half of 2024, we saw an increase in the number of contracts and total number of rig years awarded as compared to the same period last year. In addition, we have seen average day rates for new fixtures in the region increase to approximately $140,000 in the first half of 2024 from $120,000 in the second half of 2023, with leading edge day rates continuing to push higher. Customer interest remains strong, particularly for programs commencing in the second half of 2025. We are also encouraged by the increasing number of longer term new energy and plug-in abandonment programs that could result in incremental demand in this region. In terms of our contracting priorities, we continue to have 2024 availability on just two of our 13 active floaters. DPS 5 recently completed its contract with ENI Offshore Mexico, and DS 10 will complete its contract with Shell Offshore Nigeria in the coming days. We continue to see long term opportunities for both rigs that are expected to start in the second half of 2025. And in the meantime, we are actively pursuing short term opportunities. At the time of our last call, we were in active customer discussions for opportunities for both rigs that were expected to start in the third quarter. Subsequently, these programs have either been delayed, seen their work scopes reduced, or been filled by sublets. Currently, the available short term opportunities for these rigs commence in the fourth quarter. DS 12 is now expected to continue its current program with BP Offshore Egypt into early next year, and the rig is well positioned for future opportunities both offshore Africa and further afield. Given recent contracting and the expected exercise of priced options, we now anticipate that nearly 70% of 2025 available days for our active floater fleet are spoken for. Aside from the three rigs I just mentioned, the only other floaters with available days in 2025 are DS 18, which is currently working for Chevron in the US Gulf, and our two semi submersibles in Australia. We are already in active discussions regarding follow on work for these rigs with either the existing customer or other operators with work programs that are expected to commence next year. In addition, we continue to see customer interest in our seventh generation drill ships requiring reactivation, Velaris DS 11, DS 13 and DS 14, and we expect that the growing demand will provide increasingly attractive opportunities to put these rigs to work over time. Looking at 2025 for our benign environment jackups, we have availability on the Velaris 117, 118 and 247, and we expect to secure work for these rigs that will keep them busy next year. As Anton noted, discussions regarding recent suspension notices from Saudi Aramco are ongoing. While we do not know the exact form these suspensions will take, we are in discussions with Aramco on extensions for rigs that are due to complete their existing lease terms at the end of 2024 or early part of 2025. In terms of our North Sea jackups, as mentioned earlier, we recently secured additional work for five rigs in the region. With these contracts and options that we expect customers to exercise, we now see less than one year of availability across two of our active rigs during 2025. We entered 2024 with our active North Sea fleet fully sold out for the year ahead, and Based on our discussions with customers, we anticipate being in a similar position before the start of 2025. In summary, we continue to focus on building contract backlog by securing attractive contracts at increasing day rates. We remain laser-focused on filling as many uncontracted days in 2024 as we can and securing term work commencing in 2025 and beyond that will further support our expected earnings and cash flow growth. I will now hand the call over to Chris to take you through the
spk01: financials. Thanks, Matt, and good morning and afternoon, everyone. In my prepared remarks, I will provide an overview of the second quarter results, our outlook for the third quarter, and our guidance for the full year. Starting with our second quarter results, revenue was $610 million, up from $525 million in the prior quarter, and an adjusted EBITDA was $139 million, up from $54 million in the prior quarter. Adjusted EBITDA, which adds back reactivation expense, was $150 million, up from $84 million in the prior quarter. Adjusted EBITDA increased meaningfully in the second quarter, primarily due to higher utilization and average daily revenue for both the floater and jackup fleets, along with lower contract drilling expense. In the second quarter, floater revenues increased due to a full quarter of operations for Valaris DS12 and DPS5, which both commenced contracts during the first quarter, along with DS7, which commenced operations offshore West Africa in late May following the successful completion of its reactivation project. In addition, Valaris DS15 and DS16 started new, higher day rate contracts in the second quarter, which contributed to an increase in average daily revenue. Jackup revenues increased primarily due to higher utilization, including a full quarter of operations for Valaris 107, which commenced a contract offshore Australia during the first quarter. In addition, Valaris 123 and Stevanger started new contracts in the North Sea during the second quarter, following -of-service time in the first quarter while the rigs were undergoing contract preparation and survey work. Contract drilling expense decreased in the second quarter, primarily due to lower reactivation expense for DS7 