Diamond Offshore Drilling Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

Key Takeaways

  • Strong Q4 results: total revenue of $298 million and adjusted EBITDA of $72 million exceeded guidance due to higher dayrates and cost deferrals.
  • GreatWhite rig incident: unintentional separation of the LMRP resulted in an estimated 90–100 days of downtime and a $24–27 million revenue shortfall plus $20–25 million in recovery costs (insured after a $10 million deductible).
  • Backlog build: secured $362 million in new contracts for 2024, bringing total backlog to ~$1.6 billion, with 91% of 2024 capacity (87% firm) already committed, improving revenue visibility.
  • 2024 outlook: guidance of $940–960 million in revenue and EBITDA of $230–250 million (over 50% growth), driven by higher day rates and reduced shipyard days.
  • Market fundamentals remain supportive, with a forecast 34% rise in floater exploration wells and subsea tree orders at decade highs, suggesting a sustained upcycle for deepwater drilling.
AI Generated. May Contain Errors.
Earnings Conference Call
Diamond Offshore Drilling Q4 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the 4th Quarter 2023 Diamond Offshore Drilling Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would like now to turn the conference over to Kevin Bordaske, Senior Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Michelle. Good morning or afternoon to everyone, and thank you for joining us. With me on the call today are Bernie Wolford, President and Chief Executive Officer and Dominic Saporino, Senior Vice President and Chief Financial Officer. Before we begin our remarks, I remind you that information reported on this call speaks only as of today and therefore time sensitive information may no longer be accurate at the time of any replay of this call. Some of the information referenced on our call today is included in a slide presentation that you can find in the Investor Relations section of our website under Calendar of Events.

Speaker 1

In addition, certain statements made during this call may be forward looking in nature. These statements are based on our current expectations and include known and unknown risks and uncertainties, many of which we are unable to predict or control. These risks and uncertainties may cause our actual results or performance to differ materially from any future results or performance expressed or implied by these statements. These risks and uncertainties include the risk factors disclosed in our 10 ks and 10 Q filings with the SEC. Further, we expressly disclaim any obligation to update or revise any forward looking statements.

Speaker 1

Refer to the disclosure regarding forward looking statements incorporated in our press release issued yesterday evening, and please note that the contents of our call today are covered by that disclosure. In addition, please note that we will be referencing non GAAP figures on our call today. You can find a reconciliation to GAAP financials in our press release issued yesterday. And now, I will turn the call over to Bernie.

Speaker 2

Thanks, Kevin. Good day to everyone and thank you for your interest in Diamond Offshore as we present our results for the Q4 2023. 2023 was a transformational year for Diamond Offshore. We marked our 1 year anniversary of relisting on the New York Stock Exchange, made measurable improvements in our capital structure, secured $485,000,000 of new contract awards and safely delivered 5 shipyard projects, all while delivering industry leading operational excellence for our customers. The positive momentum continues in 2024 with the addition of another $362,000,000 in new contracts, taking our total current backlog to approximately $1,600,000,000 Before addressing 4th quarter results and sharing some perspective on our markets, I would like to provide a high level update on the previously reported GreatWhite incident.

Speaker 2

On February 1, while waiting on weather with the well secure and lower marine riser package or LMRP disconnected from the BOP, The LMRP and riser unintentionally separated from the rig at the slip joint tensioner ring and dropped to the seabed. No one was hurt, no pollution occurred and there was no damage to subsea infrastructure. Work to recover the LMRP is progressing methodically to ensure a safe recovery while working within the weather constraints west of Shetlands. The LMRP is situated on the seabed, exposed above the mud line in an upright orientation. We have successfully unbolted the riser stream from the LMRP and are prepared to lift the LMRP to the rig in the next weather window.

Speaker 2

We currently estimate the total repair period to be 90 to 100 days from the date of the incident. Dominic will provide additional information related to the estimated repair timing, cost and insurance coverage in his remarks. In the interim, I'd like to recognize the extraordinary work of our team in response to this step and the quality of the ongoing collaboration with our clients and local authorities. Turning to the 4th quarter, I'm pleased to report that our rig crews and operations support team delivered exceptional safety results and revenue efficiency of 95% across our fleet during the quarter. This achievement was particularly noteworthy as we commenced 4 contracts in the quarter, 1 in each of the regions in which we operate.

