Transocean Ltd

NYSE:RIG

Earnings Call Transcript 2020-Q3

[Operator]

[00:00:00] Ladies and gentlemen, and welcome to the third quarter Twenty twenty Transocean earnings conference call. Today's conference is being recorded at this time. I would like to turn the conference over to Mr. Lexington, main manager of investor relations. Please go ahead, sir.

[Lexington May, Manager, Investor Relations]

[00:00:15] Thank you, David. Good morning and welcome to Transaction's third quarter Twenty twenty earnings conference call. A copy of our press release covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non gap financial measures, are posted on our Web site at Deepwater Dotcom. Joining me on this morning's call are Jeremy Thigpen, President and Chief Executive Officer, Mark May, Executive Vice President and Chief Financial Officer, and Roddie Mackenzie, Senior Vice President of Marketing, Innovation and Industry Relations.

During the course of this call, transition management may make certain forward looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon the current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for more information regarding our forward looking statements, including the risks and uncertainties that could impact our future results. Also, please note that the company undertakes no duty to update or revise forward looking statements. Following Jeremy and Mark's prepared comments, we will conduct a question and answer session during this time to give more participants an opportunity to speak on this call. Please limit yourself to one initial question and one follow up. Thank you very much. I'll now turn the call over to Jeremy.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:02:13] Thank you, Lex, and welcome to our employees, customers, investors and analysts participating in today's call, as we have since March. We continue to work remotely to do our part to prevent the spread of covid-19. Therefore, please forgive any challenges associated with maintaining audio quality during this call, as reported in yesterday's earnings release for the third quarter. Transocean delivered adjusted EBITDA margin of almost 41 percent, with 338 dollars million in adjusted EBITDA on 830 million dollars in adjusted revenue. Importantly, the strong operating performance, which was driven by our experienced and committed teams, enabled us to generate 81 million dollars in operating cash flow. Despite a number of challenges, including a global pandemic and an extremely active storm season in the Gulf of Mexico, we continue to deliver safe, reliable and efficient operations for our customers around the world. During the third quarter, we had 26 active rigs across 10 countries to put just some of our pandemic related challenges in perspective, I will share with you that before a crew change, 14 of our rigs require crew members to enter a secured quarantine period ranging from five to 14 days, depending on customer protocols and country regulations. And they must also have a negative covid-19 test before joining the rig, in addition to the delays associated with quarantines and testing to reduce overall exposure. We have asked more than 2500 of our crew members to serve extended hitches, meaning even more time away from home family and friends.

[00:03:46] In addition to the quarantine periods and extended hitches while on board our rigs, our crews are subjected to daily temperature checks and are required to wear face coverings and practice certain social distancing protocols when possible. Needless to say, these are suboptimal operating conditions. Yet our crews persevere with absolute resolve. Their sacrifice and dedication to our company is truly inspiring. And it's not just our crew members demonstrating their commitment to transition success. Our excellent customer service could not be delivered without the contribution of the entire organization, including our sure they staff the logistics involved in planning, coordinating, testing and executing the movement of thousands of personnel. Spare parts and pieces of equipment during a global lockdown is nothing short of extraordinary. covid-19 has forced our organization to adapt our offices around the world largely remain closed, and our employees continue to work remotely to help mitigate the spread of the virus. Virtual meetings and remotely provided expert technical support are the new normal, and as a testament to the strength and resilience of our entire organization, we have continued to deliver the same high level of performance performance as we did before covid-19. For all of this, I extend my deepest gratitude to all of the men and women of Transocean for the personal sacrifices they make each and every day to keep our rigs operating safely, reliably and efficiently to support our customers.

[00:05:08] We face tremendous challenges as a result of covid-19, however, the strength and resilience our team has demonstrated throughout this pandemic is truly remarkable. We will continue to take every necessary precaution to keep our crews and our shore base personnel safe and healthy for as long as necessary while we deliver best in class operating performance to our customers. Now, looking more closely at our third quarter performance as a whole, our fleet continues to meet and often exceed expectations. I'm extremely proud of our crews for the ten million dollars in performance bonuses achieved during the third quarter as a result of exceeding our customers drilling schedules. This is a direct result of our collective efforts each day to continuously improve transmission, including through our investments in high specification assets, the development and deployment of innovative technologies and our industry leading training programs. In addition, we have aligned interest with our customers by linking compensation and performance, a practice that many of our competitors have pursued, resulting in an enhancement to our revenues. Obviously, this high level of performance helps in the efficient conversion of our eight billion dollar backlog into revenue and ultimately into cash. Now turning to the fleet, starting in Canada, the transition, Barron's recently completed a successful campaign with Ecuador, since future prospects in Canada are somewhat bleak and demand in Norway continues to be robust. We have already begun the process to prepare her for mobilization to Norway. In Trinidad, the three completed her first full quarter of operations with Shell and continues on her one year contract until mid 2021. We believe the three is well placed and we are encouraged about potential follow on opportunities in the area.

