Good day, everyone and welcome to Q1 2023 Transocean’s Earnings Call. At this time, all participants are in a listen-only mode. Later, you'll have an opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, this call is being recorded. It is now my pleasure to turn today's program over to Alison Johnson, Director of Investor Relations. Please go ahead.

Thank you, Gretchen. Good morning and welcome to Transocean’s first quarter 2023 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 question. 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 first quarter, Transocean delivered adjusted EBITDA of $217 million on $667 million in adjusted contract drilling revenues, resulting in an adjusted EBITDA margin of approximately 33%. Our overall performance was supported by superb revenue efficiency of nearly 98% and is representative of our commitment to operational excellence. During the quarter, we booked nearly $900 million of contract backlog, disrupting the first quarter low observed in years past. In fact, this is more than double the backlog added in the first quarter of 2022 and more than seven times what we added in the first quarter of 2021. We believe this is another clear indication of the sustainability of this constructive market environment, particularly in light of the record backlog we booked last year. Turning to the individual fixtures. In Lebanon, the Transocean Barents was awarded a one well contract with TotalEnergies at a rate of $365,000 per day. The approximately 65-day contract is expected to commence in direct continuation of the rigs current program and provide for up to three option wells at rates between $375,000 per day and $390,000 per day. As discussed on our fourth quarter 2022 earnings call, in January, the KG2 was awarded a 910-day contract in Brazil at approximately $439,000 per day, including integrated services. The contract is expected to start in the third quarter of this year. In Australia, the Transocean Endurance was awarded a multi-well contract for plug and abandonment work with an independent operator at a rate of $380,000 per day. The contract also provides for up to five option periods, the first of which has already been exercised at the same day rate. The remaining four options…

Thank you, Jeremy, and good day to all. During today’s call, I’ll briefly recap our first quarter results then provide guidance for the second quarter as well as an update on our expectations for the full year 2023 and our liquidity forecast to the end of 2023. As reported in our press release, which includes additional detail on our results, for the first quarter of 2023, we reported a net loss attributable to controlling interest of $465 million, $0.64 per diluted share. After certain adjustments as stated in yesterday’s press release, we reported adjust net loss of $275 million. During the quarter, we generated adjusted EBITDA of $217 million. Looking close at our results during the first quarter, we delivered adjusted contract drilling revenues of $667 million at an average day rate of $364,000. This is above our previous guidance, mainly due to strong bonus conversion on the Conqueror, Endurance and Spitsbergen higher than expected revenue recharge at earlier than forecast commencement of operations for the DD3. Operating and maintenance expense for the first quarter was $409 million. This is below our guidance reflecting the delay of in-service maintenance on our working fleet and other service maintenance on rigs that we are preparing for contracts commencing later in 2023, partially offset by increased cost related to the early commencement operations for the DD3. Turning to the cash flow and balance sheet. Cash flow from operations was a negative $47 million resulting from lower collections from customers reflective of reduced revenue due to certain rigs completing their contracts during the previous quarter, disbursements incurred preparing several rigs for our next contracts and the timing of tax and interest payments. Our free cash flow of negative $128 million in the first quarter reflects the contract preparations above and $81 million of capital…

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

[Operator Instructions] We’ll take our first question from James West from Evercore ISI.

Hey, good morning, guys.

Good morning, James.

So Jeremy, talking about day rates for non-harsh environment in the $500,000 day range by year-end, which I think is probably consistent with where you’re negotiating contracts now. Would any of these rigs that would achieve that type of day rate actually start this year or are we talking about rigs that are going to be coming out of cold stack that given that we’re in May now would probably take until next year to really kick off campaigns?

Good. I’ll hand it over to Roddie.

Hey, no problems. Yes. So I think that would be the case. Yes. You would see that coming next year and there’s been a lot of discussion about this magical 500 mark. But I wanted to give a couple of statistics on that just real quickly. We don’t know what our competitors bid, except when they bid into public tenders. So we used the Petrobas tenders in Brazil as an example. In the pool number one tender that happened last year, there was only two rigs were bid above the $500,000 a day and the pool two tender that just completed this week, it was nine, so that’s like a mark change in that. And of course, you see lots of folks across the board saying that the expectation is that it’ll be this year for the 500s, and I’ve seen a couple of projections that say will be mid-500s by 2025.

Right. Okay. That’s kind of our expectation as well. The – I guess, the follow-up for me is on consolidation in the space we obviously have had a good amount during the restructuring phase that we saw. There are still some companies that were aware of that are kind of up for grabs here and there’s some assets up for grabs. How are you guys thinking about, I guess, one, the need for consolidation; and two, Transocean’s role in that consolidation?