Speaker 2

Hats off to our teams for their steadfast commitment to planning and execution, while never compromising on safety. Our 4th quarter financial performance reflects the impact of having 4 of our marketed fleet of 10 rigs on higher market dayrate contracts at quarter end. Total revenue and adjusted EBITDA for the quarter were $298,000,000 $72,000,000 respectively. These results were above our guidance for the quarter, primarily due to the Patriot working longer than previously anticipated, the deferral of certain contract preparation costs and earning a performance bonus for efficient and injury free operations in Senegal. This feat in part reflects the impact of rigs moving to higher day rate contracts and sets the stage for improving financial performance in 2024 owing to fewer planned shipyard days.

Speaker 2

Blackhawk encouraged having a full year on higher day rates and the BlackLine and BlackRhino moving to higher day rates in the 3rd quarter. Now let's turn to our view on the markets and opportunities for Diamond in 2024 and beyond. Up cycle and offshore drilling continues to be supported by strong commodity prices, robust upstream capital spending and anticipated year over year growth in exploration drilling. Taken as a group, these indicators support our view of a longer duration upcycle in deepwater

Speaker 3

drilling. Let's look at some

Speaker 2

of the numbers in support of a longer duration upcycle. Exploration drilling can be considered a leading indicator and a precursor to future development programs and analysts now forecast year on year growth in floater exploration wells of 34%. Subsea tree orders are another leading indicator and 2024 forecasts predict the 3rd year in a row with over 300 NewTrees ordered. This level of order activity is the highest it's been since 2013 at a time when we had 115 more rigs in the market than we do today to execute the related drilling activity. Putting Subsea Tree orders into perspective relative to the global marketed floater fleet, back in 20122013, the number of orders per marketed floater peaked at 1.51.8 trees ordered per marketed floater respectively.

Speaker 2

In comparison, in 20222023, those numbers were 2.1 and 1.8 and the 2024 forecast stands at approximately 1.9. This would indicate 3 contiguous years with numbers matching or exceeding measures dating back 12 years. These trends sync well with Atlas forecast for floater demand on a rig years basis. The forecast compound annual growth rate of rig years and demand from 2023 to 2026 by region are 7% for North America, 11% for South America, 10% for the North Sea, 7% for West Africa and 25% for Southeast Asia and Oceania. Another key metric we track is the trending 4 quarters tender activity on a rig years basis.

Speaker 2

It's been a bumpy road from a peak in 2012 of approximately 106 rig years of tender implied trailing demand to a cycle bottom of 28 in 2016 and a COVID bottom of 35 in 2020. The industry closed 2023 with 106 rig years of tender implied trailing demand matching the number from 12 years ago. Closer to home, we are currently tracking 51 opportunities representing 52 rig years of demand with commencement dates through 2025, of which roughly 61% are for DP rigs and 39% for moored rigs. The start date profile for these opportunities rises from a low in Q2 2024 to a peak of 1211 in Q4 2024 and Q1 2025 respectively. This data lends credence to the view that the second half of this year looks to be positive in terms of the number of expected fixtures and contract starts.

Speaker 2

For Diamond specifically, U. K. Sector of the North Sea continues to develop as a bright spot with increasing demand in the region with shrinking harsh environment rig supply. Recent long term commitments by operators in the region support our view that demand for plug and abandonment or P and A work is becoming more certain and exist in larger quantities than previously anticipated. Additionally, green shoots of future drilling demand have emerged on the heels of the recent oil and gas licensing ground where 27 licenses were awarded for areas that have the potential to be brought into production quickly.

Speaker 2

Assuming options are exercised on the BlackHawk, we have one drillship, the BlackRhino with availability late this year. We are currently pursuing 8 opportunities for the BlackRhino, all for work commencement commencing following the conclusion of its contracting work is SPS and NPD upgrade. In the context of these improving markets, we have been able to firm up additional contract term for 2024 and build significant backlog commitments for 20252026. Year to date, we have secured $362,000,000 in new contract awards, 1 for our 7th generation drillship, BlackLine at leading edge rate and one for our more harsh environment semi to Patriot. The BlackLine contract will start a direct continuation of its current work without any gap between contracts and provide firm work through the Q3 of 2026.