[00:06:50] In the U.K., Chrysler kicked off its 10 month campaign with the Paul Deloy Lloyd Jr., as you may recall, the work was originally slated for the 7th 12th, but was transferred to the Paul B. Lloyd, allowing us to further rationalize our fleet. Last quarter, we reported the anticipated early termination of the Deepwater India's work in Egypt. However, upon review of the successful drilling program, coupled with the improvement of oil prices, Barillas reversed course and fulfilled the full program without early termination. This kept the India drilling into July. Unfortunately, with no near term prospects on the horizon, we moved quickly to Cold Stecker and Greece. Moving to offshore India, I'm pleased to report Reliance exercised its 180 day option on the KAIJI one, this will keep her busy through the second quarter of 2021. Moving to Asia Pacific, the deep one recently completed her successful campaign in Australia with Chevron, as we currently do not see any near-term opportunities for her. We've decided to cold stack her. And finally, the kajita just this week. And it's her contract with Woodside in Myanmar and it's currently on standby at a reduced day rate. We believe that Woodside will commit mobilizations in January, at which point we will be on full operating day rate of 250000 dollars per day. In addition to keeping our actively working, we remain diligent in assessing our need for ongoing marketability and as we have demonstrated since the start of the downturn in 2014, once we determine that a rig has few profitable opportunities, we quickly remove it from our actively consistent with past practice and our discipline philosophy on retirements of less competitive units.

[00:08:26] Upon the completion of her recent drilling campaign, we decided to recycle the Transocean Arctic. Looking now at upcoming market opportunities, the contracting environment has materially improved from when we last spoke three months ago when there was minimal customer interest. As a reminder, when we enter Twenty twenty, we were starting to see tangible signs of the recovery unfolding, our high specification, harsh environment assets were fully utilized, day rates exceeded 300000 dollars, and visibility to future work was very encouraging and improving. And in the ultra deepwater markets, utilization was also starting to trend higher. Indeed, at the end of 2019 and early 2020, we were awarded several ultra deepwater fixtures with day rates around 250000 dollars a day, which represented a 100 percent increase from fixtures signed earlier in 2019. In light of these data points, we were increasingly optimistic that the protracted market recovery was picking up sustainable momentum. Unfortunately, the world was hit with covid-19 reducing demand for energy. This when coupled with a temporary increase in supply that was spurred by production disputes among major producers drove oil prices to historic lows, stalling the momentum that we were experiencing the early twenty twenty. Understandably, this caused many of our customers to pause and reassess how and when to utilize the respective portfolios and ultimately led to them delaying many of the projects that we expected to be sanctioned in the latter half of this year and the first half of 2021.

[00:09:55] But the delay in awards has certainly been disheartening. We're encouraged by the fact that most of these previously anticipated projects have not been canceled. Instead, they've been deferred by approximately 12 months. In fact, our bidding activity level this quarter has doubled from the low point in the second quarter and as we turn to pre covid levels. During the third quarter, we participated in 18 bids, which is the same amount we participated in during the fourth quarter of 2013 just before covid hit. Taking a closer look around the globe and starting in the U.S. Gulf of Mexico for the near term is a bit challenging. A handful of projects with start dates in the second half of 2021 are beginning to emerge among independents, Aoki's and Nose's. In Brazil, Petrobras recently awarded long term fixtures for the Tracy Marina project in the presell, and we expect to see several more Petrobras awards in the near future. Furthermore, Ecuador has recently returned to its four year program in the Bacolod field, and we remain encouraged by the improving activity in Brazil. Moving over to Norway, we are excited about the opportunities unfolding as a result of the Rwandan government's recent enactment of favorable tax incentives for oil and gas projects over the next two years. We anticipate this market will continue to tighten as more projects are brought forward to capitalize on the favorable investment incentives. In fact, we've identified two dozen projects that could be given the green light as a result of the tax change. If all of these projects move forward, we believe that the market for high specification assets could be sold out as we exit 2021 and into 2022.

[00:11:30] And with the most recent fixtures for such assets around the 300000 dollars per Danmark plus performance bonus incentives. We are optimistic about the future prospects of our industry leading fleet in Norway, which once again will soon include the transition. Barrence. In Africa, excluding hotels, multi-year tender for Mozambique, we could be, which could be awarded in the coming months, we see several medium and long term programs that could be awarded for work beginning in 2021. In the Asia Pacific region, including Australia, we anticipate 11 awards will be made over the next few months for work starting in 2021. As you may know, this region has demonstrated continued activity through these difficult times and the volume of opportunities is nearing prie covid-19 levels. In summary, what we are certainly disappointed that the ultra deepwater recovery continues to be delayed, we are encouraged by the emergence of multiple opportunities for work in 2021 and beyond. While we take some comfort in our approximately eight billion dollar backlog, we remain very pragmatic, recognizing the challenges to the industry and specifically those that Transocean will continue to face in the near term. Such we will continue to take the necessary actions to preserve and enhance liquidity, including, but not limited to delivering flawless operations that enable us to convert as much of our backlog into revenue as possible. Further improving our cost structure to fit the evolving actively. Quickly, cold stacking or scrapping non-working idle assets and executing timely and opportunistic financing transactions.

