Good day, everyone, and welcome to today's Q3 2022 Transocean Earnings Conference Call. [Operator Instructions]. It is now my pleasure to turn the conference over to Alison Johnson, Investor Relations.

Thank you, . Good morning, and welcome to Transocean's Third 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 McKenzie, 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'll now turn the call over to Jeremy.

Thank you, Alison, and welcome to our employees, customers, investors and analysts participating on today's call. As reported in yesterday's earnings release, for the third quarter, Transocean delivered adjusted EBITDA of $268 million on $730 million in adjusted revenue, resulting in an adjusted EBITDA margin of approximately 37%. Our overall performance was supported by strong bonus revenue and the transition to higher day rates on several of our rigs. As usual, this was truly a team effort. As such, I would like to extend a sincere thank you to the entire Transocean team for their commitment every day to deliver best-in-class service to our customers and the best possible results for our shareholders. On our second quarter earnings call, I addressed the ongoing energy security concerns that have become an area of international focus following the Rush Ukraine conflict. Access to affordable, reliable energy sources is essential to global economic prosperity. The sabotage of the Nord Stream pipeline carrying gas from Russia to Europe further underscores the importance of a reliable and diverse energy supply chain. A vicious cycle of poor shareholder returns in the downturn and aggressive ESG investment mandates led to chronic underinvestment in reserve replacement, which ultimately affects production. Consequently, we are facing a risk of sustained oil and gas shortages globally. Separately, this year, slowing inflation and rising interest rates have, for the first time in almost 8 years, shifted investor sentiment toward energy stocks, oil and gas, in particular. This shift, coupled with the recent effects of systemic underinvestment in energy have further exposed the impracticality of a swift global transition from fossil fuels. In the mid- to long term, demand for all sources of energy will continue to grow, and it's imperative that new sources that supply are discovered and developed to meet this…

Thank you, Jeremy, and good day to all. During today's call, I will briefly recap our third quarter results, provide guidance for the fourth quarter and conclude with preliminary expectations for 2023, including our latest liquidity forecast. As is our practice, we will provide more specific guidance when we have our 2022 year-end call in February of next year. As we reported in our press release, which includes additional detail on our results for the third quarter of 2022, we reported a net loss attributable to controlling interest of $28 million or $0.04 per diluted share. During the quarter, we generated adjusted EBITDA of $268 million and improved our adjusted EBITDA margin to approximately 37%. We also generated cash flow from operations of approximately $230 million. Looking closer at our results during the third quarter, we delivered adjusted contract drilling revenue of $730 million and an average day rate of $343,000. Revenues above our previous guidance due to a combination of more than anticipated operational days and early termination payment on the Equinox and higher reimbursables, partially offset by lower-than-expected revenue efficiency. Operating and maintenance expense for the third quarter was $411 million. Costs came in below our guidance due primarily to the timing of certain maintenance activities and other costs. We ended the third quarter with total liquidity of approximately $2.1 billion, including unrestricted cash and cash equivalents of approximately $154 million, approximately $387 million of restricted cash for debt service and $774 million from our undrawn revolving credit facility. I will now provide an update on our expectations for the fourth quarter. We expect adjusted contract drilling revenue of approximately $600 million based upon an average fleet quired revenue efficiency of 96.5%. The quarter-over-quarter decrease is attributable to somewhat lower activity in the fourth quarter. We expect fourth…

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

[Operator Instructions]. Our first question comes from Thomas Johnson with Morgan Stanley.

Congratulations on the strong quarter here. First question on the reported O&M expense. Obviously, you know well below the guided number, some helpful commentary there on maintenance timing, which is not a typical, but it would be helpful just to get some additional color on the impact of kind of FX in the quarter. Obviously, that was noted in the press release. I guess, a, could you guys give us a ballpark number of the possible tailwinds from the strengthening U.S. dollar there? And maybe rough outlines on the percent of kind of OpEx that is non-USD just in an average quarter.

Thomas, this is Mark Mey. So obviously, the U.S. dollar has strengthened negative impact on our cost, but the main reason for the cost increase is the -- some of the supply chain challenges and the timing of the making expand is tied to supply chain hiccups. We've mentioned this in previous quarters that some of our major vendors are having difficulty in meeting delivery schedules. And as such, some of our planned maintenance expenses get pushed out from quarter-to-quarter. As you've seen in our fourth quarter earnings is guarded to be higher because of the shortfall in Q2 and Q3. So there should be some catch-up in the fourth quarter. Regarding the modeling questions, I suggest you speak to Alison afterwards.