Speaker 2

Under this new contract, the BlackLine will be positioned to generate approximately 115,000,000 dollars in annualized rig level EBITDA and contribute significantly to our cash flow in the coming years. The Patriot contract is for a 60 day 2 well P and A campaign and is set to commence this week, filling in some of the gap in its schedule before beginning its 3 year contract in early 2025. On the back of our recent contract announcements, excluding co stacked rigs, we have 87% of our 2024 capacity contracted, 91% if you include priced options. Looking further out, excluding co stacked rigs, we now have 36% of our 2025 capacity and 30% of 2026 capacity contracted. If we include price options, the 2025 number goes from 36% to 59% with notable contracting opportunities on the BlackRhino, BlackHornet, Endeavor and Apex to further secure backlog.

Speaker 2

For the last 20 months, we completed special periodical surveys or SPSs on 6 of our 10 actively marketed rigs with a further 2 rigs due in 2024 and 1 in 2025. Through the combination of reduced planned shipyard days, our recent backlog additions, our positive exposure to improving market conditions, we are providing materially improved EBITDA and cash flow visibility through 2026. I will now turn the call over to Dominic before returning with some concluding remarks. Thanks, Bernie, and good morning or afternoon to everyone. In my prepared remarks this morning, I'll provide a recap of our results for the Q4, including some operational highlights and additional details on our recent contract awards, the estimated financial impact of the recent Greg White event and guidance for the Q1 and full year 2024.

Speaker 2

For the 4th quarter, we reported a net loss of approximately $146,000,000 or $1.42 per diluted share. The reported loss consisted of net income before tax of $29,000,000 and non cash tax expense of $174,000,000 As discussed in prior quarters, the large tax expense in the quarter was the result of the reversal of the tax benefit recorded in prior quarters and the further normalization of our overall tax expense for the year. The results for the Q4 included a reported adjusted EBITDA of $72,000,000 well in excess of our guidance for the quarter of $50,000,000 to $60,000,000 with the U. S. GAAP required deferral of approximately $8,000,000 of pre contract commencement costs for the Courage and Blackhawk contributing to the favorable results.

Speaker 2

Our reported adjusted EBITDA for the quarter represents a significant increase compared to our adjusted EBITDA of $28,000,000 reported in the 3rd quarter. And this quarter over quarter increase was primarily a result of higher revenue reported in the 4th quarter. Excluding reimbursable revenue, revenue for the 4th quarter was $280,000,000 slightly higher than our guidance for the quarter and up from $225,000,000 in the prior quarter. This improvement was primarily a result of the Blackhawk commencing its contract 4th quarter after being between contracts in the prior quarter, Q4 after being between contracts in the prior quarter and the BlackRhino earning its largest performance bonus to date during the Q4. Contract drilling expense increased to $189,000,000 for the quarter compared to $182,000,000 for the prior quarter, primarily as a result of higher charter costs for 1 of our managed rigs and the accrual of the annual bonus expense related to the drillships BOP service agreements, partially offset by the absence of costs associated with the Apex's shipyard period in the prior quarter.

Speaker 2

Operating cash flow for the Q4 was $9,000,000 with negative free cash flow of $22,000,000 as compared to negative free cash flow of $48,000,000 in the 3rd quarter. The improvement in free cash flow was primarily a result of increased EBITDA and lower CapEx in the 4th quarter, offset by greater working capital use during the quarter as a result of commencing higher day rate contracts and the resulting higher accounts receivable at year end. For the full year 2023, we reported revenue excluding reimbursable revenue of $984,000,000 and adjusted EBITDA of $158,000,000 CapEx for the full year was $132,000,000 After the successful execution of Q3, we exited 2023 with unrestricted cash and cash equivalents of $124,000,000 and total liquidity of $422,000,000 including the undrawn balance of our revolving credit facility. Expanding a bit more on the 4th quarter operational highlights, we had notable successes in each region in which we operate. In the Gulf of Mexico, the Black Hawk commenced its new contract in November at the start of the commencement window after undergoing its SPS and NPD upgrade.

