Good day, everyone, and welcome to today's Q2 2025 Transocean's Earnings Call. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Alison Johnson, Director of Investor Relations. Please go ahead.

Thank you, Stephanie. Good morning, and welcome to Transocean's Second Quarter 2025 Earnings Conference Call. A copy of our press release covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures, are posted on our website at deepwater.com. n Joining me on this morning's call are Keelan Adamson, President and Chief Executive Officer; Thad Vayda, Executive Vice President and Chief Financial Officer; Roddie Mackenzie, Executive Vice President and Chief Commercial Officer. During the course of this call, Transocean management may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon current expectations and certain assumptions, and therefore, are subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for our forward-looking statements and for more information regarding certain risks and uncertainties that could impact our future results. Also, please note that the company undertakes no duty to update or revise forward-looking statements. Following Keelan and Thad's prepared comments, we will conduct a question-and-answer session with our team. [Operator Instructions] Thank you very much. I'll now turn the call over to Keelan.

Thanks, Alison, and welcome, everyone, to our second quarter conference call. As always, we greatly appreciate your interest in Transocean. I want to open today's call by sharing a few of Transocean's key priorities. We are intently focused on several interrelated objectives with outcomes that are entirely within our control, and we are addressing them with urgency and agility. First, and foundational for everything we do is delivering best-in-class services for our customers. Transocean is the partner of choice for operators, requiring expertise in the most technically challenging ultra-deepwater and harsh environment regions of the world, and we are committed to providing the safest, most reliable and efficient operations everywhere all the time. Next, we will continue to manage our portfolio of high-spec rigs in a disciplined and selective manner, endeavoring to extract the greatest value possible from our unique fleet. And lastly, but also of paramount importance, we will continue to improve our overall financial flexibility. To do this, we will achieve and maintain the most efficient cost structure possible. We will reduce total debt as rapidly as we can, minimize interest expense and ultimately simplify our balance sheet. Transocean is differentiated from the competition by both its people and its assets, and our customers trust us to deliver in the world's most technically demanding environments. Operators select Transocean because of the exceptional synergies created by our people and our assets, leveraging our technology and innovations to drive consistently high performance. This powerful combination is our value proposition, differentiating our product for both customers and investors. We take exceptional pride in being the preferred offshore drilling provider and being recognized for delivering the highest quality and most efficient solutions. Just last week, Beacon Offshore Energy announced it commenced production from the Shenandoah field, which was drilled by one of…

Thanks, Keelan, and good day to everyone. During today's call, I will briefly recap our second quarter results, provide guidance for the third quarter and conclude with an update of our expectations for the full year. During the second quarter, we delivered contract drilling revenues of $988 million, in line with our guidance at an average daily revenue of approximately $459,000. At $599 million, our operating and maintenance expense in the second quarter was below our guidance, primarily due to lower costs resulting from delays in in-service maintenance across the fleet and lower-than-expected costs for out-of-service projects on Transocean Endurance and Deepwater Invictus. G&A expense in the second quarter was $49 million, again, in line with our expectations, and we ended the quarter with total liquidity of approximately $1.3 billion. This includes unrestricted cash and cash equivalents of $377 million, $395 million of restricted cash, the majority of which is reserved for debt service and $510 million of liquidity from our undrawn credit facility. I'll now provide guidance ranges for the third quarter and an update on our expectations for the full year. For the third quarter, we expect contract drilling revenues to be between $1 billion and $1.02 billion based upon an average fleet-wide revenue efficiency of 96.5% on our working rigs. As you know, revenue efficiency is affected by uptime performance, weather and other factors. This revenue estimate also includes between $60 million and $70 million of additional services and reimbursable expenses, which tend to carry low single-digit margins. The expected sequential increase in contract drilling revenues is primarily due to additional in-service days for the Transocean Spitsbergen as it completed its 15-year SPS in June and 1 additional calendar day in the third quarter. These are partially offset by lower projected activity for the Deepwater Skyros and…

Thanks, Thad. Before opening up the line for questions, I want to reiterate that we are focused on addressing several key priorities with urgency and agility. Our team is committed to best-in-class services for our customers. We worked hard to earn their trust, and we intend to keep it. Our asset portfolio is unrivaled. We will continue to take a long-term view on the market and remain disciplined as we consider future contract opportunities. As you can tell from today's comments, our outlook for late 2026 and beyond is very constructive. Lastly, we are strengthening our balance sheet and improving our capital structure. We have high confidence in our ability to add to our backlog, and we intend to efficiently convert it into revenue, maximizing cash flow to reduce our debt as quickly as possible. In conclusion, we are deeply committed to delivering for our customers and shareholders. We have a strong team focused on executing a clear plan to create long- term value. Alison, please open the line for questions.

