Shelf Drilling Ltd

Welcome everyone to Shelf Drilling's third quarter 2024 earnings call. Joining me on the call today is Douglas Stewart. Yesterday we published our Q3 financial results and our latest fleet status report. In addition to our press release and the financial statements for both Shelf Drilling and Shelf Drilling North Sea, we also published a presentation with highlights from the quarter. A recording of this call will be made available on our website within the next few days. Before we begin, let me remind everyone that our call will contain forward-looking statements. Except for statements of historical facts, all statements that address our outlook for the remainder of 2024 and beyond, activities, events, or developments that we expect, estimate, project, believe, or anticipate may or will occur in the future are forward-looking statements. Forward-looking statements involve substantial risks and uncertainties that could significantly affect expected results. Actual future results could differ materially from those described in such statements. Also note that we may use non-GAAP financial measures in the call today. You will find supplemental disclosure for these measures and an associated reconciliation in our financial reports. I will provide an overview of the company's performance for the third quarter of 2024, including some recent developments and achievements, and also provide our latest views on the market environment. I'll then hand over to Douglas to walk you through our third quarter financial results and our updated guidance before opening the call for Q&A. Fundamental to our business is ensuring the health and safety of our people, protecting the environment in which we operate, and ensuring that our rigs achieve optimal performance for our customers. This will always remain our number one priority, and we're very proud of our track record of continuous improvement over many years. In Q3, our year-to-date total recordable incident rate rose slightly to 0.16 following several incidents in August and September. We have used these events to reinforce our focus on planning, and we have operated incident-free thus far in Q4. During the third quarter, we continued to drive strong operational performance with year-to-date uptime across our fleet remaining at 99.4%. We believe our focus and consistent execution differentiate shelf drilling as we deliver outstanding service to our customers. 2024 has been a challenging year in many respects. Against a difficult backdrop, our team has achieved a series of critical milestones over the past few months. In October, we received confirmation that our application for the acknowledgement of compliance for the shelf drilling Barsk was accepted by Habtil, the regulatory authority in Norway. We were clearly disappointed by our initial failure to meet the regulator's expectations with our first application, but our team demonstrated the necessary resilience and dedication to comprehensively address the areas that were identified, allowing us to complete the audit process in a timely and professional manner. I'm pleased to report that the sheltering Barsk is now on location and expected to commence the contract in the next few days. We'd also like to thank Equinor for their trust and support through this process. When we established Shelf Drilling North Sea in late 2022, our ambition was always to fully integrate the fleet of rigs and simplify our capping structure. The delay in the commencement of operations for the Barsk resulted in a cash shortfall at SD&S, which created a potential opportunity to bring the business completely into Shelf Drilling to provide the necessary funding. We successfully completed the merger in October, and Shelf Drilling North Sea is now a wholly owned subsidiary. This transaction significantly enhances our fleet composition on a fully consolidated basis, and these rigs will be an important driver of earnings and cash flow for shelf drilling in 2025 and beyond. The Trident 8, as previously reported, experienced an incident earlier this year that resulted in severe damage to one of the rig's legs. In October, we reached an agreement with our insurance providers declaring the rig a total loss for an agreed payment of $50 million. We have now collected a portion of the proceeds and expect to receive the remaining balance by the end of this year. We also announced during the quarter that we had completed the sale of the Baltic to a buyer in Southeast Asia for $60 million, reflecting what we believe to be a value-accreted creative outcome and a strong valuation marker for a standard specification jacket rig. In addition to the sale, we are finalizing arrangements to provide rig management and operation support for a minimum period of 12 months. The rig will be deployed on a multi-year contract to perform plug-in abandonment work in Malaysia, a type of activity where we have extensive experience. We look forward to assisting the buyer and their customer as they begin this campaign. Turning to Saudi Arabia, the suspensions of our rigs by Saudi Aramco have had the biggest impact on our financial results in 2024. Despite the changes in activity, we continue to demonstrate superior safety and operational performance in Saudi, and I'm very proud of the way our teams have responded and managed through this challenging time. As previously announced in April, four of our rigs were initially suspended. The Shelf Drilling Achiever, Main Pass 4, Main Pass 1, and Shelf Drilling Victory. Then in late July, we received a suspension notice for the Harvey Ward. We moved quickly to redeploy the Shelf Drilling Achiever and the Main Pass 4 to Nigeria, with the Achiever commencing operations in late October, while the Main Pass 4 is expected to commence operations in December. Separately, we began to market the Main Pass 1 for sale to third parties for non-drilling applications, and we expect to reach an agreement to sell the rig in early 2025. We're actively marketing both the Shelf Drilling Victory and Harvey Ward and believe these rigs will return to service by early to mid 2025. We continue to see incremental jack-up demand in the areas where we