Seadrill Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 13 speakers on the call.

Operator

Thank you for standing by, and welcome to the Seadrill Second Quarter Earnings Conference Call. All lines have been placed on mute

Speaker 1

to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I'd now like to turn

Operator

the call over to Lydia Mabry, Director of Investor Relations. You may begin.

Speaker 2

Thank you, operator. Welcome to Seadrill's Q2 2024 Earnings Call. Today's call will feature prepared remarks from Simon Johnson, 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. Also joining is Marcel Wiegers, Senior Vice President of Operations. Today's call includes forward looking statements that involve risks and uncertainty.

Speaker 2

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. 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 affecting our business.

Speaker 2

During the call, we will also refer to non GAAP measures. Our earnings release filed with the SEC and available on our website includes reconciliations to the nearest corresponding GAAP measures. Our use of the term EBITDA on today's call corresponds with the term adjusted EBITDA as defined in our earnings release. Now, let me turn the call to Simon.

Speaker 3

Thank you for joining us on today's call. For the Q2, SITU delivered EBITDA of $133,000,000 and $375,000,000 of total operating revenues from an EBITDA margin of 35.5%. Seadrill had a strong first half of the year with a combined $257,000,000 in EBITDA. However, we are lowering our second half expectations based on revised estimates for contract start dates for the 2 rigs we're moving to Brazil and uncommitted near term availability on other rigs within our fleet. We entered 2024 knowing it will be a transition year.

Speaker 3

We've operated fewer rigs while preparing units for long term contracts and performing necessary calendar based maintenance on several others. We've acknowledged our willingness to incur idle time early in the cycle as we sought to reprice, relocate and reintegrate rigs. This was exemplified by the West Polaris, which we moved from a third party managed contract in India, where it operated alone to a market rate term contract in Brazil, where we operate at scale. Like our peers, we've encountered white space for some of our units with near term availability, specifically the Savanna, Louisiana, West Phoenix and West Capella. We're seeing indications of limited contracting options and intensifying competition that will impact on these rigs and possibly others into 2025.

Speaker 3

The emergence of more volatility inherently oilfield services subsector further enforces the importance of through cycle resiliency To achieve durable earnings and cash flow across cycles, 1, scale matters 2, balance sheet strength matters 3, management discipline matters and 4, most importantly, safe, efficient, responsible drilling operations matter. Maintain a prudent balance sheet that allows us to invest in maximizing the useful life, competitiveness and performance of the rigs across our fleet when attractive economics justify doing so. We consistently demonstrate discipline by doing what we say we will do acting as strong stewards of capital. We maximize the earnings potential of our contracted rig fleet by staying focused on maximizing one of the most important operational metrics, uptime. When downtime events do occur, we learn from them first identifying the root cause, then reshaping our efforts and behavior to deliver intended outcomes.

Speaker 3

We are seeing results. During the quarter, 5 of our rigs achieved nearly 100% uptime. Every year, I visit every rig in our fleet. The level of operational performance and commitment to continuous improvement that I've personally seen across our rig sites will drive our success through the cycle. I most recently returned from Angola where our rigs continue to set examples with superior safety performance across our fleet across all metrics.

Speaker 3

Elsewhere in the fleet, the Phoenix recently celebrated 9 years without a lost time incident and the West Saturn 6 years without an LTI. Looking at the market, we remain confident in the long term position of the deepwater drilling industry. We still believe burgeoning broad based demand will bolster what's largely been a supplier side driven recovery. However, major discoveries in places like Namibia, Cote D'ivoire and Indonesia have yet to convert into material rig activity. We expect the slower conversion of demand to contract awards will persist into 2025.

Speaker 3

Importantly, we've seen no indication that day rate development is curtailing demand. Rather, there are more likely paradoxes at play. Firstly, E and P customers are out consolidating contractors and 2 becomes 1 that can change the timing of tenders as projects that would have occurred consecutively often get deferred. 2nd, E and Ps continue to prioritize returning capital to shareholders rather than spending on the drill bit. Even small independents appear to prioritize buybacks, dividends and debt retirement over new contracts.

