Seadrill Limited (NYSE: SDRL), an offshore drilling contractor, has reported its financial results for the second quarter of 2024. Despite achieving an EBITDA of $133 million from $375 million in operating revenues, the company has tempered its expectations for the second half of the year. Revised contract start dates and uncommitted rig availability have led to a lowered earnings forecast.
Seadrill is set to cease its secondary listing on the Oslo Stock Exchange come September 9, focusing solely on the New York Stock Exchange to streamline operations. The company's outlook is cautiously optimistic, with strong market fundamentals driving their strategic execution, despite the near-term challenges posed by the deepwater drilling industry's volatility and demand uncertainties.
Key Takeaways
- Seadrill reported a second-quarter EBITDA of $133 million with a 35.5% margin.
- The company has lowered its second half outlook due to delayed contract starts and rig availability.
- Seadrill will end its secondary listing on the Oslo Stock Exchange on September 9.
- The company will continue trading exclusively on the New York Stock Exchange.
- Full-year EBITDA is now projected between $315 million to $365 million, with revenues expected to be $1.355 billion to $1.405 billion.
- Seadrill completed a $500 million buyback and initiated another program of equal value.
Company Outlook
- Full year EBITDA projection adjusted to $315 million - $365 million.
- Revenue forecast for the year is now set at $1.355 billion - $1.405 billion.
- CapEx guidance remains unchanged at $400 million to $450 million.
Bearish Highlights
- Short-term industry volatility and demand uncertainties are impacting contract awards.
- Delays in contract start dates and a softer outlook for speculative rig contracting have led to reduced guidance.
- The customer acceptance process for rigs has become more extensive, presenting a main risk.
Bullish Highlights
- Long-term outlook for the deepwater drilling industry remains positive.
- Market conditions show strong underlying fundamentals.
- Supply chain improvements are expected to align with project timing and rates.
Misses
- Second-quarter contract drilling revenues were $267 million, $8 million lower than the previous quarter.
- Reimbursable revenues saw a $5 million decline from the previous quarter.
- The Polaris (NYSE:PII) and Auriga rigs did not contribute to revenues as they were preparing for contracts.
Q&A Highlights
- The company is actively marketing the Phoenix rig and seeking contributions to reactivation costs.
- Clients are not rejecting programs due to high rates but are influenced by availability, scheduling, and logistics.
- Strong contracting conversations are emerging for the second half of next year and into 2026.
- Capital discipline and shareholder satisfaction are priorities for customers, affecting project decisions.
Seadrill's second-quarter performance reflects a mixed picture, with a solid EBITDA margin countered by a cautious outlook adjustment. The company's strategic focus on scale, balance sheet strength, and safe operations underpins its long-term success plans. Despite the near-term industry headwinds, Seadrill's proactive measures, including share buybacks and business simplification, demonstrate a commitment to executing its strategy amidst a changing market landscape.
InvestingPro Insights
Seadrill Limited's (NYSE: SDRL) recent financial results and market performance provide a nuanced view of the company's position in the offshore drilling industry. With an adjusted market capitalization of $3 billion, Seadrill maintains a significant presence in the sector. The company's P/E ratio stands at 11.59, which could indicate a potentially attractive valuation relative to earnings when compared to industry peers.
InvestingPro Data metrics reveal a mixed short-term performance with a one-week price total return of -19.34%, reflecting recent market volatility. However, a broader look at the six-month price total return shows a positive trend with a 3.5% increase, suggesting some resilience in the company's stock value over a longer period. Additionally, Seadrill's stock is currently trading at 78.59% of its 52-week high, with a previous close price of $46.96.
InvestingPro Tips highlight the company's fair value, with analyst targets suggesting a fair value of $60 and InvestingPro's own fair value estimate at $67.54. This discrepancy between the current trading price and the estimated fair values could signal an undervaluation, presenting potential opportunities for investors.
Seadrill is navigating industry challenges with strategic moves such as the termination of its secondary listing and a focus on the New York Stock Exchange. These efforts, combined with a solid EBITDA and a cautiously optimistic outlook, could position the company for recovery as market conditions evolve.
InvestingPro offers additional insights and tips that can further guide investors in their decision-making process. There are numerous other tips available on InvestingPro that can provide a deeper analysis of Seadrill's financial health and market potential.
Full transcript - SeaDrill Limited (SDRL) Q2 2024:
Operator: Thank you for standing by, and welcome to the Seadrill's Second Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Lydia Mabry, Director of Investor Relations. You may begin.