Thanks, Keelan. Stephanie, we are now ready to take questions. [Operator Instructions]

[Operator Instructions] Our first question will come from Eddie Kim with Barclays.

Just wanted to ask about your expectation on the trajectory of leading -edge day rates here. We've been in sort of the mid- to high 400s for some time now, but have recently seen a moderation into the low 400s level. You provided a very constructive market outlook and mentioned in your prepared remarks, you do see utilization of drillships reaching 90% by, I think, late next year. So fair to say you expect leading-edge day rates to return back to that mid- to high 400s level by end of next year? Or just curious on your thoughts on the trajectory there.

Ed, thanks for your question. As you know, we have a history of being very judicious in how we apply and select and deploy our assets into whichever project. And I think what you're seeing today is some of the white space that we all anticipated. It's no surprise to us that we were there, that some of those rates are probably a little bit lower than what we've seen in the past. And I think what we're going to see going forward is that capacity being absorbed. The future projections for activity is very, very positive. We're going to see more of the active fleet being contracted. And as we move out into the end of this year and into 2026, we're going to see a lot more contracting activity and tendering activity for the out years of '26 and beyond. As it pertains to rates, I'll let Roddie pertain -- let him express his view on where the rates we think will go right now.

Eddie, yes, so just to follow up on Keelan's comments there. So as we think about the utilization, as you mentioned, we dipped down a little bit here. We're actually expecting that the bottom of this [ V ] is practically speaking, upon us. So we think that utilization is going to bottom out somewhere in the mid-80s as a percentage which is only for a relatively short period of time. And I think if you look at all the projections and certainly a lot of the things that Keelan touched on, we would expect things to recover from there. One of the things that we mentioned about day rates is not just being very disciplined on what we're bidding, but it's the overall economic package on these tenders that we're evaluating. We have a very robust process between our various groups, our engineering group, our operations group and several other departments of the company. But it's very important to us that we take the holistic view that we look at all of the expenses that are associated with these tenders. And typically, the bottom of the [ V ] is when the worst deals are made. So we apologize for not making as many long-term deals right now. We're much more focused on gap fillers at the moment. But certainly to drive long-term value for the company, we don't think now is the time to aggressively pursue long- term deals, especially those you've seen some recently announced that had a very significant amount of upgrades required. But rest assured, we'll remain disciplined in that regard and make sure that we're very aware of all of the expenses associated with projects and upgrades.

Yes. Maybe just to add to that, Eddie, as you rightly point out, utilization needs to bridge that 90% mark, maybe a little below that before we start seeing good pressure on day rates. So as we move through the year and the contracting continues, you should expect the rates to improve. Certainly, from our side, we'll be looking at it strategically from a term and location and a customer perspective to drive the best value that we can get from our unique fleet.

Got it. My follow-up is just on the Proteus and the Conqueror, 2 of the drillships that are currently in the Gulf of Mexico and set to come off contract kind of mid to late next year. We've seen a handful of multiyear contracts signed by your peers in the Gulf of Mexico recently. And just based on your outlook for that region to be kind of stable going forward, do you expect it's likely that those rigs will stay in the Gulf? Or could they move elsewhere?

I think Roddie is jumping at that one.

Yes, we do expect them to stay in the Gulf of Mexico. We have customers who are quite interested in that class of asset, and we're pursuing a couple of different things at the moment. So we are cautiously optimistic that those rigs will be extended right where they are.

And maybe just to add to that, Eddie. You're talking about 2 of our highest spec units in the fleet and in the world's industry. The Conqueror is right at the top, right behind our eighth generation units and the Proteus has obviously been performing really well for our customers. So our crews, our operation from those rigs is stellar. And I'm sure there'll be a significant demand for those 2 assets.

Our next question will come from Doug Becker with Capital One.

Maybe a couple for Thad. Just curious on potential proceeds from some of the rigs that are slated for disposal. And just what are the assumptions embedded in the liquidity expectations that were laid out?