Speaker 2

In West Africa, the BlackRhino earned performance bonuses in the quarter totaling $3,200,000 the 9th bonus achieved during the Senegal campaign. In the North Sea, the Patriot executed a P and A campaign for a customer over the course of Q4 and into January of this year, being on contract almost twice as long as originally anticipated. In Australia, after coming out of the shipyard in the Q3, the Apex successfully commenced a contract for a new customer during the Q4 at a higher day rate. In Brazil, after completing its prior 3 year contract with Petrobras in the Q3, the Courier safely and timely completed its SPS and contract preparation activities and commenced its new 4 year contract with Petrobras in mid December. Turning now to the GreatWhite and our estimate of the financial implications of the unintentional release of the LMRP and riser.

Speaker 2

As Bernie noted, the GreatWhite is currently in the process of recovering the LMRP to the surface and is estimated to be back earning day rate by the end of April or early May. As a result, we currently estimate that we could be off rates for approximately 90 to 100 days, which could result in approximately a $24,000,000 to $27,000,000 reduction in revenue over the course of the first and second quarters. Our current estimate of incremental recovery costs and repairs and maintenance is approximately $20,000,000 to $25,000,000 And our current estimate of replacement capital expenditures is approximately $12,000,000 to $15,000,000 We anticipate that the incident will be covered by our hull and machinery insurance policy and that all incremental costs less our $10,000,000 deductible should be reimbursable under the policy. In addition, we maintain loss of higher insurance on the GreatWhite. After a 60 day waiting period, the loss of higher insurance provides $150,000 per day or up to 180 days for each day of lost revenue as a result of a covered property loss claim.

Speaker 2

Based on our current expectations of being out of service for approximately 90 to 100 days, the loss of higher insurance may provide proceeds of approximately $4,500,000 to $6,000,000 Because the accounting treatment of insurance proceeds creates complexities in the reporting of financial results and because the actual financial impact of the GreatWhite incident is not yet known, we are presenting our initial guidance for 2024 results by excluding the estimated financial impact from the GreatWhite event. We believe that this normalized approach will provide more accurate and meaningful visibility into our expectations of our ongoing recurring operations without regard to this extraordinary isolated incident. In addition to having a strong financial performance in the 4th quarter, we also had significant success in the quarter and early this year in booking new contracts, as Bernie mentioned. In the Gulf of Mexico, we enjoyed significant contract wins in the past month with the Black Lion executing a contract extension with its current customer with a duration of 2 years and a contract value of approximately $350,000,000 With this new contract, the Black Lion is now contracted through the Q3 of 2026. In addition, in the Q4, the BlackRhino was awarded a contract continuation of its Senegal campaign at a day rate in excess of $500,000 per day, the highest clean day rate awarded during this upcycle.

Speaker 2

These recent contract awards push the average day rate in our drillship backlog up to $408,000 per day. Also during the quarter, the Patriot was awarded a contract valued at $240,000,000 for a 35 well P and A campaign representing approximately 3 years of firm work expected to commence in early 2025 with up to 17 additional P and A wells subject to priced options that would add a 4th year of duration. Subsequent to year end, the Patriot was also awarded a 2 well P and A campaign commencing later this week, filling in some of the gap before commencing its 3 year contract in 2025. The Patriot is also being considered for additional work later in 2024, evidence of the improving moored floater market in the North Sea. Turning now to our normalized full year 2024 guidance.

Speaker 2

Our $1,400,000,000 in backlog as of January 1, 2024, combined with our year to date 2024 contract awards of $362,000,000 gives us visibility to over $1,600,000,000 of firm work to be performed over the coming years and positions us extremely well in terms of contract coverage 2024 with 91% of our available days excluding cold stack rigs committed with firm contracts or priced options. Our 2024 revenue excluding reimbursable revenue and excluding any estimated impact of the GreatWhite event is currently expected to be between $940,000,000 $960,000,000 This expected level of revenue represents a slight decrease from the revenue we earned in 2023. This expected decrease is primarily due to the managed rigs transitioning back to their owner over the course of 2024 And our plans for the BlackRhino to spend time in the shipyard conducting its SPS and MPD upgrade later this year, partially offset by higher day rates for the BlackHawk, Courage, Apex and BlackLion during the year. Our EBITDA guidance for 2024, again excluding any impact of the GreatWhite incident, is currently expected to be between $230,000,000 $250,000,000 a more than 50% increase over 2023 EBITDA, largely driven by higher day rate contracts and increased EBITDA margins due to the return of the lower margin managed rigs back to their owner.

