Hello, and welcome to the Seadrill Third Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Lydia Mabry, Director of Investor Relations. You may begin.

Welcome to Seadrill's third quarter 2024 earnings call. Today's call will feature prepared remarks from Simon Johnson, our President and Chief Executive Officer; Samir Ali, Executive Vice President and Chief Commercial Officer; and Grant Creed, Executive Vice President and Chief Financial Officer. Our comments include forward-looking statements that involve risks and uncertainties. Actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or year, and we assume no obligation to update. Our latest Forms 20-F and 6-K filed with the U.S. Securities and Exchange Commission, provide a more detailed discussion of our forward-looking statements and the risk factors that affect our business. During the call, we will also reference non-GAAP measures. Our earnings release filed with the SEC and available on our website includes reconciliations with the nearest corresponding GAAP measures. Our use of the term EBITDA on today's call corresponds with the term adjusted EBITDA as defined in our earnings release. I'll now turn the call to Simon.

Thank you for joining us on our quarterly conference call. I will begin with a few comments on our quarterly performance before discussing our market outlook and strategy. Samir will then talk about tactics and contracting before Grant reviews our quarterly financial and operational performance and full year outlook. Our third quarter results exceeded expectations. We delivered $93 million in adjusted EBITDA, securing additional work and uncommitted capacity propels us above our previous full year guidance. Most notably, the Sevan Louisiana continued its existing contract with an independent operator in the U.S. Gulf of Mexico. We're now increasing our EBITDA guidance midpoint by 13% to $385 million. Our continued progress on Brazil projects minimizes the downside risk to guidance. Both the West Auriga and West Polaris are in country and going through the customer and regulatory acceptance process after clearing customs in record time. Our operations teams focused attention on these critical projects, meaning these rigs are on track to begin their new contracts in December and will then start generating meaningful EBITDA and cash flow. During the quarter, we stacked the West Phoenix to reduce operating capital expense in the absence of an immediate market opportunity. We're unwilling to spend valuable shareholder capital investing in a rig without a bedrock of continuous visible demand. We have released the crews and are actively reducing direct rig OpEx. Following the completion of the West Capella and West Vela's recent contracts, we've now also reintegrated the four Aquadrill drillships back into the Seadrill fleet. In the 18 months since closing the transaction, we have successfully navigated complex, costly rig management agreements and exceeded all cost synergy targets. The Vela and Capella, along with the Auriga and the Polaris are now managed to crude to Seadrill standards and can reliably provide the safe,…

Thanks, Simon. By our estimation, there are about 95 competitive drillships in the global marketplace. Approximately 20 of these are inactive and require extensive investment to be put to work as they are either cold stacked or not so new builds with limited to no operating history. The slow contracting activity can make even a thin market seem temporarily oversupplied Between now and the end of next year, around 30 competitive drillships will become available after completing their current contracts. Many of these rigs will find follow-on opportunities, but not all of them. The absence of visible demand to consume available capacity will soften the market. Drillship marketed utilization, a measure of market tightness slipped below 90% in April after rising for over a year. It now hovers in the high 80s and will likely continue to trend lower. As more assets become available, it will put downward pressure on rates, leading us to believe 2025 will be increasingly competitive. Fortunately, we are relatively insulated. In 2025, we benefit from 70% market utilization across our fleet. Recent updates to existing drilling programs built some of the white space. For example, the Vela is now working through the third quarter of 2025 and the West Carina and the West Tellus are now committed fully through year-end and into early next year. We have the most market exposure next year in the Sevan Louisiana, the West Capella and the Sonangol drillships. As we've said before, Louisiana has a broad range of potential outcomes. Opportunities can appear and disappear quickly. Recent contracts suitable for the rig specifications have been shortened both their lead times and their duration which limits our ability to plan with an acceptable level of certainty. As time progresses, we may show less willingness to play the spot market, and…

