Earnings call transcript Q4 2022

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Operator

Good day and thank you for standing by. Welcome to the Q4 2022 Diamond Offshore Drilling Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Bordosky, Senior Director of Investor Relations. Please go ahead.

Kevin Bordosky

Michelle. you, Thank and everyone for us. joining Good thank morning, you today Wolford, Dominic President With Officer. Senior me Chief Bernie call the Financial Chief and on and are Executive President and Vice Savarino, Officer

remarks, we speaks replay may of of call of no I Before be as our remind that at on only time-sensitive information therefore, and any accurate this you today, longer call. this reported information time begin the

on we These our made statements this these maybe cause statements during future with known and uncertainties are statements. nature. unknown materially uncertainties actual disclosed control. many performance based or include from the to our expectations In and risk addition, certain results to or our filings expressed and current forward-looking call risks include any are and uncertainties, performance XX-Q factors XX-K and in and differ by predict These These may or in risks of the unable risks results implied SEC. or which

Further, disclosure. to the obligation we contents call covered Refer our forward-looking that incorporated statements evening please forward-looking regarding press that note today to revise in any our and expressly by the update issued disclosure statements. yesterday or of disclaim release are any

In on referencing note we non-GAAP addition, please our will be that figures call today.

a in find our press reconciliation financials can to GAAP You release issued yesterday.

will And over the now, Bernie. turn I to call

Bernie Wolford

fourth on as deliver secured all us strong our or thanking world everyone the campaign present drillships I’d thank was to reactivate We up billion the GreatWhite, year our delivering managed over interest and while started X Ocean Offshore our for by to to $X.X XXXX. morning X Diamond Diamond enabling Exchange, you in leading and the quarter safety best start around New the a to our operational our customers. performance to Good achieve afternoon your industry Kevin. finish the secured in for we excellence Offshore. pivotal like the York of for contract new quarter, Thanks, in successfully continuing XXXX Stock crews last awards, results safety fourth relisted on for years. work for

Today, highlights fourth view markets quarter, macro then well XXXX, the quarter operational and for as and fourth detailed environment. to our cover for I XXXX. a for outlook turn operational our financials of I our Dominic the and over will look it to provide as guidance financial at will the

continued the years. during on his totaling with We of high details results Dominic fourth securing provide for backlog further of the remarks. commitments our $XXX $XXX.X on was these Adjusted success associated EBITDA $XX.X quarter rig will in million. commercial X.X than level million revenue million of quarter, more total

and well-based am second in to arrived across with performance Ocean busy with a efficiency Diamond signed delivered Courage to first Petrobras announced Brazil management. its This startup a X-year for was fleet Ocean Offshore. GreatWhite consecutive our earn the The report on XX% to new Ocean level pleased for Scotland the at operating in contract for previously quarter. support the and efforts high Turning the the quarter during of a fourth our contract of highlights, quarter. generation one rig integration operational seventh the BlackRhino We and well bonus continue revenue The impressive, preparation Vela, performed combined to BlackHawk BP. Ocean for that this teams which a number and efficiency under drillship is the crews I considering our our especially

of of sea been of ‘XX the productive for GreatWhite to moved the Ocean quarter has West commence acceptance and waters to testing. company. recently Scotland Coast customer sheltered nearby The first from trials Port offshore The Kishorn

when to to contract Ocean complete will it the to expected Also, transit customer. the for well our next is Endeavor week location month. commencement next next its scope occur within expect this We shipyard

undergo Apex special transit in late estimate Ocean Australia, mobilize is regulatory the project, to to round March for in forward, Singapore be We required this including the days. out-of-service whole to X-year time to and approximately survey trip currently customer a XXX scheduled upgrades. Looking and certain