as it completed its reactivation project. In addition, we incurred lower repair and maintenance expense for the jackup fleet as rigs returned to work following -of-service time for contract preparations and survey work in the first quarter. These items were partially offset by increased operating costs for the floater fleet due to higher utilization and costs to stack Valaris DS13 and DS14. Our second quarter EBITDA came in better than our guidance primarily due to three factors. Strong operating performance as we achieved 99% revenue efficiency. Certain contracts, including DS10 and DPS5, running longer than expected. And the timing of certain costs pushing into the second half of the year, primarily the This cost timing drove roughly half of the outperformance versus guidance and is primarily attributable to the timing of mobilizations and demobilizations and repair and maintenance spend. Moving to our financial position, we had cash and cash equivalents of $410 million at the end of the quarter. Cash declined by $99 million during the quarter, primarily due to capital expenditures of $110 million, partially offset by cash generated from operations of $12 million. In the second quarter, operating cash flow was negatively impacted by a large build in working capital, primarily due to an increase in counts receivable driven by higher fleet utilization and the startup of the DS7 contract. Our $375 million revolving credit facility remains fully available, providing total liquidity of $785 million at the end of the quarter. Moving now to our third quarter outlook, we expect total revenues in the range of $610 to $630 million, contract drilling expense of $455 to $465 million, and G&A expense of approximately $30 million. Adjusted EBITDA is expected to be $120 to $140 million compared to $139 million in the second quarter. EBITDA is expected to move lower due to the DPS5 and DS10 both being idle for the rest of the quarter after completing their latest contracts, the impact of costs that have shifted from the second quarter to the third quarter, out of service time and repair costs for Jacob Valaris 249, and the potential impact of Saudi Aramco contract suspensions for Valaris 147 and 148. These items are expected to be partially offset by a full quarter of operations for DS7, the recent commencement of the Valaris 247 contract in Australia following its mobilization from the North Sea, and the DS15 and DS16 operating at higher day rates for a full quarter. Regarding the Valaris 249, the rig recently incurred leg damage while moving off location in advance of its next contract. We currently estimate that the rig will be out of service for several weeks to complete the required repairs and that the total financial impact, inclusive of out of service time and repair costs, will range from $5 to $10 million. For the Valaris 247, I also want to flag that the mobilization, revenue and expense associated with its move from the North Sea to Australia will be largely recognized during the third quarter because it will be amortized over the rig's initial 100-day contract which commenced in mid-July. Total CAPEX in the third quarter is expected to be $90 to $100 million. Maintenance and upgrade CAPEX is expected to be approximately $85 million, including spend related to the start of the Valaris 144 upgrade project prior to its long-term contract Offshore Angola that is scheduled to commence early next year. Reactivation and associated contract-specific CAPEX is expected to be approximately $10 million, primarily related to some trailing costs for DS7. Turning to our full-year outlook, we are lowering our full-year EBITDA guidance range to $480 to $540 million, with revenue in the range of $2.35 to $2.4 billion, contract drilling expense of approximately $1.75 billion, and G&A expense of approximately $115 million. We have updated the EBITDA guidance range primarily due to the current outlook for the DS10 and DPS5 in the second half of the year. As Matt mentioned, the current available opportunities for short-term gap-fill work are now starting during the fourth quarter, and this reduces our 2024 EBITDA potential. We need to secure work for one or both of the rigs in the fourth quarter to achieve the midpoint of the updated EBITDA range. Our guidance also reflects the expected financial impact of the Valaris 249 leg damage I previously discussed, as well as the potential impact of Saudi Aramco contract suspensions for Valaris 147 and 148, which, as Anton mentioned, could be up to $10 million this year. Full-year 2024 capital expenditures are expected to total $450 to $480 million. This is slightly higher than our prior guidance, primarily due to certain project-related costs being capitalized that were previously expected to be deferred expense. As a reminder, we expect that approximately $55 million of our full-year 2024 CAPEX will be reimbursed through upfront customer payments, most of which is expected to be received in the second half of the year. Finally, we expect our free cash flow profile to improve in the second half of the year, driven by higher utilization in day rates and lower spend on reactivations and contract preparations. I want to conclude by stepping back and noting that we've had a great first half of the year, and while there are a few discrete items that are impacting our results in the second half of the year, we are excited about the future and the outlook for our business remains very strong. And now I'll hand the call back to Anton for some closing remarks.
