Transocean Ltd. (RIG) Q3 2026 Earnings Report, Transcript and Summary

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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.

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. Adamson. 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. Adamson. 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. Thad.

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. Keelan.

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.

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.

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. Thank you.

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.

Great. Thank you. 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.

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.

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. Great. Thank you. that is helpful. Thanks. Thank you.

We will take our next question from Keith Beckman with Pickering Energy Partners. Please go ahead. Your line is open.

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.

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 be leaving. And this is because places like West Africa and you know, the Mediterranean and potentially Asia, are really heating up. So they are a significant draw on these rigs. So if there is any idle time on these rigs going forward, I think it gets snapped up real quick. I think, basically, what happens is these mobile units move where the work is. And at the moment, the urgency for the work is perhaps not in the Gulf of Mexico or Gulf of America right now, but we do think that the fundamentals of the basin are solid. there is been a number of kind of developments kicked off, and we do expect that a lot of the big guys especially, are looking for longer term development work. In the Gulf, it is just a question of does that transpire into a contract in a timeline that keeps the rigs here, or do they go elsewhere first and then perhaps come back a bit later? As the availability tightens up?

Yeah. Keith, I also think to Roddie's point, the long term for The US Gulf is strong. When we look at the prospects, our customers are focusing on for the next decade, 2030 and beyond, it is clearly the Paleogene, and the assets that are required to drill those prospects are clearly the high spec end of what we own. So while you might see some of these high spec units leave for the work that Roddy is talking about, as our customers start improving, increasing their exploration spend, and there is a lot of conversations happening about that today. Where our majors are looking at their prospects, looking to see if they can tie back into existing production hubs and then obviously addressing future potential. You know, we see the basin being very strong for many years to come.

Okay. Awesome. that is really helpful. And then my follow-up, I just kinda wanted to check back in on energy security and how you guys are thinking about that now with customers. But, you know, following, you know, kind of the KG2 contract that you guys had. Right? I mean, are you guys seeing NOCs start to try to move faster towards FID given energy security risk right now or maybe any urgency within those projects given a going on? Just any thoughts around that in Southeast Asia, but also more broadly anywhere else. That we should be thinking about as well?

Yeah. Yeah. Very much so. I mean, so look last year and beginning of the year, you saw you know, the Petrobras' of the world moving quickly, really awarding a tremendous volume of work deciding on their long term plans and getting after it. You know, this year, we are seeing the same thing. In other places. So a good example is India, for example. You know, there is $9 billion has been earmarked for funding for basically, large scale exploration and development of their resources. And, it is all linked to domestic production and you know, the issues that we have seen in the Gulf Of Hormez. The Strait Of Hormez, sorry, the other places around the world, particularly Ukraine conflict, is really bringing into focus the concept of domestic production and being self reliant. So you know, with that said, we definitely are observing the NOCs getting after it. We actually would say that, you know, in India, ONGC moved very quickly from when they got the bids finalized for that tender to actually making the award recognizing the scarcity of the rigs available. So we think there is gonna be a lot more of that. We think, basically, those that move quickest are the ones that are gonna secure the assets and those that do not are going to be disappointed.

Yeah. And I think we are also seeing some NOCs learning how to scale up. Right? And so the, you know, Petrobras of the world, the Equinor of the world, they are used to you know, building volume pursuing long term objectives, in a steady fashion. And I think some of the other NLCs around the world are governed by their procurement processes and, of course, that in itself needs to be addressed to accelerate their ability to be able to acquire the assets and start this work. And so I think they are looking at all possibilities to ramp up as soon as they can, and they are absolutely committed to these energy security initiatives that they are. That they are now executing. Awesome. I will turn it back. Thanks, guys.

Thank you. We will take our next question from Eddie Kim with Barclays. Please go ahead. Your line is open.

Hi. Good morning. So 1 of your peers recently indicated that the deepwater market is firming up despite very limited demand uplift so far this year from higher commodity prices. Would you agree with that? And if so, when would you expect operators to really start stepping up their rig contracting activities given the elevated commodity price environment?

