Good afternoon and welcome to the Seadrill Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Roche, Vice President, Investor Relations. Please go ahead.

Thanks and good afternoon, everyone. Thank you all for joining Seadrill's third quarter earnings conference call. Before we do kick off, I'd like to remind everyone that much of the discussion today will not be based on -- is based on historical fact, but rather consist of forward-looking statements that are subject to uncertainty. Included on Page 2 of the presentation is a comprehensive list covering forward-looking statements. For additional information and to review our SEC filings, please visit our website at seadrill.com. Now moving on to the agenda; on the call today, you'll hear from Anton Dibowitz, our CEO; and Mark Morris, our CFO in our prepared remarks and in the room with us for Q&A are Matt Lyne, Chief Commercial Officer and Leif Nelson, our Chief Operating Officer. Anton will cover off the highlights for the quarter and provide you all with our views on the market, the shape of the recovery and how we are positioned for it. Mark will then provide an overview of our reorganization and how it has impacted the presentation of our financial statements and the financial performance for the quarter. We'll then open up the lines to take some questions from you all. And with that, I'd like to turn over the call to Anton. Anton?

Thank you, John, and very good day to everyone on the call. Before I go into the highlights for the quarter and our thoughts for the future, given that this is our first earnings call in over a year, I'd like very briefly talk about where we've been. Since we last addressed you all, we've made great strides in positioning our company for the future. The path was long and paved with difficult decisions but we made it through without our premium fleet intact and now the capital structure that affords us the ability to capitalize on the recovery. The end result of this challenging process is a recapitalized balance sheet with financial flexibility supported by significant liquidity position. No near-term maturities or amortization and little covenant risk. Our operational focus never wavered and we continue to contract our assets throughout the process. Our customers saw our restructuring for the financial exercise that it was and we have now emerged in a much stronger position. Before I expand on our view of recovery I want to first take you through some of the key performance metrics and commercial successes for the third quarter. Operationally, we never took our eye off the ball through the restructuring and the same holds true today. We continue to implement technology in our rigs to facilitate improved asset integrity, operational performance and safety, but is a dedicated and focused personnel, both onshore and offshore and their ability to harness those technologies that are driving the high levels of performance you see. As a result, we had another strong operational quarter posting uptime of 98% with no significant downtime incidents. As if not more importantly, our key safety metrics continue to lead our peer group of offshore drillers. Although it will be nice to have more…

Thank you, Anton. Well, good morning and good afternoon wherever you are. As you're aware, it's been an eventful quarter with us -- for us, having emerged from Chapter 11 on the 2 July, our reorganization and Fresh Start accounting and having relisted on the Oslo Stock Exchange, while maintaining a continued listing on the New York Stock Exchange. I don't want to spend a lot of time talking about Fresh Start accounting; however it is just worth highlighting a couple of key points to understand what it is and what it does. Fresh Start effectively treats us like a brand-new company. Our assets and liabilities have been fair valued in line with the distributable value approved by U.S. Bankruptcy Court, which is the value of about $11 billion. It creates adjustments to our assets and liabilities that have a one-off impact to the point of emergence as well as adjustments that will have a recurring impact to future quarters. All of these adjustments are non-cash items. All the business covered in a huge amount of detail in the 6K and F1 documents, we said we're not proposed to go through here, on the site is a complex and technical area. We've included the reference the main returning adjustments as an appendix to the press release, so it can be factored into your model. These will arrive through the OpEx interest expense and investments in associated company lines going forward. Importantly, revenue and EBITDA again will not be affected by any Fresh Start adjustments. The key takeaway here though for our first quarter post emergence is that there were no comparables. So this is our first clean quarter. So now, turning to the financials, out of 35 rigs, 16 were working on average throughout the quarter. Seven floaters have an…

Thanks Mark, while we assemble the queue for questions, I'd just like to request if there's any technical accounting or model-oriented questions that we take those offline. Happy to spend as much time as required with you all to help you understand that. And with that, I will turn over to the operator to take our first question.

We'll now being the question-and-answer session. [Operator Instructions] The first question will come from Mike Urban of Seaport Global. Please go ahead.

Thanks. Good afternoon. So you've been going through the restructuring process, you've seen quite a bit of consolidation in the broader space. How do you see yourselves going forward? Is it mostly executing on the business and now you've got a better balance sheet and liquidity profile or is there an opportunity to participate in the consolidations that's been going on?