operate, particularly in West Africa and Southeast Asia. We recently received another suspension notice from Saudi Aramco for the Highland 4 with an expected effective date before the end of November. We are evaluating options and developing a forward plan for this rig. Against this backdrop, we've achieved some important marketing successes. In September, we secured a contract for the Shelf Drilling Mentor covering 10 wells and an estimated duration of 450 days in direct continuation of the rig's current campaign in Nigeria for a value of $60 million. In October, we secured two multi-year contracts in Nigeria, a two-year extension for the Adriatic One commencing February 2025, and a three-year contract for the Shelf Drilling Achiever. These awards add $234 million in backlog and an average rate of nearly $130,000 a day. In addition, we expect to execute a multi-year contract for the main pass four in the coming days, with operations scheduled to commence in Nigeria before the end of the year. In Southeast Asia, we secured two extensions with Chevron Thailand for the sheltering Chapraya and Krathong, representing $197 million in backlog for the incremental firm term. In the North Sea, we secured in July an extension for the ShelterLink winner with Total in Denmark for a value of $68 million. These awards collectively reflect our customers' recognition of our excellent safety and operational performance. As of September 30th, our backlog was $2 billion across 32 rigs. This does include approximately $650 million associated with four of our rigs suspended by Saudi Aramco that still remain in Saudi Arabia. But since the end of Q3, we've built strong momentum with more than $400 million of backlog added in Nigeria and Thailand. That provides further revenue and earnings visibility for 2025 and beyond. Adjusted revenue for the third quarter was $265 million, and adjusted EBITDA was $114 million, up from $71 million in the prior quarter. The increase in adjusted EBITDA was primarily the result of the acceleration of mobilization revenue for the Shelf Drilling Victory and Harvey Ward, resulting from their suspensions in Saudi Arabia, as well as a sequential reduction in operating costs. Douglas will provide more details on our third quarter results and the financial outlook for full year 2024. Brent oil prices averaged $80 a barrel during the first 10 months of 2024. And while there has been some recent volatility, prices remain at a constructive level for E&P spending in the shallow water sector. The OPEC Plus Group continues to demonstrate discipline with recent extensions to production cuts, but supply has remained resilient and further increased from non-OPEC producers. Upward price momentum is also under pressure due to slowing global economic activity and softer fuel demand, particularly from China. As a result, global oil demand for 2025 is now expected to grow at a lower rate than previously expected. Some uncertainty remains on the supply side following the recent presidential election in the U.S. and the ongoing conflict in the Middle East. Notwithstanding these near-term uncertainties, we remain very confident in the long-term fundamentals of demand for hydrocarbons, particularly from the developing world, which is expected to grow for years and likely decades to come. Global jack-up market utilization reached 95% in the first quarter of this year, with 406 rigs contracted, but it's now expected to temporarily fall below 90% due to the multiple rounds of contract suspensions in Saudi during the year. Approximately 50% of the 27 rigs suspended in rounds one and two have been redeployed or cold stacked. However, additional rigs likely to be released in the near term may add some further short-term pressure on day rates as contractors seek to redeploy many of these impacted rigs to other markets. Demand for jackups outside of Saudi remains strong. In other parts of the Middle East, there are multiple tenders ongoing or planned with start dates expected in 2025. In India, jackup activity remains elevated with 37 rigs under contract. ONGC continues to evaluate its rig requirements going forward after canceling two tenders earlier this year following a round of unsuccessful pricing negotiations. They have recently launched a tender for one high specification rig and we expect a tender for four standard jackups around the end of the year. We continue to believe that ONGC will maintain a level of rig activity above historical norms, though there may be some reduction in demand in the short term due to the slowdown in tendering during 2024. The economic situation in Egypt has further improved following the injection of capital from the IMF and the GCC countries earlier this year. The Trident 16 rig remains idle in Egypt, but we're in dialogue with several customers for potential opportunities in the area and expect this rig to return to service sometime in 2025. West Africa and Southeast Asia continue to show strong incremental shallow water demand into 2025. In Nigeria, the government is seeking to raise oil production in the short term from both indigenous operators and the IOCs. We expect this to bode well for increased Jacob activity given the current shortfall to historical production levels from shallow water. With our leading position in the region and our long-term track record of delivering operational excellence and value for our customers, we believe we're well positioned to capitalize on further improvement in Jacob activity in the region. Southeast Asia also remains an important market for us. While there have been some indications of day rate pressure due to competing rig supply from the Middle East, we see incremental demand, particularly in Vietnam, in 2025. In addition, we have strong backlog coverage for our three-rig fleet in the North Sea and see attractive long-term opportunities beyond the existing contracts in their respective countries. While the suspensions in Saudi have created short-term headwinds for the jacket market in 2024, we see strong demand fundamentals around the world and believe utilization will stabilize and begin to improve in 2025. With that, I'll hand it over to Douglas for his remarks.