Lydia Mabry: Thank you, operator. Welcome to Seadrill's second quarter 2024 earnings call. Today's call will feature prepared remarks from Simon Johnson, our President and Chief Executive Officer; Samir Ali, Executive Vice President and Chief Commercial Officer; and Grant Creed, Executive Vice President and Chief Financial Officer. Also joining is Marcel Wieggers, Senior Vice President of Operations. Today’s call may include forward-looking statements that involve risks and uncertainty. Actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or year, and we assume no obligations to update. Our latest Forms 20-F and 6-K filed with the U.S. Securities and Exchange Commission provide a more detailed discussion of our forward-looking statements and the risk factors affecting our business. During the call, we may also refer to non-GAAP measures. Our earnings release filed with the SEC and available on our website, includes reconciliations to the nearest corresponding GAAP measures. Our use of the term EBITDA on today's call corresponds with the term adjusted EBITDA as defined in our earnings release. Now, let me turn the call to Simon.
Simon Johnson: Thank you for joining us on today's call. The second quarter Seadrill delivered EBITDA of $133 million on $375 million of total operating revenues for an EBITDA margin of 35.5%. Seadrill had a strong first half of the year with a combined $257 million in EBITDA. However, we are lowering our second half expectations based on revised estimates for contract start dates for the two rigs we're moving to Brazil and uncommitted near-term availability on other rigs within our fleet. We entered 2024 knowing it would be a transition year. We've operated fewer rigs while preparing units for long-term contracts and performing necessary calendar-based maintenance on several others. We've acknowledged our willingness to incur idle time early in the cycle as we sought to reprice, relocate and reintegrate rigs. This was exemplified by the West Polaris, which we moved from a third-party managed contract in India, where it operated alone to a market rate term contract in Brazil, where we operate at scale. Like our peers, we've encountered white space for some of our units with near-term availability. Specifically the Sevan Louisiana, West Phoenix and West Capella. We're seeing indications of limited contracting options and intensifying competition that will impact on these rigs and possibly others into 2025. The emergence of more volatility, inherent in the oilfield services subsector further enforces the importance of through-cycle resiliency. To achieve durable earnings and cash flow across cycles, one, scale matters, two, balance sheet strength matters, three, management discipline matters, and four, most importantly, safe, efficient, responsible drilling operations matter. At Seadrill, we achieve basin scale by concentrating a highly standardized rig fleet in advantaged geographies, primarily across the Golden Triangle. We maintain a prudent balance sheet that allows us to invest in maximizing the useful life, competitiveness and performance of the rigs across our fleet when attractive economics justify doing so. We consistently demonstrate discipline by doing what we say we will do, acting as strong stewards of capital. We maximize the earnings potential of our contracted rig fleet by staying focused on maximizing one of the most important operational metrics, uptime. When downtime events do occur, we learn from them, first identifying the root cause, then reshaping our efforts and behavior to deliver intended outcomes. We are seeing results. During the quarter, five of our rigs achieved nearly 100% uptime. Every year, I visit every rig in our fleet. The level of operational performance and commitment to continuous improvement that I've personally seen across our rig sites will drive our success through the cycle. I most recently returned from Angola, where our rigs continue to set examples with superior safety performance across our fleet, across all metrics. Elsewhere in the fleet, the Phoenix recently celebrated nine years without a lost time incident and the West Saturn six years without an LTI. Looking at the market, we remain confident in the long-term position of the deepwater drilling industry. We still believe burgeoning broad-based demand will bolster what's largely been a supplier side driven recovery. However, major discoveries in places like Namibia, Cote d'Ivoire and Indonesia have yet to convert into material rig activity. We expect the slower conversion of demand to contract awards will persist into 2025. Importantly, we've seen no indication that day rate development is curtailing demand. Rather, there are more likely paradoxes at play. Firstly, E&P customers are out consolidating contractors. When two becomes one, it can change the timing of tenders as projects that would have occurred consecutively often get deferred. Second, E&Ps continue to prioritize returning capital to shareholders rather than spending on the drill bit. Even small independents appear to prioritize buybacks, dividends and debt retirement over new contracts. Third, E&Ps appear largely unwilling to commit to long-dated projects. The broader uncertainty related to demand for the underlying commodity and shifting socio-political situations in certain countries appear to be shortening our customers actionable time horizons. Asymmetry between partner expectations at the JV level can also prevent projects from proceeding. In a less liquid market, characterized by a small inventory of available rigs and contracts, it can be difficult to align supply and demand perfectly, contributing to idle time. We believe that this is transitory. Yes, E&Ps are showing some discretion on near-term projects, but by definition they are responsible for producing a consumable resource. What we're seeing is demand delay, not demand destruction. A positive view of the deepwater drilling market's longer-term outlook remains unaltered. As frustrating as lack of visibility and short-term congestion may be, we're satisfied with the ongoing development of the market and our relative position within it. However, there will be volatility. As an industry, we seem to be experiencing micro-cycles where the amplitudes may be greater, the periods shorter and the spread of day rates potentially wider. That means that now, as ever, scale, balance sheets, management teams and operations matter. As we look to the horizon, I'm convinced Seadrill will be a competitive player. I'm confident in our team's performance, potential and progress. Thank you to our employees for your continued commitment to the competitive, collaborative and cost-conscious behaviors that will carry us forward. With that, I'll pass the call to Samir.
