Good day, and welcome to the Seadrill Limited Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Emma Li, Head of Investor Relations. Please go ahead.

Thank you, and welcome to Seadrill Limited’s Q4 2019 quarterly conference call. Before we get started, I would like to remind everyone that much of the discussion today will not be based on historical facts, but rather consist of forward-looking statements that are subject to uncertainty. Included on Page 2 of the presentation is a comprehensive list covering forward-looking statements. For additional information and to view our SEC filings, please visit our website at www.seadrill.com. So moving on to the agenda, with us in the room today are Anton Dibowitz, our CEO; Stuart Jackson, our CFO; Matt Lyne, our Chief Commercial Officer; and Leif Nelson, our Chief Operating Officer. In our prepared remarks, you will hear from Anton and Stuart, Anton will cover all the highlights for the quarter and provide you with all of our views on the market outlook, and Stuart will then provide a review of financial performance of the quarter and then we will open up the lines, so you can take some questions from the entire team. With that, I’d like to turn the call over to Anton.

Thanks, Emma, and welcome, everyone, to the call. Starting with the financial results for the quarter, which Stuart will give you more detail on later. Technical utilization was a solid 97%. The delta between this and economic utilization of 93% was mainly related to a five-year classing on the West Neptune and seasonal waiting on weather time in harsh environment. We had adjusted EBITDA of $39 million, which was primarily due to lower activity levels from rigs completing contracts in the quarter. And finally, we closed the quarter with $1.4 billion in cash on hand. In terms of operations. We already have an extremely competitive cost position and we continue to be laser-focused on improving the efficiency with which we run our business. This efficiency focus helps our cost base today, but will also allow us to scale our business efficiently when required. Secondly, we keenly recognize importance of sustainability and continue to progress with multiple initiatives related to environment, social and governance. During the fourth quarter, we pioneered the use of hybrid power on the managed rig, West Mira, reducing the run time of the diesel engines, increasing energy efficiency and lowering emissions. We see great promise in this technology to be expanded in the fleet. We also received notification from the independently assessed Carbon Disclosure Project that we have now obtained a B rating for our carbon management program. This has been a seven-year journey for us in that reducing our overall impact on the environment of our carbon footprint. And finally, with respect to operations, we continue to receive recognition from our customers during the quarter for excellent operational delivery. Within our owned fleet, the West Jupiter working for Total was recognized for two years and the West Callisto working for Saudi Aramco for five years without…

Thank you, Anton. So turning to Slide 6 in terms of the revenue and EBITDA bridge for the quarter, which was a relatively quiet quarter from an operational perspective. We achieved economic utilization of 93% of a technically utilization base at 97%. And as Anton has mentioned, during the quarter, the West Neptune was out of service for its planned five-year classification. In terms of total revenue of the quarter, we’re at $398 million, compared to $367 million in Q3. This increase reflects the reimbursable revenues from the northern drilling rig preparation and also higher management fees as the first Sonadrill unit moves from rig preparation into operations. At an EBITDA level, we delivered $39 million of EBITDA, compared to $85 million in Q3, yet underlying EBITDA margin was 10% compared to 23% in Q3, predominantly because of the higher reimbursable activities. As we go through the transition of rig preparation to rig operations, you will see some periodic impacts as we recorded in this quarter. This is because we generate the majority of our margin on these activities in the operating phase rather than in the preparation phase. Whilst I’m dealing with EBITDA for the first quarter 2020 guidance, we expect adjusted EBITDA to be approximately $35 million. This reflects a full quarter of idle time on the West Jupiter and West Saturn, both partially offset by higher dayrates on the West Neptune and a full quarter of operations on the West Gemini and the West Carina. Turning then for the results of our associated companies. So these are operating non-consolidated entities, primarily Seadrill Limited – Seadrill Partners, SeaMex, Archer and Seabras. Now here we’re trading relatively good levels of utilization, perhaps with the exception of SeaMex. SeaMex, we’ve seen lower utilization of 91% because of top drive issues…

We will now begin the question-and-answer session. [Operator Instructions] First question is from Patrick Fitzgerald from Baird. Please go ahead.

