Good day, ladies and gentlemen, and welcome to the Q2 2022 Transocean Earnings Conference Call. For information today's conference is being recorded. At this time, I would like to turn the call over to your host Ms. Alison Johnson, Investor Relations. Please go ahead, ma'am.

Thank you, George. Good morning and welcome to Transocean's second quarter 2022 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 website at deepwater.com. Joining me on this morning's call are Jeremy Thigpen, Chief Executive Officer; Keelan Adamson, President and Chief Operating Officer; Mark Mey, Executive Vice President and Chief Financial Officer; and Roddie Mackenzie, Executive Vice President and Chief Commercial Officer. 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 current expectations and certain assumptions and therefore are subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for our forward-looking statements and for more information regarding certain 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 with our team. During this time, to give more participants an opportunity to speak, please limit yourself to one initial question and one follow-up. Thank you very much. I will now turn the call over to Jeremy.

Thank you, Alison, and welcome to our employees, customers, investors and analysts participating in today's call. It has certainly been an eventful three months since our last update. Commodity prices have exhibited considerable volatility with the magnitude of the existing supply demand imbalance, energy security concerns and the inability of swing producers to meet their production targets, all driving prices higher, while concern around potential demand destruction due to either or both high gasoline prices and/or a dramatic slowdown in global economies pushing prices lower. That said perspective is important. While we have experienced volatility, commodity prices have remained within a range that is still extremely healthy for offshore development. Indeed, the outlook for our industry leading assets and services as the most promising it has been in many, many years. Globally, we continue to face an energy crisis resulting from years of underinvestment in oil and gas reserves replacement and production growth, as energy companies reacted to significant pressure from investors to maintain capital discipline and pressure from investors, activists and politicians to rapidly transition to lower carbon energy sources and renewables. As a consequence, the long-term replacement of hydrocarbon reserves has consistently fallen short to production levels, and consequently depleted global inventories driving barrel and end product crisis to near record highs. This consistent shortfall in production leads us to conclude that we're in the early stages of a sustainable recovery. Now to our results and a summary of global offshore drilling markets and fixtures. As reported in yesterday's earnings release for the second quarter, Transocean delivered adjusted EBITDA of $245 million on $722 million and adjusted revenue, resulting in an adjusted EBITDA margin of approximately 34%. These solid results were once again driven by strong operating performance as we delivered fleet uptime in excess of 96% and…

Thank you, Jeremy, and good day to all. During today's call, I will briefly recap our second quarter results and then provide guidance for the third quarter as well as an update of expectations for full year 2022. Let's now provide an update on our liquidity forecast for the end of 2023. As reported in a press release, which includes additional detail on our results, for the second quarter of 2022, we reported a net loss attributable to controlling interest of $68 million or $0.10 per diluted share. During the quarter, we generated adjusted EBITDA of $245 million and improved our EBITDA margin to approximately 34%. We also generated cash flow from operations of approximately $41 million. Looking closer at our results, during the second quarter we delivered adjusted contract drilling revenues of $722 million at an average day rate of $358,000. Revenues above our previous guidance and reflects better than forecasted uptime, higher bonus conversion and higher reverse reimbursable. Operating and maintenance expense in the second quarter was $433 million. This is less than guidance primarily due to timing of certain maintenance activities. Turing to cash flow and the balance sheet. We ended the second quarter with total liquidity of approximately $2.5 billion, including unrestricted cash and cash equivalents of approximately $729 million, approximately $400 million of restricted cash for debt service and $1.3 billion from our undrawn revolving credit facility. Before update guidance, I'm pleased to share that we have closed an amendment to our revolving credit facility, extending its maturity through June of 2025. The extended RCF has a capacity of $774 million through mid June 2023 and $600 million thereafter through maturity. This extension provides additional certainty and enables us to maintain sufficient financial flexibility as the global drilling market continues to improve. Through an accordion…

Thanks Mark. George, we're now ready to take question. As a reminder to the participants, please limit yourself to one initial question and one follow-up question.

Thank you so much, Ms. Johnson. [Operator Instructions] Today's first question is coming from Mr. Thomas Johnson calling from Morgan Stanley. Please go ahead. Your line is open, sir.

Question on the day rate side, obviously, two fantastic rates reported, but historically we've seen some lag between, when contract negotiations take place when the date rate traction printed to the public. So just to help the sell-side kind of place expectations on where day rates could be going specifically on the drillship side of things; A, could you give us some time frame for when negotiations were taking place for the two most recent contracts now? And B, could you update us on how conversations are going customers relative to the day rates and just disclose?