Turning market now at supply to Demand the expected supported the Drilling oil for market sector XXXX. continues be and to to outlook, outpace by is Offshore improving through fundamentals. gas least

the not sector years companies the long-term and In for continuation we deepwater gas their of addition, and and for retirements, materially upcycle budgets have over years. offshore XXXX, of which combined of past rig drilling, likes we of this years. with the prompted These, expect of the seen next have increased in oil the a stacking capital a sustainable X have effect XX trend

instance, of demand as a year a February of increase for XXXX, XX tenders deepwater For years S&P years rigs to by Global rig XX% compared reported represented in outstanding XX as demand, rig ago.

with Next North levy, profits energy UK. on has the offer or up, an UK the The would regarding I like the prospects we had unsettling comments effect Sea. starting where Brownfield markets compete, offshore government’s EPL, to to

XXXX. a demand attractive the In number in areas, other expect opportunities soft high-specification will rigs prompted for remained in This region trend a continue addition, has XXXX. leave of through Norwegian we to

region new starting programs significant However, These plus from Overall, additional XXXX in energy next, and shorter additional in and investment the the offshore late be this XXXX. number the profits in two latter expect starting there unit to year levy. later are semi-submersible for programs a programs UK, we in of to offset XXXX XXXX. UK, benefit or term contracted early X credits

contract other terminate due levy tax We energy the profits the related Patriot recently to areas reallocate UK. changes that in the to and capital to program announced intention our client’s early to Ocean

of year the We contract early being this on remain rig will into July expect before terminated.

early contract million for Our $XX.X a costs payment upon termination.

programs will totaling two or opportunities late a years remaining X optimistic are rig in work XXXX. the pursuing alternative the in yet of of In to Australia, see for of XXXX, we are We awarded fourth rig commencing Patriot work. for the semi-submersible commencement Ocean number work that attractive find and third quarter be

Northwest forward work could shelf consortium of offshore XXXX, X Looking a rig on into further and of opportunities add East a Coast years the possible of demand. the combined exploration

some We our envisage the customers environmental this demand are express we be related backlog, of near-term resolved impact and process securing concern permit to related XXXX. as but and progress permits to hearing not the in XXXX approval through

Asia with in Southeast for demand additional late X drillship one remains incremental year and relatively flat potentially incremental this XXXX. semi-submersible

semi-submersible in primarily demand by We and and Guinea slowly, to adding expect Namibia, being in semi-submersible West X Nigeria. driven drillship is Equatorial XXXX. India Africa X grow opportunities

in is expected to to East Mozambique, Drillship incremental demand with potential to rigs Black region X the drillship is Angola, to by unit grow has Africa, units by increases Drillship [indiscernible] XXXX. potentially demand for in region Coast, well. X in see Mauritania. as in through expect grow to up Ivory modest Sea by We We in Namibia, demand semi-submersible flat. and X particularly driven X the Ghana, demand upside primarily in XXXX XXXX. the Mediterranean and the expected demand in relatively be activity

with and rigs X XXXX. the Suriname supply Brazil semi-submersible bulk demand driving In by period. Latin expect contributing. regional America, grow in of could to by Drillship Colombia more the is region in the Guyana, same over X units new demand the we or demand exceed

flat expect XXXX. through remain We of Latin rest and America Mexico the region relatively to

with XXXX. possibly Canadian North incremental X Finally, America, relatively pressure to rates remaining we in West for potential due the another XXXX is that Africa. in in region worth generation subject potential demand the seventh harsh environment drillship in wildcard, flat the of upside in a success in are rig upside remains commercial units exodus and to Brazil It region. the under opportunities but the certain see and noting and to semi-submersible demand sixth with

XXXX for this we in allow conservatism for number a being start contract and same reflected options demand pressure the final incremental drillships through factoring units going and Increased global upward through continued investment Translating open negative rig rates. to tenders perspective incremental is period. day X in to currently exercise X XX of for by foresee already not semi-submersibles growing to the on decisions, to X all slippage and units by and potential and dates, demand demand of

Ocean materially rate our February. transition Offshore. of edge global in in stands The first the market leading was strength black a to to The to ships BlackHornet X benefit Diamond

