Seadrill Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2024

There are 9 speakers on the call.

Operator

Hello, and welcome to the Seadrill Third Quarter 20 24 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Lydia Mabry, Director of Investor Relations. You may begin.

Speaker 1

Welcome to Seadrill's Q3 2024 earnings call. Today's call will feature prepared remarks from Simon Johnson, our President and Chief Executive Officer Samir Ali, Executive Vice President and Chief Commercial Officer and Grant Creed, Executive Vice President and Chief Financial Officer. Our comments include forward looking statements that involve risks and uncertainty. Actual results may differ materially. No one should assume these forward looking statements remain valid later in the quarter or year, and we assume no obligation to update.

Speaker 1

Our latest Forms 20 F and 6 ks filed with the U. S. Securities and Exchange Commission provide a more detailed discussion of our forward looking statements and the risk factors that affect our business. During the call, we will also reference non GAAP measures. Our earnings release filed with the SEC and available on our website includes reconciliations with the nearest corresponding GAAP measures.

Speaker 1

Our use of the term EBITDA on today's call corresponds with the term adjusted EBITDA as defined in our earnings release. I'll now turn the call to Simon.

Speaker 2

Thank you for joining us on our quarterly conference call. I'll begin with a few comments on our quarterly performance before discussing our market outlook and strategy. Sameer will then talk about tactics and contracting before Grant reviews our quarterly financial and operational performance and full year outlook. Our 3rd quarter results exceeded expectations. We delivered $93,000,000 in adjusted EBITDA, securing additional work and uncommitted capacity propels us above our previous full year guidance.

Speaker 2

Most notably, the Savanna, Louisiana continued its existing contract with an independent operator in the U. S. Gulf of Mexico. We're now increasing our EBITDA guidance midpoint by 13% to $385,000,000 Our continued progress on Brazil projects minimizes the downside risk to guidance. Both the West Arega and West Polaris are in country and going through the customer and regulatory acceptance process after clearing customs in record time.

Speaker 2

Our operations teams focused attention on these critical projects, meaning these rigs are on track to begin their new contracts in December and will then start generating meaningful EBITDA and cash flow. During the quarter, we stacked the West Phoenix to reduce operating capital expense in the absence of an immediate market opportunity. We're unwilling to spend valuable shareholder capital investing in a rig without a bedrock of continuous visible demand. We've released the crews and are actively reducing direct rig OpEx. Following the completion of the West Capella and West Valor's recent contracts, we've now also reintegrated the 4 aquadrill drillships back into the Seadrill fleet.

Speaker 2

In the 18 months since closing the transaction, we have successfully navigated complex costly rig management agreements and exceeded all cost synergy targets. The Vela and Capella along with the Auriga and the Polaris are now managed in crude to Seadrill standards and can reliably provide the safe, efficient, responsible operations customers expect from our organization. Now

Speaker 3

on to

Speaker 2

market outlook and strategy. We firmly believe underlying industry fundamentals remain intact characterized by the interaction between increasingly inelastic supply and inherently variable demand. The prevailing market question is when and where those lines intersect. In our view, the temporary imbalance between drillship supply and demand is not a true reflection of the fundamentals that support a sustained strong industry upcycle, but rather a reminder of the market's volatility. This volatility only deepens my conviction in our strategy, operating a floater focused fleet that benefits from strong contract coverage, preserving a good balance sheet and maintaining a relentless and virtuous focus on continued efforts to strengthen and simplify our business.

Speaker 2

At the heart of our plan to win is operating the right rigs in the right regions. In our experience, most deepwater opportunities require dual activity drillships with 15 ks BOPs and MPD capabilities. Rigs focused on achieving operational efficiency and endurance rather than exploring technical frontiers. Our fleet meets those requirements. All our drillships are dual activity and dual BOP capable or equipped.