Samir Ali: Thanks, Simon. Trying to anticipate what our clients are going to do when is becoming more difficult. For example, global floater contract awards through the first half of this year were half of what they were over the same period last year, adjusting for an unusual tenure contract. Then, in late July, an IOC and an NOC launched multi-rig tenders within what seemed like hours of each other. Though the market balance supports continued rate progression, uncertainty on the timing of demand and the competitive response to that follows can contribute to idle time and day rate dispersion. Drilling contractors are card players that never really get to deal. We can only play the hand in front of us. More challenging still is we are not alone at the table. We must anticipate and where appropriate respond with what other players may do with the cards they have. Certain markets feel different than others right now. Let's walk around the world reviewing the demand and outlook and contracting activity within each. Starting with our primary focus area, the Golden Triangle. Brazil remains the single most important deepwater market. Expect the number of floating rigs there to remain flat around 30. Though operators in the region appear to have expansionary ambitions that could yield incremental additions over time. About seven rigs will roll off in the next 18 months. And there are two open tenders for up to seven units of varying specification that would keep the market in balance. As industry participants are aware, we have three rigs contracted with Petrobras through 2025. So these new tenders line up well with our scheduled completion dates. We've begun dialogue on these rigs for future work both in and outside of Brazil and we anticipate being able to provide an update on contracting later this year. The U.S. Gulf of Mexico remains an active market with generally high specification thresholds that often drive day rate development. Recent contract awards here have been as short as one month and as high as three years. And the variability in demand can create for a larger fan of outcomes compared to other long term growing markets. We operate three rigs in the Gulf of Mexico. The West Vela is committed through mid-2025, and the West Neptune through January 2026. The Sevan Louisiana remains a shorter term rig. She completed a well intervention campaign in May, then transitioned to traditional drilling work that should finish later this month. Though it could extend. The rigs contracting outlet for the remainder of the year changes week to week. We continue to explore opportunities with multiple customers for both drilling and interventional work to fill its remaining workspace. West Africa remains a source of incremental demand for the industry in 2026 and beyond. Driven by key geographies like Namibia and Nigeria, where we have extensive operating experience. Currently, we have three rigs on contract in Angola through our Sonangol joint venture through mid-2025 and we're an active conversation with clients that should keep them contracted in the region in 2026 and beyond. Outside of the Golden Triangle, Southeast Asia remains active with programs across various countries that could be of interest. We continue to believe the West Capella is well positioned as one of two drill ships in the region equipped with managed pressure drilling. But acknowledge dispersed demand can contribute to idle time between campaigns. Norway remains precariously balanced, being either one rig oversupplied or one rig undersupplied. When the Phoenix concludes its contract with Vår Energi later this month, we will stack the rig in the absence of a contract that justifies the over $100 million investment required to continue operating in Norway. Reducing costs and mitigating the impact of firm level EBITDA. Based on the current outlook, the soonest opportunity for the rig to work will be in the second half of 2025. Across our fleet, we work hard for the rates we earn. As we book new contracts, we aim to protect the margins and the terms and conditions to ensure we get the benefit of the bargain and maximize each rig's earnings and cash flow. And now I'll hand it over to Grant.