Next up offshore BlackHawk, the working year. this of Senegal quarter repricing fourth the Ocean currently will for in with be anticipated availability

Thereafter, contract the off working to will also access BlackRhino the in XXXX. rolls Senegal Ocean of reprice offshore have when it quarter market second rates

with the Triangle currently in the Golden commencement of from XXXX third opportunities Ocean commencements onwards. the pursuing We with are multiple for BlackHawk quarter

number Ocean for mentioned, opportunities previously of are we pursuing Patriot. As a the

to take in than which early pursuing delays Onyx are regulatory Asia projects, late are for the XXXX these previously in supply-constrained and anticipated anticipated market related is due We Commencement for Australia. in later environmental the multiple XXXX. Southeast also recent Ocean to Australian part This of approvals the are permits. in to in majority or place opportunities

I this of this close place upcycle. that the key a continuation continuation particularly conditions highlighting will of for upcycle, in a are are indicators by signaling four

growth durations. the strong lastly, capital in prices contract futures; of rig relatively oil clients’ second, First, tenders; continued in year-on-year average open third, and and long-dated budgets; number in growth rig growth our

demand. together, these cycle Taken a well for of increasing bode sustained

now returning some you, I turn to before remarks. Dominic call the Dominic. will over concluding Over to with

Dominic Savarino

and prepared year remarks of provide afternoon for our In full and I’ll good Thanks, fourth XXXX. my quarter our quarter or results recap for results some insight projected into the and Bernie the morning to everyone. this a morning, first

and million. as of certain net $XX.X quarter, expense diluted to of we earnings well loss consists The share. jurisdictions our tax loss before the exposures. of $X.XX a benefit reserves attributable in The and potential for expense a For or in million as of tax a increase net loss non-cash reported of on the lack certain tax $XX.X per tax tax reported losses of mix is million fourth the $XX.X

the quarter reported associated to Ocean EBITDA $XX.X The results million $XX.X third million as with EBITDA was of the included a expenses of GreatWhite. fourth the in adjusted in adjusted The the compared for primarily reactivation of reported decrease EBITDA result quarter. a

million Excluding from with quarter million $XXX and our in reimbursable revenue, quarter up for was quarter. guidance revenue fourth for $XXX the line the the prior in

maiden for As contract quarter the commencing rigs, management its the Ocean BlackLion higher rate, its a quarter one operations managed full of for of a during at Vela, of result a the quarter. in Diamond BlackHawk, under Ocean operating full Senegal and our day the

reactivation offset The was for Ocean the reduced cold subsequently in X and increase in regulatory was months the for third quarter revenue as of prior the for on and in the quarter steel quarter, the shipyard and the Ocean of during million the contract to expense its Endeavor which Contract Vela shipyard contract expenses surveys completed was partially for increased stacked the Onyx, projects. in and GreatWhite the a $XXX renewals. quarter Ocean going Ocean the from repairs, million drilling related to by quarter result the revenue $XXX and compared which to Endeavor the

cash quarter. the of was during cash free as negative the flow for The the million, flow flow free flow $XX fourth released cash Operating with of a in compared of quarter $XX to working was $XX in capital million free cash improvement million third result quarter. primarily

revenue, $XX reimbursable of EBITDA the at we For reported end adjusted upper $XXX year revenue excluding year. full of guidance our for the million, most XXXX, the recent both of million and

We items liquidity CapEx million, Endeavor strong some part prior guidance $XX the and to well of million pushing XXXX our total projects including $XX into came Ocean full for Ocean $XX due the million. sheet, to million GreatWhite balance under year year-end XXXX. with in of a large $XXX straddling with exited in of

now our full year guidance. XXXX Turning to

with terms as Our recontracting arise. key for contracts contract operational leverage in well us $X.X some as roll X, for and billion off positions and opportunities in opportunities January XXXX yet XXXX in of XXXX, coverage of XXXX, extremely backlog legacy

