Tuesday, Nov.
3, 2026 CALL PARTICIPANTS President and Chief Executive Officer - Keelan I.
AdamsonChief Financial Officer - Robert Thaddeus VaydaChief Commercial Officer - Roderick J.
MackenzieVice President Treasurer - David Kiddington Contract Drilling Revenues -- $937 million for the third quarter, representing a sequential decrease from $966 million due to lower rig utilization.Net Income -- $26 million, or $0.02 per diluted share, reflecting solid operating results despite an expected drop in utilization.Adjusted EBITDA -- $313 million, representing a 33.4% margin and remaining consistent with the prior quarter.Free Cash Flow -- $131 million, including $174 million in cash from operations net of $43 million in capital expenditures.Total Liquidity -- $1.3 billion as of Sept.
30, 2026, including an undrawn $510 million revolving credit facility.Contract Backlog -- $8 billion for Transocean on a stand-alone basis, following the addition of $2 billion in new awards during the quarter.Pro-forma Backlog -- $12.7 billion, representing the combined backlog for Transocean and Valaris following the expected merger.Revenue Efficiency -- 96.8% for the fleet, supported by an exceptional 98% fleet uptime during the third quarter.Average Daily Revenue -- $462,600 per day across the total fleet, with ultra-deepwater floaters averaging $442,100 per day.Deepwater Proteus Award -- $325 million in added backlog, driven by a 10-well contract extension in the U.S.
Gulf of Mexico.Deepwater Conqueror Award -- $305 million in total award value, resulting from two new contracts in direct continuation with the current customer.Dhirubhai Deepwater KG2 Award -- $300 million commitment, fixed with ONGC in India.2027 Contract Coverage -- 95%, representing an improvement of 10 percentage points compared to the 2026 coverage levels at the same time last year.2028 Contract Coverage -- 65% for the existing fleet, as customers increasingly secure capacity for long-term programs.Debt Retirement -- $2 billion in total debt retired over the last 24 months, including the full redemption of $200 million in Deepwater Aquila notes in October.Annual Synergies -- $200 million in estimated savings, expected to be realized following the integration of Valaris.Fiscal 2026 Revenue Guidance -- $3.9 billion to $3.95 billion, narrowed from previous estimates to reflect limited opportunities for gap-filler work.Fiscal 2026 Operating and Maintenance Expense Guidance -- $2.35 billion to $2.4 billion, including an increase to the lower end to reflect incremental activity.Fiscal 2027 Revenue Guidance -- $3.85 billion to $4 billion, on a stand-alone basis for Transocean assets.Fiscal 2027 Operating and Maintenance Expense Guidance -- $2.375 billion to $2.5 billion, reflecting increased activity, periodic surveys, and required equipment overhauls.Fiscal 2027 Capital Expenditure Guidance -- $130 million to $140 million, focused on fleet maintenance and certifications.Total Debt Forecast -- less than $4.8 billion in gross debt expected by the end of 2026 on a stand-alone basis.Drillship Utilization -- 90% for the current active fleet, with sixth and seventh-generation drillship demand expected to exceed 95% by the end of 2027.Contract Duration Trend -- 380 days for average contract duration this year, representing a 50% increase from 245 days in the prior year.
Need a quote from a Motley Fool analyst? Email [email protected] Vayda stated, "Finally, we are observing some inflationary pressure, mainly in logistics and fuel, also some increases in the cost of manufactured goods, the result of increased input costs, including raw materials, energy, and logistics," indicating cost friction in the low single digits for 2027.Adamson noted that several rigs not on long-term contracts in the U.S.
Gulf are expected to leave the region to satisfy international demand in West Africa, creating a temporary migration of assets.
Transocean Ltd.
(RIG -4.25%) management reported a strategic shift toward longer-term contracting and increased dayrates as global utilization for high-specification drillships approaches 95%.
