Ladies and gentlemen, good day, and welcome to the Quarter Four 2019 Transocean Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brad Alexander, Vice President, Investor Relations. Please go ahead, sir.

Thank you, David. Good morning, and welcome to Transocean's fourth quarter and year-end 2019 earnings conference call. A copy of our press release covering financial results along with supporting statements and schedules including reconciliations and disclosures regarding non-GAAP financial measures are posted on our Web site at deepwater.com. Joining me on this morning's call are Jeremy Thigpen, President and Chief Executive Officer; Mark Mey, Executive Vice President and Chief Financial Officer; and Roddie Mackenzie, Senior Vice President of Marketing and Contracts. During the course of this call, Transocean management may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon the current expectations and certain assumptions, and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Also, please note that the company undertakes no duty to update or revise forward-looking statements. Following Jeremy and Mark's prepared comments, we will conduct a question-and-answer session. During this time, to give more participants an opportunity to speak on this call, please limit yourself to one initial question and one follow-up. Thank you very much. I'll now turn the call over to Jeremy.

Thank you, Brad, and welcome to everyone participating in Transocean's fourth quarter and full-year 2019 earnings call. I'd like to start today's call with a recap of 2019. As reported in yesterday's earnings release, for 2019, the company generated adjusted EBITDA of $979 million on $3.3 billion in adjusted revenue, resulting in an industry best adjusted EBITDA margin of 30%. As I stated many times previously, Transocean is acutely focused on enhancing the quality of our fleet, driving operational excellence through continuous improvement in safety, uptime, and drilling efficiency, expanding our position as our customer's universal first choice through relationships, exceptional operating performance, and the introduction of new technologies, and extending our liquidity runway by adding to our industry-leading $10.2 billion backlog, converting the maximum percentage of that backlog to cash, and prudently bolstering our balance sheet through timely transactions. In 2019, we again took actions to further each of these objectives. Looking first at our fleet, in August, the Transocean Norge entered our active fleet commencing her maiden contract with Equinor Norway. This high-specification, harsh-environment asset is the sixth floater we now have working for Equinor, and we will soon increase that total to seven when we commence the contract for the Barents in Canada; quite a testament to the relationship we have built with the industry's largest harsh-environment operator. As a further example of the strength of the relationship and Transocean's abilities to successfully deliver newbuilds to the industry, we are proud to report that Equinor has already exercised the Norge's first two options. Speaking of newbuilds, we are now approximately a year-and-a-half away from the introduction of the world's first 20,000 PSI capable ultra deepwater drillship. Construction on deepwater Titan has progressed as planned, and we look forward to delivering this drillship to Chevron for her maiden…

Thank you, Jeremy, and good day to all. During today's call, I will briefly recap our fourth quarter and our full-year 2019 results, and then provide guidance for the first quarter and full-year 2020. Let's now provide an update on our liquidity forecast through 2021. As reported in our detailed press release for the fourth quarter of 2019, we reported a net loss attributable to controlling interest of $51 million or $0.08 per diluted share. After adjusting for unfavorable items associated with impairment charges related to previously-announced further retirements, the gain on termination of certain construction contracts and certain discrete tax items were reported in adjusted net loss of $263 million or $0.43 per diluted share. Further details are included in our press release. Highlights for the fourth quarter include fleet-wide revenue efficiency of 96%, the fifth consecutive quarter of revenue efficiency at or above 96%, adjusted EBITDA of $223 million, reflecting the high conversion rate by industry leading backlog to cash and our relentless focus on costs, cash flow from operations of $147 million driven by strong revenue performance and stellar collection efforts. During the fourth quarter, we had adjusted contract drilling revenues of $859 million. This was approximately $14 million above our guidance due to 54 more operating days during the quarter than forecasted, and a $12 million sequential quarterly increase due largely due to contract commencements for the Deepwater Corcovado and Deepwater Mykonos along with a full quarter of operations in the Transocean Norge. Operating and maintenance expense for the quarter was $575 million, we expected sequential increases largely attributable to higher level of maintenance expenditures during the fourth quarter on the in-service fleet, along with a full-quarter of operations within Transocean Norge. General and administrative expense was $54 million for the quarter. The sequential increase is…

Thank you, Mark. David, we're now ready to take questions. And as a reminder to all participants on this call, please limit yourself to one initial question and one follow-up question.

