Good morning and welcome to the Seadrill Limited Fourth 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 Mr. John Roche, Vice President of Investor Relations. Please go ahead.

Thank you, and welcome everyone to Seadrill Limited's Q4 earnings conference call. Before we get started, I'd like to remind us all that much of the discussion today will not be based on historical facts, but rather consist of forward-looking statements that are subject to uncertainty. Included on page two of the presentation is a comprehensive list covering forward-looking statements. For additional information and to review our SEC filings, please visit our Web site at www.seadrill.com. Now moving on to the agenda, on the call with us today, you'll hear from Anton Dibowitz, our CEO; and Mark Morris, our CFO. Anton will cover off the highlights for the quarter and provide you all with our views on the market, and the progress of the recovery. Mark will then provide a review of the financial performance for the quarter along with some recent announcements. We'll then open up the lines to take some questions. And with that, I'd like to turn over the call to Anton.

Thanks, John. Before we go into the details for the quarter, I would like to touch on a few main highlights since we last addressed you. Operationally we had a decent quarter at 96% for the overall fleets. I would like to thank our employees for their professionalism in what continues to be a challenging market and their dedication to delivering more safely and efficiently for our customers. Our backlog currently stands at $2 billion. We remain focused not only on the quantity but also the quality of our backlog additions. During 2018, we added about $500 million to our backlog at Seadrill Limited while securing additional $3 million on rigs in our joint ventures, investment holdings and rigs which we manage on behalf of others. Again for that backdrop I would like give you a better color regarding the $89 million of backlog that we added at Seadrill Limited since our last earnings report. The West Phoenix was awarded a two-term plus six option well contract with Equinor in the U.K. and Norway, which is expected to commence in direct continuation from the current contract. Three of the options have already been exercised resulting in backlog of approximately $51 million. Based on this award and additional interest in the rig, we are confident that we can secure continuous work until the start of the Neptune contract. This reaffirms our decision to enter into that contract with its 2020 startup more than a year ago. The West Castor was awarded a contract with Staatsolie in Suriname, commencing in March 2019. The total backlog including mobilization is approximately $27 million. The rig is in country and ready to start operations. And we are excited to be reopening a market that has not had a jack-up operating in it for more than…

Thank you, Anton, and good morning or good afternoon wherever you are. So just to remind everyone, this is our first set of quarter-over-quarter comparable results post emergence and after the application of fresh start accounting. Turning to the financial highlights, above 35 rigs, 17 were working on average through the quarter comprising of nine floaters and eight jack-ups. Revenues were up 17%, primarily due to the west Hercules and West Phoenix working on new contracts with higher day rates and for longer. The West Elara working at a higher day rates and Sevan Louisiana returning to service. Operating costs increased 20%, mainly reflecting additional activity in the quarter from the West Hercules, West Phoenix then the Louisiana with each having more days in operation. During the quarter, we also collected a 21 million overdue receivable. This originally related to a written-off receivable from a customer before we emerged and now post emergence, it has been recognized as other income. Now that has been received. Additionally, we have received the further and final 26 million in January this year, it will be recognized in Q1 in the same manner. EBITDA are $73 million for the quarter increased by 59%, reflecting the movements previously mentioned. Our EBITDA was higher than guidance we gave primarily due to $21 million overdue receivable. Actual repair and maintenance costs being lower than forecast for the quarter and the release of certain accruals. And finally, you'll open the press release, the depreciation of $111 million was $14 million lower this quarter, Q3 depreciation was a little higher than normal reflecting cancellations and changes in useful eyes, a certain CapEx projects, which accelerated the depreciation charges in Q3. So moving on to the balance sheet, as always, there are a number of moving parts here and I'm…

Thanks, Mark. Operator, if you could please assemble the queue for Q&A. Thank you.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Okay, the first question comes from Mike Urban with Seaport Global. Please go ahead.

Thanks. Good afternoon. So, [indiscernible] the impact or perhaps lack thereof from the commodity price volatility that we saw in the quarter. I would agree that we didn't really see much in the way of changes from IOCs and [indiscernible] you also talked about just taking away a little bit of the bullish sentiment perhaps. Have you seen any projects or tender deferrals or anything like that as a result of the volatility we saw in the quarter?

Yes, this is Anton. No, not really. I mean there is always and ebb and flow of tender activity in mid-cycle, even the top of the cycle, where certain tenders get pushed backwards and forwards over time. So I think simply I'd say that we haven't seen anything out of the ordinary as a result of the pullback over those couple of months at the end of the quarter.