The company confirmed that all regulatory approvals for the Valaris acquisition have been received, with closing scheduled for Dec.
This combination is expected to create a pro-forma backlog of $12.7 billion and generate $200 million in annual synergies.
Management noted that the deepwater market is entering a multiyear growth cycle driven by energy security concerns and national oil company exploration mandates, particularly in Brazil, India, and West Africa.
The company remains focused on deleveraging its balance sheet, having retired $2 billion in debt over two years, while maintaining high operational efficiency and fleet uptime to maximize cash flow conversion from its $8 billion stand-alone backlog.
Management indicated that leading-edge dayrates have moved into the $450,000 to $500,000 range as the market for ultra-deepwater assets tightens.CEO Adamson stated that Indian national oil companies are pursuing the Samudramanthan mission, which could require as many as four additional drillships in the next two years to grow domestic production.CCO Mackenzie noted that while the U.S.
Gulf of Mexico remains a solid basin, rigs are being drawn to West Africa and the Mediterranean due to more urgent demand and longer-term development opportunities.Management reported that harsh environment semisubmersible utilization in Norway is exceptionally strong through 2028, with only two company rigs available for work before 2029.Mackenzie noted that the company would only reactivate cold-stacked vessels when the investment returns are guaranteed by firm contracts, rather than doing so speculatively.
INDUSTRY GLOSSARY 20k: Equipment and rigs capable of operating in high-pressure reservoirs with pressures up to 20,000 pounds per square inch.CAT-D: A class of midwater, harsh environment drilling rigs specifically designed for Equinor to operate in the Norwegian Continental Shelf.IOC: International Oil Company; typically refers to large, publicly traded energy majors like Shell, BP, and Chevron.NOC: National Oil Company; energy entities owned or controlled by a national government, such as Petrobras or ONGC.Paleogene: A deep geological formation in the U.S.
Gulf of Mexico known for high-pressure, high-temperature reservoirs requiring advanced drilling technology.Revenue Efficiency: A measure of actual revenue earned versus the maximum potential revenue a rig could earn under contract.
Full Conference Call Transcript Operator: If you need at any time, please press 0, and a member of our team will be happy to help you.
Thank you for your continued patience.
Your meeting will begin shortly.
Will be happy to help you.
Please stand by.
Everything is about to begin.
Alison Johnson: Hello, and welcome everyone joining today's Q3 26 Transocean Earnings Call.
At this time, all participants are in a listen-only mode.
Please note this call is being recorded, and we are standing by should you need any assistance.
It is now my pleasure to turn the meeting over to David Kiddington, vice president Treasurer.
Please go ahead.
Adamson: Thank you, Britney, and welcome, everyone, to Transocean's third quarter earnings call.
Today's call will be led by Transocean's President and Chief Executive Officer, Keelan I.
Keelan will be joined by chief financial officer, Thad Vayda, and Chief Commercial Officer, Roddie Mackenzie.
In addition to the comments that will be shared on today's call, we would like to direct you to our earnings release, fleet status report, and 8 Ks that contain additional information all of which is available on Transocean's website at www.deepwater.com.
After our prepared remarks, we will open the conference line for questions.
I would like to remind everyone that today's call will include forward looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially.
With that, I will hand it over to Keelan I.
Thanks for joining us.
Today, we will address 4 key topics.
I will begin with an update on the Valaris acquisition.
Next, I will share some perspectives on the deepwater and harsh environment drilling markets.
After which I will review recent contracts and incremental opportunities around the world.
Lastly, we will summarize our third quarter operational and financial performance, provide updated guidance for the remainder of 2026 and some preliminary 2027 guidance, albeit for Transocean stand-alone.
Starting with the Valaris acquisition.
We have now received all necessary regulatory approvals required for closing.
Most recently, the US Department of Justice and CADE, the Brazilian competition authority, each approved the deal with no conditions.
I wish to thank the amazing team, internal and external, that successfully supported us through the various governmental reviews over the last several months.