Doug, we do have some nominal amount included in the liquidity forecast. I don't think we've disclosed the total amount for the rigs. But generally speaking, when rigs go to recycling, it's about a cash breakeven type of a transaction. So in the ballpark of probably $8 million to $12 million per asset, generally speaking. Certainly, if we have an opportunity to transact and to dispose of those assets into alternative functions, those numbers could be higher, but we would announce that as and when that would happen.

Got it. So don't assume anything beyond kind of breakeven at this point?

That's correct.

And in the past, you've given some color on when we might get to 3.5x net debt to EBITDA. Just any update on those assumptions and certainly appreciate it's been an uncertain market.

Yes. No change. The objective is to achieve that metric as soon as possible so that we have the option to consider distributions to shareholders. Generally speaking, I think we're probably still in the late 2026 time frame for that.

Our next question will come from Greg Lewis with BTIG.

I wanted to pivot a little bit about this. Kind of curious on your views. I want to go back a couple of years ago when you contributed that -- I believe it was the Olympia for deep sea mining. Kind of curious, just given what we're reading in the news more recently over the last couple of months, like what -- where does that -- is that something that Transocean is still involved in? And if so, maybe could you maybe provide some updates around that?

Yes. Thanks, Greg. Yes, we're -- obviously, as you picked up, the Olympia is still in that arrangement that we have. We're seeing a lot of press as you are on deep sea minerals and potentially the U.S. administration pushing to advance their agenda in that regard. I'll push it over to Roddie here. He's responsible in that area, and will answer your question.

Yes. So we continue to pursue our technical solutions for doing this kind of recovery. But yes, having that asset in the JV is very useful for us also gives us that optionality. But these things do take a little bit of time. We have to be honest about that, but we are excited to at least have that adjacency available to us. And should it take off, if it does, then there is the possibility of additional vessels going in there. Typically, there would be our kind of lower specification drilling rigs that are actually perfectly adequate and actually quite well specified for this kind of a venture should it take off at some point in the future.

Yes. And I think, Greg, the -- as Roddie indicated, obviously, it's a fairly elongated process, and it has to go through a lot of regulation. So when you look at our core business and you see what the drilling activity looks like it's projected to do in the next couple of years, we're very focused on the core business and maximizing our opportunities in that.

Okay. Great. And then just realizing your fleet is very well contracted. But I guess there does seem to be -- so I mean, I guess it's not maybe a specific question to Transocean, but maybe about the market, which is kind of indicative of maybe where we're headed. Could you maybe talk about, as you look out over the next 2, 3 quarters, any things we're seeing in terms of spot activity? And are there certain pockets? Is it certain types of customers? Is it exploration? Just kind of if there are any kind of spot tenders or they're not even tenders, right? Spot jobs you're tracking, what's kind of the makeup of those?

Yes, sure. I'll take that one. Yes, so there are a number of spot jobs, and you would have seen that we picked up a couple of them, basically an extension of one of the rigs in Brazil and also picking up the Murphy work in Ivory Coast. As we look at that kind of stuff, there's been several in the Gulf of Mexico that we think are just kind of add in wells. Typically, when you have a mature basin that has a lot of prospects, a lot of development there, there's often work that comes up to kind of do remedial work on wells or recompletions of that kind of stuff or stimulations to increase production. So we have seen plenty of those happen over the past couple of years. We know that there's several others in places like West Africa, which in general, is actually looking really positive at the moment. We've got -- there's kind of 4 tenders coming up for Nigeria or I think one of them has been awarded already, but Mozambique has got 3 and Ivory Coast has got 2 and Ghana has got 2. So there seems to be quite a lot of stuff there in terms of decent long-term activity. And we are seeing a number of these kind of 6- month opportunities, just like the one we just signed that pop up in places like that. So it makes a lot of sense for rigs that either have those longer-term contracts available to them or are kind of rolling off hot rigs at that time frame, then it's kind of a win-win between the contractors and the operators to pick up an operational hot rig that's doing well and punch out a few wells.

We'll take our final question from Noel Parks with Tuohy Brothers.

I was just thinking about compared with where things stood heading into 2024 when we had such bullishness around prices and hitting new hurdles on the upside for day rates and where we are now, where you see good visibility to 2026 being hopefully the wrap-up of the slowdown. So with the benefit of hindsight, would you say this sort of slower couple or 3 quarters is more typical of a service driller business cycle? Or would you say it was more kind of like a ripple effect of sort of flow-through from the dislocations of the pandemic. Just curious your thoughts on that.