Speaker 3

3rd, E and Ps appear largely unwilling to commit to long dated projects. Broader uncertainty related to demand for the underlying commodity and shifting sociopolitical situations in certain countries appear to be shortening our customers' actionable time horizons. Asymmetry between partner expectations at the JV level can also prevent projects from proceeding. In a less liquid market characterized by a small inventory of available rigs and contracts, it can be difficult to align supply and demand perfectly contributing to idle time. We believe that this is transitory.

Speaker 3

Yes, E and Ps are showing some discretion on near term projects, but by definition they are responsible for producing a consumable resource. What we're seeing is demand delay, not demand destruction. Our positive view of the deepwater drilling markets longer term outlook remains unaltered. As frustrating as lack of visibility and short term congestion may be, we're satisfied with the ongoing development of the market and our relative position within it. However, there will be volatility.

Speaker 3

As an industry, we seem to be experiencing micro cycles where the amplitudes may be greater, the period shorter and the spread of day rates potentially wider. That means that now as ever scale, balance sheets, management teams and operations matter. As we look to the horizon, I'm convinced Seadrill will be a competitive player. I'm confident in our team's performance, potential and progress. Thank you to our employees for your continued commitment to the competitive collaborative and cost conscious behaviors that will carry us forward.

Speaker 3

With that, I'll pass the call to Sameer.

Speaker 4

Thanks, Simon. Trying to anticipate what our clients are going to do when is becoming more difficult. For example, global floater contract awards to the first half of this year or half of what they were over the same period last year, adjusting for an unusual 10 year contract. Then in late July, an IOC and an NOC launched multi rig tenders within what seemed like hours of each other. Though the market balance supports continued rate progression, uncertainty on the timing of demand and the competitive response to that follows can contribute to idle time and day rate dispersion.

Speaker 4

Drilling contractors are card players that never really get the deal. We can only play the hand in front of us. More challenging still is we are not alone at the table. We must anticipate and where appropriate respond with what other players may do with the cards they have. Certain markets feel different than others right now.

Speaker 4

Let's walk around the world reviewing the demand and outlook and contracted activity within each. Starting with our primary focus area, the Golden Triangle. Brazil remains a single most important deepwater market. We expect the number of floating rigs there to remain flat around 30. So operators in the region appear to have expansionary ambitions that could yield incremental additions over time.

Speaker 4

About 7 rigs will roll off in the next 18 months and there are 2 open tenders for up to 7 units of varying specification that would keep the market in balance. As industry participants are aware, we have 3 rigs contracted with Petrobras through 2025. So these new tenders line up well with our scheduled completion dates. We've begun dialogue on these rigs for future work both in and outside of Brazil and we anticipate being able to provide an update on contracting later this year. The U.

Speaker 4

S. Gulf of Mexico remains an active market with generally high specification threshold that often drives day rate development. Recent contract awards here have been as short as 1 month and as high as 3 years, and the variability in demand can create for a larger fan of outcomes compared to other long term growing markets. We operate 3 rigs in the Gulf of Mexico. The West Vela is committed through mid-twenty 25 and the West Neptune through January 2026.

Speaker 4

The Savanna Louisiana remains a shorter term rig. She completed a well intervention campaign in May, then transitioned to traditional drilling work that should finish later this month, though it could extend. The rig's contracting outlook for the remainder of the year changes week to week. We continue to explore opportunities with multiple customers for both drilling and intervention work to fill its remaining workspace. West Africa remains a source of incremental demand for the industry in 2026 and beyond, driven by key geographies like Namibia and Nigeria, where we have extensive operating experience.