Transocean and Valaris filed the definitive proxy statement on October 14, and shareholder votes for both companies are scheduled for November 24.
We encourage shareholders to approve the transaction and associated resolutions for this exceptional value creating combination.
After successful shareholder votes, we expect the Bermuda court to approve the deal on November 26.
And closing will occur on December 1.
We are now in the final stages of integration planning.
Upon closing, we will quickly commence the process of delivering the estimated $200 million in annual synergies.
We intend to provide 2027 guidance for the combined company in February next year along with our year end results.
Now on to some market observations.
Consistent with third party reports, we believe that global market conditions and energy supply and demand trends are very constructive for our business.
Even though the outlook for oil prices remain supportive due to the long lead nature--long lead time nature of this business, all our customers remain disciplined in allocating investment capital to exploration and development opportunities.
Even so, while our discussions with customers and industry observers suggest that this budget season will result in increases in deepwater and harsh environment spending, IOCs particularly see--still see most likely to contract rigs for durations that align with their specific drilling programs.
As the market continues to tighten, however, we expect these customers to make longer term commitments as needed to ensure access to preferred assets.
While national oil companies are also financially disciplined, their long term interest in the exploration and development of domestic hydrocarbon resources reflects their government's economic growth or energy security agendas.
The latter being emphasized by recent supply chain challenges.
Indeed, the significant year over year increase in contracting activity has been led primarily by NOCs and skewed to longer term contracts as they secure rig capacity to pursue their broader agendas which is reflected in the appreciable percentage of the total backlog year to date that has been awarded to us at roughly 60%.
In contrast, we have observed certain independent operators act opportunistically in securing drilling capacity.
Taking advantage of favorable economic conditions to perform additional work.
According to Fearnley Offshore, active fleet utilization now stands at or above 90% for drillships with demand for 6 and seventh generation drillships still expected to exceed 95% by the end of 27.
Drillship backlog is now 237 rig years, an average of roughly 2.5 years per unit.
The highest in over a decade.
In the near term, we expect rig utilization to tighten further.
With incremental investments in exploration and development projects We also expect contracting lead times to lengthen as longer duration contracts reduce fleet white space and build forward looking backlog visibility.
In the context of tighter utilization and improving visibility, drillers should carefully consider the many and various strategic, tactical, and economic trade offs associated with these opportunities.
Moving to recent contracts and prospects.
We continue to carefully manage our rig portfolio to ensure that we maximize cash flow.
You should expect us to seek an optimal deployment of assets, through a continued disciplined centralized management of our fleet once the transaction closes.
While all of our contract awards are covered in our fleet status report, let me share a few recent highlights that support our very constructive outlook.
The deepwater Proteus was awarded a 10 well contract in direct continuation with our current customer in The US Gulf, adding about $325 million of backlog.
The deepwater conqueror was awarded 2 new contracts in direct continuation with her current customer for a total award of $305 million.
The Dhirubhai Deepwater KG2 was fixed with ONGC in India, on a $300 million commitment.
In Norway, the Transocean Norge was awarded work with Shell worth approximately $62 million.
In Australia, a single well option was exercised for the Transocean Equinox, for about $24 million.
In total, we added nearly $2 billion of backlog, including $1 billion associated with the formal approval of an award for the placement of 3 CAT-D rigs with Equinor, announced in late June, namely the enabler Encourage, and Endurance.
These recent commitments have effectively sold out our fleet for the remainder of 2026.
Our 2027 contract coverage has improved from 81% to nearly 95%.
And 2028 coverage is already around 65%.
In fact, the deepwater Mykonos is the only ship we have available to commence a term contract in the next 12 months.
Even though we have already experienced a substantial amount of contracting activity this year, there is still a very healthy pipeline of outstanding opportunities around the world.