Thanks for the question Mike. Look first of all, the consolidation is great for the industry and we welcome it, whether it's done by others having fewer more rational players in the business makes for a bit better business for everybody. It increases contracting discipline amongst the players that are there, generally when M&A happens it gives people a license to execute scrapping that needs to take place, that need to continue to take place. While it's not been a layout hard zone on where we see ourselves in that space, but I think if you can look at our history and now DNA as a company, you'll see that we've very seldom sat on our hands. We have a very active anchor shareholder and if the right opportunity is there, we will certainly take part in. But for us M&A is not the necessity that it has been for some other players in the industry. We've always had a young premium fleet and rigs that customers prefer. For us, it's about if the right value is there and the right deal can be achieved and it fits in with our fleet and our strategy we'll do that, but we certainly don't feel the necessity to do M&A to improve our fleet or to improve our composition. I think others are more driven by that metric. For us, it's really about the right opportunity and whether it makes sense. So we are open to it, but not a necessity I guess somewhere.

And then from a market perspective, historically you had a very strong presence in both of the major markets in Latin America and Brazil and Mexico and continue to. With the political changes there, how do you see the landscape unfolding, especially as it pertains to foreign operators? I was at Petrobras and Pemex begins to continue to be active in their perspective markets, but are you seeing any caution or hesitancy to move forward or maybe at least take a wait and see and either or both of those markets given the political changes there?

Yeah I mean geopolitics and changing in governments is obviously something that we look at very intently in executing our business. Pretty business forward government in Brazil, I think that's good for that future market. The addition of the IOC to Brazil in a large way is certainly going to help drive that market in the absence of Petrobras driving itself is certainly adds to that market. Mexico, we have long-term contracts there. So I think we're just going to have to see how the administration plays out, but the one thing that is true in Mexico is Pemex needs to replace production and replace reserves. We've had a great relationship with Pemex since we've been there in the last seven, eight years and we expect that to continue and we have presence, we have exposure, we have experience in that market and we look forward to continuing to be active in that market going forward.

Great. Thank you. That's all for me.

[Operator Instructions] The next question comes from Greg Lewis of BTIG. Please go ahead.

Yes Thank you and good afternoon, gentlemen.

Good afternoon.

I guess I'd like to talk a little bit about how you're thinking about capital allocation? Clearly you've been -- the focus seems like it's paying down the new senior secured notes, but on the flipside of that, you still have as you mentioned you a lot of rigs, good rigs working, but you also have a lot of good rigs on the sidelines. And I'm just trying to understand how you kind of look down your fleet on the nonworking rigs, how we should think about some of these rigs being reactivated and sort of what types of costs we should be thinking about? Any kind of color around that you could provide would be super helpful.

Sure. I'll give you the headline and then maybe a little bit of color behind that. We will not reactivate rigs purely on speculation until the market justifies. We're comfortable with the rigs we have working. We have significant presence in all the major markets that we're in. We're very focused on keeping the utilization on our rigs that we have out and active in the market where it is, but part of having the financial flexibility that we have is about having forward capital disciplines with where we deploy that capital going forward and it doesn't make sense for us to spend significant amounts of capital to reactivate rigs in speculation without any visibility of work or to reactivate rigs and bring them into a market that the cost of bringing the rig back into the markets doesn't justify. So we look at each contract based on its own merits. What sort of term, what sort of dayrate, what it's going to cost to reactivate the rig? Whether an SBS is required, but until we see the dayrates or a promotional opportunity that makes sense for us to bring a rig back into the market, we're all going to err on the side of being capital disciplined for our cold stacked rigs.

Okay. Great. And then just one other one for me. During the restructuring process, there were a couple jack ups that the company decided to part with, sell get a good price. I guess since then, we've seen actually more improvement in asset values for I guess for jack up rigs at this point. So as we think about potential -- you mentioned potential opportunities, could we also see Seadrill potentially be willing to sell with some more assets as kind of we see some improvements in the market that sort of speed up the deleveraging process?

The one thing we don't do is fall in love and fall in love with our assets. That's why we don't name them after members of management with directives because that makes them harder to sell and I think you can't do that. So if you look at those three jack ups that we divested, we have made a core part of our strategy being a young and premium asset provider of those rigs that we sold even though our fleet on the whole is young and premium. They were on the older end of our jack up fleet. A couple of those units had not worked for a period of time and it was an opportunistic deal for us at the time to divest those assets. I wouldn't read too much into it. We will continue to be opportunistic on either the sales side or even on the purchase side where it makes sense.

Okay. Perfect. Thank you very much.

Thanks.

The next question is from Patrick Fitzgerald of Baird. Please go ahead.

Hi. Are all of your rigs without contracts cold stacked? Are any of them one stacked?