Thanks, Samir. I'll review our third quarter performance before providing an updated outlook for the full year. In the third quarter, Seadrill owned $354 million in total operating revenues, down from $375 million in the prior quarter. Contract drilling revenues were effectively flat quarter-on-quarter at $263 million. The benefit of the Louisiana contributing a full quarter of revenue at a higher average rate complemented by higher economic utilization across the fleet was offset by the Phoenix and Capella contract completions. Management contract and leasing revenues declined sequentially. Our second quarter results included income related to retroactive adjustments to the management fee and bareboat charter income earned from our Sonadrill JV. And BBC income from the Gulfdrill jack-up rigs we sold in June. Third quarter management contract revenues were $62 million, and leasing revenues were $9 million. Third quarter results provide a good indication of expected run rates for both these line items through the end of the Sonadrill current contracts. Additionally, we earned $20 million in reimbursable revenues, the $5 million sequential increase for the company by an equivalent increase in reimbursable expenses. In the third quarter, we incurred total operating expenses of $307 million, up from $290 million in the prior quarter. Vessel on rig OpEx increased by $7 million to $172 million and management contract expense increased by $4 million to $45 million. The timing of repair and maintenance expenses drove the increase. R&M is the second largest cost component on rig P&Ls, so variances can have a meaningful OpEx impact. SG&A was $27 million and included $2 million of costs related to the consolidation of our corporate office in Houston, which we consider a nonrecurring adjusting item from EBITDA. Third quarter adjusted EBITDA was $93 million. Adjusted EBITDA margin, excluding reimbursables, was 27.5%. In the third quarter,…

Thanks, Grant. 2024 has been a significant year of transition for Seadrill. Amidst headwinds like idle time, inflation and required fleet investment that we identified and communicated early. We continue to progress our efforts to simplify and strengthen our business. We sold the Gulfdrill jack-ups, and we integrated the Aquadrill drillships. We delisted from the LSE. We maintained a healthy balance sheet and we continued our industry-leading repurchase program. Throughout the year, we've consistently beat our peers and total shareholder return. We're recognized as a universal buyer across the sell side from Norwegian and U.S. analysts alike who recognize the continued value we're positioned to deliver as 2026 contract repricing comes into focus. We intend to run our business relative to the opportunities available in the marketplace, not the ones that we hope may materialize. We will not burn valuable shareholder capital praying for better weather. It's clear to us that in the past 18 months, too many rigs have been reactivated by our trade rivals without sustainable matching demand beyond initial contracts. I'm proud of what we've accomplished as an organization thus far and recognize there's more work to do as we continue to strengthen Seadrill to the benefit of our employees, our customers and our shareholders expect us to be disciplined as we seek to create meaningful value now and into the future. With that, we'll open the line for questions. Operator?

Thank you. [Operator Instructions]. Our first question comes from the line of David Smith with Pickering Energy Partners.

Hi. Good morning. Congratulations on the quarter and the increased guidance.

Thanks, David.

I know it's a little further out, but given the tenders out there and including one recently opened, I wanted to ask about your outlook for your drillships in Brazil specifically the Jupiter, Carina and Tellus?

Yes, sure. Let me kick off, and then maybe Samir can add some embroider at the end. I mean Brazil is the most important and the most resilient deepwater market on the planet. And as we've said before, recontracting our rigs in Brazil is a primary focus for the organization. As you know, we don't announce contracts until they're formally signed. So we have no specific news to share with you today on the status of those rigs. But as Samir pointed out in his prepared remarks, we continue to make meaningful positive progress with our customer in recontracting our rigs in Brazil. And we're pretty optimistic about the future of those rigs. Petrobras has recently recognized our performance by awarding us a drilling contractor of the Year, which was a nice bouquet to receive. And whereas some deepwater regions face near-term headwinds, Brazil has remained stable in terms of demand outlook, which we really like. We believe that yet again, we've made a prescient decision and bet on Brazil at the right time. So as an incumbent in Brazil, we will soon have five rigs working for Petrobras that we've deployed over the last two years. We're keenly aware of the advantage that confers when recontracting in country, not just money and cost of entry. It's obviously also about schedule and regulatory risk. So there's a lot of talk about near-term turbulence in 2025. We're largely contracted in terms of rig days of '25. For us, Brazil is a key part of our story. Unlike our rivals, we're not recontracting rigs. We're not hot stacking rigs our story is very, very simple. It's all about recontracting in Brazil. Anything to add, Samir.