Thanks, Greg. Reported revenue for Q3 2024 of $268 million included $3 million for amortization of intangible liability that's related to the five rigs we purchased in 2022. As such, we'll continue to focus on and refer to adjusted revenue, which excludes the impact of this item. Adjusted revenue for Q3 2024 of $265 million included $197 million of day rate 62 million of mobilization and bonus revenue, and 6 million of recharges and other revenue. Adjusted revenue for the quarter increased by 34 million, or 15% relative to Q2 2024. The sequential revenue increase was mainly driven by the $45 million one-time acceleration of mobilization revenue on two suspended rigs in Saudi Arabia related to future years. Without this acceleration, adjusted revenue would have been $216 million for the quarter, compared to approximately $231 million of adjusted revenue in the second quarter of 2024. The change in adjusted revenue quarter over quarter reflected higher revenue in Vietnam following the contract commencement of the shelf-drilling perseverance in August of 2024, partly offset by lower revenue in Saudi on three other suspended rigs, the Main Pass 1, Main Pass 4, and Shelf Drilling Achiever. and lower revenue in Nigeria as a result of the sale of the Baltic during the third quarter and the end of operations of the Trident 8, which resulted from the structural leg damage incident we discussed earlier. Effective utilization decreased to 77% in Q3 from 80% in Q2. This is mainly due to the suspension of the operations of five rigs in Saudi Arabia, the planned shipyard for one rig in Saudi Arabia, and the sale of one rig previously operating in West Africa. Average day rate of $82,000 per day in Q3 was largely unchanged from the previous quarter. Operating and maintenance expenses of $133 million in Q3 decreased from $142 million in Q2, primarily due to lower operating costs on four suspended rigs in Saudi, on two rigs in Nigeria, that was the Baltic and Trident 8, and lower shipyard costs on the shelf drilling Perseverance, ahead of its new contract commencement in Vietnam, in August. This was partially offset by higher mobilization costs for the Shelterland Achiever, which started a long-term contract in Nigeria in October. Turning to G&A, G&A expenses of $17 million in the third quarter increased marginally from $16 million in the second quarter. Adjusted EBITDA was $114 million in Q3, representing a margin of 43%. This compared to $72 million and 31% in the previous quarter. Adjusted EBITDA was negative $5 million at Shelf Drilling North Sea, with the Shelf Drilling bars not working throughout the quarter, and $119 million generated from the rest of the business in Q3. Again, the sequential increase in Adjusted EBITDA for Shelf Drilling, excluding ST&S, was mainly driven by the $45 million acceleration of mobilization revenue for the two suspended rigs in Saudi. Income tax expense was $8 million in the third quarter in line with Q2, and year-to-date tax expense of $25 million represents 3% of revenues. Net interest expense of $36 million for the quarter was $10 million lower than the prior quarter due to the $10 million of one-time expenses associated with the SD&S debt refinancing transaction completed in Q2, the majority of which was non-cash. Non-cash depreciation and amortization expenses totaled $53 million in the third quarter, up from $48 million in Q1, due to higher amortization of deferred costs for one suspended rig in Saudi Arabia. The quarterly net income attributable to controlling interest was $68 million in Q3 and included a $45 million gain for the sale of the Baltic. Capital expenditures and deferred costs were sequentially down $3 million to $35 million in Q3, which included $9 million at SD&S. The decrease was mainly due to lower expenditures on the shelf drilling for surveillance and preparation of its new contract, which started in August in Vietnam, and on the shelf drilling bars for a planned contract commencement later in November in Norway, as well as lower spending on fleet spares. This was partially offset by higher