Thank you, sir. [Operator Instructions] Our first question will come from Mr. James West with Evercore ISI.

Hey, good morning, guys.

Good morning, James.

So, Jeremy, as we look at the global market right now for deepwater assets, you've got somewhat of a short squeeze underway in the Gulf of Mexico, we're seeing both Asia and West Africa start to show signs of a nice inflection here. What's the next step needed in your mind to move day rates meaningfully higher off this mid-200s level?

Well, I think it's just discipline across the space. I think we've demonstrated the contracting discipline here over the course of the last quarter, especially moving rates meaningfully higher than when we started the year, and I think it's just a general standing of the industry by all those involved, and the availability of those high-specification assets, and as you say, we -- especially in the Gulf of Mexico we are largely sold out of all the high-specification assets, and that's really when you start to see day rates move. So I think it's just a combination of awareness and then discipline.

Okay, and then maybe a follow-up on the 20,000 PSI potential for a second rig here, what's the timing of that digital award once we know if you or others have received the award?

Hi, James, this is Roddie. Just to follow-up on that one. We are essentially looking at a couple of awards should be made within -- before the middle of the year. So, we would expect to know the destiny of that route in kind of May-June timeframe, but there could be some activity earlier than that. We just wait to see who goes first, but certainly encouraging to see that that will happen fairly soon.

Okay, great. Thanks, guys.

Thank you. Our next question comes from Connor Lynagh with Morgan Stanley.

Thanks. Good morning.

Good morning.

Just following up off James' question there, could you walk us through if you do get a 20,000 PSI award, how would that alter the CapEx profile for the Atlas, would it change at all relative to your current expectations?

Yes, Connor, this is Mark. It could increase CapEx this year by approximately $60 million.

Okay, but no shift in terms of 2020 versus 2021 that you could forecast today?

No.

Okay, thanks. And then, maybe just a higher level one on your marketing strategy, so, doesn't seem like you have a whole lot of space in the calendar for most of your active rigs right now, so if you could help us think through what it would take to reactivate some of your stacked floaters and how you would think about sort of relative priorities within those rigs?

Yes. So, I mean we stated a few different times that we are not planning reactive rigs on spec. We will do so when the contracts support that, and we are really getting closer and closer to that point. As you had asked before, you look at day rates moving up, that's really helpful, and we are 20% up basically between '18 and '19, and what we have seen so far in the kind of the fixtures that we have realized, we are another 20% higher again. So, I think you need to see us probably move into the kind of high-200s low-300s before you would contemplate reactivation, and typically, you are going to see mobilizations paid with that that are going to cover a lot of that.

And let me just add that we had previously got it to about $50 million per rig. This is for our seventh-gen assets. So, you would expect to a term associated with that contract at the high 2s, low 3s to be able to pay that back and generate a certain amount of cash flow for the company.

All right, appreciate the color.

Thank you. Our next question comes from Greg Lewis with BTIG.

Yes, thank you, and good morning, everybody. Just wanted to follow-up on Jeremy, some of your comments, you kind of mentioned you had markets tied in the Gulf of Mexico, maybe customers are thinking about trying to maybe force other rigs into the Gulf of Mexico. Has that resulted in any kind of extensions, or in term -- in other words, are we now seeing owners or customers looking at maybe kind of pushing out duration of contracts, or are we kind of still too early days?

No, we are definitely starting to see longer terms across the space, and to your point, it is driven by the incremental demand that we are seeing from our customers and their desire to lock at these assets for longer periods of time. So, now we are definitely seeing terms linked in, and we saw that throughout 2019.

Yes, I think I will add to that to say that on the database that we are looking at, when you think about just from [internal] [ph] only, we are looking at least 30 prospects that are a year or longer, but has been -- the experience over the last couple of years that most of the options have been picked up. So, we also kind of slice this a couple of different ways and say if 50% of the options out there that are picked up, then we are looking at closer to 50 projects that would last a year or longer. So, that's pretty encouraging in terms of durations, and I think it's also demonstrating that activity is up, and while the operators are cautious as they get into this recovery, clearly the number of options been taken demonstrates that there is a lot of work out there that's still unsatisfied.