Speaker 2

It is worth noting that our EBITDA guidance for 2024 includes approximately $20,000,000 of non cash net amortization expense as required by U. S. GAAP accounting rules associated with the COURAGE and Blackhawk pre commencement contract activities that occurred in 2023. G and A expense for 2024 is expected to be between $72,000,000 $77,000,000 Net interest expense for the year is currently expected to be approximately $40,000,000 to $45,000,000 and cash taxes are expected to be approximately $5,000,000 to $10,000,000 CapEx for 2024 is currently expected to be between $125,000,000 $135,000,000 excluding any CapEx resulting from the GreatWhite Event or the potential reactivation of the On X should it be successful in securing a long term contract. Our estimated CapEx spend for 2024 includes the estimation of MPD equipment and the SPS for the BlackRhino.

Speaker 2

The SPS for the Black Hornet as well as the BOP recertification for the Endeavor. Taking a look at our guidance for the Q1, again excluding any impact of the GreatWhite incident, We currently expect revenue, excluding reimbursables, to be between $260,000,000,000 $270,000,000,000 EBITDA to be between $45,000,000 $55,000,000 and CapEx to be between $38,000,000 $43,000,000 Our expectations for the Q1 of 2024 are lower than the Q4 of 2023 as a result of the Patriot being off contract for a portion of the quarter and the amortization of pre contract commencement costs for the Courage and Blackhawk. Despite this dip in Q1, our projected EBITDA results for the year are essentially equally weighted between the first half and second half of the year and we expect our free cash flow in 2024 should be meaningfully greater than 2023. Beyond 2024, our visibility to estimated future earnings and cash flow is increasing as a result of our growing backlog at higher average day rates. In addition to our 91% contract coverage in 2024 for firm contracts and priced options, excluding cold stacked rigs, we have 59% and 30% of available days committed for 2025 and 2026 respectively.

Speaker 2

This level of contract coverage positions us extremely well for the next 3 years, and still provides plenty of room for positive operational leverage as re contracting opportunities arise. And with the continued favorable fundamentals of the deepwater offshore industry, we are confident that we will be able to continue to secure meaningful day rate increases for our rigs as contracts roll over. And finally, by the end of 2024, we expect our net leverage ratio and other requirements under our credit facility and bond indenture to be met, which would allow our Board to begin to consider the appropriate timing for a shareholder return program. That concludes my prepared remarks. I will now hand it back to Bernie for some closing comments.

Speaker 2

Thank you, Dominic. In the near term, our organization remains focused on the safe and timely restart of the GreatWhite. Looking further ahead, as the BlackLine rolls to its higher day rate in Q3, although closely by an option of the Black Hawk, we will have 5 out of our 9 active rigs on contracts at market rates. We are ideally positioned to capture further upside in the strengthening drillship market with the BlackRhino in late 2024 and the Black Hornet in early 2025. Similarly, the supply demand picture or harsh environment semis bodes well for upside on the Endeavor, Apex and GreatWhite as we progress through 2025.

Speaker 2

In the interim, we are targeting several near term opportunities for the Patriot to allow us to fill a portion of the gap in 2024 prior to its long term campaign in 2025. These factors, combined with a notable decrease in planned shipyard days, position us to deliver growth in both EBITDA and cash flow, while making significant progress in deleveraging our balance sheet. We appreciate your interest in Diamond Offshore. And we'll now open the call for questions.

Speaker 4

Thank

Operator

And the first question comes from Eddie Kim with Barclays. Your line is now open.