be and after XXXX excluding more increase reactivation. as million result on its is guided million, a represents and $XXX being over the to of preliminarily Ocean revenue, As contract which last reimbursable GreatWhite a rates revenue XXXX revenue, than higher expected average XX% quarter, $XXX between day

million, between $XXX is million consistent these guidance approximately XXXX to expense taxes with drilling be EBITDA. and to for $XX $XXX expected $XX be approximately between $XX between $XX million G&A our expense expected a is over $XX XXXX, Embedded cash quarter, $XX is contract Interest increase million expense and XXXX preliminary more is for than to $XXX and fourfold EBITDA expected be million. million Also and last results $XXX to to million to be million, and million million. expected in

of or $XXX Ocean the is black for between Onyx million the for CapEx XXXX an CapEx to of the expected associated it any be potential $XX be reactivation million kit and ships MPD one required. with excluding should

completion and take contract CapEx quarter over fourth the the the the spend of GreatWhite special its quarter as much estimated upgrades does Endeavor upgrades days whole maintenance, as when XXX in the Our new for the second for the special whole it Ocean well occurring Ocean survey survey consideration and for the reactivation Petrobras and Ocean and repairs for in X-year of occurring Apex XXXX is Ocean contract. of advance off customer-required approximately Courage into

a bit first quarter. XXXX beginning guidance further, down with for the Breaking

We expect be halves. More to million be to can as and million be million revenue, excluding $XX $XXX broadly, of year two $XXX EBITDA the a reimbursables, between million. categorized and tale between $XX and

free current our the contracts, the full we negative quarters operating full second run day XXXX Ocean first EBITDA stays second for XXXX full characterized contract on potential flow runoff or flow rates flow. and first GreatWhite slightly half expect shipyard in the contrast, the our the and Ocean reactivation but the of period, The cash two half the rate, half on breakeven the said, of of for cash us EBITDA day the to for higher combination to lower still being cash some benefits and XXXX, do negative the than from rate resulting modest halves BlackHornet That returning free free leave to Ocean In by quarterly positive including improvements for Apex from half. of more year. of compared doubling

beginning trajectory free of turns the in cash accelerate calendar the third the should quarter flow our XXXX. as upward quarter-over-quarter this, to Despite

able second in remain classes we which year XXXX continued asset Bernie We on our on our current as XXXX. be the to to in XXXX secure that operate, half perspective and combined able bolstered they is alluded we and confident are and we the the meaningful be flow of are for contracts Our across and their full free to. day increases by rigs as will demand all and regions backlog capitalize off rate to cash upcycle roll deliver EBITDA meaningful positioned current with well this seeing

to prepared now it my remarks, hand will I and closing for comments. concludes some Bernie That back

Bernie Wolford

are brings providing X we and Diamond we customers in bear appreciate and months, backlog, be value is a to up order significant Dominic. results. you, XXXX, the as a productivity significant shipyard to in have important over enthusiasm rig the achieve we Offshore, deepwater focus to Offshore execution these team while of to Thank talent, and shaping productive up securing all At project remain our for to and executing through Diamond remained delivering the sustainable last upside capture Prospects compelling offshore cycle. the value-enhancing I drilling an reactivation, safe poised further enter market what work.

questions. in Diamond now will your and call the interest appreciate We Offshore, we for open

Operator

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

open. now is line Your

Eddie Kim

morning. good Hi,

in the I rates bit the mean drillships, everything for here. contract is just So just touch on BlackHawk to for contracting outlook, XX wanted pay from next suggest described especially BlackRhino little here you the are come-up a and the on a higher strategy months.

a to for a So willing inclined you X down would take be longer-term to Or a I to over at mean, stage day be maybe handle would with line? take contract a this secure you contract the X-year five years? more XX