Yeah. So, look, the elevated commodity prices are you know, they are either best based on a macro brand or movement or temporary global issues. And you know, I think what we have observed and think if you talk to any of our customers, they are very focused on being disciplined in terms of matching their contracting activity to their approved development activities. And that is important because they are not using the current commodity price to justify project. They are grounded in a very realistic long term outlook which is actually great for our business. It would be interesting that you know, our business would uptick heavily because of these, you know, recent oil prices, but it is not particularly useful in the long term. What we are looking for, especially in this market, is long term stable contracts at attractive economics that just makes sense, and that is basically where the operators are today. They are not kind of doing the knee jerk reaction. There are 1 or 2 that have taken some opportunistic wells to increase near term production, which is you know, commendable. But for the most part, everybody is viewing their big commitments on a long term outlook, not on something that is happening in the near term. So we think that is extremely encouraging for our business because it means that the uptick in contracts that you have seen now which is actually a banner year, best year for us in 10 years, is going to be the way going forward. This is the normal that they are working to, and they are justifying this on breakevens that are $50 and below. They are not talking about justifying things at $80 or $90 a barrel. So we actually think that is extremely positive.

Yeah. Yeah. I think, Eddie, it is a lot about reserve replacement conversations right now. it is about energy security. it is about, you know, how are we able to supply the energy to the to the world's demand, as opposed to the spot market pricing. Right? Our business is very long lead, and our customers have been very, very disciplined. Disciplined. In allocating that capital, and they will continue to do so. Albeit that probably upstream and particularly deepwater is gonna attract more of that investment as we move forward.

Got it. Got it. Understood. My follow-up is just on your cold stacked assets. I think you had previously talked about reactivation of 1 of your cold stacked assets. Probably not being a 2027 event, but more likely a 2028 or 2029 event. Just curious if your thoughts there have changed at all. I mean, just with your recent fleet update, it does not look like you have much availability really at all, in 2027 besides the Mykonos. So just curious if, thoughts on timing, has changed even in the past 3 months or so.

Yeah. I mean, I would I would say, you know, let me say--first and foremost, we are not going to reactivate 1 of those cold stacked ships speculatively. it is going you know, if the demand in the market requires more capacity, then, you know, clearly, will see utilization building in the out years like we have talked about where we see, you know, really tightened visibility. in the out years of 2029 and beyond. And as we think about cold stack reactivations, we think about the lead time to get them restarted and available to work. You know, that is 12 to 15 months. So I think I think we are still in the same mindset. 1, it is not going to happen unless there is a contract, and we are gonna recover that investment. And 2, it is probably not happening in the next 12 months anyhow.

Yeah. And I will just add to that. You know, we are not in the habit, and we will not be creating the habit of plundering hundreds of millions of dollars into reactivations. On questionable economics is Keelan points out, we are going to be very disciplined in this approach. We are only gonna do it when it makes sense and the returns are guaranteed. So do not expect to see us do it just yet. We will wait for the right moment. Understood. Great to hear. Thanks for that color. I will turn it back.

Thank you. We will take our next question from Gregory Robert Lewis with BTIG. Please go ahead. Your line is open.

Yeah. Hi. Thank you, and good morning and good afternoon, everybody. Yeah. Roddy, Keelan. I was hoping you could talk a little bit more about what you are seeing in the North Sea. You mentioned you have a couple rigs that have you are rolling off contract in a year. You know? And it just seems like the other day, you were moving rigs to all Australia because the North Sea was kind of softening. I guess just kind of curious as we are hearing that the North Sea is selling out What type of durability or duration are we seeing in the North Sea in terms of longer term opportunities to put rigs to work, and even though I know we do not wanna talk too much about pricing, but in a market that is sold out, it is thankfully higher there. Thanks.

Yeah. Okay. So North Sea, I will deal with Norway first. So we are you know, basically operating at near full capacity. For the high spec rigs. And what we are seeing is there is basically an number of kind of direct negotiations and long term partnership deals being struck. So you have seen several announcements from ourselves and our competitors over the last 6 months that all point to long term stuff. So that just kinda tells you that you know, in Norway, we are we are experiencing the high utilization but now we are getting to see the really strong visibility. So that is, again, very positive for those dynamics. You know, as you point out, we do have a little bit of availability left but we have already announced that 2 of our rigs that had previously left Norway to go overseas are coming back. So, I mean, that is kind of the beauty of this class of fleet that we have and mobile nature of our units is that when it is not working out, they can go elsewhere. And when it is, then they will they will they will come back. So we are excited to bring them back. We are excited to expand our footprint in Norway again. And we are excited at what other opportunities are there. Real quickly on the on The UK side of the North Sea, you know, there is a glimmer of hope. You know, the government has not been particularly helpful over the last several years, but, you know, the Jackdaw sanctioning and then, of course, the confidence that people are building in the Rosebank decision means that The UK as a pretty good chance of adding some capacity there. it is just gonna be a question of whether there is rigs for it. So that market is in good shape as we switch from the concept of utilization to forward availability.