Yes. Thanks, Noel. No, I wouldn't characterize it as conventional cyclical activity in our business, I don't think. I mean, you have to look at the rates and what we've set, and we're nowhere near those rates that we were in the pandemic period or even before then. The rates are very, very solid, albeit a little less than what we saw in the last couple of years, and that's simply because we have a little white space. There are some rigs rolling off. There's opportunity. I think there's been a lot of capital discipline based on volatility in the market space, whether it's related to tariffs or related to OPEC or related to oil production and needs. So no, not at all. I think as a reminder, the Deepwater game is a long play. The reserves are big. The investment is large and the lead times for the work and approval process is quite extensive. And so I think the projections are all pointing towards our operators, our customers are starting to get back into the FID process. They look at it with a long view on oil price and what the world's demand for hydrocarbons looks like. And all of those are positive indicators for continued constructive growth right now. Roddie, do you have anything?

Yes. I think I'd just add to that to say from the operator's point of view, there is a significant amount of turmoil and chop on the commodity price these days. So it's a relatively simple decision to push out noncritical investments another quarter, another 2 quarters just to wait and see what happens. But the one thing that, that does is it kind of adds to that pent-up demand. So it kind of puts you in an interesting spot because you have the possibility of a number of the rigs that have white space ahead of them, particularly if they're a little lower specification, then there's a real chance there that those rigs may be retired. So I think one of the effects you're going to see is rather than the drilling contractors spending a tremendous amount of money on assets that they're trying to bridge a significant period of time, they're far rather more likely to pull those off the market, retire those rigs, which ultimately is going to help the supply and demand and the balance there when we do get a busier time. But I would say, actually, we're looking at the number of tenders that we're answering and we've heard our competitors say the same thing, there really is a tremendous amount of potential out there. So again, we reiterate that -- there's probably a few bargains to be had in the short term. But for long-term work, it makes all the sense in the world that the day rates will be solid going forward. I can't really see how that would degrade materially. And to Keelan's point, we may have seen a 10%, 15% drop in rates over the last couple of quarters. But already, we see some more solid rates are expected to come out as that '27 time frame gets super busy. We expect to see the pickup beginning late '26. And I think you'll see a lot of those tenders answered and announced in late '25.

Terrific. And I'm just wondering, with the we've been seeing these, I don't know if you call them green shoots of greater exploration activity happening across the industry. And you did touch on exploration briefly a bit earlier. But I was wondering, with the BP Bumerangue find, anything you see as sort of unusual or intriguing about that project? And I wondered if -- other than the general trend of hopefully exploration picking up, do you see any implications from that success for either industry activity, CapEx levels?

Yes. Yes, for sure. I mean if you think about -- just take the Bumerangue discovery. So it's a big discovery, obviously, BP saying it's the largest in 25 years. That's a really interesting position that you find Brazil in now. So Petrobras, as you know, is out to tender on several different things, and they've kind of picked up the pace on that. And I think that's partially in response to how many opportunities there are with the IOCs. So that's a relatively new development in Brazil. But we're looking at tenders from Shell at the moment. We're also expecting BP has some additional work that some of it has already been announced and some will probably come as a result of this latest discovery. As you know, we are currently in the throes of the Buzios tender and the [ NEO ] tender is out now. I think what's interesting in that is the kind of the indications are that there could be maybe one extra rig than originally thought being used for the Buzios tender. And of course, with the Equinor tender that's out just now, that was kind of incremental demand as well. So you're kind of seeing these green shoots looking very interesting. There is -- to your point about exploration, there is actually a reasonably good increase expected in exploration wells to be drilled in '26 and '27, about a 25% increase each year. So it appears that as the operators are really shifting their focus back to oil and gas, kind of retooling, if you would, to move into the profitable core business. We are certainly beginning to see those green shoots show up in these kind of prospects.

Yes. And I think exploration activity increasing is great success is even more important and having quite a bit of success recently, BP and some of their exploration activities as are some of our other customers. And that only bodes well for absorbing capacity in the market, whether it's in Brazil or Africa or elsewhere around the world. And so yes, we see it as a big positive.

This does conclude our question-and-answer session. I'd like to now turn it back to Alison Johnson for any additional or closing remarks.

Thank you, Stephanie, and thank you, everyone, for your participation on today's call. We look forward to speaking with you again when we report our third quarter 2025 results. Have a good day.

Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.