Speaker 4

Currently, we have 3 rigs on contract in Angola through our solid drill joint venture through mid-twenty 25 and are in active conversation with clients that should keep them contracted in the region in 2026 and beyond. Outside of the Golden Triangle, Southeast Asia remains active with programs across various countries that could be of interest. We continue to believe the West Capella is well positioned as one of 2 drill ships in the region equipped with managed pressure drilling, but acknowledge dispersed demand can contribute to idle time between campaigns. Norway remains precariously balanced being either 1 rig oversupplied or 1 rig undersupplied. When the Phoenix concludes its contract with VAR Energy later this month, we will stack the rig in the absence of a contract that justifies the over $100,000,000 investment required to continue operating in Norway, reducing costs and mitigating the impact of firm level EBITDA.

Speaker 4

Based on the current outlook, the soonest opportunity for the rig to work will be in the second half of twenty twenty five. Across our fleet, we work hard for the rates we earn. As we book new contracts, we aim to protect the margins and the terms and conditions to ensure we get the benefit of the bargain and maximize each rig's earnings and cash flow. And now, I'll hand it over to Grant.

Speaker 5

Thanks, Sameer. Before I begin, I want to review some administrative items. Following the recent consolidation of our corporate office in Houston, we have transitioned from a foreign private issuer to a domestic issuer like all the other major international offshore drilling contractors. That means we'll be filing 10 ks and 10 Qs from 20 25 onward, which should be welcomed by our investor base. We are also voluntarily ending our secondary listing on the Oslo Stock Exchange.

Speaker 5

The last day of the trading will be on Monday, September 9, and from then on, we'll trade exclusively on the New York Stock Exchange, consistent with efforts to simplify our business. Now let's turn to the 2nd quarter performance before moving on to our full year outlook. 2nd quarter contract drilling revenues were $267,000,000 $8,000,000 lower than the Q1. We received no contributions from the Polaris and ARIA in the 2nd quarter as they underwent preparation for upcoming contracts in Brazil compared to the Q1 when they respectively contributed 2560 revenue earning days. This was partially offset by contributions from the Savanna, Louisiana, which turned to work in April, completing a short well intervention contract before transitioning to a more traditional drilling contract.

Speaker 5

Reimbursable revenues were CAD15 1,000,000 with a CAD5 1,000,000 sequential decline accompanied by a corresponding decline in reimbursable expenses. Updates to our Tonadrill joint venture through which we operate 3 rigs in Angola affected both management contract and leasing revenues. First, we received an inflationary increase on the daily management fee we earn for operating the Sonadrol rigs retroactively applied to January 1. This appears on the P and L as management contract revenues and was CAD65 1,000,000 in the 2nd quarter. 2nd, we now earn a turbo charter rate in the West Gemini, which we charter to the joint venture beyond the nominal $1 a day as the JV begins paying out earnings to its partners proportional to their rig contributions.

Speaker 5

2nd quarter leasing revenues of $26,000,000 include 2 quarters of BBC income as well as revenue associated with the Qatar jackup rigs we leased into the GulfCor joint venture. Vessel and rig operating expense was $165,000,000 compared to $180,000,000 in the prior quarter, a delta of 15,000,000 or 8%. The change was primarily attributable to the Polaris and Auriga as they undergo contract preparation and incur minimal OpEx until they commence operations later this year. Additionally, we no longer pay third party rig managers on those units as we transition them to senior management after they completed their previous contracts. Management contract expense increased $3,000,000 sequentially to $41,000,000 reflecting timing of repair and maintenance expense on the Somadrill rigs.

Speaker 5

SG and A was $24,000,000 and included $2,000,000 of costs related to our move of corporate headquarters from London to Houston, which we consider an adjusting item to EBITDA. We also recognized $203,000,000 gain on sale of the Gulfport joint venture and Qatar jackups, which closed on June 21, representing the difference between the sale proceeds of $338,000,000 and the net book value of the disposed assets. This translated into a strong quarter in terms of EBITDA performance of $133,000,000 at a margin of 35.5 percent. We maintained a strong balance sheet with the biggest change this quarter being the proceeds for the jackup sale, partially offset by cash spend on our ongoing share repurchase program. At quarter end, we had gross principal debt of $625,000,000 $862,000,000 in cash for net cash position of $237,000,000 We continue to deploy capital consistent with our capital allocation policy, using it to maintain a healthy balance sheet and liquidity profile, invest in the maintenance and competitiveness of our existing fleet, evaluate potential growth opportunities and return capital to shareholders.