No, I would just say, we remain confident in our abilities to recontract those rigs and are making meaningful progress, but don't have any kind of paid, so there's nothing to announce at this point.

I appreciate all the color. If I could ask a follow-up. I noticed any of these orders this quarter included hook load upgrades to convert to sixth gen drillships for seventh gen capabilities. And I wanted to ask how you see the potential for additional sixth to seventh gen upgrades and whether this might reshape, as Simon said, the applied demand balance going forward?

Yes. Great question. Look, I think the distinction between sixth and seventh gen are somewhat arbitrary. I mean, generally speaking, it's as much about Europe delivery as anything. I think it's fair to say that there is a broad spectrum of technical capability across the sixth gen fleet. Most sixth gen units are midline now. So there's often a need to review obsolete systems and new marine coatings, particularly after the reduced investment associated with decade-long depressed market. So I'm presuming that's about 2.5 million hook load upgrades. Samir will have some comments on that, I'm sure.

Sure. So I'd say hook load is one factor between a sixth and seventh, but it's not the only one. The rigs being upgraded are -- have their own technical challenges beyond just hook load. And candidly, we're prudent with our shareholder capital, and we're not going to invest in an upgrade unless we can see a return on it. We are looking at other upgrades on our sixth gen assets, but those are -- we can monetize, and we can actually generate a return on capital on those investments. And for whatever it's worth, our sixth gens are located in markets that have a proven track record, I think you really don't need the extra hook load. And so for us, we feel very comfortable with where our 6th Gens are operated, and we don't see the need to upgrade them at this point.

Okay, I appreciate it.

Your next question comes from Kurt Hallead with Benchmark. Your line is open.

Good morning, everybody. I always appreciate the color commentary. So I guess as we look out into next year, a couple of things got my attention with respect to the prepared commentary. So I was just looking for maybe a little bit more maybe context around it. And the first was, I think, Samir, you referenced that the market dynamics are such that in 2025, any contracts that get booked will be price competitive. And at the same time, you referenced that you are looking to kind of maximize the cash margin dynamics. So maybe give us some context around that? And maybe are you seeing some opportunities to despite maybe some price competitiveness to maintain cash margins about where they are on existing contracts? And is there some regional differences we need to consider?

Yes. Absolutely, Kurt. So I'd say when we look at bidding work, we're very, very focused on the cash generation. Headline day rate is nice, but at the end of the day, can we generate cash. Each market is individual, your OpEx is going to be different. Your CapEx requirements to comply with the contract are going to be different. So for us, we look to maximize our cash flow wherever -- when we bid work. In terms of our fleet, we are 70% contracted into next years. Most of our opportunities are for the second half of next year. We're in active dialogue on most of those assets actually all of those assets that are rolling off in the second half of next year. So for us, we feel pretty good in our ability to recontract them again, at good rates for where they're at. But at the end of the day, for us, it's less about headline day rate. It's much more about cash flow generation.

Just to add there, Kurt, to a couple of extra points. I mean, as you would nicely experience commentator on the business, I mean, there's material economies of scale to be harvested by industry participants. And many of these are a function of how many rigs you have in the discrete geography, choosing the right markets in the first place. There are material differences in cost across different markets. As a management team, we are really committed to dealing with market realities, and we're determined to operate a franchise that flexes overhead, OpEx and CapEx dynamically to reflect the business environment. And we'll adjust these individual elements to continue to deliver superior margins to our shareholders. That's always been a feature of Seadrill through time and as a core proposition to our investors.