Grant Creed: Thanks, Samir. Before I begin, I want to review some administrative items. Following the recent consolidation of our corporate office in Houston, we are transitioning from a foreign private issuer to a domestic issuer like all the other major international offshore drilling contractors. That means we'll be filing 10-Ks and 10-Qs from 2025 onward, which should be welcomed by our investor base. We are also voluntarily ending our secondary listing on the Oslo Stock Exchange. The last day of the trading will be on Monday, September 9. And from then on, we'll trade exclusively on the New York Stock Exchange, consistent with efforts to simplify our business. Now let's turn to second quarter performance before moving on to our full year outlook. Second quarter contract drilling revenues were $267 million, $8 million lower than the first quarter. We received no contributions from the Polaris and Auriga in the second quarter as they underwent preparation for upcoming contracts in Brazil compared to the first quarter when they respectively contributed 25 and 60 revenue earning days. This was partially offset by contributions from the Sevan Louisiana, which returned to work in April, completing a short well intervention contract before transitioning to a more traditional drilling contract. Reimbursable revenues were $15 million with a $5 million sequential decline accompanied by a corresponding decline in reimbursable expenses. Updates to our Sonangol joint venture, through which we operate three rigs in Angola, affected both management contract and leasing revenues. First, we received an inflationary increase on the daily management fee we earned for operating the Sonangol rigs, retroactively applied to January 1. This appears on our P&L as management contract revenues and was $65 million in the second quarter. Second, we now own a bareboat charter rate in the West Gemini, which we charter to the joint venture beyond the nominal $1 a day as the JV begins paying out earnings to his partners proportional to their rig contributions. Second quarter leasing revenues of $26 million include two quarters of [BBC] income, as well as revenue associated with a Qatar jack-up rigs we leased into the Gulfdrill joint venture. Vessel and rig operating expense was $165 million compared to $180 million in the prior quarter, a delta of $15 million or 8%. The change was primarily attributable to the Polaris and Auriga as they undergo contract preparation and incur minimal OpEx until they commence operations later this year. Additionally, we no longer pay third-party rig managers on those units as we transition them to Seadrill management after they completed their previous contracts. Management contract expense increased $3 million sequentially to $41 million reflecting timing of repair and maintenance expense on the Sonangol rigs. SG&A was $24 million and included $2 million of costs related to our move of corporate headquarters from London to Houston, which we consider an adjusting item to EBITDA. We also recognized $203 million gain on sale of the Gulfdrill joint venture and Qatar jack-ups, which closed on June 25, representing the difference between the sale proceeds of $338 million and the net book value of the disposed assets. This translated into a strong quarter in terms of EBITDA performance of $133 million at a margin of 35.5%. We maintained a strong balance sheet with the biggest change this quarter being the proceeds from the jack-up sale, partially offset by cash spent on our ongoing share of purchase program. At quarter-end, we had gross principal debt of $625 million and $862 million in cash for net cash position of $237 million. We continue to deploy capital consistent with our capital allocation policy, using it to maintain a healthy balance sheet and liquidity profile, invest in the maintenance and competitiveness of our existing fleet, evaluate potential growth opportunities and return capital to shareholders. We are always looking to invest our capital in value accretive activities. We continue to award our shareholders with a robust capital return program. Late in the second quarter, we completed our previous $500 million buyback facility and announced another $500 million program that we began executing in late June. Since initiating our repurchase program in September 2023, we have reduced the issued share count by over 15%. Cash flow from operations was $79 million for the quarter, including $60 million of long-term maintenance CapEx. Capital upgrades captured in investing cash flows were $43 million for the quarter, resulting in free cashflow of $36 million. Now let's review our full year outlook. Completion of the Gulfdrill sale on June 25 means we will not benefit from the $30 million of bareboat charter revenue related to those assets that would otherwise have been earned in the second half of this year, and it was previously included in our guided results. Adjusting our guidance to reflect its completion would move the midpoint of the previously disclosed EBITDA range to $395 million. We are further adjusting guidance to reflect updated expectations for Auriga and Polaris start dates that move EBITDA recognition into future periods and a softer outlook for speculative rig contracting on the Sevan Louisiana and the Phoenix for the remainder of 2024. We now expect full year EBITDA between $315 million to $365 million, a range that reflects real risks and opportunities on either side. The changes in the Auriga and Polaris start dates reflect the realities of unexpected scope related to previous owners and managers' differing approaches to rig repair and maintenance, exasperated by vendor and weather delays that disrupted our shipyard schedules. Despite these challenges, we have hit major milestones on both rigs. The rigs are departing shipyards and will soon set sail for Brazil, where they will begin customer and regulatory acceptance testing. Both rigs should still begin their contracts by the year end. To the extent that Sevan Louisiana secures additional work in 2024 beyond its current contract, it represents upside to the midpoint of EBITDA guidance. For revenue, we expect $1.355 billion to $1.405 billion. Our CapEx guidance remains the same at $400 million to $450 million. Our adjusted guidance does not detract from our belief in the market's strong underlying market fundamentals. It reflects shifting schedules that delay EBITDA into future periods and transitory software outlook for lower specification assets for at least the remainder of the year. It also reinforces the importance of the theme Simon addressed earlier, executing on our strategy of operating a highly standardized flow to fleet in markets that matter, harnessing the strength of our balance sheet to create value for shareholders, demonstrating discipline in our pursuit of cash flow generation and value accretion, and delivering safe, efficient, reliable operations. With that, we'll open the call for questions.
