Vantage Drilling Intentl

Good day, and thank you for standing by. Welcome to the Vantage Drilling International fourth quarter and year-end 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Douglas Stewart, General Counsel. Please go ahead.

Thank you. Good morning, everyone, and welcome to the Vantage Drilling International fourth quarter 2023 earnings conference call. On the call today is also Ehab Thoma, our CEO, and Rafael Blattner, our CFO. This morning, we released our earnings announcement for the quarter and year ended December 31, 2023. The earnings release is available on our website, advantagedrilling.com. Please also note that any comments we make today about our expectations of future events and projections are forward-looking statements pursuant to the Private Securities Litigation Reform Act. We have based forward-looking statements on management's current expectations and assumptions and not on historical facts. Examples of these statements include, but are not limited to, are expectations regarding future results, including expectations regarding our liquidity position, future costs and expenses related to upgrades and out-of-service work, as well as contract preparation costs and expenses. Forward-looking statements in today's call are subject to a number of risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from the projections made in today's conference call. Vantage does not undertake the updating of any such statement or risk factor that could cause actual results to differ materially from our expectations. We refer you to our earnings release and financials available on our website. We have prerecorded our prepared remarks and are participating on the call remotely to manage the question and answer section segment of the call. In the event there are issues with sound quality or of a similar nature, please accept our apologies in advance and thank you for your understanding. Now, let me turn over the call to our CEO, Mr. E. Abtoma.