Okay, great. And then, just one more from me on the North Sea, realizing obviously there is a difference between operating in the South North Sea versus the kind of the Norwegian area. You guys are positioned for both. I think one of the things that people have been thinking about is strength through the winter, and just as we look out, and you have a few rigs rolling off later this year with openings. Should we -- I mean is it shaping up now in the North Sea that we could actually see really strong activity and rig demand through winter, like, are we at that point yet where our customers are just kind of going to be forced to kind of work and maybe in not their ideal time?

Yes, I think for the high-specification assets, you're clearly seeing that that you'd expect to get year-round work for them. On some of the lower-spec, kind of third and fourth-gen rigs, the seasonality issue is kind of slowly being addressed. So I think what you're going to see is, if there continues to be kind of a bifurcation between those two classes of rigs, and there's excessive seasonality on the lower-tier vessels, I think a lot of them are going to be stacked, and I think they'll be taken off the supply, and I think actually you saw one of our competitors recently announcing that they're going to stack a rig that they couldn't find work for, and you know, that's prudent. I mean there's no point in paying costs if you can't get year-owned work. So I think you'll see between the contractors, there's probably some supply get taken out that would hopefully encourage folks to drill year-round even in the kind of Southern claims as you mentioned, but certainly the high-spec looks good, and we will monitor closely on the lower-spec stuff, and we need to pull little supply to do that, then we try to make that happen.

Okay, perfect. Thank you very much for the time.

Thank you. Our next question comes from Taylor Zurcher with Tudor, Pickering and Holt.

Hey, thank you, and good morning. You talked about a growing list of opportunities on the horizon, at the same time there's some incremental uncertainty as it relates to the whole macro with the coronavirus, and just curious, at least year-to-date, has some of these old macro concerns had any noticeable impact on the timing of some of these tenders you're bidding on, in other words, things that you're bidding on earlier this year, have they pushed at all to the right as a result of some of the oil price weakness we've seen?

No, not yet Taylor, these are long-term plan projects, and our customers typically don't have knee-jerk reactions to what they perceived to be short-term events. Now, if this last longer than anticipated and continues to grow in size and scale, then certainly it could have an impact on our customer psyche, but at this point in time, we haven't seen anything.

Okay, I think I'll just reiterate that, the deepwater planning cycle is multiple years. So, as Jeremy said, stuff that we're seeing move ahead is a multi year work that has been in the pipeline for some time. So hopefully that continues, and it certainly seems to do.

Okay, I just wanted to clarify one of the earlier questions. You talked about the Gulf of Mexico with some of the operators there asking for, or inquiring about the potential to move rigs from other regions into the Gulf of Mexico, given how tight it's been? It's what you're implying that that most of these rigs, at least the interest from customers would there be rigs that are currently working in other regions or the mix of rigs that that would currently be working in other regions with some of the idle seven Gen assets that you have, namely some of the ocean rig assets you acquired?

Yes, I think it stays the latter, certainly of the active fleet, as Jeremy mentioned before, and most of it is booked out in 2020. And that's precisely what the inquiries are around is looking at taking something that's currently stacked and reactivating it. As we mentioned before, we're being very disciplined in our approach to make sure that there is the term and the day rate to support the investment, but we definitely think that's going to happen in 2020.

Okay, great, thanks guys.

Thank you. Our next question comes from J.B. Lowe with Citi.

Hey good morning, guys.

Good morning.

Just a higher level question for me to begin with, we've heard from the largest service players in the space, there's been some I guess differing views on what they think that offshore activity can do in 2020, and from a growth perspective, anywhere from the mid single digits improvement on an activity level to high single low double-digits. I guess I'm just wondering what you guys are kind of seeing out in the field right now and what do you guys are preparing for in terms of activity improvement in 2020?

Yes, the way that we look at it here is as the active supply begins to get sold out, then incremental supply is only going to be there when it's supported by the economics, so the growth might not be significant but just as an example, the projected investment for deepwater compounded annual growth rates are almost 10% each year through 20 -- so 10% investment and offshore projects is pretty significant, and we certainly see several more rigs added to the current active supply, so cautiously optimistic that we'll see rig counts increase through the year and then into '21 and '22 as well.