Oh, okay. Great. And I realized the Valaris transaction is not yet closed. Are you guys entertaining questions on jackups, or should I ask something else? Yeah. Obviously, we are operating as a. In the companies until we close. Gregory, but happy to take any questions on the jackup, please, at a future point.

Sure. Okay. So then, you know, Rodney, maybe this question is for you. Clearly, we are hearing a lot more about the opportunity for exploration drilling as we look out into 2027 and 2028. You know, I guess I am kind of curious what your views are. You know, if we were you know, and I know this is. it is hard to pinpoint because rigs go back and forth. But as we think about the global fleet, do we have any sense for how much of the fleet is kind of operating in exploration? And then realizing that, hey, drilling a well in West Africa is different than drilling a well in The US Gulf Of Mexico. Is there any kind of way to think about how long. How much longer an exploration well takes than, say, a development well? Is a 20%? Is it 30%? Any kind of color around that because it does seem like we are gonna see a lot more exploration here. Over the know, next couple years. Thanks.

Yeah. that is very true. So we are seeing that. Right? There are several of the rigs are moving to that kind of mode. And a lot of the new things that have been sanctioned are going to be about exploration. So for example, the work in India, you know, a lot of stuff that is happening in West Africa is additional exploration work. So yes, a new location and you are exploring the nature of it, it is. Has a chance of running longer, has a chance of being more difficult, but you go into development mode, you are also completing wells. So there is an element of that kind of balances that out. So very, very difficult to say if there is a difference in duration. But it really depends on locations and also what well programs look like in terms of, you know, development stuff. Of course, development stuff you do over and over again, so you get better at it. Typically, you conditions more, so you are maybe perhaps a bit more efficient. But, yeah, I think that is a hard 1 to call. Yeah.

it is a great question, Gregory. it is basin by basin as you rightly point out. Obviously, exploration well designs are more conservative. As opposed to development wells, which obviously they have the ability. The operators have the ability to drive a lot more efficiency as they understand more about the reservoir. So on conservative wells, they typically will take a little bit longer depending on the basin. But, of course, you know, on the successful exploration wells, then there is logging programs and potentially testing programs. And so that obviously extends the duration as well. So it is why it is difficult to really talk about how long an exploration well can go because it really depends on the success and whether the geological targets are what they expected to see. But, I think it is fair to say they typically go they go longer. Okay. Super helpful. Thank you very much. Thanks, Gregory.

Thank you. We will take our next question from Fredrik Stene with Clark Clarkson Securities. Please go ahead. Your line is open.

Hey, Keelan. Thad, Roddy. First, congratulations on getting all the I guess, paperwork done in relation to all the different antitrust processes. I am sure you are looking forward to some actual integration instead. So I will be eagerly watching the post and completion towards the end of the month. But for my questions, I wanted to be a bit specific on rigs. As you pointed out in your prepared remarks, you have very good coverage on 27 already. there is some I would say, know, a gap on the Deepwater Atlas in the 2027 program and then 28. And you also mentioned the Mykonos as the only rig being available over the next 12 months. That is potentially set for a term program or have the opportunity to do a term program. So any color that you could give on those rigs in terms of the chance of filling that Atlas gap? Or for the Mykonos, should we expect the gap before a new contract on that as well? Or do you feel like you have line of sight to opportunities that would be closer to direct continuation.

Yep. Hey. There are no shortage of opportunities for both rigs. So there is. The likelihood of gaps is very low. it is just a question of what the right opportunities are. But, yeah, the Atlas, typically, the gap is real small. We have got plenty of interest to fill that gap. And it is really just a timing thing, know, it is on a well based contract just now, and it moves to a term based contract a little bit later on, but there is possibilities for all of those things to move. So that is dynamic, but, you know, likelihood of a gap is pretty small. Thinking about the Mykonos, she actually has options on her. So those have not been struck yet. So we wait to see what happens there. But again, we think as 1 of the few rigs active and working well and available, there is pretty low risk of gaps on her. If they were, it would perhaps be just for changing operator type gaps rather than significant idle periods. So feeling pretty good about that.

Yeah. Frederick, I would say, oh, you are talking about Atlas being 1 of the highest spec rigs in the world, the highest spec rig in the world. Right? So anytime that she might have available, that she might have available, I think we have demonstrated this year that the high spec rigs in The US Gulf we can get them busy. And in opportunities in particularly The US Gulf, and if you think about Brazil and the conversations we are having with activity in both of those areas, we are not we are not concerned about any significant gaps that could develop on those rigs.

Very happy to hear that. And as a follow-up to the to the rig specific, and maybe I am just trying to be, you know, too clever in a way here. But I think you said, though, the 12 months, was the only 1 with availability for a term program, as I mentioned. But I guess, technically, the Mykonos does land in October, next year. Should we interpret that as a new program already being in line for her? Or, again, I am I am just trying to read too much into the details here.