Got you. And then as it pertains to the global floater market, again, I think there's got some disparate views out there. There are certainly those in the more bullish side that think we're on the pretty significant rate inflection here, I think while although most people would say just kind of [indiscernible] and kind of almost looking like a 2020 event in terms of getting rate improvement on the floater side. I guess where you come down on that subject.

Look, rates have improved since where they were six months ago and a year ago, and that's what we really look at is continue -- I'm not going give -- shape and pace to be determined, but utilization is higher than it was a quarter ago, and two quarters ago, and rates are higher than they were six months ago and a quarter ago. So, as we look at these things over time and we look at the -- when we look at the signposts and the trends -- towards a recovery, I mean, in the floater space, yes, there's a broad-based everywhere every market, no, not necessarily. But for the right rig with the right operating track record with the right customer in the right market, customers are willing to pay more to get the rig they want. They are going out to tender earlier, i.e., increased lead time to get -- to secure the rig that they want to secure for their program. So, I think those are -- they are more willing to pay for mobilization to get the right rig into the right market. They're willing to have discussions about contributing to CapEx and upgrades to get the rig they want and the driller they want to drill their program. So, I think all of those collectively are positive signs. Am I going to sit here today and say this is a healthy market? No, not yet. But when you look at those factors in totality and see them all trending in the right direction, I think it gives us a good feeling and good confidence about the future and where we're headed.

Okay, the next question comes from Gregory Lewis with BTIG. Please go ahead.

Yes, thank you, and good afternoon.

Afternoon.

I was hoping you could talk a little bit more -- I guess, first, congratulations for the JV with Sonangol. I was kind of wondering, could you provide any more color around how we should be thinking about startup times, what may be the potential, I don't know how you want to think about it, how we should be thinking about it on like an EBITDA basis, or just sort of any kind of color you can kind of give us on how we should be thinking about this developing?

Well, as far as startup times, I think as I said in my prepared comments, we see at least four programs where folks are looking to start up rigs between the middle of '19 and early 2020. So I think that's very positive for the JV. We know that there is a visible demand and a backlog at work with the five to seven rigs of demand in Angola going for the next five years, but we need to get with the operators who are looking for programs and market these rigs jointly with Sonangol. But hopefully -- when exactly any particular rig is going to start up depends on which operator and which program we can secure it on.

Okay. And then just thinking about the fact that Angola is a little bit more of a difficult to operate in then some of the other markets that you're in, I mean, should we be thinking about this in terms of -- yes, there's utilization, but what about in terms of like positive drilling margin. I mean, is it safe to think that these contracts are going to be at least above kind of leading day rates which are mid 100s at this point?

I would say that there's a little bit of a [indiscernible]. These rigs will work at market. I mean they need to be competitive, and they will operate at market day rate. What I would say is we have a demonstrated track record. We've been drilling there for more than 10 years, so we know how to operate in the market, and we have very capable assets. The two Sonangol units are high specification, seventh gen, dual BOP units, and we have units that have a strong track record of demonstrated operations with all of the customers who are operating there now. And I guess you could, to the previous caller or the question I answered before, for the right rig with the right drilling contractor, we should be able to secure some fair day rates. And we certainly see the operators who want to get to work, including in Angola, willing to pay for the right rig in the right market.

Okay. And then just one more for me, just following-up on this Sonangol JV, you mentioned the potential opportunities; initially we're starting with four rigs in this JV. Do we think this is -- how much potential do we kind of should we be thinking about over the next couple of years in potentially scaling this up beyond the initial four?

Speaking to me as a former commercial guy, I think the potential is unlimited. We're there. We're very close to Sonangol. It's a growing market and extremely attractive market. Once you have the relationship and you develop it and continued to develop it, I'd love to see more rigs added to it. But we'll just have to see how it plays out.

Okay, thanks guys. And good luck with the tender next month.

Thank you.

Thank you.

Okay. The next question comes from Lukas Daul with ABG. Please go ahead.

Yes, thank you. Good afternoon, gentlemen.

Good afternoon.

I was wondering when you speak about the operators being willing to pay up for the right rig, what in your mind is the right rig these days looking at the programs that you're bidding for? And what do they do if they can't get the right rig, do they walk away from the project, do they start looking at lower spec and push the prices down? What is happening in that -- how is the dynamic of the process?

I'll start with the comments and I have Matt Lyne now, our head of marketing here. So I'll let him -- if he wants to afterwards. I think the right rig is very much dependent on the market that you're looking to operate in. You don't need a brand-new 1,250 ton dual activity drill ship to drill you know, a number of wells in West Africa, which were originally drilled by third and fourth generation semi-submersibles. If you drill in highly technical sub sold wells in Brazil in the Gulf of Mexico, but I think what operators are looking for are the right rig specifications for the program that can deliver their wells efficiently. And that's something different in every market. You don't have to have the newest rig for every program.