Great. That's helpful. And then last one, just on the Deepwater Titan, I know prior commentary has been around possibly an issue up to $400 million of secured against that asset once it's delivered and on contract. Obviously, that is a constructive number there. So I guess, a, could you kind of provide any updated outlook for a plan for the deepwater tightening just for helping us think through additional liquidity, maybe when typically would you be able to issue secured against the ship after it's commenced its initial contract?

Yes, it's Thomas. So we expect the RIG to be delivered in the fourth quarter, probably later in the fourth quarter. Neverafter the RIG will mobilize the U.S. Gulf of Mexico, once the rig leaves Singapore, we plan to start working on a secured transaction. We said in the past that we could raise up to $400 million, that's conservative. I would say it's between $400 million and $500 million. And as the market has stabilized over the last, call it, 2.5, 3 weeks, we feel highly confident that we can achieve that. So you can expect to see this financing completed in the first quarter of next year right before the RIG starts operating for everyone.

And our next question comes from [indiscernible] with Barclays.

So we've seen day rates increase pretty dramatically here in just the past 4 months. But if I look at all the contracts with day rates at or above 400 a day and we count about 15 of them, nearly all those have either been in the Gulf of Mexico or Brazil. So my question is, when can we expect to see day rates at a similar level in other regions like West Africa or Asia Pacific, for example? And is there something structural about those regions that are making day rate increases a little harder to come by?

Yes. This is Roddie. I'll take that one. So yes, we've seen the first move in rates coming in the U.S. Gulf of Mexico kind of followed up with long-term and high day rates, higher day rates in Brazil. In West Africa, we're actually beginning to see that. So there's been a couple of fixtures that are closer to those numbers. Most recently, you'll see stuff in Angola getting around that $400 and above mark. What we're actually looking at it now in terms of like a market outlook is a tighter and tighter market from our point of view that there's just not as many capable assets available. So I think you're going to see a pretty substantial move in those markets as well. Asia typically is a little bit lower specification. So if you look at the tenders in Asia, you look at the assets that are there, they are typically kind of the 6th gen and the 5th gen assets. So that's usually the last place for dairies to start moving. We also happen to be coupled with a particularly low operating cost. So even though you may not see the highest day rates in those regions, you will see very solid EBITDA margins created by those contracts. So I think in summary, your kind of seeing this ripple effect across the markets, primarily because these RIGs move between markets because they're mobile, because they're capable in all these different jurisdictions, you simply see them moving first in the ones where they're in the highest demand. And I think you'll actually see some of the lower specification RIGs getting better and better day rates as the market gets tighter and tighter, it's typically the way things go in an upturn. But yes, I look super encouraged by Brazil RIG counts potentially going from around 28 RIGs in Brazil in this time frame to in excess of 40 RIGs within the next 12 to 18 months. So it would be very interesting to see if the industry is capable of producing that number of assets in Brazil. But yes, it's super encouraging things.

That's very helpful. And just my follow-up is on reactivation. So one of your competitors earlier this week said reactivation economics are very attractive at current day rates. Transocean is understandably in a little bit of a different situation, given the leverage on the balance sheet. So you may have other more pressing priorities for that reactivation expense. So just curious if that is impacting your decision at all in pulling the trigger on a reactivation here, even if you are coming across contracts today with a sufficient level of pricing and term or maybe a simpler way of asking is if Transocean had been debt free for the past year, 1.5 years, would we have seen a reactivation by now?

So let me start, and then I'll already comment as well. We've said consistently, I think, over the last 4 or 6 quarters that we will reactivate RIGs to contract. Hence, you have not seen us do this. With the most recent petrogas tenders, we have built in some of our cold stacked RIGs. And there's a good possibility that we'll be able to achieve 1 or 2 of those rigs on contract. Those contracts at those rates and mobilization fees will allow us to fully pay back the cost to reactivate the rig long before the end of the contract. So we're very comfortable doing this and balance sheet leverage or not is not going to be habit us from activating rigs.

Yes. I think I would add to that and kind of say that previous administrations that our competition may have gone down that track. But certainly, what we're hearing across the board is that nobody is willing to speculatively reactivate those rigs. But what you are seeing is reactivations for contracts that support that. And you know, so to Mark's point, I think we've been really clear on that over the entire cycle that we will not reactivate on speculation, but we will do it to contract, and we will ensure that, that contract fully pays that reactivation. So actually just don't see that, that's going to be an issue to Mark's point in terms of does our financial requirements prohibit us, -- certainly not because we're only bidding on things that are cash flow positive over the term of that contract.