Operator: Thank you. [Operator Instructions] Your first question comes from a line of Scott Gruber from Citi. Your line is open.
Scott Gruber: Yes, good morning.
Simon Johnson: Good morning, Scott.
Grant Creed: Good morning.
Scott Gruber: I wanted to ask just on the market, it seems that seventh gen rates are really strong here and those will sustain through this soft patch here, based on recent awards and the demand uplift that's come together for late 2025 and 2026. How do you think about rate resiliency on the sixth gen fleet? Obviously, there could be some discounts taken for shorter-term work, but I'm really thinking about the term work for sixth gen rigs. Do you think that is impacted by rates that could be taken on the shorter-term work, or do you think the seventh gen strength helps to hold up the sixth gen rates on term work?
Samir Ali: Yes. So, this is Samir. I'd say on the sixth gen rates, at least on our sixth gen drill ships, we've been pretty conscious in where they're placed. So we've got one in Brazil on a long-term contract. We've got one in Southeast Asia that's one of two rigs in the market with MPD, so we think we can capitalize on that and continue to keep rates at good levels. And then one is in our JV venture in Angola, where having that protective mode is helpful. For us, when we look at the rates for those rigs, we've been pretty conscious of how we place them around the world - to ensure that we can still maximize the rate on those rigs.
Scott Gruber: Got it. Just on the West Phoenix, I appreciate the color. You mentioned that the next opportunity could arise late in 2025. Did I hear that correct? You're essentially going to wait for the next opportunity in Norway. I assume that rig is probably not going to be built outside of the region, or would you look outside?
Samir Ali: Yes, no. So, we're focused on Norway, but we'd obviously look at other markets. For us, it's really making sure we can justify the CapEx investment that's required in the rig. We are looking at opportunities in the middle of 2025, but there are other opportunities outside of Norway. But I think, I'd stress the key for us is, if we're going to invest over $100 million in the rig, making sure that we've got a return on that capital.
Scott Gruber: Appreciate it. I'll turn it back.
Samir Ali: Thanks, Scott.
Operator: Your next question comes from a line of Ben Nolan from Stifel. Your line is open.
Ben Nolan: I appreciate it. So, I guess my first question relates to just the competitive landscape. I mean obviously, a smaller competitor is about to be gone. Now, that means that you guys are the little train that could here. Does that change at all how you think about the competitive landscape, how you're positioned, the consolidation that is happening? Just curious, Simon, if things are the same as they were before, or if you think about the world a little bit differently now?
Simon Johnson: No, Ben, I don't think our posture - is changed by that recent announcement. We were charged by the Board with being agnostic between presenting ourselves as an attractive target for consolidation, and at the same time, doing what we can to maximize growth opportunities for the company. So, we have an attractive fleet. We have a clean balance sheet, good backlog. So we're definitely a potential acquisition target, for a larger peer. But we also believe that we've created a very strong platform for growth. And Seadrill today is a very well-run business, and this is reflecting our earnings results today. We're also disciplined. So when we look at those opportunities for growth, there's certain metrics and thresholds that the opportunities need to meet or exceed. So we have one eye on what we've got, and one eye on what we're trying to build.
Ben Nolan: Got you. And then for my second question, Grant, you mentioned it a little bit, but could you maybe go into a little bit more color on what is driving some of the delays on the timing of the Auriga and Polaris?
Grant Creed: Well, yes, it's really the supply chain issues, and I guess, Simon, can go into more detail there.