Speaker 5

We are always looking to invest our capital in value accretive activities. We continue to award our shareholders with a robust capital return program. Later in the Q2, we completed our previous $500,000,000 buyback facility and announced another $500,000,000 program that we began executing in late June. Since initiating our repurchase program in September 2023, we have reduced the issued share count by over 15%. Cash flow from operations was CAD79 1,000,000 for the quarter, including CAD60 1,000,000 of long term maintenance CapEx.

Speaker 5

Capital upgrades captured in investing cash flows were $43,000,000 for the quarter, resulting in free cash flow of $36,000,000 Now let's review our full year outlook. Completion of the Goldfield sale on June 21 means we will not benefit from the $30,000,000 of bareboat charter revenue related to those assets that would otherwise have been earned in the second half of this year and that was previously included in our guided results. Adjusting our guidance to reflect its completion would move the midpoint of the previously disclosed EBITDA range to $395,000,000 We are further adjusting guidance to reflect updated expectations for a rig and Polaris start dates that move EBITDA recognition into future periods and a softer outlook for speculative rig contracting on the Savan, Louisiana and the Phoenix for the remainder of 2024. We now expect full year EBITDA between $315,000,000 to $365,000,000 a range that reflects real risks and opportunities on either side. The changes in the Rigga and Polaris start dates reflect the realities of unexpected scope related to previous owners and managers' differing approaches to rig repair and maintenance, exasperated by vendor and weather delays that disrupted our shipyard schedules.

Speaker 5

Despite these challenges, we have hit major milestones on both rigs. The rigs are departing shipyards and will soon set sail for Brazil where they'll begin customer and regulatory acceptance testing. Both rigs should still begin their contracts by year end. To the extent that Savan, Louisiana secures additional work in 2024 beyond its current contracts, it represents upside to the midpoint of EBITDA guidance. For revenue, we expect $1,355,000,000 to $1,405,000,000 Our CapEx guidance remains the same at $400,000,000 to $450,000,000 Our adjusted guidance does not detract from our belief in the market's strong underlying market fundamentals.

Speaker 5

It reflects shifting schedules that delay EBITDA into future periods and transitory softer outlook for lower specification assets for at least the remainder of the year. It also reinforces the importance of the theme Simon addressed earlier, executing on our strategy of operating a highly standardized floater fleet in markets that matter, harnessing the strength of our balance sheet to create value for shareholders, demonstrating discipline in our pursuit of cash flow generation and value accretion, and delivering safe, efficient, reliable operations. With that, we'll open the call for questions.

Speaker 1

Thank you. We will now begin the question and answer session. Your first question comes from the line of Scott Gruber from Citi. Your line is open.

Speaker 6

Yes. Good morning.

Speaker 7

Good morning, Scott.

Speaker 8

I wanted

Speaker 6

to ask just on the market. It seems that 7th gen rates are really strong here and those will sustain through this soft patch here based on recent awards and then demand uplift that's coming together for late 'twenty five and 'twenty six. How do you think about rate resiliency on the 6th gen fleet? Obviously, there could be some discounts taken for shorter term work, but really thinking about the term work for 6th gen rigs, do you think that is impacted by rates that could be taken on the shorter term work? Or do you think the 7th gen strength helps to hold up the 6th gen rates on term work?

Speaker 4

Yes. So this is Samir. I'd say on the 6th gen rates, at least on our 6th gen drill ships, we've been pretty conscious on where they're placed. So we've got one in Brazil on a long term contract. We've got one in Southeast Asia that's one of 2 rigs in the market with MPD.