Hi, guys. How much cash – how much restricted cash is collateral for the secured notes at this point?

Well, the $242 million from restricted cash we have, the largest element of that is actually bank guarantees. Then we have – which is about $130 million. We have Brazilian tax that we’ve had to pay on a – pay on a defend [ph] basis, which is $84 million, which was done in Q3. And then the remainder of it is predominantly the amount sitting in these collateral for those secured notes.

Okay. So the risk – basically, the cash at SeaMex went down, because you’re just not getting paid from the customer. It sounds like – I mean, is that related to the…

Yes, correct.

…contract renegotiations for the step-up in rates?

This is Anton. No, it’s not related. This is, we’ll call it an industry-wide challenge. Look, there is generally a period at the end of the year when this happens year-over-year, so it’s not unusual. It has been longer and more protracted this year and it is widespread in the industry. I think, there’s even been quite a bit of publicity about it in the press. But no, we don’t believe it’s related.

Okay. And then on that front, it says you’re still – on the fleet status report, it says you’re still negotiating with Pemex. I mean, what do you see as the likely outcome, probably not as high as they were – the – it was scheduled to jump, but above where you are currently getting paid in 2019?

So we’ve had ongoing, I’ve been in Mexico a number of times, productive discussions with Pemex. We have fantastic rigs that are among the best performance in their fleet. I’m not going to get into the details of it on this call, but there is always a balance between long-term opportunity and having a long-term presence and where you are in the current dayrate. We found a way to work with Pemex before and we will continue to do that.

Okay, great. Thanks. In terms of the backlog at Seabras, how much – how many vessels does that $1.3 billion cover? Did you guys sign up new contracts in the quarter?

Yes. Currently, all of the vessels are operating. They’re on different terms of contracts. So the vessels that rolled off contract during the year have secured some short-term work. So yes, that backlog includes all vessels.

And what are the rates on that short-term work relative to the long-term work that you guys have been working on for quite a while?

I’m not going to get into the rates on the particular vessels on the call here today. I will say, they have come off the bottom and we’re happy and it’s definitely better for them to be working than it is for them not to be working.

Okay. And you said that you spoke with all of your lenders in the fourth quarter. I mean, is that – is this essentially the exact same group that you went through the process with before, or has there been a lot of the debt that’s changed hands over the course of – since you emerged?

There have been some that has changed hands. But in terms of accurate, because that’s not a significant portion of the overall debt we have. In relation to meeting the banks, I’ve been in the CFO for about six, seven months or so. So the early part of my job was getting around seeing all the banks and I actually got through Q3 and Q4. I guess, as we came into Q4, we’ve then organized the bid round discussion, particularly with the lead banks about the opportunity for our capital structure going forward.

Yes. I’ll add to that. I mean, there has been a marginal amount of debt has traded. Our bank group has been with us since the start. We know them. They know us well. They’re very supportive of what we need to do. And as I said in my prepared remarks, I think all the stakeholders are aligned that the best way to preserve value is to maintain flexibility runway and keep operational management of the premium fleet.

Okay, great. Thanks for answering all the questions. I’ll jump back in queue.

No problem. Thanks, Patrick.

[Operator Instructions] The next question is from Saro Bos from Imperial Capital. Please go ahead.

Hey, thank you. Patrick actually managed to ask all the questions I was going to ask. So thank you very much.

No problem. Thanks for the interest.

The next question is from [indiscernible] from Serone. Please go ahead.

Hello. Thank you for taking my questions. Just wanted – most of them have been answered, but I just wanted to follow-up on the – on your comments regarding the subsidiaries. So first, going to Pemex receivable. Is that – I mean, you’ve had a very smart movement in Q4 last year, but do you see these receivables still building into Q1 2020, or that has been paid to reduce since?

No, they do continue to build into Q1 of 2020. As I said, this is – we are not unique in this regard. We have a very close handle on it. We have a very close dialog with Pemex and this happens on an annual basis. So we’re confident they will get it sorted and we’ll be back on track. A question, at this point, a question of timing.

Okay. And so around – while you are negotiating the rate, is it fair to assume that in Q4 and now in Q1 the rigs continue to work on the reduced rate that we’ve seen in 2019?

Let’s see where we get to at the end of the discussions we’re having with them and we’ll update you.

Right. My question is more about the Q4. The number you have reported, this reflects, well the discounted rates or the higher rates?

The rates that are in the – the rates that we were working through the first three quarters of the year is what’s reflected in the numbers.

Okay, understood. And on the Seabras, there also seem to be – to have been a similar move with respect to cash build up. Are you seeing any receivables building in Seabras as well?

I hope that.

So I mean, has there been any other distribution to Seadrill then, because when I look at the move in the net debt, I mean, it seems to be smaller than what would have been indicated by the EBITDA. So has there been any other working capital build up, any other cash, unusual cash outflow from Seabras?

Well, we and Sapura received the loan payments are referred to as public key focuses.

Okay. All right. Thank you.

The next question comes from Florian Struben from Citi. Please go ahead.

Hey, thank you. All my questions have been answered already. Thank you.

Okay.

The next question is from Michael Alsford from Citi. Please go ahead.

Hi there. Good afternoon. I just got a quick question. I was just wondering whether you could sort of triangulate between your view on the market outlook for rates and the recovery to when you might expect yourselves to be cash neutral within the business at the group level? Thank you.

Well, I don’t think I’m generally not in the business of making predictions and anybody who is has generally turns – made to be a liar. What I can say is the market has improved significantly year-over-year from last year. There are a lot of external factors that we have to look at. I mentioned COVID-19 and what that impact is going to be on GDP and demand and supply on both sides. But what we do know is that the fundamentals are solid and we see it improving. So I think it’s difficult, and quite frankly, maybe wrong to say we can peg a date. I’ll leave it at that. But it is better.

Okay. Thank you. I understand. And then just, when it comes to tendering, what are the kind of the key kind of focus points from a customers’ perspective? Is it simply – clearly – safety is very important, clearly, but I’m just thinking is it sort of next just really about rates, or is it about capability? Can you maybe talk a little bit about how that tendering process is going and whether the needs of customers are changing as the market does start to recover somewhat?

I’ll let Matt, Chief Commercial Officer start and maybe I’ll come back afterwards. Matt?

So I think in the market today, the customers obviously have varied demands depending on the technical specification of the – either the exploration or development program they’re looking for. Seadrill, without being too general, Seadrill – we benefit from an extremely modern and diverse fleet that sits in the high specification ranking against our competitors. So the technical side, we meet all the requirements in most international tenders globally. There are main factors, of course, as you pointed out. Safety is absolutely paramount to anything we do and anything they do. And that’s why we’ve built long-established relationships with the major customers around the world. Timing is extremely important. So where you see that supply has increased at the end of 2020 with rigs rolling off, it’s still crucial, given how tight that operators are running their budget that they have the rig when they wanted for either exploration or development to meet their targets. So I think timing is probably one of the more important elements associated with it. So if you’ve already completed upgrades, if you have MPD, certain specifications, you move to the head of the line, because you have an opportunity to start when they need you to start.

I think you covered it, Matt.

That’s great. Thanks so much.

The next question is from Raghav Nanda from HSBC. Please go ahead.

Hi, thanks for the presentation. I have a few questions. First, on the semi-subs. You’ve mentioned harsh environment market remains strong. So do you see any activation for the harsh environment assets? I’m talking about West Eminence and possibly West Venture? And similarly, on the benign environment side, you have Sevan Louisiana, it’s operating at the moment. How do you see opportunities for this rig going forward?

Let me – look, on the harsh environment side, where we have been quite public that we’re going to be extremely disciplined, we’ve been disciplined on the capital expenditure side as we have been on the contracting side. The harsh environment market, especially Norway is the one that has strengthened the most. There are opportunities. But for us, it’s an evaluation of the cost of reactivation and considering adding supply back into that market versus where the dayrates are. So we’ll take that on a case-by-case basis. In the benign floater market, today, given where the supply demand balance is, drillships still are favorite over semi-submersibles. But we have the Louisiana, as well as managed rig, semi, in the Gulf of Mexico. It’s more of a spot market right now. But we continue to add programs to both of those rigs as we go forward. But today, I would not see us reactivating additional benign environment semi-submersibles back into the market, and I don’t think the market is going to be there for a little while at least. Matt, do you have anything?

No, I think that’s – I think we’re – on the Sevan Louisiana, specifically, we’ve – the technical organization operations group have done a fantastic job. I think, we mentioned this a few quarters ago about creating a more flexible rig by being able to work in shallower water depths than your traditional dynamically positioned unit, but without the assistance of mooring. So that’s broadened its ability to work in some of the mid-water opportunities in the Gulf of Mexico. Although the rates haven’t materialized as quickly as we’d like, keeping that rig active for companies that we cherish relationships with like Walter Oil & Gas is really important for us. So they’ve got a strong backlog of opportunity and we continue to talk to other customers.

Right. Thank you. And just the last question on harsh environment jack-up rates. I see there are a couple of rigs, which are working on a market index rate. So would you be able to give some idea of what sort of dayrate would that be in the present context?

I’m not able to disclose any rate elements associated with the market index rate. But as you would expect, it tracks the market specific to its competitive group and cycles on a periodic basis, but that’s about all I can tell you.

So would you be able to give idea where the – this rate would be for the competitive group that you have in the market?

I don’t think we’re going to get into the mechanism of the competitive group and where we feel we are right now.

All right. No problem.

The next question is from Sunny Chhabra from Ironshield Capital. Please go ahead.

Hi, thanks for taking my question. Just a couple of questions on the Seabras subsidiary. You mentioned in the presentation that you’ve received some spot work for the Sapura Diamante until June 2020. Are you able to share any color on the rate you are getting? And is it with Petrobras?

It’s not with Petrobras, and it’s had a decent rate better than where the rates were a year ago. Well, in absence of opportunities a year ago, but we’re not going to get into the details of where the rates are. It is EBITDA positive, though, and we see the rates continuing to improve on the market tightening there as we go forward. I think that 2019 was a low point for that market, but when we can see the developments and the need for all of those type of assets as Brazil ramps up its activity much like the rest of the market and especially in Brazil, we see the opportunities growing in that market going forward.

Actually just the follow-up was actually extended on the same question and you answered it partly. If you could just expand on it, because you received the extension on Topazio as well and how you received a contract on Diamante with some other contractor. If you could just share a little bit more color on the opportunity you see there. You have Onix coming off as well later this year. If you could just share some color on how do you see that market developing and which other players you could lease these ships to?

Well, look, I think, we’re not going to get too much into the details of the opportunities we’re looking at. I’ll – my – I’ll point to my last comment about an improving market and increasing need for those type of assets. We have a long operating track record through the JV in Brazil. The vessels there have received awards for being the best performer in the Petrobras fleet by their metrics. And operational track record is a really important indicator and gives you a great competitive position for future work, both with Petrobras and with the IOCs that are going to be coming down there. So we’re very optimistic that as the market continues to strengthen and improve in Brazil that we will get at least more than our fair share of opportunities down there.

Got it. And just one more regarding Seabras and that’s with respect to the capital structure. There was around $14 million of payments made on the loan that was due to NSNCo. Was that related to the Topazio and Diamante loan? And has that been exhausted now?

I don’t have the detail on that, so I’d have to get back to you on it, Sunny.

Okay. Thank you.

This concludes our answer – the question-and-answer session. I would like to turn the conference back over to Anton Dibowitz for any closing remarks.

I’ll just say thank you very much for your interest and participation in the call, and we look forward to talking to you next quarter.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.