I think you have tried to read too much into the details. She's actually more likely to be right towards the end of the year. But. Yeah. that is just yeah, semantics.

Alright. Thanks. And if I may, just 1 more, if I may, as well. You are targeting around $200 million of synergies from integration with Valaris. But are you able to give some specifics on potential integration costs. I am sure there will be some costs there, 1-off in nature, as you do the integration work. So if you have scope, that would be very interested to hear. And also if that is in any way reflected in this stand alone guidance of some sort?

that you have given? Yes. So to your Last question first. it is not reflected in our guidance. But if you have noticed over the past 3 quarters, we have called it out discretely. As we approach an opportunity here to provide more fulsome guidance on the combination, we will consider advising what the, integration costs are going to comprise. Alright. Appreciate all the color. On everything. Thank you very much. Have a good day. Thanks, Frederick.

Thank you. We will take our next question from Noel Augustus Parks with Tuohy Brothers. Please go ahead. Your line is now open.

Hi. Good morning. You know, thinking back over what has been a very eventful years in the oil markets geopolitically. And yet sort of the strip behavior has been a little bit unexpected, at least for me. So I am just wondering, it is kind of with the benefit of hindsight. You have a. In terms of sort of the energy security motivation with the NOx, Do you have a sense of when maybe they sort of really got religion on that And I am kinda looking at the. Say, back end of the 24 month strip where it is looking finally more solid than it than it had been for, you know, much of the year. Kinda with the war going on. So I just wondered now with the with some time behind us, when do you have a sense people caught on? Like, okay. This is definitely something we are going to have to address that is not going to be a, you know, short term phenomenon in terms of the war's effects.

Yep. Look. Look. I mean, so things have been trending back towards oil and gas for a couple of years now. Right? So if we are if we are brutally honest, a lot of the other energy ventures have not panned out. You know, initially with very heavy government subsidies. And you know, not able to turn a decent margin at that point. And then, of course, when some of those subsidies dry up, then, you know, the economics look even worse. So I think there was a. there is just been a gradual movement back towards oil and gas and in particular domestic production. And, you know, the recent events you know, certainly the last 12 months have brought that into a much sharper focus. So I would say that it is it is we have commented on it a lot. You know, our customers have commented on it a lot. I would say probably about 18 months ago, there was there was really a big shift back towards hydrocarbons. And that has only accelerated in the recent round of, you know, energy capital days and budget updates from the majors. So, yeah, very welcome, very overdue. But it is logical, and it is based in reality now, whereas before it was perhaps a little bit aspirational, if you would, rather than realistic.

Yeah. I think the conflicts served to amplify the situation that we-- I think we have all seen coming with reserve replacement percentages being at all time lows for a very long period of time. Right. And I think as those as the demand started to increase, it was a con. It really became a concern on supply. And then the conflicts amplified the situation, to be honest. So we see it as a much more longer term kind of pivot in the last few years.

Great. Thanks. it is it is helpful because there are just enough various moving parts in kind of the equation of how the fundamentals play out that it is it is helpful to sort of get that perspective on the earlier roots of the upturn. And, yeah, in terms of Valaris again, I am I am just wondering, you know, the answer of the market dynamics you have discussed already, I just wondered are there sort of any metrics you are keeping an eye on that sort of help validate to you yeah, Valaris is going to prove ultimately to definitely be a bargain. In other words, just anything that you. You have seen as you have you know, had more and more time to look at the assets that you are particularly excited about. Know, with the combination.

Hey. Just, I mean, on the. You know, Volaris have recently announced a few very strong contracts, which are great, particularly in the jackup market and we. Somebody had asked about that earlier. We are not really in a position to comment on the details of that. But you know, we are we are excited about the combination for a number of reasons on the floater side, but also on the jackup side, you know, that market appears to basically have bottomed out, you know, kind of last year, earlier this year. And we are very encouraged by the contracts that they signed. So kudos to the team. They have done great there, but you know, we do not really have all the details on that.