spk02: Thanks, Chris. I wanted to reiterate some of the key points we covered today. First, I am proud of the strong safety, operating, and financial performance that we delivered through the first half of the year. Congratulations to the entire Valaris team on an excellent six months. Second, we maintain our conviction in the strength and duration of this upcycle and see strong customer demand for projects that are expected to commence in 2025 and 2026. And finally, we continue to execute on our strategy, securing new contracts at higher day rates that will support our expected earnings and cash flow growth over the next few years. We believe that Valaris is well positioned to benefit from the strength and duration of this structural upcycle, and we thank our employees, customers, and investors for their support. 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 touchtone 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 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Greg Lewis with BTIG. Please go ahead.
spk03: Yes, hi. Thank you, and good morning and good afternoon, everybody. Hi, I was kind of hoping we could talk a little bit about capital allocation and how you're thinking about managing or returning Valaris cash flows to shareholders in that. If we were to talk 6, 12 months ago, I'm sure most of us on this call would have thought, hey, the DS141311 are going to be reactivated because the market is that strong and there's going to be capex associated with bringing those rigs on. Markets definitely improved, but as we think about the next 12 to 18 months and the rigs that are idle on the sidelines, whether it's Valaris or others, and just that capex that we're assigning to reactivate those rigs, it's just going to be put on hold for a little while. Does that kind of change the way you think about your capital allocation and maybe does that provide an opportunity for you to accelerate returning cash to shareholders over the next 12 to 18 months?
spk02: Yeah, that's a good question. Greg, look, we've been very clear about our capital return thoughts and how we were going to demonstrate that to shareholders. We returned capital to shareholders last year. We've spent a significant amount of cash in the first half of the year getting the 7 to work and are going to generate increasing amounts of cash as we roll legacy contracts onto new contracts and as we go into 25, a real inflection point for us as a company. I don't think we feel differently about the 13 and the 14. There's a strong pipeline of opportunities, as we said, coming through in the latter half of 25 and into 26. In fact, as we see it now, we operate high specification, 12 of our 13 ships are 7th gen and we can see a call on those assets evolving in the second half of next year and going into 26. We still see great opportunities for the 13 and 14 going forward. We've been very clear on our capital return philosophy when we're generating cash and we're heading in that direction over the next period that we're going to return it all to shareholders. We have capacity available under our authorization right now. When we put in place, we said it would not be necessarily linear through the year and we're going to be opportunistic in it and we will live with that commitment and we intend to return cash to
spk03: shareholders. Capital shareholders. That makes a lot of sense. One of those signs that the market is tightening for the high end drill ship market, you were able to contract the DS17 where the customer was willing to pay a standby rate so they could have that rig ready when they needed to start drilling there. Could you talk a little bit about the dynamics of the DS17 and how that rig was positioned to really get paid a pretty attractive standby rate for a couple quarters as it waits for the next job?
spk02: Absolutely. As I just said in my answer to your capital question, we see a strong pipeline in 25 and going into 26. Tight market for the high specification assets. The DS17 is a very high specification asset. Equinor is a great customer. We had a great partnership with it. The crews have done a great job on the Bakalao development with that rig. They partnered with us and invested significant amounts of money into the rig on innovative technology. We have the ATOM RTX robotic arms on it. A lot of automation on that rig. They have confidence in the rig to do their good going to the higher development. They have confidence in the rig to deliver that development. I think it's a testament to where the market is going. Having good customer relationships. Operators recognizing where the market is going to be in the latter half of next year and going into 26. That for the right asset that they are willing to invest and spend money to secure the assets so that it's available to them. I think that's one of the great signals of where we see the market going.
spk03: Perfect. Thank you very much for the time.
spk02: Always.
spk04: The next question comes from Eddie Kim with Barclays. Please go ahead.
spk08: Hi. Good morning. I just wanted to follow up on that DS17 contract. As Greg alluded to, there's a standby rate for 180 days. That's probably the longest paid standby period we've seen maybe since the 2014 downturn. It does look like it could be a strong read through for the market. For your other reactivated rigs, would you say operators for your other reactivated floaters have invested maybe a similar amount as Equinor did on the DS17? Or was that Equinor investment into the DS17 probably more elevated and kind of more of a one-off than the others?