Speaker 2

75% of the drill ships we operate are 7th gen. And in 2025, we expect 80% of our own drill ships will have NPD as we focus on leading the industry in thought and practice in this important operational activity. We operate premium quality assets in the heart of the market. We cluster almost all our rigs in the Golden Triangle spanning the Gulf of Mexico, South America and West Africa, which represents the greatest concentration of deepwater drilling activity now and into the foreseeable future. We've secured 70% contract utilization for our market and managed fleet in calendar year 2025, a figure that is expected to improve with time as customer conversations convert to contracts.

Speaker 2

In addition to our contract coverage, we benefit from strong balance sheet and our current cash position feels prescient in today's market. However, we recognize this does not completely insulate us from competitive market realities. We will not rest on our laurels. We will continue to evaluate better smarter ways of running our business. 2025 will be a year in which we focus increasingly on optimizing our operations.

Speaker 2

We want to be a lean, efficient, right sized drilling contractor. We plan to reduce bureaucracy across the organization, empowering our senior leaders offshore to do what they do best, leading, supervising and mentoring their teams to the benefit of our customers who can on us every day to deliver safe, efficient, responsible operations. By doing right for our employees and our customers, we'll do right for our shareholders. We must remain agile. We will continue to evaluate opportunities to refine and grow our fleet, dynamically adjust our costs as our active rig count fluctuates and further solidify our formidable financial position.

Speaker 2

Now as ever, we're focused on what we can control, how we sign our contract, how we run our rigs and how we allocate our capital. Our commercial team continues working to secure contracts with terms that maximize each rig's earnings and cash flow. Our operations teams continue to keep drill bits turning to the right, operating costs low, crews safe and customers happy. And our leadership team endeavors to remain disciplined stewards of shareholder capital. We constantly evaluate our approach to capital allocation based on market conditions, outlook and competitive positioning and the relative impact these decisions have on strengthening the Seadrill story.

Speaker 2

Clear examples of that capital stewardship have been our continued fleet refinement and then industry leading share repurchases. We were the first of our peers to pursue a meaningful buyback program and have reduced our issued share count by 19% since September 23, improving our per share performance across key metrics. At Seadrill, we've continuously made decisions to simplify and strengthen our business for the benefit of our shareholders. And as we make our way through 2025, it should become increasingly clear that we build resilient business that can deliver real returns to shareholders through the cycle, especially once 2026 contract repricing comes more clearly into focus. With that, I'll pass the line to Sameer.

Speaker 3

Thanks, Simon. By our estimation, there are about 95 competitive drillships in the global marketplace. Approximately 20 of these are inactive and require extensive investment to be put to work as they're either cold stacked or not so new builds with limited to no operating history. But slow contracting activity can make even a thin market seem temporarily oversupplied. Between now and the end of next year, around 30 competitive drillships will become available after completing their current contracts.

Speaker 3

Many of these rigs will find follow on opportunities, but not all of them. The absence of visible demand to consume available capacity will soften the market. Drillship market utilization, a measure of market tightness, slipped below 90% in April after rising for over a year. It now hovers in the high 80s and will likely continue to trend lower. As more assets become available, it will put downward pressure on rates, leading us to believe 2025 will be increasingly competitive.

Speaker 3

Fortunately, we are relatively insulated. In 2025, we benefit from 70% market utilization across our fleet. Recent updates to existing drilling programs fill some of the white space. For example, the Vela is not working through the Q3 of 2025 and the West Carina and the West TELUS are not committed fully through year end and into early next year. We have the most market exposure next year in the Savon, Louisiana, the West Capella and the Sonadrill drillships.

Speaker 3

As we've said before, the Louisiana has a broad range of potential outcomes. Opportunities can appear and disappear quickly. Recent contracts suitable for the rig specifications have been shortened both their lead times and their duration, which limits our ability to plan with an acceptable level of certainty. As time progresses, we may show less willingness to play the spot market and we'll stack the rig. For the Capella, the Gemini, the Kingela and the Lobongos, our focus remains on securing contracts for the second half of the year.

Speaker 3

We believe all these rigs are competitively advantaged. They benefit from premium specification, proven work history and deep customer relationships, making us the preferred provider for customers who have chosen Seadrill time and time again. However, there is a scarcity of immediately available visible opportunities. We continue to see a slow pace of contracting tied to the market, uncertainties and capital restraint. In Angola, for example, we're seeing indications of softening rig demand as the basin commutes for capital across customers' global portfolios.