And maybe on the follow-up, you guys have been very capital return friendly and you're on pace probably to buy back at, I don't know, about $500 million worth of stock this year. Given the fact that you're I'd say, only 70% booked on your contracts and maybe some relatively soft dynamics and the pricing environment. How do you see the opportunity to -- or do you see an opportunity to potentially buy back as much stock in 2025 as you did in 2024.

Kurt, it's Grant. Look, I mean, of course, I can't comment specifically on how much we're going to buy back next year. All I'd say is, consistent with prior calls, when we look at the buybacks, we're really going through our financial policy framework. And beginning with the outlook in future years. And of course, that goes hand in hand with the 2025 comments that Samir was talking about and the 70% contracting to the extent that firms up, then that gives us a lot more confidence to lean into capital returns and uses of capital. Just to reiterate the financial policy, looking at 1x net leverage paying our maintenance CapEx and then thereafter looking at accretive uses of capital, and that accretive use of capital can be buying other assets, and it could be returning capital to shareholders and really just weighing up those 2. And at the end of the day, what's going to be more accretive for our shareholders.

Actually, I got one more, if I may, maybe on Simon for this one. Given the -- again, a little bit of a lull that we have in opportunities in the first part of 2025. And you guys have always mentioned that you're agnostic as to whether or not you buy assets or wind up being on the other end of that. But in the context of potentially looking at some assets. Has this lull presented some opportunities that maybe didn't exist earlier in the year?

I think it's -- I'm expecting that will become more of a feature of this ends up being a more protracted sort of turbulent period. I mean, obviously, our balance sheet is poised to respond if the right opportunity presents itself. We've spoken before about the strict metrics that any potential acquisition needs to hit in terms of returns, accretion analysis and so on. So at the moment, I don't think there's anything that's on the horizon right now, but there's certainly a number of players in the industry who will not be able to withstand an extended period of hardship. And we keep watching brief and I think our Board is very supportive about the opportunity for growth of that nature.

Great, appreciate all that, thanks.

Cheers, Kurt. Thank you.

Your next question comes from the line of Fredrik Stene with Clarksons Securities. Your line is open.

Hey Simon and team. Hope you are well and thank you for taking my question. So, I think the first one that I'd like to ask is just on the geographical spread of your fleet currently. You have a meaningful number of rigs in Brazil, particularly with the Auriga and the Polaris coming on to their contracts now, shortly and you're otherwise well covered in the Gulf of Mexico and West Africa. But then you have the Capella, for example, in Southeast Asia. How do you feel about the placement of that single range? Are you confident that you can get opportunities in the region it's already in? Or do you think, or talk about potential relocation of any of your assets?

As you know, Fredrik, we have a declared strategy of postering rigs wherever possible. We've only recently taken control of the Capella. And as the market has become a little bit challenging and more competitive in the near term, we're focused mainly on opportunities in the region where it's currently operating. So, I think at this point, we're content to chase the work that we see in that area. But in the medium term, we would hope to secure a contract that will permit the relocation of that rig intern area, where we already have a preexisting competitive position. But Samir can probably give you a bit more color.

Yes. So, to Simon's point, we are chasing opportunities both in that region and outside. But if we can secure work that generates meaningful cash flow in that region, we'll happily keep the rig out there, but the eventual plan would be to cluster it either into an existing region or develop Southeast Asia as a new region for ourselves as well.

Okay. That's very helpful. And then I guess, briefly touching upon the high-level fleet composition. I'm thinking about your assets, particularly now that you've decided to stack the West Phoenix. How do you think about that move and, for example, the Aquarius and the Eclipse in terms of potential pecking order if they were to be reactivated. Is there now a higher likelihood of you guys actually scrapping one of the two?