Bernie Wolford

modifier some in will the detail. XXX% and you, a when secure consider or shorter Not you to between question. is And to term that we gaps tell longer use has Obviously, value utilization there necessarily whether But Good term. when going we without contracts. answer Eddie. term can I’m Thanks, I go certainly fact

years, XXX that shorter? there more would case. expect stage be to and with in what let’s a we out just would direct case in long-term We obvious at by And in terms duration. the not of would be going pass of alternatives XXXX. until in fairly contract? we of of is rates appear to the say, materially frankly, on to or would X-year we’re late quite may in pretty ‘XX to on today, though mid-XXXs the to unlikely a a question prefer market, we the handle each out And a go differ kind market waiting they that, one not wanting contract the And Your this take couple there are

Eddie Kim

we Got greedy. it. too That makes sense. I be can’t guess

over actually price status, Just shifting your in your to question there report. yesterday, just fleet out put a I did on mentioned noticed which no you options is

of price for assume obviously which to current any fair have would any environment? it rigs, is be in options great So, you a thing your this don’t

Bernie Wolford

when one know has have the through which options of current let options all the I – I manage right in Vela, that where options. The reported, actually terms rigs price we have we priced are priced believe GreatWhite run rigs the kind we So, think client. today. announced we options, me price that which that Ocean one-well the has of contract. with also that’s I we now of do

Eddie Kim

for back. I Great. it Thanks Understood. turn all color. that will Okay.

Bernie Wolford

you. Thank

Operator

Please standby question. our for next

with Energy. question David next Our comes Pickering from Smith

Your line now is is your now line open. open. David,

David Smith

Hey. taking for Good my you and questions. thank morning

Bernie Wolford

David. Hi

David Smith

start by congratulations saying on maintaining will preliminary I guidance.

Is more competitions seeing and a be might half P&A little looking the are out ‘XX second the own on that any, that fill to whether if opportunities their to spec much, on focused you more to half work I are for Wanted Patriot quick, week, the good investor about prospects about there past of ask I your after in was but think Ocean up was to new was good the some to to that work real this pick see. rigs prospects. hear higher you color to concern the year. get relate from that second hoping availability?

Bernie Wolford

Thanks David. Yes.

rig participate about the likely since the offshore announced and is We the are anywhere interest to most The we the for in is of that works UK, the in expected we this XX% the are days XX drilling work. termination. are terms surprised work parties now Patriot for rig. have with opportunity by two short potential XX% and been the from P&A the in we actually XXX that appraisal the of Most in relatively out somewhat use at constructive right discussions at. pleasantly stage And very to days looking

to sits. I the good it where get on it, optimistic don’t feel but want about So, pretty crazy Patriot now right we too

David Smith

on in Endeavor. your two semis the focus got looks It a am seems also GreatWhite provisions status come that report I if can anything us the going did notice might I like? fleet and wanted look but like you I like Ocean forward Ocean anyways, Endeavor it what it actually the contract pushed to ahead. might termination quarter, those spec UK, tell ask out higher the on about to the

Bernie Wolford

the GreatWhite for Both David. our convenience, that and In do provisions to allow us effect, owe the that contract. to the customers choose for to the recover but they economic that. termination have the the in of they Sure, payments terms contract the firm would full allow us, would event terminate Endeavor benefit

any those those market the would not a obviously to units and opportunity out to as EBITDA of have be would we cancellations, we So, result other clients.

David Smith

Africa? reason That’s – those went the be more for and work for softer And or If look the maybe is great. is any those UK one longer, marketed it stayed Eric, like on deepwater I both could Med West Eastern throw if rigs deepwater couldn’t there follow-up rigs.

Bernie Wolford

regions, the now to right it’s North I in Sea. obviously environments. continue the rigs ‘XX whether load to and further of Endeavor is could rigs a our secure both opportunities large that wells work, area. for where of Yes. term. outside for or on really relatively workhorse have operating drill mean through The offshore. case up rig provide those ideally in you, the Sea Sea the west to of a rig in keep current that with the late is further GreatWhite both space potentially I the and access a the North And rig case for to onboard is space platform there in But of our tell deck remote it a those high We outside. a have both customers GreatWhite marketing a suited And North related low-cost are and capabilities operations number equipment consider to we of could coming huge ‘XX, Shetland’s up to deck completions programs base complete or and and allows