Yeah. I think the fundamentals for our decision to want to move ahead with this combination were based on a constructive view, our constructive view of the market and what we felt it was going to be in the coming years. And when we look at Valeris and the assets that they own and operate and their ability to work across very different geographies and customers, We knew we were putting together a top-tier, asset-based company that was gonna be focused on delivering outstanding performance for our customers and finding solutions for what they needed in the go-forward, which we felt was a very productive time. So know, if you think about the metrics that we will be looking at, obviously, we are at utilization and the visibility of the utilization stacking over time and being. You know, Valaris' fleet is largely contracted. Next year. And they have done a very good job of preparing to get their full fleet in operation from early 27. In fact, I think most of their rigs now and their floated fleet is working now at the end of this year. So we believe that we have positioned the transaction timing at an ideal point where they are going to have some contract backlog through 2027, as are we, and then we will be rolling rigs going forward into a very constructive cycle. that is probably as I think about the transaction, I think it is playing out exactly the way we expected it to. Terrific. Thanks a lot.

Thank you. We will take our next question from Jeff Leclabart with TPH Research. Please go ahead. Your line is open.

Good morning, Keelan and team. Thanks for taking my question. I wanted to see if you could provide some more color on the sequential rise in non-allocated O&M, and how should we expect this bucket trend in the subsequent quarters given the commentary on inflation?

Most of that cost is associated with the increased activity we are seeing next year. Roughly 2-thirds of it is associated with fleet spares, and then the balance is associated with some BOP recertifications and maintenance. So it is all associated with the activity levels. And as I mentioned, you know, we have been pretty good about keeping our costs in check. We will continue to scrutinize all of the expenditures. You know, as I mentioned, is sort of straight down the middle of the fairway. But there is really nothing untoward about the, the increase given the assets that are going back to work. Okay. Thank you very much. I will hand the call back to the operator.

Thank you. We will take our next question from Doug Becker with Capital 1. Please go ahead. Your line is now open.

Thank you. Keelan, Roddie, I really wanted to circle back to your expectations for longer duration contracts. When we take a look at contracts this year, the average duration for drillships still meaningful. Meaningfully below 2024. And certainly 2014. If we go back that far. So really wanted to get a better sense Are you seeing these longer durations in formal tenders? Is it more based on conversations today, or is it just anticipatory right now given the logical extension of the tight market we see today?

Yep. Well, I mean, so year on year, we are basically like, last year, we were 245, I think, was the average duration. This year, we are already at 380 as the number of days on the average duration of, contracts. So that is a meaningful increase for sure. Your comparison to the previous up cycle. The previous up cycle is very different. Because at the tail end of that upcycle, the durations had to be very, very long because it was a new build cycle. So nobody was building rigs to bring them out speculatively initially. And then once a few of these bills did come into the market, they were still always talking about, you know, 3-, 4-, 5-year terms. So the comparison to 2014 we are definitely a long way from a new build cycle. So that is not what we expect to see. But if you just go year on year, we are already up, you know, 50-plus percent than we were last year. We do see a pipeline that has several very long contracts in them. So by that, we are talking 2, 3 years. Some even more than that. So in our current dynamic, we consider 2, 3 years to be solid long term contracts. The dynamic to 2014 is not really a comparison in this environment.

Yeah. it is a very different it is a very different cycle we are in, and, obviously, the capital discipline being employed by our customers is. It pulls apart from when it was in 2014. And so what we are seeing and why we are we are constructive is obviously the activity is growing, the demand for assets for development and exploration is driving utilization. The utilization is starting to get booked now for out years. in 2028, 2029, and 2030. And as we start to see that, then the lead time, I think, is an important metric to look at, and how that will increase. As opposed to the number of years associated with the contract. So I think you are gonna see longer term, contracts come through, and I think you are going to see us contract them earlier for longer. In this particular growth cycle.

Now that is really helpful context. So reasonable to be thinking about 2, 3 year contracts becoming more normal. But do not hold out hope for a 5-year-plus. Contracts at this stage. I would probably go with the former rather than the latter. I think the discipline that we are seeing from our customers is their contracting for their drilling programs, for their FIDs. And I do not think they are ready to make any sort of commitment on that sort of scale at this time. Noel. Makes sense. And maybe just a little more color on the outlook for the 20 k completions market going forward?

Yes. Solid. So there is there is more and more demand for that. Certainly, with the increased exploration wells in certain basins, we expect that to continue up. The Gulf of Mexico, so the Gulf of America has got plenty of opportunities there. there is not very many assets that can do it. And then we are seeing an interest from some overseas locations dependent on you know, what the anticipated pressures are gonna be. So there is a few of them are kind of in the balance, but that is relatively healthy position to be in.

Yeah. I think I think when you think about 20 k completions, I mean, obviously, a lot of our customers that are in that arena are talking about the 2030s in The US Gulf as major source of production from those deep reservoirs. So building the exploration programs and commencing the development programs for those prospects will start in the latter part of this decade and, into 2030. So that is probably where the main 20 k completion activity will really fire off. Got it. Thank you. Thanks.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.