Speaker 4

So we think we can capitalize on that and continue to push keep rates at good levels. And then one is in our JV venture in Angola where having that protective mode is helpful. So for us, when we look at the rates for those rigs, we've been pretty conscious of how we place them around the world to maintain to ensure that we can still maximize the rate on those rigs.

Speaker 6

Got it. And just on the West Phoenix, appreciate the color. And you mentioned that the next opportunity could arise late in 'twenty five. Did I hear that correct? And you're essentially going to wait for the next opportunity in Norway.

Speaker 6

I assume that rig probably is not going to be bid outside of the region, but would you look outside?

Speaker 4

Yes. No. So we're focused on Norway, but we'd obviously look at other markets. For us, it's really making sure we can justify the CapEx investment that's required in the rig. We are looking at opportunities in the middle of 2025, but there are other opportunities outside of Norway.

Speaker 4

But I think I'd stress the key for us is if we're going to invest over $100,000,000 in the rig, making sure that we've got a return on that capital.

Speaker 6

Appreciate it. I'll turn it back.

Speaker 7

Thanks, Scott.

Speaker 1

Your next question comes from the line of Ben Nolan from Stifel. Your line is open.

Operator

Yes, I appreciate it. So I guess my first question relates to just the competitive landscape. I mean, obviously, a smaller competitor is about to be gone. And now that means that you guys are the little train that could here. So how do you does that change at all how you think about the competitive landscape, how you're positioned, the consolidation that is happening.

Operator

Just curious, Simon, if things are the same as they were before or if you think about sort of the world a little bit differently now?

Speaker 7

Yes. No, Ben, I don't think our posture is changed by that recent announcement. We were charged by the Board with being agnostic between presenting ourselves as an attractive target for consolidation and at the same time doing what we can to maximize growth opportunities for the company. So we have an attractive fleet. We've got a clean balance sheet, good backlog.

Speaker 7

So we're definitely a potential acquisition target for a larger peer. But we also believe that we've created a very strong platform for growth. And Seadrill today is a very well run business, and this is reflected in our earnings results today. We're also disciplined. So when we look at those opportunities for growth, there are certain metrics and thresholds that the opportunities need to meet or exceed.

Speaker 7

So we have one eye on what we've got and one eye on what we're trying to build.

Operator

Got you. And then for my second question, Grant, you mentioned it a little bit, but could you maybe go into a little bit more color on what is driving some of the delays on the timing of the Auriga and the Polaris?

Speaker 5

Supply chain issues, and I guess Simon can go into more detail there.

Speaker 7

Yes. I mean essentially what you're dealing with there is the rigs have there's some uncertainty in terms of our peers' performance in terms of rig acceptance. So we're really changing our outlook to recognize the fact that there may be a longer period for the customer acceptance process. The rigs have now left the key side. We've exited the shipyard, and we're doing load outs and some sea trials in preparation for the voyage down to Brazil.

Speaker 7

So most of the major project milestones are behind us. Really now, the sole risk that's outstanding and the main reason that we've judged and we've changed our outlook relates to what's been a substantial growth in that customer acceptance process.

Operator

Got you. All right. Appreciate it. Thank you.

Speaker 8

Thanks, Ben.

Speaker 1

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

Speaker 9

Hey, Simon and team. Hope you are well. I have a couple of questions. And first,

Speaker 5

I wanted to touch a

Speaker 9

bit on the guidance. I think clearly, the reduced guidance today will impact estimates for the second half of this year. I think all over the market is taking it relatively okay given the magnitude of it. But I'm interested to kind of hear a bit more color about if we should read anything into 2025 based on your reduced guidance for 2024? Or do you think I guess for the Polaris and Arega, it's fine, right, because they start their contract in 'twenty four, they'll still work through 2025.

Speaker 9

But versus the last quarter and then your previous guidance, have anything kind of changed in terms of the opportunities, possible start ups, etcetera, for all your rigs that are not yet contracted through 2025?