According to S&P Petrodata, approximately 104 rig years have been awarded year to date, while operators are currently evaluating roughly 35 open tenders, representing a further 45 rig years of potential demand.
In The US Gulf, our recent contract awards reinforce our view that long term demand fundamentals remain compelling in this key region.
However, as we have noted on previous calls, we are also observing growing international demand for capable assets.
Particularly from West Africa.
We expect several rigs in The US Gulf that are not on long term contracts, to leave and satisfy this demand.
This likely temporary migration will keep The Gulf's fit for purpose asset base in a healthy supply demand balance.
Brazil will remain 1 of the world's most attractive deepwater markets, supporting a relatively stable fleet of approximately 30 to 33 rigs over the next 5 years.
Recent discoveries from BP and Petrograph underscore Brazil's significant resource potential.
And our expectation for additional exploration activity.
We continue to believe that African demand across multiple basins will grow the regional rig count from approximately 15 units today to over 20 units in the next 18 months with opportunities in the IVORY Coast, Mozambique, Namibia, and Nigeria.
In the Mediterranean, several new discoveries requiring appraisal and development drilling should drive an expansion in that regional fleet of approximately 2 to 3 units over the coming years.
In Southeast Asia and India, recent rewards represent encouraging signs of what will become a broader regional growth cycle.
In Southeast Asia alone, we see potential for 7 to 9 rig years of demand from 4 to 5 opportunities in a market that currently has only 1 active deepwater rig.
In India, as a result of the government's pursuit of their Samudramanthan mission to find and grow offshore production, a multirig, multiyear program could commence with a near term activity increase of as many as 4 drillships in the next 2 years.
With Indian NOCs.
Turning to Norway, utilization of high specification harsh environment semisubmersibles remains exceptionally strong through 2028, supported by recent awards from Equinor, Harbour, Vår Energi, Shell, and Aker BP.
The Spitsbergen and Equinox are Transocean's only harsh environment semisubmersibles available before 2029.
We are encouraged by the many inquiries on these rigs and are confident that they will secure work soon.
Additionally, potential programs in Canada for Equinor and Cenovus could further tighten harsh environment supply.
From 2028 onward.
In summary, while the timing and scope of individual opportunities will inevitably evolve, the broader market trends driven by new sanctioned developments increasing exploration investment, and a growing inventory of recent discoveries, remain highly constructive.
Against the backdrop of limited fleet growth, more forward contracting visibility and a steadily tightening supply demand balance, we continue to see favorable conditions for strong fleet utilization and improving business economics.
Finally, before I pass the call to Thad, a brief comment on third quarter results.
During the quarter and year to date, our fleet uptime was an exceptional 98%.
In line with the best performance ever delivered by the company, with average daily revenue approximating $463 thousand per day.
Both revenues and operating and maintenance costs were in line with our guidance range.
Adjusted EBITDA of $313 million and the associated margin of 33% was consistent with the prior quarter.
We continue to improve our capital structure by fully redeeming the Deepwater Aquila notes in October, and also finalizing an amendment to our revolving credit facility.
That will become effective at the closing of the Valaris acquisition.
Over the past 2 years, we have focused on debt and the simplification of our balance sheet.
In the last 24 months, we have retired over $2 billion of debt and you should expect us to continue to pursue this objective.
I will now hand the call over to Thad.
For additional comments on Q3 financial results and to provide guidance.
Robert Thaddeus Vayda: Thank you, Keelan, and good day, everyone.
As Keelan highlighted, our third quarter financial results were consistent with our expectations and importantly, the guidance we provided to you in August.
Just a couple of comments on our results.
At $590 million, O&M expense continued to trend a bit below our forecast.
This is due in part to success in reducing costs for both in service and out of service projects and reflects the continued scrutiny of our spending requirements which will continue.
$62 million G&A exceeded the upper end of our guidance range due to $10 million of costs associated with the pending Valaris acquisition.