Speaker 3

We continue to make positive progress on recontracting and repricing the Jupiter, Carina and the TELUS, seeing term contracts that provide visibility of earnings and cash flow. As we consider the market, we don't believe drilling contractors can create demand and we are not willing to contribute to our own white space. I believe earning OpEx waiting for the desired opportunities to emerge. With every decision we make, we consider cash flow per rig. We strive to achieve favorable economics across our individual units and our full fleet.

Speaker 3

When those economics are challenged, we will act decisively. We are dispassionate managers of valuable shareholder capital. As we navigate through near term air pockets, we intend to remain disciplined with the way we manage our fleet. Across the market, competitive choices will dictate financial outcomes. And with that, I'll turn it to Grant.

Speaker 4

Thanks, Svein. I'll review our 3rd quarter performance before providing an updated outlook for the full year. In the Q3, Seadrill earned $354,000,000 in total operating revenues, down from $375,000,000 the prior quarter. Contract drilling revenues were effectively flat quarter on quarter at $263,000,000 The benefit of the Louisiana contributing a full quarter of revenue at a higher average rate complemented by higher economic utilization across the fleet was offset by the Phoenix and Capella contract completions. Management contract and leasing revenues declined sequentially.

Speaker 4

Our 2nd quarter results included income related to retroactive adjustments to the management fees and bebo charter income earned from our SonaDrill JV and BVT income from the Gulf drill jackup rigs we sold in June. 3rd quarter management contract revenues were $62,000,000 and leasing revenues were $9,000,000 Third quarter results provide a good indication of expected run rates for both these line items through the end of the solid drill rigs current contracts. Additionally, we earned $20,000,000 in reimbursable revenues, the $5,000,000 sequential increase for the company by an equivalent increase in reimbursable expenses. In the 3rd quarter, we incurred total operating expenses of $307,000,000 up from $290,000,000 in the prior quarter. Vessel and rig OpEx increased by $7,000,000 to $172,000,000 and management contract expense increased by $4,000,000 to $45,000,000 The timing of repair and maintenance expenses drove the increase.

Speaker 4

R and M is the 2nd largest cost component on rig P and Ls, so variances can have a meaningful OpEx impact. SG and A was $27,000,000 and included $2,000,000 of costs related to the consolidation of our corporate office which we consider a non recurring adjusting item from EBITDA. 3rd quarter adjusted EBITDA was $93,000,000 Adjusted EBITDA margin, excluding reimbursables, was 27.5%. In the Q3, we spent $131,000,000 in CapEx, including $78,000,000 of long term maintenance captured within operating activities in the cash flow statement and $53,000,000 of capital upgrades captured in investing cash flows. In the Q3, we continued our share repurchase program completing $183,000,000 of share repurchases under our current $500,000,000 authorization.

Speaker 4

Now that we're no longer listed in Oslo, we intend to report repurchases on a quarterly basis in arrears. Since initiating our repurchase programs in September 2023, we have returned a total of $692,000,000 to shareholders through the end of the Q3 and reduced our issued share count by 19%. Now on to our outlook for the rest of the year. As Simon mentioned earlier, we're increasing our full year guidance. For 2024, we now expect adjusted EBITDA of $375,000,000 to $395,000,000 on revenues of roughly $1,400,000,000 And we're narrowing our full year guidance for CapEx to $420,000,000 to $440,000,000 Our ability to secure additional work on the Louisiana is the primary driver behind the guidance range.

Speaker 4

The rig continued working from August into November and potentially through December, effectively lifting our full year EBITDA midpoint to $385,000,000 Our full year outlook implies lower run rate EBITDA for the Q4, primarily attributable to lower operating activity. Specifically, the Pfenex being stacked following its most recent contract completion, the Capella finishing its latest job in September before starting new work in mid December, the Neptune spending approximately 50 days out of service while it undergoes its SPS and other upgrades. And lastly, the Vale incurring out of service time in October when it was reintegrated into the Seadrill fleet. In addition to this, on the cost side, we have expectations for increased OpEx based on the timing of repairs and maintenance activity planned to take place in the Q4. The Auriga and Polaris are on track to commence contracts in the Q4.

