Transocean Ltd. Q3 FY2024 earnings call

• Jeremy highlighted securing new contracts and extensions, including BP awarding the Deepwater Atlas a contract, Deepwater Invictus getting extensions, Deepwater Conqueror awarded a contract, Reliance Industries awarding the KG1 a contract, and Equinor, Woodside exercising options on rigs. Emphasized asset quality with high specification rigs and strong contract coverage.
• Keelan discussed market studies showing global upstream CapEx to remain flat but deepwater/ultra-deepwater investment to grow. Focus on 2026 market, operations progress with Critical Operations Authorization Centers (COAs) improving operational reliability but facing reliability issues with new 20,000-psi BOPs.

For the third quarter of 2024, Transocean delivered adjusted EBITDA of $342 million on $948 million of contract drilling revenues, resulting in an adjusted EBITDA margin of approximately 36%. The marketing team secured new contracts and extensions across the fleet, with the active fleet now essentially fully contracted in 2024 and solidly booked for much of 2025 and into 2026.

• Fourth quarter 2024: Expected contract drilling revenues between $950 million and $970 million, O&M expense within $585 million range, G&A expense between $50 million and $55 million, net interest expense ~$144 million, capital expenditures ~$35 million, cash taxes ~$9 million, ending liquidity in ~$1.35 billion area.
• Full-year 2025: Forecast contract drilling revenue between $3.85 billion and $4 billion, O&M expense between $2.3 billion and $2.45 billion, G&A costs between $190 million and $200 million, preliminary projected liquidity at year-end 2025, expect to reduce debt by at least ~$715 million in 2025, ending with gross debt of ~$6.2 billion.

• Experienced unique reliability issues related to new 20,000-psi BOPs, which are not unexpected given the revolutionary nature of the equipment, but Transocean and OEM partners will resolve these issues.

Q: Eddie Kim asked about expectations on the trajectory of day rates for next year and sideline 7G drillship capacity.

A: Roddie Mackenzie and Jeremy D. Thigpen responded, discussing day rates for premium assets, active utilization, and expectations on sideline rigs securing contracts in 2026.

Q: Arun Jayaram asked about BOP teething issues.

A: Keelan Adamson elaborated that BOP teething issues are normal with new technology, and Transocean is working with partners to resolve them.

Q: Scott Gruber asked about underlying cost inflation in 2025 cost guide and incremental demand in 2026 for Namibia.

A: Thaddeus Vayda and Jeremy D. Thigpen/Keelan Adamson responded, discussing cost inflation being built into contracts and customers preferring harsh environment semis or drillships in Namibia depending on location.

Q: David Smith asked about the decision process of stacking rigs and metrics for returning cash to shareholders.

A: Jeremy D. Thigpen and Thaddeus Vayda responded, discussing the decision to stack rigs based on future opportunities and day rates, and the key metric for returning cash is net debt-to-EBITDA below 3.5 times.

Q: Kurt Hallead asked about oil supply demand out beyond 2025 and Transocean's conviction in customer outlooks.

A: Jeremy D. Thigpen and Roddie Mackenzie responded, discussing customers' long-term commitments, favorable economics at current oil prices, and ongoing deep conversations with customers for future projects.

Q: Fredrik Stene asked about M&A and updates on rig sales.

A: Jeremy D. Thigpen responded on M&A benefits and fleet quality, and provided updates on the sale of Development Driller 3 and Discoverer Inspiration rigs.

Q: Greg Lewis asked about Brazil tenders, direct negotiations, and white space in Brazil.

A: Roddie Mackenzie responded, discussing Brazil tenders, direct negotiations being open for extensions, and rigs in Brazil not sticking around long if idle.