Simon Johnson: Yes, I mean, essentially what you're dealing with there, is the rigs have, there's some uncertainty in terms of our peers' performance in terms of rig acceptance. So, we're really changing our outlook to recognize the fact that there may be a longer period for the customer acceptance process. The rigs have now left the quayside. We've exited the shipyard, and we're doing load-outs and some sea trials in preparation for the voyage down to Brazil. So most of the major project milestones are behind us. Really now, the sole risk that's outstanding and the main reason that we've judged, we've changed our outlook, relates to, what's been, a substantial growth in that customer acceptance process.
Ben Nolan: Got you. All right. Appreciate it. Thank you.
Simon Johnson: Thanks, Ben.
Operator: Your next question comes from a line of Fredrik Stene from Clarkson Securities. Your line is open.
Fredrik Stene: Hi, Simon and team. Hope you are well. I have a couple of questions, and first I wanted to touch a bit on the guidance. I think clearly the reduced guidance today will impact estimates for the second half of this year. I think all over the market is taking it relatively okay, given the magnitude of it. But I'm interested to kind of hear a bit more color about if we should, you know, read anything into 2025 based on your reduced guidance for 2024, or do you think, I guess for the Polaris and Auriga it's fine, right, because they start their contract in 2024, they'll still work through 2025. But versus the last quarter and your previous guidance, have anything kind of changed in terms of the opportunities, possible startups, et cetera, for all your rigs that are not yet contracted through 2025?
Grant Creed: Well, hi, Fredrik, it's Grant, and I'll start, and maybe the others can add anything. But on the guidance, yes, the majority of that was the rig activity plus then the Auriga/Polaris. And like you say, Auriga/Polaris is really just a timing thing, and that EBITDA then just pushes out into future periods, and will not impact or should not impact 2025, and beyond. I think you'll see that Louisiana is a rig that we look at. So it is lower spec. You see that we are assuming that she's warm frac during the fourth quarter, which means that we have got confidence in her commercial opportunities going forward. But like Samira said, white space and air pockets may continue to be a theme, so we can't discount that if you're looking at 2025. Beyond that, we look at Phoenix, and we talked about the contracting opportunities for her come middle of next year. And then, what I would say beyond those rigs, the rest of our contracting profile actually looks very good. We're approximately 67% contract covered, which on a relative basis is very strong. But maybe I'll hand over to Samir.
Samir Ali: So, Fredrik, I'd also add we're 67% contracted through 2025, and if you look at our rollover profile next year, it's our rigs in Angola, where - again we have a strong JV, which we feel pretty confident in. And then we've got an asset in the Gulf of Mexico in the second half of next year. The Gulf of Mexico continues to be a strong market for a dual-activity, dual-BOP rig like the Vela. And then we've got the - Sevan Louisiana, and the Phoenix. And we spoke to the Phoenix that it'd probably be second half of next year at the earliest. And then, with the Sevan she's the little engine that could, so she always ends up finding work here and there. We're still continuing to be optimistic that we think we can secure work, into next year for that rig. But that will be a shorter contracting cycle as it's always been.
Fredrik Stene: Yes, that's very helpful. Second, on your fleet, you were able to close the sale of the JV, I think, slightly earlier than expected. So, it's a nice kind of cash boost getting into the 2Q numbers there. With the Phoenix now potentially being out of work for some time, and a substantial investment needed to take that into play again, how do you view the Auriga and Polaris in terms of pecking order? [Prospero] as well, if you have any comments. But have your attitude towards your cold-stack rigs changed? That is, are you more likely to try to sell them, scrap them, et cetera, now that you still have some gaps to fill on your active fleet?
Samir Ali: Yes, so I'd say the Phoenix is still the top priority out of those rigs. And we continue to actively market it. So, we are in active dialogue for work for that rig. So, we may have to stack it in the near term, but for us, we're not giving up on that rig just yet. In terms of asset sales, I'll leave it to Simon to comment on that.
Simon Johnson: Yes, I think we've been pretty clear through time, Fredrik, in terms of reactivation opportunities for the cold-stacked units. We're looking for a material contribution to the cost of reactivation from a potential client, and we want a good outlook on the contracting side for that unit, and a good foundation initial contract. So, at the moment, the focus is on the existing working fleet. And I'm getting some term behind some of those units. So, I don't think you're going to see anything change. There really hasn't been a change in our attitude, as to how we might approach opportunities for those units, other than certainly the West Prospero is clearly a non-core asset. Now that we're pivoting to our floater focus. So, I think that was probably a more likely sale candidate than the others.