Speaker 5

Well, hey, Frederic, it's Grant. And I'll start and maybe others can add anything. But on the guidance, the majority of that was the rig activity plus the Auriga Polaris. And like you say, Auriga Polaris is really just a timing thing and that EBITDA then just pushes out into future periods and will not impact or should not impact 2025 and beyond. I think you'll see that Louisiana is a rig that we look at.

Speaker 5

It is lower spec. You see that we are assuming that she's warm factor in the Q4, which means that we have got confidence in our commercial opportunities going forward. But like Samira said, white space and air pockets may continue to be a theme. So we can't discount that if you're looking at 2025. Beyond that, we look at Phoenix and we talked about the contracting opportunities for her come middle of next year.

Speaker 5

And then what I would say beyond those rigs,

Speaker 4

the rest of our contracting profile actually looks very good. We are approximately 67% contract covered, which on a relative basis is very strong. But maybe I hand over to Sameer. So, Prajak, I'd also add, we're 67% contracted through 2025. And if you look at our rollover profile next year, it's our rigs in Angola where, again, we have a strong JV, which we feel pretty confident in.

Speaker 4

And then we've got an asset in the Gulf of Mexico in the second half of next year. The Gulf of Mexico continues to be a strong market for a dual activity, dual BOP rig like the Vela. And then we've got some you've got the Savon, Louisiana and the Phoenix. And we spoke to the Phoenix that it'd probably second half of next year at the earliest. And then with the Savon, she's a little engine that could.

Speaker 4

So she always ends up finding work here and there. We are still continuing to be optimistic that we think we can secure work into next year for that rig. But that will be a shorter contracting cycle as it's always been.

Speaker 9

Yes. That's very helpful. 2nd, on your fleet, you were able to close the sale of the JV, I think, slightly earlier than expected. So nice kind of cash boost getting into the 2Q numbers there. With the Pfenex now potentially being out of work for some time and a substantial investment needed to take that into play again.

Speaker 9

How do you view the Aquarius, the Eclipse in terms of pecking order? Prospero as well, if you have any comments, but have your attitude towards your coal stack rigs changed? That is, are you more likely to try to sell them, scrap them, etcetera, now that you still have some gaps to fill on your active fleet?

Speaker 4

Yes. So I'd say the Phoenix is still the top priority out of those rigs, and we continue to actively market it. So we are in active dialogue for work for that rig. So we may have to stack it in the near term, but for us, we're not giving up on that rig just yet. In terms of asset sales, I'll leave it to Simon to comment on that.

Speaker 7

Yes. I think we've been pretty clear through time, Frederic, in terms of reactivation opportunities for the cold stacked units. We're looking for a material contribution to the cost of reactivation from a potential client, and we want a good outlook existing working fleet and getting some term behind some of those units. So I don't think you're going to see anything change. There really hasn't been a change in our attitude as to how we might approach opportunities for those units other than certainly the West Prospero is clearly a non core asset now that we're pivoting to our flow to focus.

Speaker 7

So I think that was probably a more likely sale candidate than the others.

Speaker 9

And that's very helpful. And just final on the Aquarius and Eclipse, do you have any current reactivation cost estimates that you can share?

Speaker 7

No. We haven't scrubbed in for some time, which I think underlines my confidence in that. We're at an unchanged position there.

Speaker 9

Perfect. Thank you so much guys. I'll leave it to the next one. Have a good day.

Speaker 7

Thanks, Frederic. Thanks. Thank you.

Speaker 1

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

Speaker 10

Hi. I just wanted follow-up on that comment question about the consolidation. Do you think that is playing a role here as far as the contract tenders go? Because last quarter and 2 quarters, the commentary was that day rates aren't budging on the aren't causing any harm on the tender process, but now we have these push outs that you and your peers are talking about?