Okay, great. And Jeremy, you made a comment on exploration activity really picking up. How does that affect your guy's business? Is it more rig intensive on the -- you know, the exploration activity picks up, just kind of how you guys think about that?

Now, it's not more intensive, necessarily. It's just more demand. So, more opportunities for us to put assets to work, and so, it's good to see that we're seeing investment from our customers and exploration now in addition to the development work.

Okay, great. And then, last one for me just the obligatory M&A question, what are you guys seeing out there? Do you think more consolidation is needed? And if you could describe what your -- the one-time SGA costs were in the fourth quarter? That'd be great. Thanks.

Just making a couple there, so in terms of the M&A landscape, you know, we've been pretty consistent in our approach, we are only interested in the high-specification and harsh-environment and ultra deepwater floaters, and we're not interested in pursuing in any kind of transaction that would negatively impact our liquidity. That doesn't leave a whole lot of options out there for us, and so, I think from our position right now, we're happy with the work that we've done with the fleet of the acquisitions that we've made over the course the last couple of years, and some of the rigs we've retired, we feel like we've got the fleet that we won't need now. As market conditions change, obviously we are always a stalking horse and nothing else, we will see every opportunity that's out there, but at this point in time nothing that fits our scope. And Mark, the question on the G&A?

Yes. Jeremy had given you the response that it's legal professional advisory fees, not much more to add beyond that.

All right. Great, thank you.

Thank you. Our next question comes from Mike Sabella with Bank of America.

Hey, good morning. So, Jeremy, I really appreciate the rundown of all the new technologies on the rig, and so, we kind of consider about getting paid for technology offering, have you started to see any benefit from that, or is that still kind of yet to come?

It's still too early on all of these technologies, quite frankly, we just deployed kind of the first edition of ADC, and the hybrid power, and so, we really don't have all the data that we need for that. On the ADC that we're implementing on -- across success that's with Equinor, we have seen real value from that. In fact, the customer would be paying us for the performance improvements that we'll see by that technology. So, we are encouraged about that one, it has been in the field on one of our rigs for well over a year now, and so, we have seen the performance improvement there, but the other technologies are still too early.

Right. Is there is there an impact on cost, or is it just getting paid for increased efficiencies?

No. So, there's a bit of a mix actually. So, certainly an impact on cost to the extent that we can deliver these wells in a more timely fashion, and so, that we've certainly seen with ADC. Some of the other technologies are really more around safe working environments, and so, to get the customer to pay for that either through incremental market share and/or increased day rate premium, day rate is really the objective.

Perfect. And then, in the past, you guys have talked about you know, potential buyout on the remaining interest in Norge, can you just walk us through kind of current thought process around that options and maybe potential timing?

Yes. So, this is Mark. I don't think we have progressed any further at this stage. Clearly, we have backlog on that rig that runs through next year. I would assume that a buyout would be associated with a longer term contract award. So, that would probably be a leading indicator to see us look at taking full control of that rig.

Thanks, guys.

Thank you. Our next question comes from David Smith with Heikkinen Energy Advisors.

Hey, good morning. Thank you. So, the high-specs and drillships clearly bring value in the U.S. and Gulf, pretty solid day rate momentum you demonstrated there. As the rate momentum in the Gulf kind of continues, curious in how you think about that fleet outside of the Gulf, and in terms of whether you're starting to or expect to see pricing competition between the higher-spec, seventh-gen fleet versus the slightly older sixth-gen fleet, and kind of how you think about that that natural pricing dynamic?