Thank you, Douglas, and good morning and good afternoon, everyone. 2023 was a successful year for the company and for the industry, where the industry recovery continued into its third year. In many regards, 2023 was an important turnaround year for Vantage. We have moved past the challenges of COVID-19 period, improved our safety performance, recontracted rigs at higher rates, refinanced our debt, and achieved our strongest financial performance since before the company's reorganization in 2016. I would like to take the opportunity during this Q4 2023 earnings call to reflect on the full year of 2023. And as usual, I will do so by taking you through our progress in relation to our three corporate goals of one, maintaining stellar safety and operational performance, two, contracting of our fleet at higher rate, and three, achieving excellent shareholders returns. I will begin with our corporate goal number one of maintaining stellar safety and operational performance, which is our license to operate as a company. During the last quarter and throughout 2023, we remained focused on delivering our vision of a perfect day every day by consistently training, coaching, and mentoring our crews across our own managed and supported fleets. We continued with the reintroduction of the behavioral-based perfect day leadership training program, across our worldwide operations with very positive feedback from all participants and overwhelming support from our clients. Remarkably, in 2023, our annual work hours increased by over 400,000 hours as our rigs continued to operate for many different clients in many different locations across the globe, and yet we still achieved better results than the excellent results achieved in 2022. We had a number of impressive highlights during 2023 with the Platinum Explorer achieving four years without a recordable incident and the Topaz Driller achieving two years without one. The Cutter supported jackups had a very good year with all three rigs achieving major incident-free milestones. The Sapphire Driller achieved five years recordable incident-free while both the Emerald Driller and the Aquamarine Driller achieved one year without a recordable incident. These results were acknowledged by the industry and clients, where the Sapphire Driller was recognized by the International Association of Drilling Contractors for having the regional's best recordable incident rate, and the Emerald Driller was recognized by Total Energies as the second overall best rig in their global fleet in 2023 and the best overall in regard to HSE. These are fantastic achievements and clear indications that the Perfect Day Leadership Program and its reintroduction in 2023 had the desired effect, supported by our team's attitude and belief in the effectiveness of our safety programs. Shifting to sustainability, we increased our focus and our efforts on sustainability in 2023 and established an environmental, social and governance ESG working group consisting of the company's leaders across multiple disciplines who met throughout the year and produced our first internal sustainability report. We believe that by integrating sustainability into our decision-making process, we future-proof our business by making decisions aimed for the long term and also contribute positively to the society in general. On the environmental side, we continue to focus on reducing our GHG emissions and fuel usage, better managing our waste, and improving our water usage efficiencies. On the social side, we continue to focus on our industry-leading diversity, which is a core value for us that brings clear benefits to our business. Finally, and as always, we continue to maintain a strong governance focus and operate at the highest ethical standards in all regions where we operate through regular training on governance issues. Switching to operations, Revenue efficiency for the owned fleet during the fourth quarter of 2023 was a disappointing 73.4%, where the deepwater fleet and the jackup fleet ended at 62.6% and 99% respectively. Revenue efficiency for the fleet during the year was 86%, where the deepwater fleet ended at 83.1% and the jackup fleet achieved 96.6%. The lower than usual revenue efficiency for the quarter and for the year were primarily due to subsea equipment downtime events on the Tungsten Explorer in Namibia, as the rig continues to work in true ultra-deep water and challenging weather conditions in Namibia, where any subsea downtime event requires significantly more time to remediate. It is not worthy to highlight that this campaign is an industry first for a rig to drill three consecutive wells in over 10,000 feet of water. We are happy to report that the tungsten explorer worked throughout the Namibian winter without any interruption due to the harsh weather environment, proving the technical capabilities of the rig to operate in such conditions thanks to its big thrusters and 2.5 million pounds hook load. The rig's suitability for these environments was ultimately recognized by the client, Total Energies, and resulting in the long-term agreement for the rig that I will discuss shortly. Although we did experience another 13 days of subsea equipment downtime during the first quarter of 2024, I'm confident that these teasing issues are largely behind us and happy to report that Vantage and Total Energies are closely collaborating to mitigate similar events in the future. It is worth noting that the Platinum Explorer has achieved approximately 97% revenue efficiency for the year, And separately, the managed drill ship's revenue efficiency, which does not show in our company revenue efficiency, was also approximately 97%. This, along with our strong safety record and efficient cost structure, makes choosing Vantage as the trusted manager for their fleet a clear choice for rig owners. I will now walk you through our fleet status, which directly ties to our second corporate goal on contracting our rigs and securing higher day rates. Starting with the two owned jackups, the Suhana started the year under a legacy day rate contract and transitioned during the third quarter to a new 776-day contract with Medco at $119,900 per day, which will run till the latter part of 2025. during 2023 the suhana also received a short shipyard stay that has seen its accommodation getting upgraded the topaz driller had a busy year across multiple countries initially working with petrobel under a legacy rate contract through a bbc to addis egypt then transitioning to any in morocco under market day rate contract with a margin accretive mobilization, and finally mobilizing to Foxtrot in the Ivory Coast in mid-December 2023. After concluding the campaign for Foxtrot during the first quarter of 2024, the RIG will mobilize to Singapore where it will undergo comprehensive upgrades and contract preparation before commencing operations in the joint development area of Malaysia and Thailand on a two-year firm contract with CPOC at $125,000 per day, with a further nine months of unpriced options also included. These upgrades include the increase in accumulation quarters capacity, significant offline handling and pumping capabilities, and under-deck cantilever cranes. As mentioned earlier, these reimbursable upgrades will position us to achieve higher future day rates as they bring the Topaz Driller specifications to comparable levels to rigs that were built and delivered years later. Switching to deepwater, the Platinum Explorer had a great year running completion operations for ONGC. The Platinum contract has expired in February of 2024 and begun the planned out of service expected to take approximately three to four months. During this time, we will undergo scheduled maintenance and five yearly certification of equipment, change two thrusters and upgrade the BOP from five rams to six rams. As a result of the six ram BOP upgrade, the Platinum Explorer is now being offered to clients throughout the Eastern hemisphere. Moving on to the Thompson Explorer, Total Energies has extended the RICS contract through the first quarter of 2025 by exercising its final contractual option. Additionally, Total Energies and Vantage have entered into a binding agreement whereby the Tungsten Explorer will be sold for $265 million to a joint venture owned 75% by Total Energies and 25% by Vantage. This joint venture will sign a fixed day rate contract for 10 years with the potential for additional 5 years, to provide drilling services to total energies. Vantage will also enter into a management service contract with the JV receiving an average compensation of $47,500 per day. The fixed day rate and estimated JV profitability will not be made public. Finally, regarding the managed services segment, the Polaris worked the entire 2023 for ONGC in India and has been successfully returned to Sidril during March of 2024. The Capella has had tremendous success working for clients in Indonesia during the second half of 2023, after drilling a well in Mozambique with Eni Mozambique and mobilizing back to Indonesia to work for Eni, where the rig was part of significant gas discovery, and then mobilized for a well with Mubadala, which was also a significant gas discovery. We ended the year commencing operations for Harbour Energy, followed by Mubadala again, where the rig is currently operating. The rig should be returned to C-Drill sometime during the third quarter of 2024 if no more mutually agreed options are to be exercised by the client. We are committed to this segment of our business and we continue to pursue some opportunities to add rigs under our management to replace the outgoing C-Drill rigs and continue to grow our managed services business. As a result of all mentioned items, our backlog at the end of the fourth quarter was approximately $202.9 million, with recent awards in 2023 not being added until contract signature. Moving to the market dynamics, and despite the recently widely talked about utilization white spaces in 2024, which could lead to potentially some disappointing fixtures announcements, sentiment remains strong and customers, especially in the drill ship segment, continue the observed trend of securing capable rigs for term contracts spanning multiple projects. We have capitalized on such trend with the TotalEnergies joint venture. I will now move to our third corporate goal of achieving excellent stakeholders returns. During 2023, we achieved $70.9 million of EBITDA, our highest level since 2015. We achieved operating cash flow of approximately $2.2 million despite the Tungsten Explorer subsea downtime events during the year. With regards to our cash position, we ended the year with a cash balance of $84 million, including $10.8 million in restricted cash and $11.6 million of managed services pre-funded cash. The increasing cash from the previous quarter, exclusive of managed services pre-funded cash, was approximately $8 million. This was primarily due to the collections of approximately $8.4 million associated with the Topaz Driller mobilization fee to Morocco. Lastly, as I mentioned earlier, our rigs are moving from legacy contracts to contracts at higher day rates, reflecting the improved market. Some of these new contracts involve large upfront cash investments, which will be covered to a large extent by reimbursements by the client after the commencement of the contract, as well as the increased day rate of the actual contracts. To conclude, Throughout 2023, we remain focused on our corporate objectives of outstanding safety performance and pursuing profitable long-term drilling contracts to deliver strong future returns to our shareholders. In 2024, we look forward to delivering safe and successful campaigns with the Tungsten Explorer, Capella, Topaz Driller, and Sohana. Conducting a safe, efficient shipyard stay with the Platinum Explorer and putting it back to work as an upgraded drill ship. Conducting a safe and efficient shipyard stay with the Topaz Driller and having a seamless start for it with CPOC. And finally, continuing to support the Addis Jack caps in Qatar and elsewhere when needed as per our strategic alliance with them. With that, I would like to turn the call over to Rafael to take us through the numbers.