I'll take our next question from Fredrik Sten with Clarksons Securities.

Congratulations on strong performance this quarter, nice cash flows, I would say. So I think some of my questions have been touched upon already, but I wanted to circle a bit back to the day rate side. With a few quarters back when you guys were pushing the 400 Kmart in use Gulf of Mexico, I think it was -- at least with the operators reluctance in a way to actually see something starting with a 4 handle that they were trying to package this into other types of or a way to recognize this revenue, higher mod fees but lower clean day rates, et cetera. So now we push towards or upping to the mid-400s, it's starting to get global for sure. And I think for me, I'm wondering when are we going to see this 5 handle. I'm of the firm opinion that we are short on RIGs on filters in the Golden Triangle and that we need to see reactivations. But now there's this battle between operators, again, what are their willingness to pay, how do they ambition the future? Are they understanding the lack of capacity, et cetera. So I was wondering, do you have any thoughts on whether or not the trend that we see now can continue? Or if you want to -- or if you need to have a battle with UP companies once again to start to see far handles.

So greedy, man. No, I think we agree with you in terms of shortage of active supply, definitely high-specification assets. We're seeing it. I think our customers are finally realizing it to. And we see that in the way that they're behaving. More direct negotiations, certainly trying to -- I wouldn't say, hide their prospects, the rigs that they're interested in, but they see the lack of availability. So we're having far more direct negotiations, which is a good sign. You've seen dayrates steadily improve. I mean, pretty dramatically. I think I said in my prepared remarks that over the last year, dayrates have improved 113% for ultra-deepwater drillships. And so we expect that trend to continue. Our customers feel it. They know it's coming. And so I'm not going to give you a date by when we would see a 5 handle, but we're definitely moving in that direction. And I'll turn it over to Rod to add even more color.

Yes. I think I would add to that, that those that have moved while the rates are still in the 400. They've done so because it represents very good value for money. I mean don't forget that over our 7 years of winter, the prospects that are being invested in now are breakevens in the 30s and 40 barrel range. So even with a substantial increase in the RIG rates, there's still economically very sound prospects. If you couple that to where you have a stable, high commodity price as we've had for some time, albeit volatile, but it's volatile above that -- well above that investment level. I just think that you're going to see the scarcity of the RIGs become more and more of an issue, particularly for specifications that customers need. So hard to see us going anywhere but up in terms of dayrates. But certainly, as I often explained, the operators are kind of paying 3/4 of a day or at today, we still haven't got back to what we would consider a full day rate, but I think you will see that over the next couple of years.

And I think we're of the same opinion area and I would also add that you should allow to be greedy after detail years.

I agree with you.

And our next question, our final question comes from Karl Blunden with Goldman Sachs.

Congrats on the strong results this quarter. I was curious about the comment about not intending to use the ATM. You used it during 3Q, pretty similar stock price overall. And so just interested in understanding what has changed maybe through under expectations or comfort with liquidity. Just any other color there would be helpful.

Karl, as you're probably aware, we evaluate this on a continuous basis. In the third quarter, we were expecting to have some expenses, which we felt we would need to shore up our balance sheet. So we use the ATM. We feel comfortable now, as you've heard with my liquidity forecasts on the prepared comments, we're very comfortable with where we are, and we expect to transact with the [indiscernible] potentially with the secured bonds. And with those transactions, we think our liquidity is in a good place. So we can revisit this. Our stock price jumps to $5, could we use the ATM, perhaps. But at the moment, we feel comfortable where we are.

That's really helpful. I mentioned also, Mark, thoughts around these extensions of the secured bonds, you could look to do that extended into one or more secured bonds. So presumably, that means maybe a pooled contract or just a standard approach where you've had a bond backed by a RIG and cash flows from a contract. As you think about that, what are the considerations that you're looking at when you think about the optimal outcome for Transocean.

Yes. As I said, the two benefits translation is a restructured amortization program. What that does is it utilizes the remaining part of those contracts, especially the shelf contracts, because we put on 6 and 7-year bonds, we can to contract. So we have sales of 3 or 4 years, which will not get utilized, which means the amortization things pushed out over that time period, which improves near-term liquidity. Else there's more financial flexibility by having the bonds collapsed into 1 or 2 larger bonds. So the balance sheet becomes a little bit less complex.

And ladies and gentlemen, that does conclude today's question-and-answer session. I'll turn the conference back over to Alison Johnson for any concluding remarks.

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

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect.