transocean\'s (rig) ceo jeremy thigpen on q2 2017 results - earnings call transcript
At 9: 00 a. m. on August 2, 2017, etexecuesbrad Alexander-2017 Earnings Call
Jeremy Thigpen, Vice President of Investor Relations-
Mark Mey, president and chief executive-
Terry Borno, executive vice president and chief financial officer
Blake Hancock, senior vice president of industry and community relations-
Howard WILG Lewis
Davis, energy consultant, Davies kkinen-
Pope Bernstein Byron
Tudor, Pickering, Holt Scott GruberCitiJ. B. Lowe -
LynchOperatorGood days, Bank of America Merrill Lynch, welcomed to 2017 Transocean companies in the second quarter. Earnings Call.
Today\'s meeting is being recorded.
At this time, I want to hand over the meeting to Sir.
Brad Alexander, vice president of investor relations
Sir, please proceed.
Thank you, Alan.
Good morning, welcome to the 2017 earnings conference call of Yuanyang group in the second quarter.
Copies of press releases covering our financial results, as well as supporting statements and schedules, including
GAAP Financial indicators are posted on the company\'s website in deepwater. com.
On the phone this morning, Jeremy Siegel, president and CEO, joined me;
Mark Mey, executive vice president and chief financial officer;
Terry Borno, senior vice president of industry and community relations.
During this call, participants can be sure to move forward
Statements of historical facts about various matters related to our business and the company.
These statements are based on current expectations and certain assumptions of management and are therefore affected by certain risks and uncertainties.
Many factors can lead to significant differences in actual results.
For more information about our forwarding, please refer to our SEC File
Including risks and uncertainties that may affect our future results.
Also, please note that there is no obligation on the company to update or modify it forward-
Look at the report. [
I\'m transferring the phone to Jeremy now.
Jeremy ThigpenThank, Brad, extended a warm welcome to the staff, customers, investors and analysts who attended today\'s conference call.
As I did last quarter, I would like to start by thanking the entire Transocean team for their achievements over 15 months without a loss of time incident.
Obviously, we are very proud of this continuing achievement, and we will remain vigilant as we continue to work tirelessly to respond to events --free workplace.
In addition to our excellent safety record, we have started our work in the first half of the year and achieved very strong operational results.
As reported yesterday\'s earnings report, the company\'s revenue for the second quarter was $0. 347 billion, and the adjusted Standardized EBITDA was $0. 751 billion.
Therefore, despite the continuous decline in revenue, our adjusted Standardized EBITDA profit margin actually increased from 48% to 49%.
This result is driven by the strong uptime performance and revenue efficiency of our 97 fleets.
This quarter was 4% per cent, continuing cost control with reduced operating and maintenance costs and general and administrative costs in turn.
We are once again satisfied with these results as they reflect our unwavering focus on the continuous improvement of the entire business.
That being said, we realize that we can always do more.
To this end, we have strengthened our efforts to eliminate downtime and significantly reduced the time required to build the well so that we can provide more predictable and lower
The cost level of providing services to our customers.
As many of you read or heard last week, we recently entered a new 10-
Annual care agreement with November, designed to maximize uptime while reducing total cost of ownership in November
The components and systems provided by our 15 drill machines.
This agreement covers the riser and key drilling flow components, including our drilling, traction and top drive.
We have a long time now.
Long-term agreements with GE, Cameron and November: a, assure us that maintenance and repair costs are lower and more predictable over the duration of the agreement;
B, so that we can focus on the common goal of reducing equipment --
In addition to maximizing uptime performance, we continue to use data to analyze our operational subprocesses to achieve the efficiency of the drilling process.
Since the implementation of our performance dashboard earlier this year, our trip time in the fleet has decreased significantly, which is in the Super
It takes a lot of time on the deep-sea drilling platform.
We have also driven a significant reduction in the frequency and duration of non-productive black spots.
We continue to actively measure and simplify our other key processes, all of which help us constantly move beyond the drilling curve, providing us with the confidence we need to deliver performance --
Provide contract incentives to our customers.
Now turn to our fleet.
We have just recently announced the fifth restart related to the new contract since the beginning of the recession.
My Development Driller will be operational in the first quarter of 2018 off the coast of Australia.
This is a particularly important victory for Transocean, which marks our return to the carefully successful Australian market in the past.
This also enables us to ensure future work in Australia, as DD1 will be the most technically capable asset in the region.
After a while, Terry will tell you about a contract we got last week, which will mark our sixth reboot.
When it comes to re-activation, harsh-
Environment semi-Yue Yang Barents is expected to start its 15-month contract in Canada next week after a successful warm stack is reactivated.
Barents joined Henry Goodrich in this critical harsh environment market, and based on past experience, we fully expect it to perform at a very high level.
In addition, the restart work announced last quarter by deep water Asgard, which developed rig III, has now been completed.
Each drill machine is perfect for our customers.
We have talked with great meetings before on efficiency and cost issues
Effectively restore idle and stacked assets to the operating mode.
This is based on our extreme caution about careful detail and strict adherence to the stacking procedure and the re-activation process.
Recently, in multiple pre-
Contracted inspection, our customers have recognized the superior conditions for our stacked assets and have concluded the inspection with confidence that Transocean will provide the reactivated assets and crew from day one
In addition to the re-activation of the asset, we continue to welcome the new contract-backed, high-
Specification assets of our fleet.
On Tuesday, the deep water Pontus left South Korea on her way to the Gulf of Mexico, and she will start a 10-year contract with Shell earlier in the fourth quarter.
This is our fourth contract.
Support, New Super
In the past two years, deep water drilling vessels will begin operations.
Given the excellent performance of her predecessors, the deep water tower Lhasa, the deep water deformation and the deep water conqueror, we look forward to seeing what she can do.
While we are certainly excited about these increases and reactivations and the future revenues and gains they represent, we also recognize the need to constantly re-evaluate the composition of our fleet.
In line with our fleet renewal strategy, we classified the other two half-way floats as Transocean searchers and Transocean prospects for sale during the quarter.
This has brought the total number of floats we removed from the fleet we sold on the market to 33 since the recession began.
As always, with the development of the market, we will continue to evaluate our assets objectively.
As mentioned earlier, as the market recovers, we will continue to recycle the rigs that we find difficult to compete.
As you can imagine, the process we evaluate the rig is routinely improved based on our previous experience
Evolving assumptions about market trends, overall floating demand and customer preferences.
In addition to the retirement of two mid-course floats, we finalized the divestiture of the jackup team this quarter.
Therefore, our fleet is now fully composed of floating rigs with a strong bias against the ultra-deep water and harsh environment markets where our high-quality assets are located, unparalleled operational experience and trusted customer relationships are an important competitive advantage for Transocean.
Finally, we continue to evaluate opportunities outside the company to upgrade our fleet through corporate mergers and acquisitions and individual asset purchases.
However, in the current environment, we believe that the ability of the drilling platform is as important as the impact of short-term liquidity.
Therefore, the existing backlog, visibility into future contracts, cash on hand and expiration time are all key factors that we consider when measuring any prospects.
Transition to macro environment now.
Although OPEC may agree to extend its previously announced production cuts, oil prices have fallen below $50 a barrel, which has not happened until recently.
Nevertheless, we are encouraged that the recent tender for projects requiring deep water floats continues as previously expected and is well ahead of last year\'s pace.
In addition, in the past month, the total number of floats under the global contract has increased, and the total number of fixtures is-to-
More than 12 dates-
Total monthly 2016.
We are also pleased to see that global demand for oil remains at a record level,
Recognized and significant investments in new resources are insufficient, indicating
Long term supply restrictions.
To illustrate this, starting from the peak in early 2016, the global excess of oil barrels has been reduced by about 50% barrels, and it is currently expected to be less than 100 million barrels by the end of 2018.
Therefore, as long as oil demand remains strong at some point in the near future, we may see a sharp tightening in supply and demand, which will drive oil prices up, and inspire our customers to invest again in offshore exploration and development.
In the short term, we will continue to focus on what we can do to make the offshore market more competitive.
We keep hearing from our customers that our ability to go beyond their internal drilling curves allows them to beat their AFEs and significantly reduce their breakeven costs in their portfolio.
As proof of this fact, the breakeven cost of multiple deep-water basins around the world has been lower than $50 a barrel and is now often less than $40.
It is important to note that many of our customers are using rigs contracted in the previous cycle to achieve these lower breakeven, when the interest rate on the day is 2 to 3 times higher than the current market interest rate.
Therefore, we believe that most of the cost savings are structural and sustainable.
Assuming this is true, then deep water breakeven is starting to be advantageous compared to onshore, and by the way, most products and services on onshore are now experiencing considerable price increases.
Therefore, we believe that the demand for reserve replacement becomes more and more important as the cost increment per barrel decreases, and capital may soon be transferred from land to sea.
We will continue to take the necessary measures to further strengthen our financial position and to continue to achieve the opportunity to streamline our operations, and continue to manage our operations in a way that consistently delivers the safest, most reliable and most efficient operational results in the industry.
Finally, I would like to thank all the staff of Transocean again for providing a great quarter again.
As a team, we continue to deliver superior uptime and revenue efficiency, strong EBITDA performance and stable cash flow generation, all of which will continue to be committed to achieving long-term goals
The company\'s long-term strategy.
Most importantly, we do not forget our most sacred responsibility while achieving these results: to ensure our operations and the safety of our people.
I will transfer the phone to mark now.
Thank you, Jeremy, for a happy holiday.
In today\'s call, I will briefly review the results of the second quarter and update our 2017 guidelines.
I will also discuss our recent cumulative divestiture and many of the responsibility management deals to finalize our final objectivesof-
Liquidity forecast for 2019.
At 2017 in the second quarter, we reported a net loss caused by a $1 control interest. $7 billion or $4.
32 per share after dilution.
As we detailed in our press release, second-quarter results include net adverse items, primarily related to the $1 previously announced.
The sale of the jackup fleet lost 6 billion and our half-way drifters lost $0. 113 billion.
Excluding net adverse items, adjusted quarterly net income was $1 million.
As a reminder, cumulative sales are in line with our goal of increasing liquidity and focus our strategy on leading areas with high technical requirements, including over
Deep water and harsh environment.
We received approximately $0. 32 billion in cash and the transaction canceled the remaining financial obligations of approximately $1 billion related to the five cumulative projects under construction in Singapore.
Back in the second quarter, we achieved outstanding quarterly results with 97 revenue efficiency.
4% and continue to demonstrate that we can successfully transform our industry
Turn the backlog into cash flow through our consistent operational performance.
Other income was $46 million, including $40 million related to the early termination costs of deep water Asgard.
By contrast, $47 million in the previous quarter, including $37 million in early termination costs.
Operating and management costs for the second quarter were $0. 333 billion.
In contrast, the amount in the previous quarter was $0. 343 billion, including advantageous litigation matters totalling $8 million.
Due to ongoing cost control plans and favorable adjustments to value, operating costs for the second quarter are lower than we expectedadded taxes.
As Jeremy mentioned earlier, our adjusted Standardized EBITDA profit margin was 49% in the second quarter, an increase of about 100 basis points over the previous quarter.
Again, the quarterly model will be maintained or increased in an environment of declining revenue, which is also a very impressive result of our operations and technical teams that continue to provide security performance.
Cash flows from operating activities amounted to $0. 319 billion, compared to $0. 184 billion in the previous quarter.
This improvement is mainly due to an increase in collection of accounts receivable.
We had several balance sheets in the second quarter.
In May 5, we successfully issued $0. 41 billion in senior bonds due in 2022.
These funds will provide some funds for the construction of super buildings.
The deep-water drilling vessel currently operating for Chevron in the United States, \"deep-water conqueror\"S. Gulf of Mexico.
In the second quarter, we accidentally bought back a total of $0. 131 billion in debt in the open market, focusing on the nearThe term expires.
Also, in mid-
In June, we conducted a successful cash tender following the repurchase of existing notes totaling $1. 2 billion.
The tender is also aimed at the near
Due date between 2017 and 2021.
After these proactive financing deals, we ended the quarter with $5 liquidity.
5 billion, while reducing our approach
The term debt was $1 billion.
Over the past year, our net debt has been reduced by about 20%, or $1.
2 billion, while maintaining a cash balance of more than $2 billion.
I would also like to point out that we continue to be comfortable within the debt range of the revolving credit mechanism --to-
After confirming the performance and financing actions for the quarter,
I will now provide an update on our financial expectations for the third quarter and then for the full year of 2017.
Other revenue of 2017 in the third quarter is expected to be around $10 million.
We expect the cost of 2017 euros in the third quarter to be between $0. 35 billion and $0. 36 billion.
This includes an increase in operating costs associated with our recently restarted rig activity, as well as an increase in mobilization costs associated with our recovery of assets, being associated with lower costs associated with our previous self-promoted fleet
In short, we expect an additional 73 business days in the third quarter.
We expect G & A spending in the third quarter to return to the $40 million speed target.
Capital expenditure is expected to be about $0. 15 billion in the third quarter, mainly related to the completion and mobilization of new deep water Pontus, the ongoing construction of deep water Poseidon and the strategic upgrade found this year.
Turn to full year guidance in 2017.
Operating and management costs for the full year of 2017 are expected to be between $1.
$375 billion and $1. 4 billion.
The decrease was mainly due to reduced costs associated with the pre-self-promotion fleet, partially offset by increased activation costs and activitiesrelated costs.
We expect the cost associated with restarting Development Driller I to be around $25 million, mainly in the fourth quarter, most of which are expected to be spent.
In addition, we expect that approximately $10 million will be incurred in 2018 in connection with the recent transfer to Australia.
I would like to emphasize that we have taken a strategic view on re-enabling the rig.
We believe we have a lot of possibilities.
In working with strategic customers in a specific geographic area, we will reactivate the assets, recognizing that the initial contract cash flow may not be sufficient to fully recover the cost of re-activation and transfer.
However, as the market recovers, these investments are expected to generate higher returns in the next cycle.
We expect the annual G & A fee to be between $0. 155 billion and $0. 16 billion and now mainly includes some IT system enhancements in the fourth quarter.
Due to the divestiture of the jackup fleet, the depreciation expense for the whole year of 2017 was reduced to about $0. 855 billion.
Net interest expenditure for the full year of 2017 is expected to be between $0. 465 billion and $0. 475 billion, including our recent debt management and rig divestiture transactions.
Net interest expenditure includes capitalized interest of $0. 115 billion and interest income of $20 million.
We expect some of the combined proceeds attributable to non-controlling interests this year to be approximately $30 million.
Capital expenditures for 2017 are expected to be around $0. 5 billion, including $0. 42 billion related to our new drilling ship.
Let us now turn to our financial position and projected liquidity as of December 31, 2019.
New extended revolving credit funds without any assumptions, we ---
Replace our current RCF due in mid2019, our end-of-
Liquidity in 2019 is estimated to be between $0. 9 billion and $1.
3 billion, comfortably above the minimum cash level required to successfully operate the company.
These assumptions include our operating results for the second quarter, recent financial transactions and the divestiture of accumulated assets.
Updating or extending the RCF remains a priority that we expect to complete in 2018.
In addition, similar to the secured financing obtained by deep-sea Thalassa, Las and Conqueror, we have deep-water Pontus and Poseidon, which have the potential to provide us with an additional estimate of $1.
2 billion of guarantee financing capacity.
Other assumptions include a revenue efficiency of 95% as at 2019, a limited number of new contracts awarded, assuming that the daily rate as at 2018 is breakeven or close to breakeven, with a slight increase in daytime interest rates in 2019 and a restart of speculative activity.
In 2018, we expect capital expenditures to be around $0. 165 billion.
This includes approximately $65 million in new capital expenditure and $100 million in maintenance capital expenditure.
In 2019, we expect total capital expenditure to be approximately $0. 19 billion.
This includes approximately $90 million in new capital expenditure and $100 million in maintenance capital expenditure.
In conclusion, we are very satisfied with the results of our operations, including excellent revenue efficiency and continuous cost control efforts.
We are also very happy with our balance sheet and liquidity.
We will continue to challenge the status quo and strive to improve performance to help mitigate the impact of the current low daily rates and utilization environment.
I will now transfer this call to Terry to give him an exciting view of the market.
Terry Bonno thanks mark and wish you all a happy holiday.
When oil prices rise above $50 a barrel, we are pleased with the macro economy, but we are still determined to sign up in any market and provide excellent performance and service to our customers.
As evidence of this commitment, we have been busy restarting and expanding the rig while creating opportunities to work with new and old customers.
Our team works around the clock to provide the perfect start to the rig
Re-activated ups, ready for deliveryto-
Drill new shipyard from Shipyard, manage seamless entry into new country and execute contract effectively.
We began to feel like we were moving down from the bottom.
We are very proud of the execution of the Transocean team and look forward to making greater contributions from our topPerformance Team
The past three months have been very busy, during which 32 industry fixtures have been issued. And year-to-
Date, the industry has almost exceeded the floating fixture implemented in the previous two years.
If this speed continues, we will be more than the sum of 15 and 16 years.
12 contracts and/or extensions have been executed by Transoceanto-
The backlog of contracts increased by $0. 221 billion.
Our backlog as of July 25 remains the industryleading at $10.
2 billion, is any of us
A struggling competitor
Just last week, following the release of our fleet status report, we added two more awards to the backlog.
We are very excited about the deep sea Nautilus Award because we have carried out four well drilling activities off the coast of Asia.
After the rig is moving violently and completely squeaking, she will be in operation in 2017.
Natilus has been working for Shell in the Gulf of Mexico near the sea for 17 years and we are very pleased that she is now working in the Asia Pacific region.
The second new award is Paul B. Loyd.
She has received new contracts for two wells, as well as options to develop Hurricane Energy in Lancaster, England.
The drilling is expected to start in April 2018 and we are happy to install another rig with a great customer.
Back in Asia Pacific, as Jeremy mentioned earlier, we are saving GSF Development Driller I from the cold
Piled up and returned to work in Australia in the first quarter of next year to get Quadrant Energy.
This will mark the return of Transocean to the Australian market, where customers are very excited to see us back in the area.
DD1 is a super
Deep Water, height-
Function half with DP and mooring function.
Our third award in the Asia Pacific region is Woodside, who performs two, one well options for Dhirubhai deep water kg2.
This will allow her work outside Myanmar to continue until at least the end of the year.
The rig also has more options, which, if exercised, will keep her in a working state of 2018.
As we expected and mentioned in our last quarter call, we have restarted deep water Asgard from a warm build-up state and have her work in the Gulf of Mexico with deep sea energy.
After the team\'s efforts, the re-activation was completed in less than a month, and she is now--
She has been in surgery for two months.
We are very pleased to be able to re-market these four world-class assets.
With our support, our customers have done a lot of work in improving the economy of the project.
We look forward to continuing to work with offshore projects while we work together to make them economically viable at lower oil prices.
We are confident that the assets we reactivate will be found
When a customer makes a premium to well-\'s operating assets, they take the opportunity
We have also seen multiple bidding opportunities worldwide, and we have identified nearly 60 floating procedures that can start in the next 18 months.
As you can see from these awards, the opportunity comes from all over the world, according to our previous comments.
We continue to have productive conversations with our customers on more opportunities.
Customers recognize the importance of ensuring that rigs are available for their projects, and they ask for more information about crew readiness and the availability of floats.
We are continuing to strengthen our clients\' balance sheet and cash flow and look forward to more sanctions on deepwater projects.
If the macro economy continues to strengthen and oil prices remain above the magic level of $50, we believe this will happen in 2018.
Adjustments below $50 a barrel may lead to a reassessment and further drive demand.
To be sure, 15 projects were approved in the first half of 17 years, while only 12 projects were approved throughout 2016.
These are mainly intended to expand the brown belt on the existing oilfield return or satellite development, which requires less investment than greenfield development and provides faster returns.
However, we also see ExxonMobil continuing with Liza, an important green space opportunity for Guyana, as continued re-engineering has led to a very high-profile project economy.
Now I want to move to Brazil.
As we discussed before, the interest of professionals and independents continues to grow in multiple bids in 2017 and 2018.
Due to the flexibility required by local contracts and the extension of the special customs system, operators are now waiting for environmental licensing solutions.
With the 14 rounds scheduled to be held on September 27, the business mood of the bidders continues to improve and expectations are getting higher and higher.
So far, Brazil has to continue to do everything possible to stimulate exploration, with only seven exploration wells drilled in 2017.
This is only--
In 2012, more than 200 exploration wells indicated a serious shortage of investment.
We expect that there will be more activities after the recent tenders for Total, Statoil and Chevron, as they will continue to develop a combination of drilling opportunities in this important area in 2018 and beyond.
We are participating in multiple bids and seeing more opportunities in other parts of Latin America, including Trinidad, Colombia, since some operator projects should start in the next 12 to 18 months, Guyana and Suriname.
In addition to the Department for International Development approving the Liza development project of ExxonMobil offshore Guyana, Tullow recently signed a 10-
Annual lease for the Orinduik neighborhood of Guyana-Suriname Basin.
We are also excited about deep water opportunities in Mexico, including Talos JV\'s recent massive discovery of the Zama field.
With the second round of licensing for deep water blocks to take place in December, and this exciting discovery, we expect that activities off the coast of Mexico will continue to accelerate in 2019.
Now looking at the eastern hemisphere, we are also encouraged by the recent contract award in Nigeria, and activities in West Africa will begin and gain some momentum.
We should see an improvement in activities in Ghana, Côte d\'Ivoire, Equatorial Guinea and East Africa.
Senegal is also taking steps to improve Angola\'s legal framework for oil and gas to support the further development of Angola\'s natural resources.
The Asia-Pacific region has been very active with multiple products and awards in Australia, Malaysia, Myanmar and India.
We expect these markets to have 30 floating opportunities in the next 18 months.
With the positive results of KG2\'s Woodside campaign off the coast of Myanmar, we expect more and more activities, with clients holding leases in both discovery zones.
To the UK and Norway.
We are pleased to see that our forecasts of market tightening are faster than expected.
Demand for 2018 spring starts in the UK has increased and now leads customers to consider the 2017 winter drilling season.
This is, of course, the best.
Leading indicators to improve the UK market.
Norway is also very active in recent tenders.
Offshore drilling platforms in Norway are rapidly tightening.
We are having a strong discussion with our clients and we look forward to the next round of bidding opportunities.
We now see more operators in all markets emphasizing the financial stability of Drilling Contractors, adding financial indicators to recent bids, just removing competitors facing challenges in the bidding process.
This is narrowing the scope of the right competitors for the upcoming job.
With the current pace of contracting, we can see that
Specifications suitable for drilling rigs float availability is faster than expected.
Our customers increased their activity in the first half of 2017.
Opportunities before us are taking shape in 2018 and beyond.
Finally, we will continue to focus on and improve our already high level of service and continue to exceed the expectations of all stakeholders to win new contracts.
This is the end of my review of the market, so I will hand it over to Brad.
Brad Alexander. thank you, Terry.
Aaron, we\'re ready to answer. [
Let\'s go to black Hancock with Howard well first.
Black Hancock Jeremy, first of all, now that we have an OEM agreement in place, let\'s look into it in depth ---
You signed three.
Can you help quantify how much money you think can be saved in total? Now, in these 10 years, you already have a house in November --year contracts?
I\'m not sure we\'re ready to go deep into this level of detail.
What I\'m going to tell you, though, is that these are more than 10-
Years of life, and pay special attention to the elimination of fiveyear and 10-year overhauls.
So what you will see is that in the first few years there is not much difference in cost savings.
Hopefully we will see an improvement in Uptime associated with the device, which will definitely help us improve revenue efficiency and certainly help us work with our customers as well.
But as you begin to enter Year 4 and year 5, with these reforms coming, you will begin to see a significant reduction in costs.
So it\'s really in the fifth year, and then when you get into the tenth year. And I don\'t --
Mark, I don\'t know if you \'d like to add anything to that.
I think Mark Meno is right.
I just want to tell you that it will be five years from now on, because some rigs have been 2 to 3 years in 5 years, so we will start to see SPSs and [new worlds]
Earlier than 2022
Blake Hancock is amazing.
I appreciate it.
Then, Jeremy, on the last call, you mentioned-
You guys brought Asgard back because there are some opportunities for the future.
Can you talk when we think about this rig? -
The opportunity is still there. can you talk about it?
Is the opportunity for Asgard still ongoing?
Or could you please update us on the status of these two rigs?
Yes, I can say a little more.
So I know there\'s a problem--
People are always worried about the loss of contracts, especially when you are in such a competitive market.
But when I saw our contract and the rig that was rolling, you just heard that we were getting the Nautilus back to work.
We have already talked about it.
Yes, there\'s the following.
This is an incredible machine.
She\'s the tallest in the world.
At present, there are many customers who will be happy to have this drilling rig in the market.
So when we look further, we can see that there are multiple opportunities for all of our upcoming rigs to roll.
12 of them will roll in the next 12 months.
We will be traveling with Credit Suisse to Greg Lewis.
Greg Lewis so Jeremy, just listen to Terry in the prepared speech, I mean, obviously, the speech you\'re ready, you guys seem to be more dynamic today than 3 to 6 months ago, restart the rig and contract the opportunity.
Like you think about this, you think about the potential to integrate mergers and acquisitions, you simply mentioned this, how should we think about how this works in the industry?
Does Transocean have a chance to do a lot for the formation of the fleet?
Or just look at the ability to restart the rig, and that\'s how we should think about it?
Or is there a chance for some rigs?
So I thought of some different ideas.
So first of all, from the perspective of our emotions and the dynamism of this step, if you want to, I mean, the investors around our space have always been, I mean, so low I can remember.
However, for us, what we think we do internally, we are getting better every day, which is shown in our results.
We see today that customers are more interested than they were 12 months ago.
So for us-
This is all relative, but we have more enthusiasm here than we did 12 months ago.
So this is part of it.
The other part is, is there an opportunity for the rig to continue upgrading its fleet through acquisitions?
The answer is yes.
I would like to point out that we are working on the quality and technical capabilities of the rig, especially in
Deep water and harsh environment, we are very aware of the fact that, hey, we don\'t know yet how long this recession will last.
It looks more hopeful today than it was 12 months ago, but it is still very competitive.
So more contract opportunities, but still true competitive bidding.
So we\'re still thinking-
I mean, we\'re still very focused on making sure we\'re not in-term liquidity.
So we\'re looking at assets.
If it is now an idle asset in the shipyard, if we go out and buy one of those, you can bet that we can think with great confidence that we can put it into work-
In a very short time.
From the perspective of corporate mergers and acquisitions, we are again concerned aboutterm liquidity.
So it needs to be a company that has some backlog in the near-
We have some runways due.
Will we not compromise on our side?
Greg Lewis Kay, okay, great.
Then, Terry, like you mentioned these opportunities, it\'s clear that your rig, you see an opportunity to restart some of the previously stacked rigs.
How difficult is it in this market to bid for hot rigs?
The reason I\'m asking is one thing we think is that a hot working rig will be in a better position than a stacked rig that goes to work.
However, when I look at you, you have successfully restarted some of the rigs.
So just want to know, are there any nuances of these contracts?
Where are the special circumstances?
Or is the customer really willing to restart the rig?
Terry Bono, first of all, I think you have to focus on our team.
I mean, the rig is very high.
Specification rig, the customer of course knows the experience and past history of rig performance.
But let\'s take a look at the people who are really selling these rigs.
We\'re glad to have one.
The team that let the company sing performed.
Our customers also know.
So we have a lot of opportunities and we can look back at spiiji Bergen and Valencia.
We are competing with rigs operating in China that are hot and ready to go.
The customer said, \"No, we want these, we want Transocean, we want these rigs.
\"So in most cases, no--
All of our bids are in operation and hot rigs.
So again, this proves that our people are able to execute and continue to execute in a very professional and highly
Ways of performing.
To complement this, Terry is completely correct, but beyond that, it is a combination of multiple factors.
This is the quality of assets.
This is a trust in the crew and technical support on land.
This is a question of financial stability. à-
Face some competitors.
I know in your mind we may have sold too much and you may not care much.
But if you go and look at the status of our stacked assets, our customers go and see the status of our stacked assets, it gives them absolute confidence that these rigs will work as expected.
So this is a combination of all the genuine sales of Transocean wines.
We\'re going to Ian McPherson with Simmons.
Ian McPherson I think there seems to be a narrative of competition between many of your competitors ---
They are more cautious about the trajectory of the number of rigs and the fact that a large number of contracts are due to demand, their nitpicking visibility.
Maybe everyone has their own agenda to keep a business secret.
But obviously, you are in the mode of fully starting, reactivating market share, and you are doing very well.
But is there a limit to this strategy or your view of the reactivate capacity, \"Let\'s see if we can get--
If the market is really improving, let\'s see how fast we are nervous enough to raise interest rates, maybe not in two or three years, but in one or two years?
\"Is there a dialogue about tensions within the organization?
Jeremy ThigpenIan, let me fix this in two ways if I can.
First, we have not announced the victory yet.
This is still a very competitive market.
The opportunities we see, though more than we saw last year, are mostly short-term --
Work on duration and very competitive bidding.
So we\'re not saying, hey, this is the beginning of a huge turnaround.
It will last three or four years.
We don\'t know yet.
It\'s still very uncertain for us.
What we want to say is that today looks better than yesterday.
So this is the first part of it.
Regarding our method of reactivating, our method of any contract, we look at it in three different ways-
From 3 different angles.
We focus on profitability, we focus on contract risk, we focus on strategic importance.
So we evaluate every opportunity. -
Through these lenses if you want.
So, from a profitability perspective, you\'ll obviously see the cost of reactivating.
Look, mobilization--the mob costs.
Look at our operating costs and our shores --based costs.
You can easily figure out how this will affect our finances.
You weigh this against the cost of actually stacking that asset over a period of time.
This is part of it.
However, we will also pay attention to the follow-up of opportunities, as well as the opportunity to increase the rate of the day over time.
So when we look at every opportunity, we think about it all.
So no, this is a very--
This is not only a market share grab.
This is a very thoughtful approach, and which markets do we want to have?
After this contract, why do we position this asset?
So it\'s really a long process.
Yes, some of them are speculative, which is no doubt, but it is based on a lot of customer discussions.
So this is not a blind guess.
This is an informed guess.
Hope to answer this question.
Ian MacPhersonYes is really helpful.
Then, maybe I can get it into the fleet.
The development of the driller has a dual activity capability and, as you said, they definitely have a specific niche.
Natilus is then not stacked, so its advantage is to scroll seamlessly from a high temperature state.
Is there another fifth?
Gen assets in your fleet, some of which are still on the radar waiting for a potential Reactivate?
Ian McPherson can you please put this number in brackets?
We will answer the next question from RBC Hallead and RBC.
Yes, I\'m just curious, what do you think has changed here in recent months, is the market now or is the customer base now willing to seriously study the rigs for cold stacks or stacks?
Because there are so many accounts so far, the customer base wants a hot rig or a rig that has recently worked.
So I just want to find a little more color on it.
I think it\'s all driven by you, not by us.
We have always said that the customer values the asset quality and performance, technical support and financial stability of the crew and we will put the cold reactor rig back into work.
We have proven this quarter. after-quarter.
So this is never our story.
This has always been your narrative.
So I don\'t know how to answer either.
Kurt HalleadSo, in the dynamics here, do you think the situation where the rig is going to be scrapped is that the game is over now and everyone will keep those assets for optional purposes?
There\'s absolutely no Jeremy segburn.
Just over the past few weeks, you \'ve seen more announcements from our competitors and our rig recycling here.
I think, like the recycling method we described, every month, we analyze new data points and say, hey, look, are these rigs currently stacked in our fleet?
Do we still think they will be marketable as the market recovers?
If not, we should not waste another dollar to pile them up.
Let\'s continue to recycle them and put them away.
So I think you will continue to see us and others recycling the rig.
I also remind you not to dwell too much on the total number of supplies you see on your Excel spreadsheet.
Many of these rigs are owned by contractors, and these are old rigs.
These old, less capable assets will never return to the market.
They will not come back whether they are announced for recycling or not.
Our customers today have their asset options.
They got the highest.
Quality, the most technical assets in the industry, they see the efficiency from them.
They won\'t want to go back to the old iron.
So I know everyone is attracted to this total supply.
This is not true.
So I think you will see a drop in total supply, but it will still swell because a lot of rigs can\'t see the light anymore.
We will be traveling to Haithum Nokta with Clarksons Platou Securities.
Haithum NoktaI thought I would try to ask Ian\'s second question in a slightly different way.
Do you feel the fifth market?
General semis is better than fifth.
From the point of view of ability, gen drilling ship?
What do you think, Terry?
Terry BonnoI thinks it depends on the app and a part of the world.
I mean, if you want to have one and a half somewhere in the world, the drilling ship can\'t work due to the flow of water, it will be more beneficial for the development work.
So it depends.
There are different rigs for different applications.
Haithum NoktaAnd Jeremy, you mentioned the view that, despite the use of rigs contracted at peak prices, the substantial cost reduction in deep water projects in the industry is a bit like that.
Wondering if you have--
Or a range of completely marked categories-to-
Now, the market cost of a deep water project has dropped from 2014.
I mean, if you talk to some of our customers, they tell you they don\'t make much ---
When oil is traded at $100 a barrel, which is largely holding back the return, it is now half, and they are able to get a return at $50 a barrel, this is quite consistent with the return they received at $100 a barrel.
So, you can almost say that they cut nearly 50%.
I asked our client that it may have been three to six months since I last asked this to the client, but I asked, \"How much do you think is sustainable, just a change in structural cost savings?
\"Most of them are on land between the ages of 50% and 64 ---
60% even if the market improves, this is actually a real cost savings and sustainable development.
They recognize that daily rates will rise as the market improves, and service costs and equipment costs will rise.
But as an industry, we have achieved some real structural and sustainable cost savings.
We will be answering David Smith\'s next question with the Haining energy consultant.
David Smith is in the float market in the UK and Norway, and I am looking at 33 rigs listed, with a contract of about 23 this quarter.
What impressed me was that even if demand remained stable in the medium term
19, this will require 30-year-old-
Plus through five floats
Year special investigation.
I just wanted to know if it--
Is it fair to use it as a clear catalyst for a day rate?
Or do you think the contractor is willing to accept compensation of $20 million to $30 million?
Even a survey of daily rates close to the current level?
Terry Bono, I think you have to look at it, first of all, we just announced that we will continue to sell our two floats in the UK and Norway.
So it is for this reason that they are not economical.
We don\'t think the market is--
In any time frame that we are considering, we will all go back to the interest rate that supports seeing such money.
We therefore believe that it may be appropriate for others to do so.
So we believe there will be more rigs cut off.
But if you also look at the total fixture that we expect to be 2017, then the 16-year fixed rig year is about 30 years.
So, now we can see that there are 70 rig years with an estimate of 2017.
So you\'re almost double the years of these rigs, and unless you start drilling in the winter, you won\'t be able to do all of that in 17 years.
So this is what we see in this environment that indicates that the market is recovering.
The market is tightening in full swing, and we are starting to see this in the mood and behavior of our customers.
They are trying to lock the rig as quickly as possible, and the rate during the day is getting less and less like a conversation ---
These pressures are getting smaller as we move forward.
Terry Borno, absolutely.
David Smith enjoyed it.
And follow up quickly-up. Just on the 10-
Q: Some people commented that due to the suspension of construction, you all stopped the capitalization of interest costs for two new projects that have not been signed.
I\'m just wondering how long the suspension is expected to last.
Mark MeySo David, this is based on the production plan produced by the shipyard.
So their schedule shows when they will go back and build these rigs.
So, when this happens, we will obviously start to take advantage of this.
But not later this year.
We will go to Colin Davis with Bernstein.
If you can, Colin davissey would like to look into the issue of re-activation further.
I mean, it\'s clear that you yourself and the rest of the industry are starting to work together around this issue.
In a way, is this a race against time?
So far, the cost is within the scope of your previous guidance.
But this situation--
If we don\'t locate these rigs now, these costs--
The point is that these costs start to rise as the build-up takes longer and longer, so this is the case now --or-never decision?
Jeremy ThigpenI thinks it doesn\'t affect the decision.
Colin, it\'s all done.
In fact, what opportunities are there in which region ---
Which customer is there in which area and what is nexton opportunity?
This is not just the first contract opportunity to restart the rig.
We won\'t reactivate the rig for 3-month, 6-
If we don\'t see some kind of visibility into the next contract, we will be working on a one-month project.
Now for this contract, the next contract may not be fulfilled, but if we restart a rig, that\'s because we feel fairly confident that we will have some subsequent contracts --
Work on this particular asset.
Colin Davis makes sense.
Only one follow-up-up.
We heard some comments in the industry--
It is clear that in the trough cycle, some Ts and Cs of the new contract have become more stringent, focusing on risk and risk management.
Could you please elaborate, perhaps where is the red line for Transocean, and you will give up the opportunity in a recent announcement?
Because I don\'t want to give you a scope, I won\'t give you a scope, which I think is a business.
But I will tell you. -
As I said before, we look at profitability, we look at the terms of the contract, we look at the strategic importance.
We will not do anything to harm this entity.
So we are limiting our risk and others in the space may not, but rest assured we will.
We will go to Pope Byron with Tudor, Pickering, and Holt.
I\'m Jeremy Byron Pope. -
Just stick to the organizational bylaws that you made a few years ago shortly after you arrived at Transocean, and you obviously made progress on all of these bylaws.
But, regarding the customer\'s question, I know you guys have talked about changing the business model to be better--
You know your customers.
I think some of your recent contract wins seem to illustrate this.
But how do you define when you think the opportunities in terms of floats are coming, whether in terms of percentages or qualitative terms, what you have talked about in the past may have some opportunities for performance incentives?
Jeremy ThigpenToday, I would say that it could be a fairly low percentage of all the rigs we signed today.
Some customers just don\'t want to get into performance-Based on contract.
They want a fixed daily rate.
I think some independents are more acceptable than some super professionals, if you like.
So for these shorter
Duration program for some independents who want to get such a low duration there
Guaranteed daily rates and willing to pay for improvements in performance are therefore well received.
So I don\'t know if this will be what the industry as a whole is offering over time, but I think, at least in the current market, we will have niche opportunities, and may move forward with certain customers in certain regions.
We will answer the next question from Scott Gruber at Citi.
Scott grübermark, if I am not mistaken, I think the guidelines for maintenance capital expenditures for 18 and 19 years should be around $100 million.
If that\'s the case, I believe if my notes are correct, it\'s lower than the $0. 2 billion or so and the $0. 2 billion North.
Given the re-activation in the future, how do you reduce maintenance capital expenditure?
Mark Metso Scott, if you remember my earlier comment on the following question ---
Jeremy also mentioned earlier about our care contracts, operating costs, the cost-to-run speed of these rigs and, if any, not much less, these care contracts.
Savings took place during the New World and SPSs.
Therefore, this will directly affect our maintenance costs for these rigs.
Also, we are doing more and more SPSs when the rig is working, so you can\'t see any outputof-
Service time related to this.
So we have just recently improved our five-year model, reflecting the impact of these care agreements, and what you are now seeing in your guidance on capital expenditure that reflects this cost reduction effort.
Scott Gruber got it.
In some OEMs, I think one is needed
The period of rising capital expenditure is maintained, although it may not be next year, but 19, 20, and 21 years.
Are you predicting this, too?
Or do you think it would be fair to spread the $100 million running speed in the rig fleet on the basis of each drill?
Or if a capture is needed
Go up this road?
Mark MeyWell, I think if you look at our operational performance, our safety performance on these rigs, it is difficult to point out that we are maintaining these rigs.
Therefore, we do not agree with the fact that we now endanger the maintenance of the rig in order to seize the opportunity
In the future.
Therefore, when we give you our cost guidance and give you our capital expenditure guidance, we fully reflect the amount of maintenance that we consider necessary to maintain these rigs in an appropriate manner.
We will be next to J. B.
Bank of America Merrill Lynch. J. B.
Talk about Colin from the following aspects-
The kind of contract terms we are seeing now, the contract terms, given that the terms of the contract provided by the competitor are not agreed by you, will you give up any bids?
Jeremy. J. B. LoweOkay.
Then my other question. -that was easy.
My other question is-
You guys have made some comments about the financial requirements that some operators have put forward for some rig contractors.
Given that there are a couple of struggling drilling workers on the market, how much could you energise that affect the market supply?
Terry Bonno, so if you look at some of the ongoing tenders-
For NOC, so ONGC actually has a financial formula that they apply to the bid. I don\'t have --
I mean, I can\'t tell you what\'s on top of my head, but there\'s one that they apply.
Therefore, for any bid, they are not allowed to bid if they do not conform to the formula.
We know too--
From the conversation with the client, they told us that they had canceled two special tenders.
So I\'m not going to go into detail, but we know they\'re thinking carefully about who they want to work with on multiple projectsTime frame.
They want to make sure that these companies have enough money to take on their responsibility.
Ladies and gentlemen, this question is over. and-answer session.
I want to turn the meeting back to the closing words of Brad Alexander.
Brad Alexander thanked everyone for attending today\'s conference call.
Please feel free to contact me if you have further questions.
When we Report 2017 of our third quarter results, we look forward to talking to you again.
Have a good day.
This concludes today\'s meeting, ladies and gentlemen.
Thank you for your participation.
You can disconnect now.