contract preparation spending for the shelf drilling mentor and shelf drilling fortress, ahead of commencing their new contracts in Q3 in Nigeria and the United Kingdom, respectively. Higher spending on the main pass 4, expected to start operations in Nigeria in December, and on the High Island 9 in Saudi Arabia for a planned maintenance shipyard project. Our consolidated cash balance as of September 30th was $220 million, or $82 million higher than the balance at the end of June. Cash at the parent company increased from $101 million to $193 million, primarily due to the $57 million receipt of net proceeds for the sale of the Baltic and lower debt service payments in Q3. Cash at Shelterly North Sea decreased from $37 million in June to $27 million at the end of September. As a result of the increase in mobilization revenue in Q3, partly offset by delayed contract commencements on the three rigs in Q4 and the impact of further rig suspension in Saudi Arabia. We have revised our financial guidance for full year 2024 in our release yesterday. Fully consolidated adjusted EBITDA is now estimated between 320 and 345 million compared to our last guidance in August between 290 and 335 million. At the SDNS level, we now anticipate full year EBITDA between negative 10 and negative 15 million. representing a decrease of $5 million from the last guidance range. And this shows a start date for Shelterly Barsk in Norway in the second half of November 2024. The full-year 2024 EBITDA guidance for the rest of the business is narrowed and increased between $335 million and $355 million, with full-year revenues expected to improve from the last guidance by approximately $25 million mainly resulting from the $45 million mobilization revenue acceleration on two suspended rigs in Saudi Arabia. Revenues in Q4, however, will be impacted by delayed contract commencements in Nigeria for the Shelterland Achiever, which is already on contract since the end of October, and for the main passport, expected to be on contract by the end of the year, as well as by the recent announcement of the contract suspension of the high on four in Saudi. We've also revised our full year 2024 guidance on capital spending, now established between 140 and 160 million, compared to our last guidance in August between 135 and 160 million. The $5 million increase reflects the additional contract preparation at SD&S for the Shelf Drilling Fortress, Shelf Drilling Perseverance, and Shelf Drilling Barsk. At the parent level, the full year 2024 guidance on capital spending is narrowed between $95 and $110 million. The rigged suspensions in Saudi Arabia and delayed contract commencement of Shelf Drilling Barsk in Norway have significantly impacted our financial results in 2024. The Shelf Drilling Barsk is now about to start its new contract and will contribute in 2025 to deliver strong earnings and cash flow visibility at the SDMS level. with all five rigs under contract. After successfully redeploying two of the rigs impacted by contract suspensions in Saudi, we remain confident in our ability to secure attractive opportunities for several other of the suspended rigs, with anticipated return to service by the middle of 2025. As Greg mentioned, since July, we have achieved several other important milestones for the company, successful completion of the SDNS acquisition, materially enhancing our fleet composition, and simplifying our capital structure. On the back of the recent sales of all tickets in September, the Trident Aid insurance claim process concluded in October will also represent material cash flow for the company in the near term. These milestones and the significant steps taken this year to address the short-term challenges will position Shelterlink well heading into 2025. would like now to open the call for questions.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. That is star 1 and 1 to ask a question. We will now go to your first question. One moment, please. And your first question comes from the line of Frederick Steen from Clarkson Securities. Please go ahead.