spk02: Equinor is a very forward-leaning technology company. A lot of that technology, automation, desire for automation technology comes out of the North Sea, Norway in particular. So they invested capital in the rig to, as I mentioned, the Atom RTXs and some other automation. I think as much I'd read into is the timing of that and when that program is going to be starting up and where we see the strong pipeline of opportunities that are coming to the market. I think Matt referenced in his prepared remarks 30 opportunities and potentially 20 of those being awarded in the next 12 months. As we roll forward a year from now, seeing that once the high-spec assets like the 17, the 7th gen drill ships are taken up, there is a good potential for a call on additional assets. That's why we feel really good about the 11th, the 13th and the 14th when you consider that a reactivation takes about a year to do. For that period where we are sitting from now towards the end of next year and heading into the first quarter of next year, we continue to have discussions with customers on those rigs. Those customers have been ongoing, but we're not in a rush. Those assets are increasingly going to be called on and we will wait for the right opportunity. As we see if those opportunities get more attractive as time goes by when we line it up against the pipeline of opportunities in late 25 and heading into 26.
spk08: Got it. My follow-up is just on the two jack-up suspension notices on the Valeris 147 and 148. You mentioned having discussions on whether maybe other Valeris lease rigs could be suspended instead. Could you maybe give us some more insight here? I know you have some other rigs that are expected to come off contract earlier than the 147 and 148. Is that really the main factor here or is there something else? Just to clarify, I believe I heard you say you expected around five more jack-ups suspended from Saudi across their fleet, which would bring the total of this second round to around seven suspended jack-ups. Did I hear that correctly?
spk02: Let me start off. Aro, our JAV, just received these notices in the last week. We call it late breaking news. While the notices were received for two lease rigs, the 147 and the 148, we're in discussions with Aro and with the Ramco. These are productive, constructive discussions. We may look at instead suspending another lease rig or an Aro-owned rig. We're just going to have to see how those discussions develop. Which rigs may be suspended and the timing of those still needs to be determined. Taking a step back from these specific rigs, you said yes, five. We expect five based on what we understand from discussions in the market. In context, if it was those two rigs, the 147 and the 148 is about $10 million of EBITDA, which is part of the adjustments we've made going through the year. For context, this is $35 million of backlog out of $4.3 billion for Volaris. I think we need to take that number in context. Those five rigs that are purported to be suspended is about 1% of global marketed jack-ups. In a market where we have 93% utilization right now, from the first series of suspensions, the 22 earlier this year, a number of those rigs have made a very orderly transition into the international market. We see leading-edge day rates in the benign jack-up market still north of $150,000 a day, as we've seen fixtures from us and others in the market. This is not a fundamental change in the jack-up market as we see it, and we feel good about the jack-up market and these rigs like the others. Those that are competitive in the international market, not all of those rigs are competitive in the international market, will continue to make an orderly transition.
spk05: Just to be really clear, Aero got a decision for two rigs, and the discussions we're having about are which rigs, not if there's more rigs. Just which rigs.
spk08: Yeah,
spk10: thanks.
spk05: Got it.
spk08: Understood. Thanks for that, Coller. I'll turn it back.
spk04: The next question comes from Kurt Hollead with Benchmark. Please go ahead.
spk09: Hey, good morning, everybody. Thanks so much for the color.
spk10: Morning,
spk09: Kurt. Hey, Kurt. Hey, I just wanted to maybe dig a little bit further. You referenced, went through the market dynamics, went through the segmentation of the floater market. We kind of heard from one of your peers already this morning, so I just want to try to calibrate. So, when you take everything in aggregate that you expect to see, let's say through 2026, what do you think the net incremental 7G deepwater rate demand could be?
spk12: So, I think Kurt, Matt here. So, I think from, we're talking about, if you remember from my prepared remarks, you're talking about the somewhat 30 opportunities we're seeing that are longer than a year in duration, but across the 30 have an average of two and a half years. You know, I think if you're putting a number on it, you're likely to see about 10 of those 30 provide potential incremental opportunities. Now, that's incremental to the region. And I think your question, you know, breaking it down into seventh gen, obviously we know that customers have a preference for seventh gen rigs and 12 of our 13 drill ships are seventh gen rigs. So, I think, you know, 10 incremental potential, but I wouldn't suggest that all 10 would be filled by sideline capacity.