Fredrik Stene: And that's very helpful. And just a final on the queries on the clips, do you have any current reactivation cost estimates that you can share?
Simon Johnson: No, we haven't scrubbed in for some time, which I think underlines my confidence in that. We're at an unchanged position there. Yes.
Fredrik Stene: Perfect. Thank you so much, guys. I'll leave it to the next one. Have a good day.
Simon Johnson: Thanks, Fredrik. Thank you.
Operator: Your next question comes from a line of Hamed Khorsand from BWS Financial. Your line is open.
Hamed Khorsand: Hi, I just wanted to follow-up on that comment, the question about the consolidation. Do you think that is playing a role here as far as the contract tenders go? Because last quarter and two quarters, the commentary was that day rates aren't budging on the, aren't causing a harm on the tender process. But now we have these pushouts that you and your peers are talking about?
Simon Johnson: So, I'd say consolidation with our client base, one plus one doesn't equal two. I mean, what ends up happening is sequential, parallel programs become sequential programs for us as an industry. So I think the consolidation that we've seen with our customer base has pushed out some demand. Again, it's not a demand destruction. It's just, it's a reshaping of the demand and it's just pushing it further out.
Hamed Khorsand: And do you think that given the timing of the Phoenix being in Norway, is there enough time to generate revenue next year after you complete your maintenance process?
Simon Johnson: We definitely do. And I'd say, you know, for us, until we feel closer to a contract, we're not going to spend a significant amount of capital on that maintenance and those upgrades. But, if we're targeting programs in the middle of next year, we have enough time to spend the - that complete the upgrades and be ready for them.
Hamed Khorsand: Okay. Thank you.
Operator: Your next question comes from the line of Greg Lewis from BTIG. Your line is open.
Greg Lewis: Hi, guys. Thanks. Just I guess my question around the Phoenix is a little bit different. I know that the base case is that, maybe the Phoenix can hopefully work in the back half of '25, if it can work in Norway. It seems like the, the high end North Sea floater market's kind of been, it seems like it's a plus or minus rig. So just as we think about that and potential opportunities in, regions where some of its sister rigs have worked in like Namibia, have we kind of cost out what it would take to kind of, you mentioned this hundred plus million dollar number to stay in Norway. Obviously that's a high end gold plated market. Have we kind of costed out what it would cost to, go through the survey and have the rig in a position to work in Namibia? And obviously we're actively bidding the Phoenix, but are we actually looking outside of North Sea, or is it just all roads lead to Norway?
Samir Ali: Yes, we are actively looking outside of Norway as well. And we have looked at the costs and I think our threshold is the same. It's kind of, the further you get from Norway, candidly, the cheaper it gets for the Phoenix, but in terms of capital required to maintain her. But at the end of the day, we keep coming back to, we need to find a program that justifies that investment. And if that's in Namibia, that's fine. And that works for us. If it's in Norway, that's also fine. But we, you know, for us, it is that focus on, we do have a large CapEx investment and we need to be able to cover that cost.
Greg Lewis: Yes 100%. And then just, as we think about Southeast Asia, I mean, I pay a lot more attention to the Golden Triangle than I do there. As we think about, those opportunities, I guess the rigs are rolling off in early Q1. Any kind of broad strokes around the type of work, i.e., are there one plus year tenders in that market or is it, hi if I wanted to be conservative thinking about, opportunities for the Capella, there is going to be, there's going to be work, but there's also going to be pockets of idle time?
Samir Ali: So there are some long-term programs, there are some short-term programs in that market. I think the unique thing about the Capella in that market is she's equipped with MPD. She's one of two assets in that market that have MPD. So, we are targeting both of those, obviously a longer term program is preferable if we can secure it for the right return profile. But you are seeing a good mix of, multi-year tenders plus some smaller, one-off wealth opportunities.
Greg Lewis: Okay. Thank you very much.
Simon Johnson: Thanks Greg.
Operator: [Operator Instructions] Your next question comes from a line of Noel Parks from Tuohy Brothers. Your line is open.
Noel Parks: Hi, good morning. A question I had when we see continued capital discipline by operators, I'm just wondering, has that changed the willingness at this point in the cycle or the reluctance for operators to involve more partners in development? I'm just curious whether, as they look at making fewer investments in general, whether you're seeing any impact on the tendency to go more alone, or to try to spread out the risk?