I think one of the major drivers, obviously, is the availability of the small window that has a big impact, but if we take a look at two markets that are different spaces right now, the harsh environment market, and you look at the Tier 1 rigs, you get a significant pricing premium for those, because they have better motion characteristics, new technologies, and I think we're all quite familiar with that and that's indicative of where that market sits as a general rate range. In the benign environment, which is a bit more tricky, I think, differentiating factors can be the smaller element. For example, on our units that we have currently working in Asia, we've been able to beat the market on the day rates there, collect mobilizations from the operators, because those units had MPD units on them. So that's our third-generation MPD system, which seems to be the flavor of the month for most operators. So, spending the time and the money to invest in that upfront has resulted in better returns to today, so I think that's where we see where Anton kind of squeezed into the right market to the right rig at the right time.

I mean, you are decently covered on your drill ships, but how do your semis sort of stack up in that context? Can you talk a bit more about that?

No, I think along with -- you know, you see the utilization levels in the dual activity ship market picking up substantially and amongst the marketed supply is picking up in the 70s to 80%. One and a half activity semis are extremely capable units and I definitely see a future for them. They're an effective tool and I can tell you today we're having significantly more discussions about those units than we were six months ago. They also have a place. If you look at our [indiscernible] design units with their -- those are the round units. They have extremely good motion characteristics and ability to operate in high count areas. They can operate at significantly shallow water depths than traditional semis in high current areas. So we see a particular niche for those units going forward. Again, it comes back to the question of having the right rig in the right market. There are certain applications on a long-term development where the dual activity rig if run properly by the operator can give significant benefit, but as an exploration asset especially, with semi-submersibles, with off-line capability, is a fantastic tool.

Okay, and then…

You also have the ability to -- I was going to say you also have the ability in that market and we are looking -- there's a bit of an underserved market because of scrapping -- historic scrapping in that market for rigs that can do a full range of activity. So all the way from ultra deepwater operations in Deep E mode down to more mode and we made the announcements to the -- I guess almost a year ago about putting a mooring system on at least one of the units in our fleet to better take advantage of that market.

Okay. And I agree sort of with your strategy of staying disciplined on the bidding side. But obviously, as there are others being willing to take on work at the let's say, the discounted rates, my question is when you look at the competitive environment now do you see that moving in the right direction in terms of bidding, in terms of sentiment, in terms of people may be starting to demand a little bit more than just purely looking for keeping the rig warm?

Yes, I think it is moving in the right direction. Not everybody for every job, but there does seem to be a little more discipline amongst the industry, amongst our peer group. I will say that -- I did mention consolidation I think that's one of the key reasons why we've always said that we welcome consolidation whether it's done by us or others. Having 10% of the existing fleet essentially redistributed into fewer hand creates pure more rational players who are more likely to make rational and disciplined decisions in that market. So we welcome that, and we fully expect that that consolidation story will continue as you go forward. You need to have a certain critical mass to be a player in this market and in order to effectively be able to provide an asset in all of the major basins and for synergies in your operations by clustering units in particular markets. So I fully expect that the consolidation we've seen over the last 18 months is going to continue, and we welcome that, because I think it will add to the discipline and make a better market for all of us.

All right. Thank you.

Thanks.

Okay. The next question comes from [indiscernible] with Arctic Securities [Ph]. Please go ahead.

Thank you. Just a quick one, can you just please add some comments on the cash flow proceeds in the quarter as the cash drops somewhat and that increased? And also when do you expect a step up in day rates for SEAMEX? Thank you.

I can start with the day rates. Obviously, we did make public that we had agreed to extend our day rate discounts in Mexico in the SEAMEX JV. Mexico is an important market for us and we expect it to be an important market going forward. And part of our decision making has to be working with our customers. I would say that those -- the five rigs that are operating there at 130 and 116 are still attractive rates by market standards. So we will continue to work with our customers going forward because we see potential in that market that and the Pemex to continue to operate there. I'm not sure I quite picked your first question up on SeaMex cash flow. You were -- we lost what you were trying…

Yes, I just saw that the bank debt in Q3 was 318, cash of 109. As of Q4 the bank debt is 333 and cash of 99, so is the negative cash flow in the quarter for SEAMEX mainly due to [indiscernible] or other items?

Yes, I think that just relates to the bank revolver and…

Okay, perfect.

Yes.

Thank you so much.

Thanks.

Thanks.

The next question comes from Piotr Ossowicz with Ironshield Capital. Please go ahead.