Speaker 4

Precise timing of these start dates will impact Q4 results and having these rigs working again will help drive run rate EBITDA higher in the New Year. Year to date, we've spent a total of $286,000,000 on CapEx and we anticipate a meaningful increase in Q4 as we complete Brazil contract preparation for the Auriga and Polaris. Looking into 2025, we believe it's too early to provide guidance as contract discussions and negotiations for uncommitted capacity are ongoing and the outcome of which will materially affect our financial outlook. Back to you, Simon.

Speaker 2

Thanks, Grant. 2024 has been a significant year of transition for Seadrill. Amidst headwinds like idle time, inflation and required fleet investment that we identified and communicated early, we continue to progress our efforts to simplify and strengthen our business. We sold the Gulf drill jackups and we integrated the Aqua Drill drillships. We delisted from the OSE.

Speaker 2

We maintained a healthy balance sheet and we continued our industry leading repurchase program. Throughout the year, we've consistently beat our peers in total shareholder return. We're recognized as a universal buyer across the sell side from Norwegian and U. S. Analysts alike who recognize the continued value we're positioned to deliver as 2026 contract repricing comes into focus.

Speaker 2

We intend to run our business relative to the opportunities available in the marketplace, not the ones that we hope may materialize. We will not burn valuable shareholder capital praying for better weather. It's clear to us that in the past 18 months, too many rigs have been reactivated by our trade rivals without sustainable matching demand beyond initial contracts. I'm proud of what we've accomplished as an organization thus far and recognize there's more work to do as we continue to strengthen Seadrill to the benefit of our employees, our customers and our shareholders. Expect us to be disciplined as we seek to create meaningful value now and into the future.

Speaker 2

With that, we'll open the line for questions. Operator?

Operator

Thank you. Your first question comes from the line of David Smith with Pickering Energy Partners. Your line is open.

Speaker 5

Hey, good morning. Congratulations on the quarter and the increased guidance.

Speaker 2

Thanks, David.

Speaker 5

I know it's a little farther out, but given the tenders out there and including one recently opened, I wanted to ask about your outlook for your drill ships in Brazil, specifically the Jupiter, Carina and TELUS.

Speaker 2

Yes, sure. Let me kick off and then maybe Samir can add some embroidery at the end. I mean Brazil is the most important and the most resilient deepwater market on the planet. And as we said before, re contracting our rigs in Brazil is a primary focus for the organization. As you know, we don't announce contracts until they're formally signed.

Speaker 2

So we have no specific news to share with you today on the status of those rigs. But as Sameer pointed out in his prepared remarks, we continue to make meaningful positive progress with our customer on re contracting our rigs in Brazil, and we're pretty optimistic about the future of those rigs. Petrobras has recently recognized our performance by awarding us a drilling contractor of the year, which was a nice bouquet to receive. And whereas some deepwater regions face near term headwinds, Brazil's remained stable in terms of demand outlook, which we really like. We believe that yet again, we've made a precinct decision and bid on Brazil at the right time.

Speaker 2

So as an incumbent in Brazil, we will soon have 5 rigs working for Petrobras that we've deployed over the last 2 years. We're keenly aware of the advantage that confers when re contracting in country, not just money and cost of entry. It's obviously also about schedule and regulatory risk. So there's a lot of talk about near term turbulence in 2025. We're largely contracted in terms of rig days for 2025.

Speaker 2

For us, Brazil is a key part of our story. Unlike our rivals, we're not re contracting rigs, we're not hot stacking rigs. Our story is very, very simple. It's all about re contracting in Brazil. Anything to add, Sameer?

Speaker 3

No. Just to say, we remain confident in our abilities to recontract those rigs and are making meaningful progress, but don't have ink on a page, so there's nothing to announce at this point.