Hey, this is Roddie, I'll take that one. Look, I appreciate the compliment there. But I think what I would first like to say is that, you'll -- those may look like market leading day rates. But I really believe those are very savvy customers who are moving to get access to the right assets in the right timeframe. So, yes, they look like they're leading the market today, but I don't think that's going to be the case in the next 6 to 12 months. I think the truth of the matter is very simply as we look at things around the world, especially on the specification of the assets, the customers are moving extremely quickly. So it used to be that you saw six to nine months, sometimes between when we were answering tenders when a fixture would be made. That's not the case. Now, the majority of the negotiations were involved in are direct negotiations and not part of a tender. So that really helps as we're beginning to see commitments being made within the space of weeks and a couple of months rather than quarters. So, I think you're going to see an acceleration there because especially for the high specification units, there simply is very, very little availability. So that bodes very well. And I think the second part of the question was around the conversations with the customers. I think, again, it's an increased sense of urgency, but also making sure that they have access to the rate iron for their prospects. So of course, having higher specification units is important in that realm. So, I think you'll see a real push at the moment for access to the existing fleet, especially the high spec stuff. Because we really are close to being sold out completely and that means reactivations and moving called assets back into the market, which obviously is not as desirable as picking up one of the highest spec rigs in the world that's hot and already performing very well.

And then just stay on the topic of reactivation, I think last quarter, you've stated that reactivations would likely take 12 plus months to supply chain lead time. So, I guess, could you just update us on reactivation timelines, where the biggest constraint for the supply chain are, and maybe how labor availability is going to play a role and limiting the number of reactivation that can feasibly take place over the next 24 months?

Yes, Thomas. This is Keelan and very good question. I think our guidance remains the same. We're probably looking at over 12 to 18 months or a reactivation based on the limitations in the supply chain at this time. Obviously, we're hoping that that will improve as the situation stabilizes. From a labor point of view, that is something that the industry is used to and we're used to the simplicity that exists in our business. And you'll find that most of the drilling contractors in our space, including ourselves, are prepared from a recruiting processes to our training and our competency development programs. So, we have access to people we can recruit and develop those people in a very timely fashion. So, yes, it's a challenge, but I think the bigger challenge we have right now is the supply chain side, which is still around 12 to 15 months.

I was going to supplement that just with a comment that, as we look at the latest projections from foreign leaders there. The discussion is just for sixth and seventh gen rigs that you're expecting to see something like 15 to 20 floater reactivations in the next year and a half. Well, we know that's not possible. So, to the Keelan's point, I think there's going to be a tremendous pressure on the supply chain here, and I think we're only just beginning to see the demand for reactivation. So that's only going to get worse.

In the positive side of all that is our customers are starting to recognize that which feeds directly and to what Roddie was saying earlier, that our customers are approaching us with urgency, and quietly actually in the direct negotiations to try to secure the assets that are going to be available. Because they know if they don't, they're not going to have availability at all, it's going to take a little bit longer than they want to start their campaigns, they're going to have to pay more for it because they'll have to pick to the reactivation and the upgrade in the mode. So, all of that bodes well for us and continued progression day rates.

We will now go to Greg Lewis calling here from BTIG. Please go ahead, sir.

I think sometimes we forget when the markets rolling higher or how quickly it can roll higher. I guess Roddie, this is probably for you. As you think about the different basins and just kind of piggybacking on the press releases from last night, is there any way to characterize the type of duration demand you're seeing in different basins, i.e., as we look at opportunities in West Africa? Are those more term duration work versus what you're seeing and maybe Gulf of Mexico? Any way to kind of parcel that out, where as we look ahead, could we see some more multiyear contracts or is it really broad based?

Yes, so I'll deal with the broad base first because that's the easy bit. So if we compare the number of rig years that are out there and as prospects, since Q4 that has increased 50%. But that's a big, big movement in our business. So in terms of the regions, yes, I think, we're just seeing across the board be yes, there's one or two places that they're still shorter terms. But I think because of the place that we're in the industry and the call and oil and gas to increase production, I think there's just a significant move towards delivering developments and kind of getting on with it, so to speak. So we are seeing, an Africa, there certainly multiyear deals out there. In the U.S. Gulf of Mexico, that's what you're going to see going forward, I think, was very much kind of well to well, base stuff. But obviously, with the last couple of fixtures out there, I think you're going to see a year being added to rigs, two years, and in some cases more. But the one that's really moved the needle was Brazil. So Petrobras are really getting after it now. So when they have the assets that they need the assets that they want and they certainly have the prospects and the developments that take multiyear requirements. So, I think we had commented on this before, and certainly in Jeremy's prepared remarks, but there are, there's still a huge amount of unsatisfied demand in Brazil at the moment just on the tenders that are out there today. So I think you'll probably see most of the longer term stuff coming out of Brazil. And of course, we're very pleased to see that, with the last couple of announcements we've had, we've been able to move those data rates up so that we're in a position now that it is interesting to pick up long-term work because the day rates really support very high EBITDA margins.