Speaker 4

I'd say consolidation with our client base, 1 plus 1 doesn't equal 2. I mean, what ends up happening is sequential parallel programs become sequential programs for us as an industry. So I think the consolidation that we've seen with our customer base has pushed out some demand. Again, it's not a demand destruction. It's just it's a reshaping of the demand and it's just pushing it further out.

Speaker 10

And do you think given the timing of the Phoenix being in Norway, is there enough time to generate revenue next year after you complete your maintenance process?

Speaker 4

We definitely do. And I'd say for us, until we feel closer to a contract, we're not going to spend a significant amount of capital on that maintenance and those upgrades. But if we're targeting programs in middle of next year, we have enough time to spend the complete the upgrades and be ready for them.

Speaker 6

Okay. Thank you.

Speaker 1

Your next question comes from the line of Greg Lewis from BTIG. Your line is open.

Speaker 11

Hey, guys. Thanks. Just I guess my question around the Phoenix is a little bit different. I know the base case is that maybe the Phoenix can hopefully work in the back half of twenty twenty five if it can work in Norway. It seems like the high end North Sea floater market's kind of been it seems like it's a plus or minus rig.

Speaker 11

So just as we think about that and potential opportunities in regions where some of its sister rigs have worked in like Namibia, Have we kind of cost out what it would take to kind of you mentioned this $100 plus 1,000,000 number to stay in Norway. Obviously, that's a high end cold plated market. And we kind of cost it out what it would cost to go through the survey and have the rig in a position to work in Namibia? And obviously, we're actively bidding the Phoenix, but are we actually looking outside of North Sea? Or is it just all roads lead to Norway?

Speaker 4

Yes. We are actively looking outside of Norway as well. And we have looked at the costs. And I think our threshold is the same. It's kind of the further you get from Norway, candidly, the cheaper it gets for the Phoenix.

Speaker 4

But in terms of capital required to maintain it, but at the end of the day, we keep coming back to we need to find a program that justifies that investment. And if that's in Namibia, that's fine and that works for us. If it's in Norway, that's also fine. But we for us, it is that focus on we do have a large CapEx investment, and we need to be able to cover that cost.

Speaker 11

Yes. 100%. And then just as we think about Southeast Asia, I mean, I'd pay a lot more attention to the Golden Triangle than I do there. As we think about those opportunities, I guess the rigs rolling off in early Q1, Any kind of broad strokes around the type of work, I. E, are there 1 plus year tenders in that market?

Speaker 11

Or is it, hey, if I wanted to be conservative thinking about opportunities for the Capella, there is going to be work, but there's also going to be pockets of idle time?

Speaker 4

So there are some long term programs. There are some short term programs in that market. I think the unique thing about the Capella in that market is she's equipped with MPD. She's one of 2 assets in that market that has MPD. So we are targeting both of those.

Speaker 4

Obviously, a longer term program is preferable if we can secure it for the right return profile. But you are seeing a good mix of multiyear tenders plus some smaller one off well opportunities.

Speaker 11

Okay. Thank you very much.

Speaker 7

Thanks, Greg.

Speaker 1

Your next question comes from the line of Noel Parks from Tuohy Brothers. Your line is open.

Speaker 8

Hi, good morning. A question I had, when we see continued capital discipline by operators, I'm just wondering has that changed the willingness at this point in the cycle or the reluctance for operators to involve more partners in development. I'm just curious whether as they look at making fewer investments in general, whether you're seeing any impact on the tendency to go at more alone or to try to spread out the risk in a different project?

Speaker 4

Yes. So you're seeing in certain markets where we've got clients that are trying to farm down a little bit of their exposure, make small more bets, but smaller bets across the space, which can make it challenging to actually get approvals. I don't think we're not seeing a ton of the opposite where clients are saying, hey, we want more of it. But you're definitely, at least in the Gulf of Mexico, seeing where clients are wanting to farm down a little bit of their exposure and spread their bets around, which has made it a little more challenging to kind of secure rigs or secure contracts for us.