Speaker 5

I appreciate all the color. If I could ask a follow-up. I noticed any of these orders this quarter included hook load upgrades to convert 2 6th gen drillships for 7th gen capabilities. And I wanted to ask how you see the potential for additional 6th to 7th gen upgrades and whether this might reshape the 7th gen supply demand balance going forward?

Speaker 2

Yes, great question. Look, I think the distinction between 6th and 7th gen is somewhat arbitrary. I mean, generally speaking, it's as much about Europe delivery as anything. I think it's fair to say that there was a broad spectrum of technical capability across the 6th gen fleet. Most 6th gen units are midlife now, so there's often a need to review obsolete systems and renew marine coatings, particularly after the reduced investment associated with a decade long depressed market.

Speaker 2

So I'm presuming it's about 2,500,000 hook load upgrades. Sameer will have some comments on that, I'm sure.

Speaker 3

Sure. So yes, I'd say hook load is one factor between a 6 and a 7, but it's not the only one. The rigs being upgraded have their own technical challenges beyond just hook load. And candidly, we're prudent with our shareholder capital and we're not going to invest in an upgrade unless we can see a return on it. We are looking at other upgrades on our 6th gen assets, but those are we can monetize and we can actually generate a return on capital on those investments.

Speaker 3

And for whatever it's worth, our 6th gens are located in markets that have a proven track record. I think you really don't need the extra hook load. And so for us, we feel very comfortable with where our 6th gens are upgraded and we don't see the need to upgrade them at this point.

Speaker 5

Okay, color. I appreciate it.

Speaker 2

Thanks, David.

Operator

Your next question comes from Kurt Hallead with Benchmark. Your line is open.

Speaker 6

Hey, good morning, everybody.

Speaker 2

Good morning, Kurt.

Speaker 7

I always appreciate the color commentary. So, because as we look out into next year, a couple of things caught my attention with respect to the prepared commentary. So I was just looking for maybe a little bit more maybe context around it. And the first was, I think Samir, you referenced that the market dynamics are such that in 2025, any contracts that get booked will be price competitive. And at the same time, you referenced that you are looking to kind of maximize the cash margin dynamics.

Speaker 7

So maybe give us some context around that and maybe are you seeing some opportunities to despite maybe some price competitiveness to maintain cash margins at about where they are on existing contracts? And is there some regional differences we need to consider?

Speaker 3

Yes, absolutely, Kirk. So I'd say when we look at bidding work, we're very, very focused on the cash generation. Headline day rate's nice, but at the end of the day, can we generate cash? Each market's individual. Your OpEx is going to be different.

Speaker 3

Your CapEx requirements to comply with the contract are going to be different. So for us, we look to maximize our cash flow wherever we when we bid work. In terms of our fleet, we are 70% contracted into next year. Most of our opportunities are for the second half of next year. We're in active dialogue on most of those assets, actually all of those assets that are rolling off in the second half of next year.

Speaker 3

So for us, we feel pretty good in our ability to recontract them again at good rates for where they're at. But at the end of the day for us, it's less about headline day rate, it's much more about cash flow generation.

Speaker 2

Just to add there, Kurt, to a couple of extra points. I mean, as you would know as an experienced commentator on the business, I mean, there's material economies of scale to be harvested by industry participants. And many of these are a function of how many rigs you have in the discrete geography, choosing the right markets in the first place. There are material differences in cost across different markets. As a management team, we are really committed to dealing with market realities.

Speaker 2

And we're determined to operate a franchise that flexes overhead, OpEx and CapEx dynamically to reflect the business environment and we'll adjust these individual elements to continue to deliver superior margins to our shareholders. That's always been a feature of Seadrill through time and is a core proposition to our investors.

Speaker 5

Got you. And maybe on

Speaker 7

the follow-up, you guys have been very capital return friendly and you're on pace probably to buy back at, I don't know, about $500,000,000 worth of stock this year. Given the fact that you're, like say, only 70% booked on your contracts and maybe some relatively soft dynamics in the pricing environment, how do you see the opportunity to or do you see an opportunity potentially buyback as much stock in 2025 as you did in 2024?