It depends in what timeframe you're looking at. The numbers that are in the quarter was at the end of that quarter. So on the jack up side, we had one rig that was warm stacked. On the floater side, there were four, a couple of those rigs that I think you can expect to go back to work, one of those rigs, the West Eclipse is currently undergoing the process of having a mooring system installed in it. So it's considered warm stack, but it's actually in the yard undergoing an upgrade process. So does it cover it? Does that answer your question?

Yeah. So what are your options with the with the new-build jack ups at this point?

So the new-build jack ups that we have, it is a complicated process, but I think about it this way. Those rigs were contracted in special purpose vehicles in an entities that had direct relationship with the yard. No parent company guarantees back to Seadrill Limited, associated with those rigs. So some of them have been delivered or missed their delivery dates and were in a discussion with the yard about what we do with them. So we view them as optionality for us. There is no -- there is no, although we carry it in the mills, there is no liability for us back to Seadrill Limited other than the initial down-payments we made to build those rigs and we'll continue the constructive discussions we have with Dalian about how we resolve those rigs going forward. But I was view it as an option for us that's how you can think about it.

Okay. You talked about accelerated payments with respect to your new 12% secured notes those are callable in 2021. What kind of accelerated payments can you make?

Well, just to be clear, the note matures in 2025 and it carries interest both pig and cash. The pig eventually accumulation and becomes more and ascends but the redemption mechanisms really all three fold. Obviously there is a make hole, which obviously isn’t really attractive to us. There is a provision or an equity that allows us through the raising of capital either equity or debt at Siegel Limited to take off a large part of the NSNs. And then the other way in which we can do that is through mandatory offers from various assets that we plan to security for the new secured notes and will see not already in part both with which legal proceeds that we use to redeem 126 million of the new secured notes and a mandatory offer that we have to make in relation to a maturing loan that was repaid back to us from Sapura Energy and there we have to make an offer at 103 and obviously generally that will be tendered for acceptance if it's below and not obviously above and at the time, it was above. Off of that, we have an ability to call half of that amount on the NSN's. So there is various mechanisms in which we can take down the NSNs either by realizing cash proceeds, sale proceeds from the sale of securitized assets or through raising capital of Seadrill Limited.

All right. Thanks a lot next.

The next question is from Michael Alsford of Citi. Please go ahead.

Thanks for taking my questions. I've just got a couple of specific questions around '19. So could you give maybe a bit of guidance on where you actually see CapEx of the group for '19 I guess for the countries around and what maintenance spend will be but also some other some investment you needed to make into the fleet. And then just secondly around tax, clearly you're not making much in the way from that profit, but I am just wondering whether there is obviously tax to pay as you're heading into '19 on an underlying basis, thanks.

We don't break out CapEx as we look forward into each year and with regard to tax, look we paid our cash taxes are paid where we operate effectively and closely we're moving from year-to-year depending on where we are operational but and of course it will reflect generally where we're making profit in the basis of which tax is paid. And sometimes it can be deemed profit. So it can be actual profits that will flow us the customs and other taxes that we pay. So I think it is there in front of you we guidance the '19 as pretty difficult. I am sorry, I can't be helpful with your question.

Okay. Thanks. And maybe I can ask a follow-up then around your rights and you're obviously talking about a furthering up of some of the roads versus the harsh environment rigs, but could you give us a sense as to the directional pace of which you think the rates will recover. We are sort of talking about a multiyear recovery or should we think about as sort of end of '19 that's when you're starting to see some regional tightness in some of the rigs, some classifications within the market, thanks?

Well, I think what we can say and as I've said in my prepared remarks, we already are starting to see tightening in rates. It's difficult to predict and those who prognosticate about the precise shape of a recovery generally turn out to be liars. So it's not -- we're reluctant to get into speculation about exactly the shape of the recovery. What we do know is that the fundamentals are there and signposts are therefore recovered market. If you wind back six months ago, the kind of in the benign ultra deepwater market, the prevailing rates were stay closer to 100 than they were to 150 and what we're already seeing as we saw with the Korean is the right specification of units in the right market that a customer wants, that the rates are closer to 200 than they are to 100. We expect that trends to continue through '19. Utilization levels in all the markets are picking up. Marketed utilization across the global fleet is in the mid 70s in the floater side and trending upwards and if contractors remain disciplined and consolidation is helping that and we're certainly going to play our part in being disciplined and not speculatively reactivating rigs and certainly hear others on their conference call saying that they are going to be disciplined in doing that, I think you can see, you can expect to see additional tightness in the market. Obviously it has to do with the contracted behavior and also continued need for operators to put their rig back to work, but I think -- I don't think it's going to be '19, it's going to continue to be given the timing, the lead time between when contracts are -- when rigs are contracted especially on the deepwater side and when they actually go to work. '19 is going to be a challenging year for a lot of people in the market and we're going to remain disciplined in that, but the dayrates are certainly heading the right direction. They're already solid and the harsh environment market and we continue -- we expect that to continue and that is kind of a more broad-based general recovery in the jack up market really driven by a significant increase in demand driven from the Middle East.