Yes. Thanks, James. Good question. We have seen a lot of consolidation in space. We’ve dramatically improved industry structure for offshore drillers, far fewer players, far fewer assets due to retirements. So it’s much – far more disciplined behavior as a result. So we’re going in the right direction. I think there’s still room for more consolidation, especially now that most of our competitors have gone through chapter 11 and have merged with clean balance sheets. I think – and all of us have digested our own acquisitions over the course of the last couple of years. So I would expect to see some more consolidation through this year. We certainly look at every opportunity out there and we get pitched every opportunity that’s out there, Mark smiling at me. And so we’ll continue to look, but again, we’re going to kind of follow the same blueprint we followed so far. It’s got to be alter deep water and harsh environment high specification assets, so fleet matters and we can’t do anything to compromise the balance sheet. And so we look through those – that lens really at every strategic opportunity.

Okay. Got it. Thanks, guys.

Thanks, James.

Our next question comes from Thomas Johnson from Morgan Stanley.

Hi, congratulations on the strong quarter. First one would be helpful to kind of go back to the harsh environment outlook. You guys mentioned a handful of rigs has left the European space, which is clearly supportive of utilization there. You mentioned $500,000 per day leading edge by year-end on the benign side. But maybe if you could kind of add some color around how people should think about the potential range for leading edge rates in the harsh environment outlook over the next 12 to 18 months. Thanks.

Yes. I think I’ll take that one. So as we think about another kind of eight to 10 rigs potentially leaving Norway, that pretty much leaves you a fleet of maybe 12 or 13 rigs. What we see in the expected demand in the 2024 into 2025 timeframe is about 15 to 18 rigs. So you’re suggesting that there’s probably a deficit of four to six rigs in that timeframe. That’s – that in my view is going to have a step change in day rates, right? I mean, we’ve seen that we’re consistently now in the upper 300s. I would expect that the next fixtures are going to be solidly in the fours. And who knows where that may lead to, but certainly we’re at this kind of 13 AOC compliant floaters in Norway just now that is historically the lowest number ever. And I think just in the context of an improving global market that has consistently delivered quarter-over-quarter, you’re now seeing this kind of mass exodus to rigs moving to places that they can not only be active and have work, but also get pretty high EBITDA margins comparatively speaking to staying in Norway. So I think that’s going to be the key hurdle. It’ll be the rigs that have to come back to Norway that will command a super premium.

And Thomas, the other thing I would mention, in addition to these having day rates firmly in the 400s if not higher, customers are paying mobilization fees as well up front. So you layer that in as well and it looks pretty lucrative for that market.

Great, thanks. And then just last comment still related to the supply. Thanks for the range of 75 to 125 on reactivation. But can you maybe update us on the timeline to reactivate a cold stacked drill ship in the market? Obviously aware that there’s going to be a range depending on the assets, but just kind of broad strokes, reactivation, timeline ranges. And then maybe an update on how you see supply chain whether they’re major hurdles to reactivating rigs potentially based on equipment availability? Thanks.

Yes. Keelan, can you take that one?

Yes, Thomas. I think our guidance on that still hasn’t changed since the last time. We’re still looking at 12, anywhere between 12 and 18 months to get a cold stack reactivation effective door to door into operation, largely probably around the 15-month side. The supply chain side is improving as capacity is getting better across the supply chain. But we still – we’re still facing some long lead issues, particularly on heavy steel forgings and obviously on electronic components that there’s a reliability probably issue in terms of delivery in the supply chain from Europe in that regard. But I think we’re still seeing 12 to 18-month range on our cold stacked reactivations at this time.

Great. Thank you very much. I’ll turn it back.

And our next question comes from Eddie Kim from Barclays.

Hi. Good morning. So you announced a handful of nice contracts for harsh environment semis this past quarter, but notably absent were contracts for the Invictus and the Inspiration, especially given their near-term expiration of their current contracts. Both of those rigs are also in the U.S. Gulf of Mexico, which is effectively a sold down market. So could you just talk about the future prospects for those two rigs specifically and when we should expect them to get back to work?

Yes, sure. Yes, so obviously I can’t tip my hand to this precise opportunity we’re exploring. But yes, we’re in active dialogue on both the rigs for different things. And we expect that fairly shortly we’ll be able to add some more backlog to those. And kind of as a reminder on that contracting philosophy, we are purposefully keeping a couple of rigs available in the near-term to take advantage of this improving market for us. So you did see, and thank you for noting the prolific contracting that we did on many of the assets over the last couple of quarters. So we maintain that balance of – yes, it’s nice to have the majority of the fleet on long-term contracts, but we certainly also want to be able to capture the upside in this improving market.