Speaker 4

Kurt, it's Grant here. Look, of course, we can't comment specifically on how much we're going to buy back next year. All I'd say is consistent with prior calls, when we look at the buybacks, we're really going through our financial policy framework. And beginning with the outlook in future years, and of course, that goes hand in hand with the 2025 comments that Sameer was talking about and the 70% contracting. To the extent that firms up, then that gives us a lot more confidence to lean into capital returns and uses of capital.

Speaker 4

Just to reiterate the financial policy, looking at one time net leverage, paying our maintenance CapEx and then thereafter looking at accretive uses of capital. And that accretive uses of capital can be, buying other assets and it could be returning capital to shareholders and really just weighing up those 2 and at the end of the day what's going to be more accretive for our shareholders.

Speaker 7

Got you. Got you. I actually got one more if I may, maybe on Simon for this one. Given the again little bit of a lull that we have in opportunities in the first part of 2025. You guys have always mentioned that you're agnostic as to whether or not you buy assets or wind up being on the other end of that.

Speaker 7

But in the context of potentially looking at some assets, has this lull presented some opportunities that maybe didn't exist earlier in the year?

Speaker 2

I think it's I'm expecting that will become more of a feature if this ends up being a more protracted sort of turbulent period. I mean, obviously, our balance sheet is poised to respond if the right opportunity presents itself. We've spoken before about the strict metrics that any potential acquisition needs to hit in terms of returns, accretion analysis and so on. So at the moment, I don't think there's anything that's on the horizon right now. But there's certainly a number of players in the industry who will not be able to withstand an extended period of hardship.

Speaker 2

And we keep watching brief. And I think our board is very supportive about the opportunity for growth of that nature.

Speaker 7

Great. Appreciate all that. Thanks.

Speaker 2

Cheers, Kurt. Thank you.

Operator

Your next question comes from the line of Frederic Steen with Clarkson Securities. Your line is open.

Speaker 6

Hey, Simon and team. Hope you are well and thank you for taking my question. So I think that the first one that I'd like to ask is just on the geographical spread of your fleet currently. You have a meaningful number of rigs in Brazil, particularly with the Auriga and the Polaris coming onto their contracts now shortly. And you're otherwise well covered in the Gulf of Mexico and West Africa.

Speaker 6

But then you have the Capella, for example, in Southeast Asia. How do you feel about the placement of that single rig? Are you confident that you can get opportunities in the region it's already in? Or do you think or talk about potential relocation of any of your assets?

Speaker 2

As you know, Fred, we have a declared strategy of plastering rigs wherever possible. We've only recently taken control of the Capella. And as the market has become a little bit challenging and more competitive in the near term, we focus mainly on opportunities in the region where it's currently operating. So I think at this point, we're content to chase the work that we see in that area. But in the medium term, we would hope to secure a contract that will permit the relocation of that rig into an area where we already have a pre existing competitive position.

Speaker 2

But Sameer can probably give you a bit more color.

Speaker 3

Yes. So to Simon's point, we are chasing opportunities both in that region and outside. But if we can secure work that generates meaningful cash flow in that region, we'll happily keep the rig out there. But the eventual plan would be to cluster it either into an existing region or develop Southeast Asia as a new region for ourselves as well.

Speaker 6

Okay. No, that's very helpful. And then I guess briefly touching upon the high level fleet composition and thinking about your assets, particularly now that you've decided to stack the West Phoenix. How do you think about that move and, for example, the Aquarius and the Cliffs in terms of potential pecking order if they were to be reactivated. Is there now a higher likelihood of you guys actually scrapping 1 of the 2 instead?

Speaker 2

We don't have any immediate plans in that regard. What I'd say is that the Phoenix and the Aquarius are both easier to reactivate than the Eclipse. The Eclipse definitely will have a larger capital ask and would require a larger body of work to underwrite its reactivation. So I mean, the way we think about it is that we need a material contribution to defray that capital reactivation cost. And we need to see a sense of comfort that there'll be a sustaining market after that initial reactivation contract to keep the rig busy.