Speaker 8

Great. Thanks. And I'm just curious to the degree that are there any customers you come across in discussions that are maybe particularly price insensitive at this point. Year over year, it's been a big increase. It doesn't seem like we're revolting forward in day rate pricing right at the moment.

Speaker 8

And so if I'm just wondering if there is a subset of clients out there where the discussion is really not so much about the price. I don't know if it's availability, scheduling, logistics or what have you, but any thoughts there?

Speaker 4

Yes. So it's a mix, but I wouldn't say there's any client that's super every client is price sensitive at some point. But I'd say the opposite of we're not seeing demand destruction because of the rates we're asking, right? Clients aren't saying, Oh, we're just going to turn that program off because the rates are too high. There's other factors out there that are driving their decision.

Speaker 4

The day rate is a small piece of it, but it truly comes down to can they get partners or can they get long lead equipment and some other items, not really driven by the day rate itself.

Speaker 8

Great. Thanks a lot.

Speaker 3

Thank you.

Speaker 1

And your final question comes from the line of Josh Jain from Daniel Energy Partners. Your line is open.

Speaker 12

Thanks. Good morning. I just wanted to follow-up on the last line of questioning. I think it was Simon in his prepared remarks talked about characterizing the market as frustrated but satisfied when talking about where we are today. I was hoping you could discuss what ultimately you think is going to get the ball rolling further from a contracting standpoint?

Speaker 12

You just talked about rate and how customers aren't that rate sensitive. That's not really the big sticking point. But how much is it project timing? How much is it rate? You'd mentioned long lead time items.

Speaker 12

I was just hoping you could go through all of those factors and just talk about where we are today and what's ultimately going to get the ball rolling from a contracting standpoint.

Speaker 4

Yes. So this is Samir. I'd say, as Simon mentioned in his prepared remarks, by definition, these guys are producing a consumable resource that can only last for so long, right? You can only defer demand for so long. We are starting to see that already happening.

Speaker 4

There's strong conversations happening for second half of next year and into 2026. So we are starting to see that. And part of it too is, as I had mentioned, the long lead time equipment. So that's starting to loosen itself. Supply chains are starting to come back and clients are being able to get equipment that they need to start bringing some of that demand back.

Speaker 4

And you're seeing it in wellhead data. You're seeing it in some other places that would be leading indicators for clients wanting to continue drilling. I don't know if

Speaker 8

you want to add anything.

Speaker 7

I think what I would add is that, alledge is increasingly becoming an issue in some of the deepwater production hubs. That's certainly a factor that we look at. So while people have been concerned about reserve replacement ratios, I think just the outlook of the customer base is a lot more short term these days. So our agent facilities, I think is an important and often a little discussed factor. But really it gets back to this capital discipline.

Speaker 7

Our customers are satisfying their shareholders first rather than their own sort of thirst for production. And it's coming to the market in a somewhat staccato fashion.

Speaker 12

Thanks. And then just one shorter term question on Louisiana. You alluded to it earlier, earlier in the year, it did some intervention work and then some drilling work. Are there options to sort of stack back to back intervention projects for that rig over the next 12 to 24 months? And I'm just curious how you're thinking about that versus using it primarily for drilling work and what the opportunities are there?

Speaker 4

Yes. So our focus is always drilling work. I mean it's more profitable for but we're absolutely looking at intervention work as gap fill as well. We're in active dialogue on both, both inside and outside the Gulf of Mexico. So we are looking at opportunities.

Speaker 4

I'd say with the intervention work, it tends to pop up faster, even faster than the drilling work for the Louisiana. But we are pursuing both in the near term and into 2025.

Speaker 7

I think you do make a good point there though. And as much as the important element with that intervention work is that we have some discretion in the timing and it needs to come to market in a volume that's interesting. We can prosecute that type of work most effectively when we have a campaign rather than just 1 or 2 worlds here and there.

Speaker 12

Okay. Thanks very much.

Speaker 8

Thanks very much, Josh. Thanks, Josh.

Speaker 1

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Seadrill Q2 2024
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