spk02: But what I will say to that is, you know, as we roll forward, as we roll forward 12 months, you know, 25 going into 26, a potential call on sideline capacity or an expectation for a call of sideline capacity. The reason why we feel good about is when you look at sideline capacity, the 11, 13 and the 14 are the highest spec rigs in that sideline capacity. So, there, you know, we expect that to be good opportunities for those rigs going forward.
spk09: Okay, that's great. And then the follow up I have then is, you know, when you guys are obviously having a very shareholder friendly capital allocation program, right? How are you targeting or what is your target in terms of free cash flow conversion on expected EBITDA going forward?
spk05: Yeah, we don't have a specific target from a conversion perspective, but what I can say is, you know, we remain committed to returning capital shareholders. You know, as Anshan mentioned, we've got significant capacity under the existing authorization. We intend to use that. It's not going to be linear. You know, we're going to be opportunistic. But, you know, as I mentioned on the call, you know, we expect the free cash flow profile of the business to improve in the second half of the year. And looking ahead to 2025 and beyond, that's really part of the transition to where we start generating meaningful and sustained free cash flow. And like Anton mentioned, we intend to return it all to shareholders unless there's a better, more value creative use for it.
spk09: OK, great. And then if I just make this rapid with this, you know, if would you general comment here, right? Not nothing specific, but do you expect there to be another round of M&A within the offshore drilling space before the end of the year?
spk02: No, I got to answer two questions. Not only is there going to be more before the end of the year. Look, timing and in timing and contracting and timing and M&A is both very hard, you know, hard to predict with certainty. I think there is definitely room for additional M&A in this business. You know, looking at it from a Volaris perspective, you know, some of this M&A has occurred in the business because people didn't have high spec capacity and needed to go and buy that capacity through M&A. We're in a very fortunate position having 12 or 13 of our ships being seventh gen and still having seventh gen organic available capacity to be able to grow into a market that we see as highly, highly constructive. That being said, you know, we're very pro M&A. We will look at opportunities and if it is makes sense, creates value and is a creative to shareholders, we will absolutely engage in it. I think there's definitely room for more of it in this business.
spk09: All right, appreciate it. Thank you.
spk12: Thank you.
spk04: The next question comes from David Smith with Pickering Energy Partners. Please go ahead.
spk10: Hey, good morning. Morning. Good morning, David. So congratulations on the solid quarter and the solid jackup contracts and in particular, really nice rate off of Trinidad. And I just wanted to ask if this was an agreed upon rate before April or just a confirmation of the point you made in the past that some markets will see minimal or no direct competition from the Saudi suspensions.
spk12: Yeah, it's the latter. I mean, that discussion continued to up until the point where the contract was finalized and announced recently. So that data point is known during this and after the first round of Saudi suspensions. So you're right. It's indicative that certain markets and certainly certain customers are focused on securing the top end assets for their future developments.
spk10: Great, thank you. And one follow up, we've seen lead times for all two before the rig contracts shrinking versus last year outside of the Gulf of Mexico, at least. We can't see your negotiations just to contracts, but wanted to ask if your discussions are also reflecting shrinking lead times compared to last year. So maybe we shouldn't be too nervous about a slower, recent pace of contracting and implications for first half 25 availability.
spk02: I'll start with the end of your question. I mean, we are not concerned about the pace of contracting. Contracting in this business is not linear through the year. And I think we need to be careful when we look at data, it may be as much a mixed question as it is, you know, a general trend question. Different geographies are very different contract lead times and contract execution times, you know, whether you're in kind of formal petrochemicals. Or, you know, West Africa negotiations where there may be N or C's involved versus, you know, a number of more direct negotiations. So there can be a mixed component, a geography component. You know, overall, we see, you know, lead times increasing, especially when you look at where we expect demand to be, supply demand to be kind of late 25 and into 26. So we see some of these lead times stretching out. And as much of that, as much as that, we see contract durations continuing to extend. And of course, you know, we see day rates continuing to grind higher with, you know, six fixtures. So, you know, just after halfway through the year, about $500,000 a day versus only two last year. So all of those components, you know, lead us to be to be quite, quite constructive on where that market is going. Really appreciate
spk10: the call. Thank you.
spk04: Thanks. This concludes our question and answer session. I would like to turn the conference back over to Nick Georges for any closing remarks.
spk07: Thanks, Drew. And thank you to everyone on today's call for your interest in Volaris. We look forward to.
spk04: Just one moment. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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