Speaker 3

We continue to market both the Phoenix and the Aquarius. And if we find the right opportunity that justifies the investment, we'll do it. But it's a tall order, right? For us, we need to find a job that justifies the investment in those rigs. But of the 3, the Phoenix and the Aquarius are probably the more capable rigs and we'd look at reactivating those first.

Speaker 6

Okay. Thank you very much. Actually just one quick one and I think this goes to Grant. On the share repurchase side, I think under the current $500,000,000 authorization, you had a $200,000,000 tranche to begin with, which should suggest that, that tranche is almost used up. Is there any should we expect that new tranche to be opened?

Speaker 6

Or is it already? I'm just a bit unsure now that you don't have the same disclosures around it as you were listed on Oslo.

Speaker 4

Yes. Thanks, Fred. Good question. And yes, just to remind everyone that now we're delisted from the Oslo Stock Exchange. We no longer have certain disclosure requirements with respect to the buyback.

Speaker 4

Those sort of sub authorizations like the $200,000,000 is no longer required. And so we will not be announcing sub authorizations. We've got the blanket authorization from our Board of $500,000,000 which was provided by our Board in the Q2. Remember the $200,000,000 you're referring to was a sub authorization within that. That was a Norwegian disclosure requirement.

Speaker 4

And you're correct, we are now essentially through that $200,000,000 we've spent $192,000,000 of that $200,000,000 by the end of the Q3. And we can continue to buy back shares under the blanket $500,000,000 authorization, which is going to extend over a 2 year period from Q2 this year to Q2 2026.

Speaker 5

Perfect. Thank you

Speaker 6

so much all of you. Have a good day.

Speaker 2

Thank you. Bye. Cheers.

Operator

Your next question comes from Hamed Khorsand with BWS Financial. Your line is open.

Speaker 8

Good morning. Could you just talk about a little bit of the negotiation of the talk process that you have with potential customers? Is there are they just holding off and just saying wait? Or is this more about their own supply chains and their timing because of the price of oil?

Speaker 3

It's uncertainty. So it's what's happening with commodity price, what's happening with their own supply chains. It's also a reallocation of their portfolios. Most of our clients have global portfolios. So some are saying they'd rather invest in one region versus another.

Speaker 3

And then it's also their return of capital to their own shareholders. So it's this big pot of uncertainty that's leading them to deferred decisions and it is a deferral. We're seeing things get pushed into 2026 from 2025.

Speaker 8

All right. And then the other question is, are you done with your special surveys for 'twenty five or are they being pushed until there's actual contracts?

Speaker 2

I mean, we do have one scheduled survey that we've spoken to before that's scheduled for 2025. We are currently doing an SBS on the West Neptune, and that may drift into next year depending on how things go in terms of some of the cost of that. And then also, I mean, when you're contemplating out of service time, Hamid, I'd encourage you to think that there's a number of potential causes of that. SBSs and 5 year surveys are one potential ingredient, but another one is contract preparation costs. And as we think about the opportunities in front of us in our fleet, there may well be some time required to prepare for long term contracts in other markets and things like that.

Speaker 2

Does that help?

Speaker 8

Yes, it does. Thank you.

Speaker 2

Excellent. Thanks, Hamed.

Operator

Your next question comes from Josh Jain with Daniel Energy Partners. Your line is open.

Speaker 5

Thanks. Good morning. First question in Simon's prepared remarks, you talked about the company optimizing your operations in 2025. I was just wondering if you could expand more on that. And if you have any goals that you've laid out and potentially, how you're thinking about that into next year?

Speaker 2

Yes, sure. I mean, obviously, we're facing some near term headwinds and early 'twenty 5, maybe through the middle of the year potentially is showing some difficulties in the recontracting effort. We've recently cold stacked the West Phoenix and released the crews there. So I think one of the things that we're is really important to us is how we manage rigs that don't have contracting opportunities in front of them. And what we're going to be doing is taking our medicine if we're not able to secure work.