Speaker 5

Hi, good morning. So very constructive market outlook you provided here, but just curious if you've been surprised at the lack of contracting for the 10 or so 7th gen sidelined drillships? It seems like until all or maybe most of these sidelined rigs are absorbed, it it might put a lid on day rate increases here in the medium term. So have you been surprised here? And if you had to guess, just based on the demand you're seeing, do you think maybe we could see 4 or 5 of these 10 sideline rigs announced contracts by year end?

Speaker 2

Thanks for the question, Eddie. I wouldn't say surprised. I mean, looking at our investor presentation, you'll sort of see the staggered impact of new contract awards we expect throughout the year. Clearly, we would have expected some contracts to be awarded earlier than they have been, particularly one opportunity in Petrobras that we thought would have been already awarded at this stage. I certainly expect those awards to come through in the very near future.

Speaker 2

Q1 is typically a quiet time of the year and not any different this year if you look back from a historical perspective. As far as sideline rigs returning to the market, I would expect, yes, that 5 to 6 of those do secure contracts by the time we reach the middle of this year, Eddie. I mean, I think that's highly anticipated and would be what I would say is kind of right down the middle of the fairway in terms of our expectations.

Speaker 5

Sorry, just to clarify, you said 5 to 6 maybe now contracts by middle of this year, so in a couple of months?

Speaker 2

Yes, by the middle of this year. Middle of this year. So these are contracts that would have start dates Q3, Q4 and Q1 of 20 25. There's sort of a demand around that time period that and typically you'll see the contracts announced 6 months before the actual start date.

Speaker 5

Got it. Thanks for clarifying that. And then my follow-up is just on the Black Rhino. You highlighted 8 potential opportunities for the rig. Could you see the rig mobilizing to outside West Africa?

Speaker 5

Or do you see the rig staying in West Africa at this point? And separately, after it comes off contract, it goes in for a 5 year SPS and an NPD upgrade. We've typically seen NPD being upgraded for a rig for a specific contract, but it seems like in this case, it's voluntary or maybe a preemptive upgrade on your part. So just wanted to get your thoughts here on why you're choosing to add the NPV on this rig?

Speaker 2

Yes, Eddie, we're currently tracking 4 opportunities to start in Q4 and 4 of the start in Q1 of 'twenty five for the Rhino. Those opportunities, some are in West Africa, some are in South America and some are in the U. S. So it's hard to handicap where the rig will be next, in terms of the opportunities we're currently tracking. I wouldn't expect any gap in the rig schedule after completion of the SPS and MPD installation based on our market intelligence as we sit here today.

Speaker 2

With regard to the MPD, it was a proactive decision to ensure that our 4 black ships were and remain in the top 30 rigs in a worldwide basis from a technical specs perspective. Having an NPD assures that you can bid on every opportunity that's out there and gives you a greater set of opportunities from which to secure work. And obviously, you can get some upside in terms of your rate for the NPD. But first and foremost, we look at it as a key to entry and ability to bid on every single tender in the South

Operator

Next question comes from David Smith with Pickering Energy Partners. Your line is now open.

Speaker 3

Hey, good morning. Good morning. Thank you for taking my questions and congratulations on a solid quarter.

Speaker 2

Thanks, Dave.

Speaker 3

I wanted to make sure I understood the 24 guidance. You all are pretty clear, but just making sure, excluding the GreatWhite impact, we should think about that guidance as if the GreatWhite had been working at its contracted rate with no interruptions.

Speaker 2

Yes, that is correct. We will normalize our results for any impact that the downtime has or the insurance proceeds have as we report throughout the year. So that is a correct assumption.

Speaker 3

Appreciate it. And for the on the financial impact, for the property insurance with the $10,000,000 deductible, should we think about that as only applying to the $12,000,000 to 15,000,000 dollars of replacement CapEx or would the recovery costs, I think estimated $20,000,000 to $25,000,000 also apply to that policy?

Speaker 2

All of those costs would be covered by the policy. So absent certainly, it's subject to the claim with the insurance company and what is covered. But the expectation is that all of that is potentially eligible to be recovered as part of the insurance policy.

Speaker 3

So this could potentially after insurance be a net impact of maybe low $30,000,000 range?