Hello and thank you for taking my questions. Just maybe first following up on SeaMex, if I remember correctly, you had previously disclosed the EBITDA of about $123 million for 2017, now looking at the last two quarters, it seems like the level is much higher on the annualized basis. So, more than $250 million, so is there something that makes the seemingly be lower in the first half of the year and whether we should, whether it'd be fair to annualize the last two quarters so or we should expect a lower number going forward?

Nothing in Q2 over the top of my head that should be making it higher, I mean, it's not a number I got to the front of my forehead when you're comparing last year to this year

'17.

'17, I mean obviously you are aware we had a number of direct changes that anything is really going to move to EBITDA as a function of operating uptime and what's the right stuff, but we can look at it and come back to you if it's something specific, but I -- nothing off top my head that makes me think there's any one-offs or so anything more in there.

Now look, you've seen the extension of the day rates at their current levels going out for 12 months. So I think as you roll forward, your projections for SEAMEX, it's best to reflect that, you use the fleet status to reflect that and your most recent data point is best to use versus prior periods.

Okay, this is helpful. And moving on the joint ventures on SEAMEX, and SEAMEX, of course, you have been talking for quite a while about the opportunities of monetizing those assets, either on the equity side or the vendor alone. Has there been any progress in this regard?

We obviously continue to look at it, but it's a question of value and timing. I mean, there as Mark said in his comments, these are joint ventures and investments that hold considerable value for us and we will continue to accrue value in them. You know, obviously like anything else if there is a transaction, which then creates significant value and makes sense for us then we'll take a look at it but there is no need to no rush to do anything.

Okay, that's understood. And moving on to your comments that you are seeing grades being higher now than six months ago, I know that commercially sensitive to disclose the exact level of the rates, but can you give us a bit of a sense, what kind of magnitude of the increase you are talking about, say, mid hundreds, six months ago, and to now this is moving towards high 100s or 200s, just to get a sense like how, what are the tangible indications of the rigs moving.

Look I mean, it's different rigs different markets and I can't speak for everybody's doing but I think broad-based six months or a year ago keep order flow the fixtures behind specification assets, we are in kind of 120 to 150 range. And recently we've fixed rigs closer in that market to 200 than they were to 150. And when you look at the bidding activity, you are not only come up and amongst our competitor. So I think you will continue to see those rates increase over time.

Okay. And then, specifically there was a question about the SEAMEX before, but looking more specifically at seven vessels, do you see any opportunities in this market for them?

I think that the volume units as I said before, based on a design or attractive in particular markets and current areas and traditionally shallow water depth and have traditionally been served by Semis. So we certainly see them as a part of our future going forward.

Okay. And lastly, on the notes tender announcer simply what was the rationale for [indiscernible] tender now? I mean, obviously, you're giving up a bit of liquidity, actually…

Okay, let me just, so this is in relation to the tender. Yes, so look, this is all really about building flexibility for us to be able to repurchase and retire the notes. When you think about the cash that we've got, you something to think about it in twofold, there is an unrestricted block of cash, which would normally sits in what we call [indiscernible], which is a sort of main operating entity and then we've got restricted cash, which predominantly a large chunk of it sits with the new finance code, which is where the, which provides effectively part of the security package to the senior secured notes. What we're really doing is taking something that's closing up the balance sheet, which is liabilities on one side and cash that we can't really using operations on the other and that tender offer will obviously bring that down and let them down, so it's obviously reducing interest. It's retiring some of the notes, which are expensive for us and using cash that we can't really use in our day-to-day operations. So we just making use of being more efficient and netting down possible liability on assets and liability.

[Operator Instructions] The next question comes from Patrick Fitzgerald with Baird. Please go ahead.

Hi guys, could you provide an update on what's going on with the new build Jack-up and Dalian?

So new build Jack-up, as we recall, those are units that were purchased were committed in special purpose entities for us. So there is no recourse back to parents or parent company guarantees associated with them. I would the way we view them as options and an optionality on the future of the market. Now we continue to have a good dialogue with Dalian about their about their future and if the right opportunity were there then we would look at about maybe taking some of those to put them into the opportunity. But for us again provides those optionality on future fleet growth with the right opportunity.

Is there any way to monetize that optionally?

Not really at the moment and I think also with the additional uncertainty around then being an administration I think sort of makes it more complicated but obviously the extent, we represent a position as a as a creditor and probably discussions continue with Dalian in order and respect of…

All right, thanks. On Seadrill -- the contracts can conclude between 2019 and 2024 and obviously you have a very healthy backlog there is it safe to assume the EBITDA levels that you're currently generating are likely to continue into the early 2020s?