Speaker 2

The turbulence in that market, we believe that at this point that that's going to be short term, but we need to make difficult decisions as quickly as we can and adjust our cost base and our capital programs in order to reflect the business environment. So increasingly, what I was signaling in the prepared comments, increasingly is that we're going to do that in real time. This is a very tough business. And what I've learned in my sort of almost 30 years is that it's really important to manage the cost base at all points in the cycle, not just when times are bad. So as an organization, we're very focused on being agile, lean and rightsizing the organization to make sure we have enough people and that we assemble our assets, our human resources, our software, if you like, to be able to respond to the needs that are in front of us.

Speaker 2

We don't have much appetite for excess capacity.

Speaker 5

Understood. Thanks. And for my follow-up, just given the market's importance to Seadrill and your number of assets there and how you're likely to be a player going forward, I wanted to ask a follow-up on the Gulf of Mexico and if you expect to see any change in the near to intermediate term in that market just as a result of the new administration?

Speaker 2

That's an interesting question. Perhaps let me start, Josh, and then I'll pass to Sameer. I mean, I think it's fair to say that we don't really care who's in the White House. We're driven by shareholder returns. What I will say is that we think the offshore barrel will win in the longer term.

Speaker 2

Lower forty eight production is really about a lower diminishing returns whereas offshore has the volumes, has a reservoir upside, has a blue sky. And our customers are telling us that, that is where the new production is coming from. And onshore is important, but it's pinching out. So in the deep blue seas where we'll be replacing production going forward. Sameer, but

Speaker 3

It's not politics, it's fundamentals. The geology doesn't change with whoever's in the White House. At the end of the day, those barrels will get drilled. And they're more economic and they're lower carbon and cheaper to produce than anywhere else. So we do expect them to continue to get produced over time.

Speaker 5

Thanks for taking the questions. I'll turn it back.

Speaker 2

Thanks, Josh.

Operator

Your next question comes from Noel Parks with Tuohy Brothers Investment Research. Your line is open.

Speaker 5

Hi, good morning. Just sort of following along with your last comments. I was just thinking about exploration and as you mentioned the barrels are going to get drilled sooner or later. And do you I guess, trying to be conservative at this point in the cycle, does seem to be this consensus that funds do need to flow. There does seem to be this consensus that funds do need to flow to the offshore, if nothing else to just help make a dent in global base decline.

Speaker 5

So, any thoughts you have on that?

Speaker 2

Yes. Look, I think we sort of hinted at it before. We believe it's in the offshores where we're going to be replacing productions. That's where we can achieve rates of delivery that can't be matched onshore. Certainly, as we think about the customers who have exposure to both onshore and offshore basins, we've noticed a shift in their investment activities and there's certainly a lot more activity coming down the pipeline, we believe.

Speaker 2

And that's somewhat muted by the fact that all of our customers have such a short term outlook and expenditure on exploration, generally speaking, is at the bottom of their capital allocation priority list.

Speaker 3

Yes. If I take our portfolio our rigs as a microcosm, we are starting to see some exploration. 2 years ago, there's almost 0 exploration. You're starting to see on a long well program, it's we'll tack 1 well out of 10 or 12 into an exploration well. But again, it's happening, but it's still relatively small in the margins.

Speaker 5

Got it. Thanks. That's helpful perspective. And I mean is it so I mean if customers then due to oil price or whatever are sort of de prioritizing steady operations by hanging on to a rig, just based on their own capital discipline, is that sort of part of the shift that's happening then?

Speaker 3

Yes, absolutely. There is real startup costs and switching costs, right? Putting a rig down and then starting it up has meaningful costs. But what we're seeing with our client base is they're pushing that cost out further and further and saying, we're going to preserve cash in the near term for either returning it to shareholders or reallocating it to different parts of their portfolio. And when you ask them privately, they'll say, yes, we acknowledge that there will be an incremental cost to pick this rig up in 2026.

Speaker 3

But it's a 2026 problem, not a 2024, 2025 problem.

Speaker 5

Okay, wow. So that is definitely more sort of short term thinking than we're used to in the deepwater for sure. So thanks, helpful.

Speaker 2

Excellent. Thank you so much.

Operator

With no further questions, this will end our Q and A session as well as today's conference call. We thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Seadrill Q3 2024
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