Adjusting for these costs, we spent about $52 million for G&A expense, generally in line with our quarterly run rate over the past year.
Free cash flow of $131 million with a margin of about 14% was lower versus last quarter due primarily to the timing of collections as well as an annual fleet insurance premium payment of approximately $20 million.
Our trailing 12-month net debt to EBITDA ratio inclusive of restricted cash reserved primarily for debt repayment, is now 2.9x generally consistent with where we ended the second quarter and 1 full turn lower than a year ago.
We finished the quarter with about $500 million in unrestricted cash roughly in line with the prior quarter.
Our total liquidity, inclusive of the undrawn revolving credit facility, was approximately $1.3 billion We expect that we will end the year in about the same place.
On October 1, including a nearly concurrent $35 million amortization payment, we retired the full principal balance of about $200 million of the 8% Deepwater Aquila senior notes.
The payment, which included a call premium and accrued interest, was settled using cash on hand and $48 million of restricted cash from the associated debt service reserve account.
This debt retirement saves approximately $22 million in interest expense through maturity.
Subsequent to this retirement, the reserve account, which makes up the bulk of our restricted cash, contains about $230 million, almost all of which is associated with our remaining $763 million of 8.75% secured T-Winds notes, which we expect to address in 2027.
These actions reflect continued execution of our strategic objective to reduce leverage and simplify the balance sheet.
On October 15, we completed an amendment to our revolving credit facility to expand its total capacity to $750 million improve terms, and extend its scheduled maturity date by 3 years to late 31.
The amended facility was substantially oversubscribed during with several new banks joining.
The facility will become effective when the acquisition of Valaris closes expected on December 1.
For a few thoughts on our outlook for the balance of the year and into 2027.
2026 revenue guidance has been narrowed by $25 million reflecting the diminishing likelihood of additional gap filler work materializing for the next couple of months.
Indeed, our remaining contract coverage for 2026 already approximates 100%.
We have also increased the lower end of our full year cost guidance by $25 million moving the midpoint slightly higher to reflect incremental activity.
Our G&A guidance range is $185 million to $190 million for the full year, including increased employee benefit costs.
This range excludes transaction related expenses which would typically be excluded from adjusted EBITDA.
I will also note that our full year interest expense guidance of approximately $500 million consists of results through Q3 that include the effect of the bifurcated exchange fee on our 2029 exchangeable bonds plus our forecast for Q4 interest expense approximating $107 million This figure excludes any potential derivative effects of these bonds.
On a stand alone basis, we expect to end 2026 with less than $4.8 billion of gross debt, and, as previously mentioned, forecast our total liquidity to be around $1.3 billion This liquidity estimate includes our existing undrawn $510 million revolving credit facility.
Our latest earnings release provides preliminary guidance for full year 2027 for Transocean on a stand alone basis.
As Keelan mentioned, our fleet is already 95% committed in 2027.
This is about 10 percentage points better than where we were for 2026 at a similar point in 2025.
Year over year O&M costs are expected to increase by approximately $60 million A large portion of this cost relates to the repositioning of rigs for new contracts, periodic surveys, recertifications for our fleet, and includes required overhauls of spare equipment.
Finally, we are observing some inflationary pressure, mainly in logistics and fuel, also some increases in the cost of manufactured goods, the result of increased input costs, including raw materials, energy, and logistics.
Notwithstanding, we expect cost inflation to remain in the low single digits in 2027 and have considered this friction in our guidance range.
This concludes my prepared remarks.
Adamson: Thank you, Thad.
Year to date, we have added over $4 billion of contract awards, bringing our stand alone backlog to approximately $8 billion We remain focused on converting as much of every backlog dollar to cash flow as possible.
We look forward to closing the Valaris transaction in early December, combining 2 great companies committed to operating best in class assets, delivering exceptional performance that surpasses customer expectations, and utilizing an industry leading pro-forma backlog of approximately $12.7 billion to drive shareholder value.