We don't have any immediate plans in that regard. What I'd say is that the Phoenix and the Aquarius are both easier to reactivate the Eclipse. Eclipse definitely will have a larger capital ask and would require a larger body of work to underwrite its reactivation. So, I mean the way we think about it is that we need a material contribution to defray that capital reactivation cost and we need to see a sense of comfort that there will be a sustaining market after that initial reactivation contract to keep the rig busy.

But we continue to market both the Phoenix and Aquarius. And if we find the right opportunity that justifies the investment, we'll do it. But it's a tall order, right? For us, we need to find a job that justifies the investment in those rigs. But of the 3, the Phoenix and the Aquarius are probably the more capable rigs and we'd look at reactivating those first.

Thank you very much. Actually, just one quick one, and I think this goes to Grant. On the share repurchase side, I think in the current $500 million authorization, you have a $200 million tranche to begin with, which should suggest about tranches almost used up. Should we expect that new tranche to be opened or is it already? I'm just a bit unsure now that you don't have the same disclosures around it as you were listing on Oslo.

Yes. Thanks, Fredrik. Good question. And yes, just to remind on that, now we're delisted from the Oslo Stock Exchange. We no longer have certain disclosure requirements with respect to the buyback. Those sort of sub authorizations like the $200 million is no longer required. And so, we will not be announcing sub authorization. We've got the blanket authorization from our Board of $500 million, which was provided by a Board in the second quarter. Remember the $200 million you're referring to was a sub-authorization within that. That was a Norwegian disclosure requirement. And you're correct. We are now essentially through that $200 million, we've spent $192 million of the $200 million, by the end of the third quarter. And we can continue to buy back shares under the blanket $500 million authorization, which is going to extend over a 2-year period from Q2 this year to Q2 2026.

Perfect. Thank you so much all of you. Have a good day.

Your next question comes from Hamed Khorsand with BWS Financial. Your line is open.

Good morning. Could you just talk about a little bit of the negotiation of the talk process that you have with potential customers? Are they just holding off and just saying wait or is this more about their own supply chains and their timing because of the price of oil.

It's uncertainty. So, what's happening with commodity price, what's happening with their own supply chains? It's also a reallocation of their portfolios. Most of our clients have global portfolios. So, some are saying they'd rather invest in one region versus another. And then it's also their return of capital to their own shareholders. So, it's this big pot of uncertainty that's leading them to defer decisions, and it is a deferral. We're seeing things get pushed into 2026 from 2025.

All right. And then the other question is, are you done with your special surveys for 2025? Or are they being pushed into the actual contracts?

I mean we do have one scheduled survey that we've spoken to before, that scheduled for 2025. We are currently doing an SPS on the West Neptune. And that may drift into next year depending on how things go in terms of some of the cost of that. And then also, I mean, when you're contemplating out of service time, Hamed, I'd encourage you to think there's a number of potential causes of that. SBS and 5-year surveys are one potential ingredient, but another one is contract preparation costs. And as we think about the opportunities in front of us and our fleet. There may well be some time required to prepare for long-term contracts in other markets and things like that. Does that help?

Yes, it does. Thank you.

Excellent. Thanks, Hamed.

Your next question comes from Josh Jayne with Daniel Energy Partners. Your line is open.

Thanks. Good morning. First question in Simon's prepared remarks, talked about the company is optimizing your operations in 2025. I was just wondering if you could expand more on that if you have any goals that you've laid out and potentially how you're thinking of that -- about that into next year.