Got it, got it. Understood. It’s a bit of a – kind of strategic negotiation going on there. Understood. And my follow-up is just on kind of the pace of reactivation we’ve been seeing. There’s been one major contractor has been reactivating a number of cold stack floaters as I know you’re well aware. Does the pace of reactivations concern you at all in terms of the day rate progression? Your expectation to see a contract announced with a five handle by end of year would suggest you’re not very concerned at all. But any thoughts here would be appreciated?

Go ahead.

Yes. So if you look at the results from the Petrobras contracts was announced last Friday, the two rigs, that one the first one were both in the mid 4s and they are stranded new builds, so very similar to a reactivation of a cold stack rig. These are rigs that are coming out, and as Jeremy mentioned in his prepared comments, we’re paying about $200 million for these rigs and you’re spending another $150-ish million to bring those rigs to market. So to see that those investors are bidding in the mid-4s, I don’t see them dragging rates down at all. I think it was a very good high water mark for Brazil. So I don’t think that’s a challenge for us at this stage.

Got it. Understood. Thank you. I’ll turn it back.

Yes. Actually I may add on top of that. The interesting thing again pool 1 versus pool 2, which is kind of seven months apart is we saw a 17% increase in the average bid rate. So you kind of went from three 50k a day average to 408k. That’s pretty substantial increase in just a few months, 58k a day on average.

And our next question comes from David Smith from Pickering Energy Partners.

Good morning. Thanks for taking my questions.

Good morning, David.

So two interesting agreements you all announced in the past three months, the first dedicating the Olympia for subsidy mineral exploration, and then the second converting up to two floating vessels for floating wind turbine installation. Am I – just wanted to make sure I’m right to understand those two vessels would be coming from your stack fleet.

That’s correct, yes.

So I was just hoping to get your thoughts on removing up to three stacked rigs for alternative uses and kind of how you think about the trade-off for increasing exposure to the energy transition versus the option value of eventually having the last incremental capacity before new builds would be needed and maybe if you’re considering dedicating any more stacked rigs for alternative uses?

Yes. I’ll take that one. So look, I mean, if we do consider using some of our stacked fleet for these opportunities the logic’s pretty simple. We basically have a good crop of available cold stacked units for riding the upside of this increased activity as we expect floaters to go from kind of like the 140 level committed rigs to up to 150. We’ve got plenty of room to grow on the drilling side of the business. But the assets that we might consider for something like this would happen to be the lowest specification of our stacked assets. So it’s really a very interesting way to get into the energy expansion, to be not just one dimensional in our outlook, but also to take assets that otherwise might be stacked for many, many more years and making good use of them in the near-term. So I think it’s an extremely interesting opportunity and a smart use of our fleet.

And I’m going to add to that. We’ve been talking about the pace of reactivations for the industry and for transaction specifically. We believe given the current constraints, especially on the supply chain side, it’s about two a year. So if we have 11, and you take those two out, now it’s nine, that’s 4.5 years of reactivations. Do we believe the cycle’s going to last 4.5 years, five years, six years? Not so sure. We do believe it’s going to last three years. So we certainly can get through the majority of our stack fleet by reactivating them. And if day rate support reactivating the rest of it, we’ll clearly do that. But we’re targeting these rigs into markets that we believe will generate returns for our shareholders over time, as well as Roddie said helping us as a company to move into the energy expansion a little more forcefully.

That’s great color. Thank you. And that’s all I had.

Our next question comes from Kurt Hallead from Benchmark.

Hey, good morning.

Good morning, Kurt.

So, hey Jeremy. I think as you referenced here earlier, there’s something along the lines of 13 cold stack rigs. I think on prior call, you indicated that Brazil might see incremental rig demand of order magnitude 20 rigs over the next, I don’t know, two to three year period. I think is what the timeframe was. And I just wonder if you give us an update on overall demand dynamics as you see it maybe updated relative to how you saw it versus the prior call? And I guess the context is it seems to me that Brazil could absorb the vast majority of the available idle capacity in the market leaving West Africa and other areas scrambling to compete for what’s left [ph]. So just want to get your perspective on that?