David Smith

Great. that Appreciate all you. color. Thank

Bernie Wolford

you. Thank

Operator

standby for next Please our Instructions] question. [Operator

[ph] Our Clarkson question Fred Bookstein with from next comes Securities.

now open. is line Your

Unidentified Analyst

and I two, Hey hope well. have I Bernie are broader questions. Dominic. I you think

has kind be I to that as on Diamond that the XX First, M&A has – few been some time. has and drillers part a been Chapter emerged a name mentioned touch bit wanted transactions a the been bunch There for discussion. to of of M&A of after from potential in candidate a

wondering have was drilling So, changed? kind where sphere being I are around thinking something has you you if offshore you acquiring acquired to actively where either are else? to or are looking in of Do today, be do for fit this you something you or

Bernie Wolford

currently Yes. question, start ultimately stock terms trades as we by noting relatively of shareholders. the will of to in if peers. not interest Fredrik. XXXX Thanks our majority, of we on our our for today, pursuing are EBITDA, are compared all low multiples the the And I

seeking to to standalone unique consolidate have driller smaller larger can with will And continue value a as consolidate we peer. with obviously, is option a are Diamond we in so primarily, a optionality the peers position for our where say shareholders. we or, I

As can opportunities that you I consolidation, disclosed you previously know, explored tell today. we evaluate to and we continue we

Unidentified Analyst

follow-up, mind. that your next good my shareholders’ saying you. are what’s exactly keeping a And I are that Thank think in you you question interest

that said you separate shareholder know or had but that color basis. negative share RCF helpful be are around to a you might net the And returns? ‘XX capital as part, M&A around you having you how that be year, the actively would full I I optimize have standalone can the for for structure, thoughts So, guess you on can any discussions well.

Dominic Savarino

we issue shareholders, money our in to it’s as have it’s really well debt Yes. view it’s the and we progress With down is the that Fredrik, through returning to way regular really constraints At a would enables XXXX as Dominic. ourselves we opportunities said early the past, from the to are that to of a something get and time, our to a on XXXX that pay as that stack have more current the covenants regard to as debt emergence bankruptcy. perspective our this relieve us to as have RCF. of we – we opportunity – that convert is from ‘XX related investigate some stack from

So, and debt XXXX once go optimize our that at opportunity. point, before have process able outstanding advantage that we through of really the that we cash flow current really consider take generation end then story of it’s opportunities an to and to are

Unidentified Analyst

Ocean And of much. there, that. covered just your that not after some very and will relation of to that, And on a opportunities in color GreatWhite, you mentioned the activation would think on quick any but few I that. options you for – exercise this you is of or Have payback you the which had two just whether the sites you above you that am costs economics think EPL? the in by kind BP kind on Thank period, one options? those thinking changed give I firm have

Dominic Savarino

is levy. energy investment [indiscernible] the qualify that the project profits recent and will credits understanding Fredrik, apply BP that our against for most

are with options that of for we not most, those well that BP anticipate exercise timeframe, early options. ultimately all tax believe, us Shetland costs that with BP XX I proceed placed BP each. That the late would ‘XX or have should estimated that that that. present, And So, manner opportunities excess if west the at from future will of in would starting XXXX. in roughly they associated from eight perspective, days project priced The rig shielded are has in

Unidentified Analyst

Thank you so much. That’s for me. Great. all

Dominic Savarino

Thank you, Fredrik.

Operator

no remarks. the show to for questions back time. like conference at to now this Bernie further I would closing Wolford I turn

Bernie Wolford

website. Thanks call. on in deck investor to today’s that will our the participation look quarter. we updated forward our We you speaking for next your note again all in And recently I to

there. is you information So, day. Thank the Have latest available much. and very good greatest a

Operator

This call. today’s concludes you for participating. conference Thank

You may now disconnect.

Diamond Offshore Drilling (DODRW) 28 Feb 232022 Q4 Earnings call transcript