Hey, Greg, and Douglas. Hope you're all well, and thank you for taking my question. I wanted to touch a bit on the market maybe first. You unfortunately have another suspension now on the High Island for, I believe – How are you thinking about Aramco now? Because they seem to have been kind of drip feeding those suspensions into the market instead of doing it in one go as they did initially. Do you think they are done or could they be even more to come?

Yeah, I think drip feed is the right term. You know, you go back to kind of how this all started. The rig count was in the low 50s three years ago. Saudi production was at 10 million barrels a day, and the government decided they wanted to go from 12 to 13. And really all of that production growth had to come from offshore. So that was the trigger for the massive uptick in activity through the course of 22 and 23. Today they're producing 9 million barrels a day, and obviously they've decided to cancel that production expansion program. They've released 27 rigs in total through the first two rounds. So the rig count was back to the low to mid 60s. It's still above where it was before this growth initiative kicked off. We believe they may try to end up back closer to that level in the mid 50s, which implies there's something like up to another 10 units still to be released. We obviously don't have perfect visibility. It's been pretty difficult to predict exactly what they're going to do. I think part of it's been tied to production plans. I think there was a hope and a belief that the production cuts would start to be peeled back. That hasn't happened yet. They're still continuing to extend these voluntary production cuts. So yeah, we were impacted with one additional unit. We don't think that's it, to be perfectly honest. There is a floor that has to be relatively high. It seems hard to believe the rig count could go lower than where it was three years ago, but a lot will depend on where oil prices, where the oil markets are in terms of balance. But yeah, our belief is there will be other news in the coming weeks from other contractors, but that's more of our sort of guess and expectation based on what we've pieced together. So hopefully there's not much more um just given how much has already been taken out of the the rig count in saudi this year um but that seems to be a possible landing that the rig count ends up kind of back to where it was before the uh the ramp up three years ago that's very helpful color greg thank you and as a follow-up to that you know you guys you're international and you obviously have the ability to

you know, take your suspended rigs and try to employ them in the other hubs that you're present. But are you able to say something about quality competition from maybe in particular the local players that have also faced suspensions in the Middle East? Are you, you know, are they keeping themselves to the Middle East or have you seen them starting to drip-crid or bid their assets into... to other places as well. And I guess I'm particularly interested in those that I would consider, you know, purely local. There are some Chinese players and, you know, or coastal agents that have been elsewhere, but the rest, have you, is it fair to assume that some will be stuck in the Middle East regardless of what RMCO does?

Yeah, I think there's some capacity that likely stays there. But I think for the most part, contractors are trying to find ways to place rigs You know, some regions are easier to access than others. Some customers are more open to new contractors than others. Southeast Asia is a place where there's been very good demand, but there's been more competition. So there have been a couple of softer day rate prints in Southeast Asia, but there have also been some good data points over the last few months as well, like the extensions we announced a few weeks ago. West Africa hasn't seen as much supply move there because it's farther away. It's obviously more costly to move rigs there. And it's a place that we think is hard to have a small subscale business. We're the largest player in West Africa and have retained a large position there through good times and bad times. So that helps for us to scale up another rig or two there is relatively easy to do if In our view, much harder and makes less sense to move a single rig there. And that's the other place where we do see very good incremental demand. So, yeah, some of the regional players have tried to move assets elsewhere and are looking at different ways and structures to do that. And I personally think the rig count in Saudi will eventually go up again. I mean, a lot depends on where you think oil demand goes. And if you believe it will continue to grind higher for the foreseeable future, Saudi is going to want to and need to produce more oil. The only place they can do that is offshore. But that's probably not in the next three to six months unless something something changes. So, yeah, you do have there are eight jack up contractors in Saudi. There's been an impact on all of them. We've obviously been hit. more than some others. And we do have an ability to move rigs elsewhere. We've made good progress there. We'll continue to make progress here in the next few months. But it's been a little bit harder for some of those contractors that don't have the same footprint and market reach that we do.

I appreciate the comprehensive comments, Greg. I'll leave it at that. Have a good day.

Thanks, Frederick.

Thank you. As a reminder, if you would like to ask a question, please press star 1 and 1 on your telephone.

We have one new question. One moment, please.

And your next question comes from the line of Nikhil Bhatt from JP Morgan. Please go ahead.

Thank you. Thanks Greg and Douglas for the presentation. I have a few questions. One on the suspended high island rig. Do you mind giving us some color on its capability and can it be deployed to markets outside the Middle East?