Yes, sure. I mean obviously, we're facing some near-term headwinds and early '25, maybe through the middle of the year potentially is showing some difficulties in the re-contracting effort. We've recently cold stacked the West Phoenix and released the crews there. So I think one of the things that we're -- is really important to us is how we manage rigs that don't have contracting opportunities in front of them. And what we're going to be doing is taking our medicine if we're not able to secure work. The turbulence in that market, we believe that at this point that that's going to be short term, but we need to make difficult decisions as quickly as we can and adjust our cost base and our capital programs in order to reflect the business environment. So increasingly, what I was signalling in the prepared comments increasingly is that we're going to do that in real time. This is a very tough business. And what I have learned in my sort of almost 30 years is that it's really important to manage the cost base at all points in the cycle, not just when times are bad. So as an organization, we're very focused on being agile, lean and rightsizing the organization to make sure we have enough people and that we assemble our assets, our human resources, our software, if you like to be able to respond to the needs that are in front of us we don't have much appetite for excess capacity.

Understood. Thanks. And for my follow-up, just given the market's importance to Seadrill and your number of assets there and how you're likely to be a player going forward. I wanted to ask follow-up on the Gulf of Mexico. And if you expect to see any change in the near to intermediate term in that market just as a result of the new administration.

That's an interesting question. Perhaps let me start, Josh, and then I'll pass to Samir. I mean I think it's fair to say that we don't really care who's in the White House. We're driven by shareholder returns. What I will say is that we think the offshore barrel will win in the longer term. All 48 production is really about a law of diminishing returns, whereas offshore has the volumes, has a reservoir upside, has the blue sky. And our customers are telling us that, that is where the new production is coming from. And onshore is important, but it's pinching out. So it's in the deep blue season where we'll be replacing production going forward. Samir...

Yes. So it's not politics, it's fundamentals. The geology doesn't change with whoever is in the White House. At the end of the day, those barrels will get drilled. And they're more economic and they're -- they're lower carbon and cheaper to produce than anywhere else. So we do expect them to continue to get produced over time.

Thanks for taking my questions. I will turn it back.

[Operator Instructions]. Your next question comes from Noel Parks with Tuohy Brothers Investment Research. Your line is open.

Hi. Good morning. Just sort of following along with your last comment, I was just thinking about exploration and as you mentioned, the barrels are going to get drilled sooner or later. And do you -- I guess, would kind of be conservative at this point in the cycle, does that kind of represent any change in your sense of exploration outcomes just as different footprints get explored and so forth, and there does seem to be the consensus that funds do need to flow to the offshore, if nothing else to just help make a dent in global base decline. So any thoughts you have on that?

Yes. Look, I think we sort of hinted at it before. We believe it's in the offshore is where we're going to be replacing productions. That's where we can achieve rates of delivery that can't be matched onshore. Certainly, as we think about the customers who have exposure to both onshore and offshore basins, we've noticed a shift in their investment activities. And there's certainly a lot more activity coming down the pipeline we believe that's somewhat muted by the fact that all of our customers have such a short-term outlook and expenditure on exploration, generally speaking, is at the bottom of their capital allocation priority list.

If I take our portfolio -- our rigs as a microcosm, we are starting to see some exploration. Two years ago, there's almost zero exploration. You're starting to see on a long well program. It's -- we'll tack 1 well out of 10 or 12 into an exploration well. But again, it's happening, but it's still relatively small in the margins.

Got it. Thanks. That's helpful perspective. And I mean, is it so I mean if customers then due to oil price or whatever are sort of deprioritizing steady operations by hanging onto a rig just based on their own capital discipline, is that sort of part of the shift that's happening then?

Yes, absolutely. There's real start-up costs and switching costs. Putting a rig down and then starting it up has meaningful costs, but what we shared with our client base is they're pushing that cost out further and further and saying, we're going to preserve cash in the near term for either returning it to shareholders or reallocating it to different parts of their portfolio. And when you ask them privately, they'll say, yes, we acknowledge that there will be an incremental cost to pick this rig up in 2026. But it's a '26 problem, not a 2024, 2025 problem.

Okay. Wow. So that is definitely more sort of short-term thinking than we're used to in the deepwater for sure. So, thanks. Helpful.

Excellent. Thank you so much.

With no further questions, this will end our Q&A session as well as today's conference call. We thank you for joining. You may now disconnect your lines.