Okay. That's very helpful. Thank you.

The next question is from Renaud Saleur of Anaconda Investments. Please go ahead.

Hello. Good afternoon. I was wondering when you expect the recovery in the ultra-deep water day rates. We've seen that most of your competitors and yourself have significant in essence an improvement in OpEx and that the average dayrate is probably for Transocean, probably for use about 230,000 a day that we need to see evidence of a recovery in the dayrates especially in ultra-deep water. You think it's for the first half of '19, second half of '19? And to follow up on this and your dept, which is at 13% year to call, the 2025, you think you may be able to generate enough free cash flow by 2021 to be in a position on that to exercise a call?

I'll handle the first one, I think it's very similar to the last caller. We are seeing increasing utilization levels in ultradeep water, rates pushing towards $200,000 a day, which is already a significant step up from where they were six months ago. We're certainly bidding higher in the second half of '19 and into '20, significantly higher and even though given that we're bidding those dayrates, we're still having constructive discussions with customers at those rates. So I think that the key indication for us and on where the market is going.

So I think just to try and try out your last part of your question Renaud, obviously we sort of triangulate around three things, where dayrates are going i.e. the speed of the recovery, the ability to reactivate rigs and spend upfront cost in order to generate more EBITDA and revenue and preservation of liquidity while we wait for the recovery and that is something you look at very carefully because we know that we have to balance carefully the need to bring rigs out at the right time to generate the improving dayrates or when dayrates have improved. But as we sit here today, I think we're comfortable and against the background of looking at the NSNs the 12% notes it also where it is obviously if we -- we have other ways in which we can retire those particular notes, but affordability versus economics is afraid we look at while we wait for the recovery and that's the position that we've taken adopting as we sit here, we're confident with the various tools that we have on our disposal and another things that we can do, but we should see the recovery before obviously we get to out on the grass as it were.

Just around on cost environment you're about $300,000 a day, I guess harsh environment was more 2014 around $700,000 a day, do you expect to go back somewhere in the middle, with extra potentials you from on harsh environmental rates.

I don't want to get to again prognosticating about where they could go. I think what we would say is we were at the bottom of most markets and coming off heading towards mid cycle. I think the harsh environment market is certainly leading that and I think you need to look at reinvestment when you go the economics to look at the potential of where dayrates in any of the markets including harsh environment could be going. It's still an expensive proposition to build a high specification unit and especially so in the harsh environment and with continued tightening of demand ultimately in the long run dayrates should trends towards reinvestment economics.

Just a final one, you said your average OpEx is 130,000 a day on floaters, is it 130 for harsh environment as well?

120 I think was our average and obviously that is an average across the fleet and there is quite -- that's a blended rate across the fleet. It changes by jurisdiction especially, as a cost differential between Norway. We are carrying an extra crew versus other parts of the world, depending on how much crew regulation. So north of that in Norway, South of that in some other places. The average across, even harsh environment in U.K., it's harsh environments and it's lower than Norway as it East Coast, Canada.

Given that you make 300,000 a day in harsh environment, does that mean that you may be at 170 operating pass through already on harsh environment?

We're not going to break out geographical areas and subcategories of our floater fleet. We're providing an average and within that, there is a range and I think it's fair to say that the harsh environment in Norway is a higher end of the spectrum of costs and harsh environment generally is higher but U.K. and Canada are lower than Norway.

Okay. Thank you very much.

The next question is from Piotr Ossowicz of Ironshield Capital. Please go ahead.

Thank you for taking my question. I understand that this might be a bit too early to give the guidance for 2019, but can you give us a bit more color on where should we expect the cash flow and the cash position moving in Q4 regarding CapEx stocks, working capital and the another components?

We've given in the guidance that we've given, I think there is plenty of our competitors that given their guidance at all, but it's coming out from someone that's been silent for a year as we've gone for restructuring. Obviously the only guidance we're giving is the two pieces that I've given, one on EBITDA and one where we are on G&A for the year or the run rate for the year, but I don't think we're going to be staked out in the sun on individual items. There's obviously lots of moving parts and we'll go ahead around certain figures.

All right, but overall, it sounds like to the partial repayment of the bones, should we expect CapEx to be flat from September to December?

From September to December, yes it should be broadly flat.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to John Roche for any closing remarks.

Thank you and thanks everyone for joining us on our Q3 earnings call and this concludes our call. Thanks again everyone.