And then just, Jeremy, in your prepared remarks and I don't know if Roddie wants to respond to this question. But I think in your prepared remarks, you mentioned about the potential for, kind of best, maybe even some of the best-in-class rigs leaving the North Sea market. As we look across your fleet, you definitely have some high quality rigs that could probably go earn more money elsewhere outside the North Sea given where rates are, which had, I guess tightens the North Sea market further. Is that -- and I guess we saw that Stena IceMAX rig in Canada, is that, like, could we see Transocean move rigs out of the North Sea to other markets here, where maybe just the profitability is just a little bit better?

Of course, yes, I mean, we explore every opportunity out there to maximize value with our assets, there's absolutely no doubt. I will say, to the extent that we can command appropriate day rate in the Norwegian market. We would prefer to keep our asset and our crews there because mobilization and recruiting always introduces some risk, but we look at every opportunity to maximize value. And, of course, we've looked at opportunities outside of Norway with some of the assets that are currently there. And we'll continue to explore those opportunities as they arise. I was just going to add to think, especially when you see some of the assets that are idle at the moment, you're definitely going to see competitors moving some of those rigs out, primarily as you described, because they can make a better margin, so higher cost and in Norway combined with kind of near-term softness in that market. You're going to see these guys move from, perhaps making 30%, 40% EBITDA moving into West Africa, moving into parts of Asia, and the Golden Triangle and be able to push that up to 50%, 60% evidence. So, yes, there's clearly a case for that to happen, and I think we're probably not the only ones talking about that.

And so and just in just following up on that, and then I'll be quiet. I guess what we've seen over the last 18 months has really been a drillship renaissance in rates and anything moving out of the North Seas is the semi. As we think about that, like it sounds like, based on your comments, that thing that spread between drillships and semis looks ready to converge. Is that kind of a fair way to think about it?

The reason, I think, there's basically a lack of drillship availability. And what you have to remember is a lot of what we describe as the harsh environment assets were designed, and in many cases outfitted to work in ultra deepwater. So they are very capable, very multifaceted machines. And to your point earlier, I do think when some of these rigs move out of Norway, highly regulated and move into some places that are a little easier to do business, and support much higher EBITDA margins. I don't think they go back. I'll be quite honest. I think once you see some of these rigs move out there, they'll be out for many, many years.

We'll now go to David Smith calling in from Pickering Energy Partners. Please go ahead, sir.

Historically, when we see day rates moving up, contract terms and conditions are also improving in the background. So I'm curious if you can give us any color around EMCs, particularly around bonus opportunities, non-productive time allowances, and cancellation provisions?

Yes. So, I think that is, yes, generally the case. Certainly, the kind of the fringe benefits, if you would or they are, you'll probably see where certain services may have been rolled into the day rate before they're now being called out separately. So, that's good to see and that's often why we have the discussion about the clean rate and then the compounded rate. But certainly, in terms of bonuses, yes, that's very much a thing to play. I think you're going to see, especially in Norway in the next little while, several contracts that increase their bonus potential on them. So not only do you see a higher base dairy on the rig, but you also see a higher bonus opportunity. And most recently, we signed a couple ourselves on some of the ships that have very substantial bonus opportunities, and we're kind of excited to see how that goes. But I think it's just a way of operators being able to provide some extra value to us and themselves in a market that's really getting tight. So, yes, you are seeing improved terms and conditions in contracts and increases and bonuses.

I was just going to say that we all had to give away during the downturn, customer wouldn't pay for reactivations mobilization, we're starting to see that now. Couldn't get downtime banks waiting on weather was an issue. And so, and our customers just pushed a lot of risk on to us on the other drilling contractors and so clawing all that back during this time is really been part of our key focus in addition to increasing the day rate.

I really appreciate the color. Follow-up is just, curious on what you're seeing around customer interest and exploration, especially for the IOCs, if it's still mostly near field exploration or if you're seeing any growing interest in frontier exploration?

Yes, no, I think we are. And actually, I think you saw on the downturn, there was a big focus on immediate production measures. So, a lot of work overwhelming stimulus wells, those kind of things. Now, we're seeing a steady increase in everything else. So certainly, we are seeing more explanation, we basically are getting to the point that, the major operators are essentially liquidating their assets as they produce without replacing reserves. So, we've talked about this for quite some time, but reserve replacement ratio is going down. We've noted that some of the majors Exxon recently, were quite vocal about that, that they simply have to start exploration again and doing a lot of replacement of reserves and getting those assets back on the balance sheet. So, yes, definitely more explanation, more delineation wells than we had in the downtime, probably for many, many years.