We will now open the line for questions.
Operator: Thank you.
Press 1 on your keypad.
To leave the queue at any time, press 2.
Once again, that is star then 1 to ask a question.
We will take our first question from Joe Lach with Morgan Stanley.
Please go ahead.
Your line is open.
Analyst: So I just wanted to ask on the preliminary 2027 guide.
Could you just talk to how you are thinking about the upside and downside scenarios here? With contract coverage at 95% next year, we could push you to the upper or lower end of the guidance range? And if you could talk about, both revenue and O&M, that would be helpful as well.
Robert Thaddeus Vayda: Thanks for the question.
So, yeah, as observed, it is a pretty good situation we are in from a contract coverage perspective.
But if you notice from our performance this year, our initial guidance reflected our best guess of how the year was going to go.
Our operational performance is very good.
There is a very limited amount of opportunity here for sort of fill in work.
But I think that there is enough variability in that we have some upside potential.
When it comes to the costs we are going to continue with our scrutiny of every expenditure as we have done.
So in that context, you know, we feel that the guidance that we have given you is pretty much straight down the fairway.
But again, in the context of the acquisition plus the stand alone efforts that we are making to reduce costs, we think that there is some room for improvement there.
Analyst: Great.
that is helpful.
And then maybe just on the macro, can you talk a little bit about the where you see the progression of day rates? You have announced several sizable awards over the last couple of months and it seems like day rates are in the $450 thousand to $500 thousand per day type of range.
Just talk to where you are seeing leading edge day rates today? And maybe how much additional pricing opportunity there could be as utilization tightens? Thank you.
Mackenzie: Yeah.
Hey, this is Roddy.
Look, far from us to speculate where that is gonna go.
So you have seen a few of the announcements that we have made recently.
We as we think about, you know, as Todd and Keelan have played out, we are really in a great position backlog wise and with limited availability in 2027.
So whoever was now focusing on 2028, 2029, and 2030.
And what is interesting about that is, you know, we are observing at the moment 100% utilization, but there is still time available as time goes out.
The visibility on that is going to change, and I think that is gonna be the inflection point.
When the operators are now beginning to see that they do not have the visibility to rigs in the time frame they need, that is probably the trigger that is gonna help change that dynamic.
Adamson: Yeah.
Maybe, Joe, I will just jump in on the back of Roddie's comments.
I think the point that we need to remember is that, you know, utilization is.
We talk about a prompt utilization typically at 95% or rates will move at a certain point, and that utilization.
But, clearly, we always need to make sure that there is a good backlog of utilization in the out years.
And what Roddie's speaking to is the fact that the opportunities that we are looking at now are in the out years of 2029, 30, 2031.
And so as that develops and as we see more of those opportunities coming through, we are going to see the lead time for contracting awards is going to have to come forward.
And as that takes place, the visibility improves.
The utilization stacks, and at that point, we should be seeing better economics on these deals as we go forward.
that is helpful.
Operator: We will take our next question from Keith Beckman with Pickering Energy Partners.
Please go ahead.
Your line is open.
Keith Beckman: Hey, good morning.
Thanks for taking my question.
Just wanted to hit on you know, the Gulf seems like it is going to be down a little bit next year, right, with several rigs heading over to West Africa.
You know, maybe looking forward a little bit further, do you expect that to be somewhat of a new normal The Gulf is? Or do you think we are going to see more of a return potentially in 2028 within the region? And either way, I mean, what is.
What do you think is driving that Thanks.
Mackenzie: Yeah.
So I will take that 1.
There are a couple of rigs that are already booked to leave.
Right? So it is interesting.
The utilization in The Gulf for us certainly was 100% this year.
We had a few opportunistic fill in wells, which was great.
That helped top up the rig that had a little bit availability on it.
So, yes, we.
We have announced the 2 of ours that are gonna be leaving.
We know that there is at least 1 of our competitor rigs going to....