Speaker 2

Right. Yes, right about by the time you factor in the loss of revenue, the potential loss of higher proceeds as well as the $10,000,000 deductible, it's right at $30,000,000 They start our current estimate of 90 to 100 days.

Speaker 3

Thank you. And if I'll circle back in the queue.

Speaker 2

Thanks, Dave.

Operator

One moment for the next question. The next question comes from Frederik Steen with Clarksons Securities. Your line is open.

Speaker 6

Hello, Bernie and team. Hope you are well. And as for me as well, good quarter. I wanted to follow-up a bit on your fleet. You clearly have goods coverage for 2024, and I think your revenue guidance is a testament to that.

Speaker 6

It's quite a narrow range. So I wanted to get a few details on how that range is being built up. It's will it be dependent on what you, for example, are able to secure additional work on Patriot? Does it assume any impact of the Onyx? You're marketing that.

Speaker 6

Or does it assume, for example, that the priced options on the Black Hawk and the part on the GreatWhite that in 2024, although minimal, will also be exercised? Any thinking or thoughts around how we can move from the low to the high end of that range would be very helpful. Thanks.

Speaker 2

I'll ask Dominic to comment on it, and I'll make some introductory comments first. Our current line of thinking is that we will secure additional work for the Patriot. We're actively pursuing 2 more probable than less opportunities right now for the Patriot for work in 2024 that would help us fill that gap. We don't anticipating filling 100% of the gap throughout the year. So in part, the range reflects filling a portion of the gap.

Speaker 2

As far as the price option on the HALT goes, our current expectation is that it's more likely than not that the client chooses to exercise the option. But obviously, that's speculation at this point in time. We would expect clarity on that in the first half of the year and have good visibility one way or the other on that. And then with respect to the GreatWhite, we continue to anticipate that not only the firm work that's already committed for the GreatWhite, but at the tail end of the year, the likelihood that additional options become exercised. And to add to that, the Patriot is probably our biggest variable there.

Speaker 2

Certainly, we're optimistic that we'll be able to secure additional work for the Patriot. But given the fact that we've got a 2025 contract start, it's unlikely that we'll be able to release the crew or otherwise we'll have to maintain those costs. So every dollar of revenue we're able to achieve there is going to be upside relative to what we've considered at the forecast. Adding, the On X into the mix, in fact, that would most likely be a negative to the forecast because the opportunity for the Onyx is really will be something that would more likely begin in 2025 such that we have to reactivate the rig earlier than that and incur the costs, recrew a deal with that CapEx in the second half of 2024 if that were to be the case. So the Onyx variable certainly currently not considered, but if it were to be contracted, it would most likely be negative relative to 2024.

Speaker 6

That's very helpful. And you partially kind of answered my follow-up. On the Patriots, are you able to share, I call it, how much of the gap you would expect that's sensible to model, not 100%, but you think 50%, 60%, 30%, 70%?

Speaker 2

I'd say 40% to 50% of the gap we're hoping to cover. Particularly, I mean, the summer months, it would be the likely timeframe. So Q2 and Q3 more likely than Q4, but I think 50% from a modeling perspective is probably not too far off.

Speaker 6

That's very helpful. Finally, now that you're refinanced, new bond in place, lots of liquidity through the RCF, good coverage on 2024 and coming into a period where some rigs have or rigs will be substantially repriced on the upside. Are you feeling or thinking actively about anything strategic? I know this is a recurring question in a way, but it's been quite quiet on the M and A front. Oil service sentiment in the equity market has been a bit off.

Speaker 6

But has anything changed on your side in terms of thinking around consolidation where diamonds plays in that mix could be acquired, be acquired, etcetera?

Speaker 2

Or are

Speaker 6

the M and A discussions dead for now?

Speaker 2

Thanks for the question, Frederick. It's ever recurring question, but a fair question nonetheless. At this point in time, our view is with the strength of our backlog, with the strength of our balance sheet, we look to be a net acquirer, Frederic, going forward.

Speaker 6

All right. Looking forward to follow you as always. Thank you so much for taking my questions and have a great day,

Operator

The next question comes from Noelle Parks with Tuohy Brothers Investment Research. Please go ahead.