We'll now go to Fredrik Stene calling in from Clarksons Securities. Please go ahead, sir.

Hey, guys, and I think I've to equity the rest of the people here that you had the fare very impressive contract here, And I think that should give a definitely investor sound, some ether on the cash flow that they're going to generate going forward. But my question relates to the North Sea, since a lot of the older stuff has been covered already. You said that in your prepared remarks, you could look at the market that could be sold out in 2024. And there are several reasons for that, particularly some assets that might leave the area. But I think for your sake, what I usually call for Equinor rig the enabler encouraging during to Equinox. At least from my side and the discussions that I've had with investors, the bonds and then the depth tied to those rigs is something that people would also like clarity on in addition to the ERCF. So, I was wondering if you could provide any color as to, are you having discussions with Equinor now, when would it be fair to potentially see an update around contract extensions on those rigs? And do you have anything you could share on rate levels or term that you think would be fair to sue for such extensions on that quartet?

Yes, hey, look. So, on the contract side I'll cover them for pass over to Mark. But yes, we're obviously not going to reveal what we're working on this. We are in discussions with Equinor for extensions on some of those rigs, and when you talk about the near-term softness, that's the reason that these rigs are going to leave the market. And our case, we're looking to keep them there as Jeremy and Keelan had mentioned before, we much prefer to keep our crews in Norway together. But we're, we're confident you're going to see a few fixers come out in the next month or two that's going to help clarify that situation. But on the market side, I think we're in discussions with Equinor but also several other end players. And as we mentioned before, the rigs are very capable to work outside of Norway as well.

The first week any kinds of contract in December of this year. So we have -- what's the other ideas and how to secure those rates in different ways. So I think we have options. And I just request that you be a little patience.

I will be patience for sure, Mark. Thank you. . Just another one from me as well, in terms of potential reactivation. So I think we're going into territory now let's just say we're the economics, at least of the activation starts to make sense. And one thing is the supply chain issues that might limit the amount of time it takes them out. But if you were to reactivate some of these rigs, and kind of off the top of my head, I would say that the cause of the lack of rigs in Brazil could potentially be opportunities for stack capacity as well. Do you have any, I know that are differences between the assets here, but do you have any product quality prioritized list of which rigs you would prefer to take out first if you have the opportunity?

Yes, clearly we do. We have three, seven gen rigs currently in Greece. We have a one stag radian in West Africa. So rigs that are warmer have will get first priority followed by the highest specification that's like the seven gen rigs in Greece.

So this is last question will be coming from Mr. Karl Blunden calling you from Goldman Sachs. Please go ahead, sir.

The question on the new contracts from last night, with those allow you to raise incremental secured debt and further augment the liquidity position you have right now?

Yes, sir. On the Conqueror for those two years, I think combining that rig with another rig could provide an opportunity to raise additional secured debt against that. On the Petrobras 10,000, no, that is a seller lease agreement already back in that rig contracts. So now that rig is collateral for existing transaction.

And just to follow-up. I think you mentioned some of this briefly in the prepared remarks. But should we still expect some concrete news on the Petrobras eight rig tender in the near-term and just kind of any thoughts on your involvement in that? It would be very helpful.

So, there's several tenders out there that are skilled to be awarded. And then you've got the what they what they describe as the full tender that bids for that go in, I think in about two weeks time. So, you'll see that when the bids go and they get opened right away because it's kind of like a public tender. So pretty quickly, you'll be able to see the rate levels of all the different players. I don't think there are that many rigs that will be immediately available in country. So, expect to see several from outside. And with the constraints, as we've mentioned before about reactivating rigs moving them into country will be interesting to see just how many rigs out there and what kind of rate levels that are. It's obviously a very big tender in terms of the number of rigs. So we're kind of excited to see that. And certainly we will play our part in that and hope to be successful to varying degree, but we'll have to wait and see, but you should find out in about two weeks.

Thanks so much, sir. Ladies and gentlemen, that will conclude today's question-and-answer session. I would like to turn the call back over to Ms. Johnson for any additional or closing remarks. Thank you.

Thank you, George. And thank you everyone for your participation on today's call. We look forward to talking with you again, when we report our third quarter 2022 results. Have a good day.

Thank you much, ma'am. Ladies and gentlemen, that will conclude today's conference. Thank you for your tenants and disconnect. We wish you a very good day. Goodbye.