Simon Johnson: Yes. So you're seeing in certain markets where we've got clients that are trying to farm down a little bit of their exposure, make small, more bets, but smaller bets across the space, which can make it challenging to actually get approvals. I don't think, we're not seeing a ton of the opposite where clients are saying, hi, we want more of it. But you're definitely, at least in the Gulf of Mexico, seeing, where clients are wanting to farm down a little bit of their exposure and spread their bets around, which has made it a little more challenging to kind of secure rigs, or secure contracts for us.
Noel Parks: Great. Thanks. And I'm just curious to the degree that, are there any customers you come across in discussions that are maybe particularly price insensitive at this point? You know, year-over-year, it's been a big increase. It doesn't seem like we're vaulting forward in day rate pricing, right at the moment. And so it's, I'm just wondering if there is a subset of clients out there, where the discussion is really not so much about the prices. I don't know if it's availability, scheduling, logistics, or what have you, but any thoughts there?
Simon Johnson: Yes. So it's a mix, but I wouldn't say there's any client that's super, every client's price sensitive at some point, but I'd say the opposite of, we're not seeing demand destruction because of the rates we're asking, right? Clients aren't saying, oh, we're just going to turn that program off, because the rates are too high. There's other factors out there that are driving their decision. The day rate is a small piece of it, but it truly comes down to, can they get partners or can they get, long lead equipment and some other items not really driven by the day rate itself.
Noel Parks: Great. Thanks a lot.
Simon Johnson: Thank you.
Operator: And your final question comes from the line of Josh Jayne from Daniel Energy Partners. Your line is open.
Josh Jayne: Thanks. Good morning. I just wanted to follow-up on the last line of questioning. I think it was Simon in his prepared remarks talked about characterizing the market as frustrated, but satisfied when talking about where we are today. I was hoping you could discuss what ultimately you think is - going to get the ball rolling further from a contracting standpoint. You just talked about rate and how customers, aren't that rate sensitive. That's not really the big sticking point, but how much is it project timing? How much is it rate? You'd mentioned long lead time items. I was just hoping you could go through all of those factors and just talk about, where we are today and what's ultimately going to get the ball rolling from a contracting standpoint?
Samir Ali: Yes. So this is Samir. I'd say, as Simon mentioned in his prepared remarks, if by definition, these guys are producing a consumable resource that can only last for so long, right? You can only defer demand for so long. We are starting to see that already happening. There's strong conversations happening for, second half of next year and into 2026. So we are starting to see that. And part of it too, as I had mentioned, the long lead time equipment, that's starting to loosen itself. Supply chains are starting to come back and clients are being able to get equipment that they need to start bringing some of that demand back. And you're seeing it in wellhead data, you're seeing in some other places that would be leading indicators for clients wanting to, continue drilling. I don't know if you want to add anything.
Simon Johnson: Yes, I think what I would add is that, [indiscernible] is increasingly becoming an issue in some of the deep water production hubs. That's certainly a factor that we look at. So, while traditionally people have been concerned about reserve replacement ratios, I think, just the outlook of the customer base is a lot more short-term these days. So [indiscernible] facilities, I think, is an important and often a little disgust factor. But, really it gets back to this capital discipline. Our customers are satisfying their shareholders first rather than their own sort of thirst for production. And it's coming to the market in a somewhat staccato fashion.
Josh Jayne: Thanks. And then just one shorter-term question on Louisiana. You alluded to it earlier in the year. It did some intervention work and then some drilling work. Are there options to sort of stack back-to-back intervention projects for that rig over the next 12 to 24 months? And I'm just curious how you're thinking about that versus using it primarily for drilling work and what the opportunities are there?
Samir Ali: So, our focus is always drilling work. I mean, it's more profitable for us, but we're absolutely looking at intervention work as gap fill as well. We're in active dialogue on both, both inside and outside the Gulf of Mexico. So, we are looking at opportunities. I'd say with the intervention work, it tends to pop up faster, even faster than the drilling work for the Louisiana. But we are pursuing both in the near-term and into 2025.
Simon Johnson: I think you do make a good point there, though. In as much as the important element with that intervention work is and that we have some discretion in the timing, and it needs to come to market in a volume that's interesting. We can prosecute that type of work most effectively when we have a campaign rather than just one or two worlds here and there.
Josh Jayne: Okay. Thanks very much.
Simon Johnson: Thanks very much, Josh.
Samir Ali: Thanks Josh.
Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
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