Yeah, so right now we have four rigs still operating in Saudi. They're all our high island rigs, and they all have a similar feature. They can operate in and transit through really shallow waters, which is a unique characteristic. There are not many of these rigs in the world. It is a characteristic that is important in the Middle East. That's part of the reason our rigs have been successful there for so long. They are smaller rigs that have shorter legs, so that does to some degree limit the sort of breadth of opportunities elsewhere. So it's not like the Highland 4 could easily go to anywhere else in the world, but obviously we're going to look at opportunities. We have a few other standard jackups that I'd say are higher priority for us right now. The Harvey Ward is one we're confident we'll find work for. The Trident 16 we talked about in Egypt, we think there will be activity for that rig there pretty soon. And then obviously we have a few rigs coming off in India, and we're focused on trying to recontract a few of those units there. So the Highland 4 would not be at the top of our list right now in terms of trying to find a new home, but we do think there will be other opportunities. We're also trying to see if there are alternative uses for some of our units. P&A is an activity we've talked a lot about. That's an opportunity we think is getting bigger and bigger in multiple regions around the world, and that's the type of activity you typically don't need a big, fancy, capable rig for. So it is a unique rig design. It's very well suited to operate in Saudi. So that's part of the reason we're disappointed with the news. So yeah, we're still working through options. Hopefully we'll have news on a few of the other standard rigs first, and then we'll look to prioritize the Highland 4 as well.

Thanks, Eric. On a related question, sorry, on a related topic, Now that, like, how are you thinking about High Island 5, whose contract's expiring in May 25, given what's happened with High Island 4?

Sure, sure. Yeah, so the four rigs, they are the same design, but they're not exactly the same. So the High Island 5 and High Island 9 are on workover contracts and have been customized for that type of activity in the past. The Highland 2 and Highland 4 have been deployed in drilling since they came into Saudi 17 years ago. They performed extremely well, but they're generally involved in a different type of activity and compete more directly, if you will, with other types of assets, including premium jackup rigs. We think Aramco wants to keep the Highland 5. That'll have to be a negotiation and discussion in the coming months. That hasn't formally started yet. So we believe they're going to want to keep that rig, but we're not, you know, there's no... clarity or answer yet. We should have more information as we get into the early part of 25.

Got it. Thanks for the call. My penultimate question is on ONGC. You mentioned about ONGC, or at least your expectation of them issuing a tender for four standard jackups at the end of the year. What's the typical timeline that we should think of between, let's say, whichever rig wins the success for the tender, when should these rigs commence operations, assuming the rigs are available immediately, of course.

Yeah. So we have three rigs coming off contract between a few weeks from now and the end of Q1. Those would all be potential candidates for this tender. The two that will operate into 2025, it always takes at least a few months to prepare a rig for a new contract. And then a tender process takes some time, typically at least A few months. The other dynamic is you have this, you have what's called monsoon season in India where you basically can't start a contract in the middle of the year. It's either by the end of May or after the 1st of September. So most likely contracts awarded in this next tender round would start second half of the year. But a lot depends on when the tender is launched, how quickly ONGC tries to move through the process, but these tenders with NOCs aren't always the quickest processes. So our kind of, you know, it's possible we could have one unit that could start again before the summer, but it's more likely this would be second half 2025 start dates.

Thanks. I appreciate the color. Last one from me. Could I please pick on the moving parts behind your EBITDA guidance, especially excluding the North Sea business? At the midpoint of your guidance range, the implied fourth quarter EBITDA declined sequentially. In the business, especially given North Sea, EBITDA is expected to improve given that Barsk would have commenced operations. Could you maybe talk us through the moving parts in terms of what what causes this sequential decline in the business outside Nord Stream?

Yeah, this is Douglas Stewart speaking to the mobilization revenue. So we're speaking about the inclusion of the $45 million of accelerated mobilization revenue that is included in this guidance. So that's why you'll see that in the very beginning excluded out of it. As for the business, we are showing a decrease for SD&S $5 million relating to slight delays in contract commencement. And then in, and also you can appreciate this, the bar is the expected date in mid-November, as we had hoped that would be a little sooner than that. For Shelterland excluding SD&S 2024, we are showing, you know, essentially revenues expected to be down for the one rig that was suspended in Saudi, the Highland 4. And further offset, of delayed starts for the two rigs in West Africa. So if you look at the Achiever, that was expected to start sooner. And then if you look at the Main Pass 4, that's expected to start in December. We'd hope that would be in November. But those are kind of the impacts to the range.