Yes. So, yes, first about the market, so really we think about the Golden Triangle. So, yes, the U.S. Gulf of Mexico is looking really good, but I want to mention Mexico itself, there're discontinued operations in Mexico, we've seen multiple discoveries or certainly very positive well results. So, you're looking at all 18 operators in Mexico in various different partnerships. So that part of the market in addition to the U.S. is going to be really strong going forward, and don't forget that still in kind of that kind of first/second fleet phase of exploration. So, there's plenty of development potential we talked about. The other two legs of the Golden Triangle we often talk about are Brazil and West Africa. In West Africa, well, there is obviously individual challenges in different countries with the different governments. The number of overall rigs looks like it's moving up. There's a couple of swing states, and there could be pretty big, Nigeria, for example, if they can sort out the PSC discussions they're having with the operators, then those potential to consume several more rigs, and kind of the final piece is Brazil. So, we just continually see Petrobras coming out for tenders; one, two, three rigs at a time, so very encouraging there, and as we kind of indicated over the past year or so, we see Petrobras replacing their current rig count with renewals, and then the IOCs are really the swing that's pushing those numbers up. So, you got about just 20-22 rigs working just now. We would expect that's going to get up into the 30s in '21. So, we're really optimistic that Brazil could swing a big shift in demand for the ultra deepwater ships that's already improving, and of course, when you see that then you're going to see a lot of pricing increase, and I think at the very beginning, you may see the first one or two that pick up these jobs might not get significant premium, but I think if you're patient, then you'll not only get your mobilizations paid for, but you should be able to command some pretty solid day rates.

All right, thank you.

Thank you. Our next question comes from Kurt Hallead with RBC.

Hey, good morning,

Good morning, Kurt.

Hey, I want to follow-up on one of Mark's comments, you referenced, I believe that you'd be free cash flow positive in 2020, 2021, and 2022. Just wanted to kind of -- is that free cash flow positive, is that after the CapEx numbers that you provided, Mark?

No, actually differentiated between 2020 and 2021, saying that we would be if we did not have the 20K rigs getting delivered in this year and later next year. So, if you account for CapEx, we will be free cash flow positive in 2022 for the first time.

Okay, right. Appreciate that clarification. Then, Jeremy, in the past, you guys have provided some information about your rig rating system and what could be potentially in line to come back under the right circumstances. So, when you kind of have refresh that dynamic, and you look at the prospects for maybe high 200s, or low $300,000 day rate, what could be feasible in your mind in terms of number of rigs that could be activated over the course of next, let's say, 18 to 24 months?

Within our own fleet you're asking?

Yes, just within your own fleet. Yes.

Yes, I think it wouldn't be unrealistic to see handful of those rigs get reactivated, and as Mark said earlier, we would target those that required to Ocean Rig transaction that are currently stacked in Greece, and so, that would be our first priority.

Okay, great. All right, that's it for me. Thank you.

Thank you. Our final question comes from Chris Snyder with Deutsche Bank.

Hi, thanks for the time guys. So just following up on the questions around the Atlas and the 20K PSI opportunities, you guys owe a sizable chunk. I think maybe in the ballpark of $600 million to take delivery over this rig. So, maybe in that context, what kind of rate would you guys need to go forward with delivery, should we assume it's at least in the mid-400s, which is where the Titan came in at?

Well, I think we're in kind of open tenders at the moment, so we'd rather not tip our hand, but you've seen where rates have been previously for 20K work, and we have described many times an improving market. So, put those two pieces of information together, and see what you get.

Okay, fair enough, fair enough. Then just for the follow-up question, you guys reactivated two of the Ocean Rig drillships last quarter, I believe they were stacked for around 18 months, can you maybe just provide a little more color around this process, any surprises along the way, and how if at all it changes how you view additional reactivations across the fleet?

Well, so if you'll remember that Ocean Rig was actively bidding those two rigs into the Petrobras contract as we were going through the transaction. So, we had very little visibility to the customer-specification, and some of the upgrades that Petrobras was requesting in those. So, I think that piece of it was a bit of a surprise to us, the additional upgrades that Petrobras wanted as part of this campaign with these two rigs. Other than that it was barely straightforward.

All right, thanks for the time, guys.

Thank you. I'd like to turn it back to Mr. Alexander for closing comments.

Thank you, David, and thank you everyone for your participation on today's call. If you have any further questions, please feel free to contact me directly. We look forward to talking with you again when we report our first quarter 2020 results. Have a good day.

Ladies and gentlemen, that concludes the Quarter Four 2019 Transocean Earnings Conference Call. You may disconnect your phone lines, and thank you for joining us this morning.