Speaker 4

Hi, good morning.

Speaker 2

Good morning, Noel.

Speaker 4

Just a couple of things. One theme that has been coming up more frequently as companies have been reporting this quarter. It seems it's more consistent that the various drillers are indeed seeing customer making that shift towards prioritizing the de risking of future rig rates to the point that some of them are maybe some of the larger ones are even it might be premature to call it doing speculative bidding. But just that the trend that trend does indeed seem to be materializing and I recall something you saw hints of on the horizon. Is you still seeing that to be the case?

Speaker 4

And anything anecdotally you can point to that's reassuring on that front?

Speaker 2

Thanks for the question, Noelle. We continue to see client behavior that is consistent with the thesis that they're looking to derisk their future big rate upside exposure. We're seeing longer term contracts come through the door. The ones we're looking at now average just over a year, but we're seeing numerous 3 to 5 year opportunities come through the door and certainly a fair share of 2 year opportunities. All would lead me to believe that the thesis remains that for the longer term, clients have significant development work, They know what they want to do and they want to de risk those projects by securing firm day rates in the near term.

Speaker 4

Great. Thanks. And of course, there is this keen interest by observers, The Street about kind of like every contract and of course that desire to have them all decided and announced sooner rather than later, which of course is certainly every driller's increase as well. I just wonder, are there just being realistic about some of the tensions being at very high utilization, Are there any sources of variability that could affect timing, that people ought to have in mind just to be realistic looking at the quarters ahead. And I'm taking things even differences in lead time between getting a deal signed in Africa versus private direct deal in the Gulf?

Speaker 2

Noelle, I want to make sure I understood your question. Are you asking from a diamond perspective? Are we seeing the likelihood of a high variability in future commitments? Or was your question more broad? And could you maybe restate it to make sure I'm clear on your question?

Speaker 4

Sure. Just more broadly, there's just so much scrutiny on everyone's kind of hanging on seeing what the next contract announcement is pretty much for every driller. And but so I just am concerned that maybe people who haven't paid a lot of attention to the industry recently or just catching what's going on in the current cycle have this worry, why isn't it happening faster? And just some of that, it seems to me, is probably not realistic considering that you're getting to such high utilization right now. So just anything to kind of give perspective on the pace of signings and why that certainly is consistent with what you'd expect these days?

Speaker 2

Yes. I'll start by saying, as we finish the Q3, the pace of signings was for 2023 up to the end of the Q3 was at a very high pace. Unprecedented in modern times, I guess, you would say. We continue to see the tenders out there. They're looking for commitments minimum of 6 months prior to the start of work and in many and most cases as much as 1 year and even more than a year before the actual commencement date.

Speaker 2

I think what we're going through right now in Q1 is what I'm going to generally classify as noise relative to the longer term trend. I think you're going to see some clients take advantage of uncertainty, if you want to call it that, securing 1 or 2 rigs at below market rates. We've seen one interesting deal out there around the client securing partial ownership in an asset. We have 2 to 3 stranded assets out there that are very interested in getting into the market. And we have some people that may be interested in protecting the Dow side.

Speaker 2

So I think you'll see a few rates in what I would call the 300s for lower spec rigs or stranded rigs. But I think again, that's noise. You look at the average of what I think you're going to see contract signed and executed at this year, I'm going to say it stays in the $450,000,000 to $490,000,000 range. Even with averaging in the lower day rate what I would call a 2nd tier or 6th generation single activity or 1 BOP asset.

Speaker 4

Great. Thanks for that. Sorry, please. Sorry, to add

Speaker 2

to that goal, it's sometimes longer term contracts that operators are talking about take longer to negotiate. You want to make sure that both on the drilling contractor side as well as on the operator side that you get the liabilities right, you get the escalation factors right, you get the day rate right. So that could also be influenced some of the timing as we're talking about longer term.

Speaker 4

Right. Absolutely. Thanks a lot.

Operator

At this time, I show no further questions. I would now like to turn the call back to Bernie Wolford, CEO for closing remarks.

Speaker 2

Thanks all for your participation in today's call. We look forward to speaking with you again next quarter and have a great day. Goodbye.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect and have a great day.

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