Yes, for the bulk we have a couple of units to come up in 2019 that are actively being marketed at the moment, I mean I don't know the specific -- they come off that will some bearing on EBITDA, but the others are working and like I said it's a bit of a cash generating machine at the moment. So yes, a business we like and it's not a cool business but it is the business that they're doing well at the moment.

Is the tender going to be pro rata?

The tender going to be pro rata, sorry, in a trend, probably you change subject okay, me only innocent yes it will be pro rata, yes.

Okay. And then how many idol Jack ups and Floaters are warm stacked such that they could work pretty quickly if you wanted to?

Are you referring to the difference between the amounts of contracted rigs verses marketed supply? And if you are you've got about a 100 rigs that are Jack up that are across the entire fleet, rigs of our fleet or Floater fleet.

Yes I'm sorry I should specify your fleet how many of your fleet is actively marketed I guess I should say?

Our focus for 2019 is keeping the existing Jack ups working that see active in the market today. So we've six idle units, and I think the key is you got the task of just starting your contract with Statoil and -- coming off contract. So the focus is that as those and I think that the remainder of the six that remain idle right now will need to right contract at the right rate for us to put those back into the market.

And I think that as much -- the question of discipline at of course is you know the ability to reactivate it would also you know differentiate between Floaters and Jack up were Jack up relatively more simple pieces of machinery and the ability to get them back working and stop them up is relatively easier so in the order three months but it very much depends on the particular unit where it with the classing activities if there's any deferred maintenance but as an overall I think that the bigger story for us here and the bigger point is our capital discipline and our market discipline in selecting what units we want to work because it's cost effective given the cost to bring it back to market versus what is available in the market and being disciplined with the capital and the cash we have in the balance sheet.

Okay I mean so you don't have a number of I know how many are currently working and you have how many more are you looking to put to work in the near term I guess is a question or that just…

That's long conversation maybe not for the call but we could put a multiple work at the right rate for the right contract with the right contract conditions. So about that we were not going to put any of them to work the Jack up side the rig, relatively easy our decision to make the cost or the capital investment is low in order to get them to work. On the Floater fleet I think we're pretty comfortable with the rigs that we have working right now.

The next question comes from Anup Goswami with Cantor. Please go ahead.

Thank you. Just a quick question on maintenance CapEx, what's the annual expense for that, and would that include any specific periodic surveys?

Maintenance CapEx, it may depend obviously depends on the rate where you are, where you are and the rate cycle but I think you can look at about you know a $1 million a year just for general maintenance CapEx, then your five year surveys if you will look at some of the materials we put out while we are doing the restructuring probably talking about $20 million for Floater on the five year cycle and $30 million -- and five to seven that Jack up.

Thank you. And quick question on the $1.5 billion of unrestricted cash on the balance sheet. There's going to be $460 million remaining that the 12% notes. With the company consider just tendering for the remaining notes or just over the long term looking to take out that high cost debt?

With the issue, answer would be yes if we could, it is not quite that simple so unrestricted cash that we use in our operations have some restrictions about what we can use it on. So, really the only way that we can rectify those notices as far a number of mechanisms. And again process the amendment process look to increase the flexibility around this to the extent of it gets completed and successful in those story, but basically the only way we can really -- those notes, one of the three ways, one I'm sort of ignoring sort of giving – broader big bank sort of refinancing, but either through selling possible security packages provided in both -- this to retire it down, obviously in distributions that come in – to pay down the or any form of capital raise exceed the limited the holding company can be used. So we'll continue to monitor the situation and obviously of course a high priority to take out expensive that when we can, but we can't just use the unrestricted cash to retire remaining $460 million.

I think take it up a little, yes we all focused on high cost debt and taking it out when it's rational reasonable but we build the runway that we did to a market recovery for reason so. For us the previous questions that we've had about spending capital to bring rig back out into the market and get them working again. So for us it's a balance between managing the liability side of the balance sheet but also having sufficient cash available in capital that we can deploy on deploy on bringing rig back into the market when it makes sense. So it's a constant balance and that's what.

I mean the one things remember about the -- I mean there's amortization and there's very little cash interests that there's a leverage to pay. I totally agree with expensive debt in pure economic terms, but in terms of affordability the impact it has is equal to the marginal on the affordability in terms of cash flow going through while we think about other deployments of cash. That can generate revenue and EBITDA in order to be able to pay it off. So that's the sort of full prices we have to go through, but also there're just some basic limitations on what cash we can use with. And part of this amendment process will simplify some of that.

Got it, thank you.

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

Thank you, and thanks everyone on line today for joining us. This concludes Seadrill Limited's fourth quarter 2018 conference call. Thanks again. Bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.