Got it. And are there any other, let's say, costs that we should be aware of, let's say, regarding I mean, the Baltic's already closed, but maybe the Trident 8 or so on?

Not impacting EBITDA. Obviously, we spoke about it in terms of cash for the Trident 8, where we're expecting to collect the balance of the 50 million proceeds by the end of the year, but not in terms of EBITDA. Got it.

Thank you. Thanks for the call.

Thank you. Your next question comes from the line of Tayadi Espino from Bank of America. Please go ahead.

Hey, guys. It's actually Greg from Bank of America. Ty works with me. Hey, Greg. Hey. Just to show you, you mentioned the one asset sale in 1Q25. Can you talk about the depth of the market where you see those rigs going? I know you were considering additional sales. Can you just walk us through how that gets – how those occur in timing?

Sure. Yeah, so the main pass one rig, we're running a bit of a competitive process, if you will. We had interest from several operators looking to buy a jack-up rig that was in decent condition that could be converted to a production unit. um and for an operator it's generally quite a bit cheaper to do that than building a new production unit from scratch i'd say that market is not enormous they're typically a few of these projects a year um and you know timelines can depend on funding and well plans etc so we've had good interest in that unit um You know, could there be another one or two type of opportunities like that? I think so. But it's not like you can sort of force that to happen in a 30 to 60 day period. So that's the one rig we're focused on for now. It's still in class. It's in good shape because it's worked consistently for 17 years in Saudi. But we have started to take some of the drilling equipment off that can be used elsewhere in the fleet. And then we may have one or two other units, you know, depending on how things go in India. Um, like I think we'd be prepared to shrink our fleet there by one or two units to try to make sure that market remains in balance. Um, but that's the only unit for now we're focused on selling the main pass one, but this is obviously something that's worth thinking about all the time, pretty dynamic process. Um, um, and then I mentioned P and a is another way to try to deploy, you know, one or two standard jackups. And we do see live opportunities in a few markets for that type of, uh, type of work. Um, But for now, yeah, we're focused on one unit. We've talked about up to $20 million potential sale price. I'd say that would be the better end of where we could shake out, but hope to have clarity on that rig next few months. And that could inform how we think about other units as we move into 2025.

And I know you mentioned P&A earlier. The P&A is for rigs you plan on keeping, not rigs you plan on selling. for others to do P&A.

That's right. I mean, the Baltic, that was a somewhat unique case. We had a counterparty that had won the contract for a program in Malaysia, and they needed a specific asset. So it was their contract. They wanted to buy a rig, but then they've asked us to help them with most of the operation for that program. Yeah, for the most part, we'd look to do this ourselves. We've done a lot of P&A work in Thailand and other markets, and we do think it's a big kind of long-term opportunity set for us. That would be more kind of regular way day work contracts is the way to think about it. Got it.

And is those things you would announce without, you wouldn't necessarily announce them as backlog and they would just be.

Yeah, that's right. Yeah, that's right. That's right.

And then this is, we think about 25, how are you thinking about capital needs, sort of CapEx needs? And just remind us what's, how much you need to spend on maintenance.

I said, we'll, we'll plan to give formal guidance in March when we're out with year end numbers. I think broad brush, you know, we're around a hundred or a touch higher with our guidance for 24 on the, you know, kind of parent company fleet. I think that's a reasonable level to think about on a go forward basis. We used to talk about 115 plus, but we've now monetized two units and we have one more that we're looking to move off of as well. So that helps bring down annual maintenance capex. And then the SDNS, that five rig fleet, this was a chunkier year because we moved a rig to Vietnam and we had some contract prep to do. on the Barsk in Norway. When we did that financing in the first half of the year, we talked about a kind of annual level closer to 25 as a long-term multi-year average, and that's probably a decent kind of bogey to think about. So 130-ish is how I'd think about medium to long-term annual spending. But obviously, that's more kind of high level. We'll give more explicit guidance in a few months.

Two more questions on industry than one specific question. Obviously, Pemex, not on the other side of the ocean. Do you see any of those rigs potentially coming overseas? What are you hearing?