Sure, sure. So yes, with regards to Brazil, yes. If you think about just a larger context before you go to the details of that. The drill ship market is effectively a 100% utilized at the moment for assets that are available. Yes, certainly Brazil has more to add, there’s no doubt. So I think you’re going to see as Mark pointed out, there is two stranded assets are going to come to satisfy the cold to tender. We think there’s still plenty more cold stacked potential for satisfying Buzios and other tenders that may also come out. So yes, Brazil really is putting a draw on pretty much everything that’s available. But as we go around the world and we think about the different markets, I mean, every market is up. If you view it on a 12-month basis, every market is up. So that simply means that we’re going to continue to book the rigs that are coming available and have to reactivate other ones. So again, as I said, the kind of numbers are supposed to be heading to 150 active floaters as we get into 2024 that would suggest that we’ve got 10 to add. So that’s a tall order, but certainly in good shape for that. And I think as the guys had articulated many times, we’ve got 12 cold stacked assets at the moment. We could dedicate a couple of those to alternate purposes, but we’d also be optimistic about reactivating a couple of those over the next year or so into new opportunities.

That’s great. Appreciate that color. So follow-up here would be, again, on the harsh environment side where you’re moving these assets from Norway to Australia. Just wonder if you can just give us an update on what’s the cash margin differential, if any between what you could have earned in Norway versus what you’re getting in Australia?

Yes, I’m not sure I comment exactly on the margins. But there is a better margin to be got in Australia. There’s a substantially better margin to be got in West Africa. So you’ve seen the access of the rigs. There’s currently standing at six of them. So if you think about just where we are normally in terms of like the rules and regulations for not only the equipment, but crews and a number of people on the rigs, it’s going to be a pretty substantial hurdle to pull those rigs back, particularly if you’re already making whatever that where you are. And the demand for the rigs in the new countries appear set to continue for several years.

Okay. Great. Appreciate the color. Thank you.

Thanks Kurt.

And our last question comes from Fredrik Stene from Clarksons Securities.

Hey guys. Thank you for taking my question. Hopefully, you can hear me, okay. So I have…

We can.

…two questions for you. I would like to kind of to add a bit to the cold stacked asset discussion here. As you mentioned in your prepared remarks, you have the majority really of the cold stacked assets here. And one thing is talking about where these assets can go and who can absorb them. But I think another part or dimension of that discussion is the strategy in a way of how to employ them because it seems to me your peers taking out their stack capacity at lower rates or being more aggressive in taking out their – that capacity. But at some point, I think, that could leave you as the only price sector really of incremental capacity into the flow to market. But that also gives you a bit more risk on your side. So do you have any color thinking about how you’re approaching that right now, or if the way you’re approaching it has changed as we’ve seen rate levels move higher?

Yes, I don’t think our approach has changed. I think we’ve been pretty clear that the customer has to pay for the reactivation. And so, we’re going to continue to follow that strategy I think going forward. I know going forward, so we’re happy to – we have to continue push rates on our existing fleet as they become available. And then when the customers willing to pay for a reactivation, we’ll certainly do it.

Yes, and I think as we think about what it costs us for those rigs to remain stacked, it’s really de minimus. So choosing the right time and choosing the right contract is really what the strategy is about and showing some patients not we certainly do not value utilization over [indiscernible] generation. So I think most of our competitors see it that way. Maybe one or two don’t. But we’ll certainly continue to push that mantra we will not reactivate on spec.

Perfect. And the last one. Turning to the harsh environment market, again, I think you’ve – you said that you’d like to or you would prefer to keep your assets in Norway or at least the Norway compliant assets. But obviously you and some of your competitors have not started to take those assets out. Have there been any change in that preference for your side that you’re seeing that the economics are just too good to kind of give up the optionality of keeping the assets in Norway? Or do you think that you have a balanced approach to that, some optionality in Norway and then some hard cash in other parts of the world right now?

Yes, I was just going to say, no, I mean, it is pretty simple. I think we’ve showed an exceptional amount of patience over the last few years of keeping rigs in Norway. We’ve had rigs idle in Norway for some time. We’ve talked to kind of all the major customers about this and been – I would say very competitive in our attempt to keep the rigs busy in Norway, especially during 2019, 2020 and so on. But now we’re really at the point that the demand elsewhere is so substantial, is always our preference to keep the rigs where they are. There’s no questions about that. But the economic challenge is now overwhelming when you compare how accreted the contracts are elsewhere.

All right. Thank you so much. That’s all for me. Have a good day.

Thanks, Fredrik.

It appears you have no further questions at this time. I will now turn the program back over to Alison Johnson for any additional or closing remarks.

Thank you, Gretchen. And thank you everyone for your participation on today’s call. We look forward to talking with you again when we report our second quarter 2023 results. Have a good day.

Thank you ladies and gentlemen, this concludes today’s conference. You may now disconnect.