Possibly. We're not as close to that market as some of our peers. What we've gathered is this is more chatter. If there are suspensions, they're probably more short-term in nature. What you know, Aramco's communicated as the suspensions in Saudi are more indefinite in nature. So there's a difference there. So I'm skeptical. You'd see, you know, many rigs come out of Mexico to go elsewhere, just given how production is developed in Mexico and the need to keep putting money into the ground. But yeah, we don't have, I'd say perfect insight there.

And then it's just a technicality here, but the study with the rig suspensions in Saudi Arabia, it's my understanding it's, They may have to switch to another rig after 12 months just because of the way the contract is designed. Is that correct? And does it really matter?

No. So most of the contracts, not every single one of them. So some of the rigs that were contracted in 2022 that are on these maiden contracts are more protected and generally have some degree of hook or termination penalty. And we were more weighted to extension contracts because we've had a large business in Saudi for a long period of time. As a result, it was easier to look to suspend and lay off some of our rigs because units that had just come in had more of a short-term financial impact to Aramco to suspend. But these contracts generally have a suspension rate that's up to one year. Aramco then could look to extend the suspension period We asked for and received a right to terminate the contracts ourselves during the suspension period, which is what we did for the Shelterling Achiever in May and past four, so that those rigs would be free and clear. We could move them elsewhere. And we've now secured multi-year work for both of those rigs at frankly better rates and margins in that market. But yeah, it's up to one year suspension period is how the construct generally works.

You gave us a way to think about how many more rigs could leave the market. Have you said anything specific to or does it continue to remain a little vague?

So what I mentioned in the question Frederick asked, so the rig count had moved towards the mid-60s as of a few weeks ago. And we've gotten some indications that the rig count could move back towards the mid-50s if production remains where it is and the production capacity target remains where it is. So we've been impacted by one unit. There's been no other communication from other contractors in Saudi. If there are other rigs to be released, there will be news from other contractors. But again, that's just more kind of gathering intel from different sources over the last few weeks. And obviously, this is dynamic, right? I mean, if the oil markets improve, you know, with the presidential election, I think there's an argument that there will be more pressure on Iran. That's been a big source of supply growth in the international markets the last few years. Could that change? Possibly. So I think there's a clear focus from Saudi on trying to help manage the oil price in the oil markets and obviously fiscal cash flows. I think that's the biggest driver of all this. But yeah, that's our latest thinking.

You're the only one in the last week or so that's gotten one of these notices.

That's confirmed anything publicly, yes.

Then the last question for you, obviously, congrats on closing the North Sea transaction. I know there's a guarantee from the top, but I'm curious, how do you see bringing these two entities together so you no longer have to report separate entities?

Yeah, so we now fully own that business on a 100% basis. From an equity standpoint, it's brought in. From a credit standpoint, yeah, I think longer term, that could make some sense. You know, we're still relatively early days in the bonds in both silos. So if we wanted to refinance the North Sea bond right now, there'd be a pretty decent early refinancing penalty. And, you know, the parent company bond is not traded that well. So we don't see any urgent need to do that. I think, you know, we've, I think proven over time, we try to find ways to streamline and simplify the capital structure. The way we set up SDNS was kind of the other direction, but that was the way to get, we thought was a great deal done. So I wouldn't expect anything to change in the very near term, but as we move through time and we get closer to, you know, call dates and those call prices step down, I think that's something that would make sense. But yeah, no, no immediate plans to do anything.

Great. Thank you for all the time guys.

Yeah, sure. Thanks, Greg.

Thank you. Your next question comes from the line of Carl Blunden from Goldman Sachs. Please go ahead.

Hey, morning, Greg. Thanks for all the color today. My question is just on the West Africa rig ramping now in December. Can you give a bit more detail on where you are in that process, any potential for that timeline to shift? sooner or later, or what the main risk factors you are watching at this point?

I think we mentioned that we expected to sign the contract in the coming days, which is pretty specific. The rig is physically there. Yeah, we think the risk that the timeline shifts is pretty low. We have been talking about this rig for some time, which we admit, but the rig is now there. We're very close to getting this sort of formally done. That's helpful.

Thanks, Greg. Thank you. There are currently no further questions. I will hand the call back for closing remarks.

Very good. Thanks, everybody. Appreciate the time. And we'll be in touch next few months. Thanks.