[00:13:02] In this regard, as you likely know, the third quarter was very active from a capital markets perspective during the period we undertook a series of actions to reduce our debt and more importantly, did so while also improving our liquidity forecast. As a result, during the quarter, we successfully reduced our debt by almost one billion dollars, reducing our interest expense and extending our liquidity runway as we continue to navigate through this economic cycle.

[00:13:26] And as we have demonstrated over the last several years, we're not done. Our finance and legal teams have proven time and again that we can successfully execute fiscally responsible transactions and favorably resolve disputes as they arise. We will continue to be proactive in managing our balance sheet in a way that enables us to continue to invest in our people, our asset, in the development of new and differentiating technologies. I would now like to provide a few comments regarding the state of the offshore drilling sector from our perspective, the majority of our peers have either formally started the restructuring process or taken steps that indicate that they're likely to do so in the near future.

[00:14:01] Given our large backlog, strong operating performance and liquidity enhancing balance sheet transactions, Transocean is in a very different and advantageous position relative to our competitors and we are not currently facing a restructuring decision, nor are we experiencing the difficult and sometimes demoralizing and crippling distractions associated with such a process. Instead, we believe we have the liquidity to continue to prudently invest in our business. And importantly, we're able to maintain a singular focus on delivering best in class operations to our customers. As our competitors emerge from restructuring, it is possible that we may see some consolidation, which we believe is a natural and inevitable result based upon industry economics.

[00:14:42] The more marketable, the marketable supply of rigs is likely to fall at a pace that we expect will eventually meet with the contracted rig count, which we are already starting to see. Therefore, when oil prices stabilize at more favorable levels and inflection and rig contracting should have an almost immediate and positive impact on day rates due to the shortage of marketable rigs and the significant expense associated with reactivating stacked rigs.

[00:15:07] Transmission will continue to take the necessary actions to ensure that we maintain the most competitive fleet in the industry and remain disciplined in our approach to contracting that fleet. In conclusion, Transocean has strategically, strategically assembled the largest and most competitive floating fleet in the industry with the industry's most experienced crews and shore based support teams. We maintain the largest contracted fleet with the strongest and most lucrative backlog, providing us with the visibility to future cash flows that we need to continue to invest in the training of our crews and the maintenance of our assets. SS, we are best positioned to survive this latest challenge and benefit from the eventual market recovery. We've accepted that a full scale recovery in the deepwater offshore market will not likely begin before the middle of 2021. However, as the market has begun to stabilize, it gives us confidence that our customers will be ready to increase their offshore activity in the years to come. In the interim, we are committed to our customers and to the preservation and generation of cash flows. We are proud to position ourselves as the clear leader in harsh environment and ultra deepwater drilling and will continue to strategically refine our fleet to further enhance that position. As such, we expect that our marketplace will remain the industry's most utilized as we successfully navigate this current economic cycle. With that, I'll turn it over to Mark.

[Mark Mey]

[00:16:24] Thank you, gentlemen, and good day to all. Hear today's call of a briefing, recap our third quarter results, provide guidance for the fourth quarter and provide preliminary estimates on our financial expectations for Twenty twenty one. Lastly, I will provide an update on our liquidity forecast through Twenty twenty to. As reported in our press release for the third quarter of Twenty twenty, we reported net income attributable to controlling interest of three hundred and fifty nine million dollars. Fifty one cents per share. After adjusting for several items associated with retirement and restructuring of our debt and discrete tax items and unstable items associated with the loss on disposal of assets and liability management costs, we reported an adjusted net loss of sixty nine million dollars or 11 cents per share. So the details are included in a press release. Highlights for the third quarter include a EBITDA of and thirty eight million dollars reflecting strong, sleek, driven efficiency coupled with robust performance bonuses picked by revenue efficiency exceeding 96 percent, reflecting operational excellence and strong backlog conversion. Eighty one million dollars in operating cash flow.

[00:17:38] Looking closely at the results during the third quarter, we delivered adjusted contractural in revenues of seven hundred and seventy three million dollars, driven primarily by strong revenue efficiency and 10 million dollars performance bonuses across the fleet, as well as a short extension of the Transocean parents drilling contract. Upgrading and maintenance expense in the third quarter was four hundred and seventy million dollars. This is better than our guidance and due to the timing of in-service maintenance and lower than expected costs associated with covid-19. During the quarter, we recognized approximately fourteen million dollars of expenses, of which approximately half were reimbursed by our customers. To the cash flow and balance sheet, we ended the third quarter with liquidity of approximately two point nine billion dollars, including restricted, including unrestricted cash cash equivalents of approximately one point four billion dollars, approximately two billion dollars of restricted cash for debt service and one point three billion dollar undrawn revolving credit facility. As we mentioned during the quarter, it took a series of steps to further strengthen our balance sheet by meaningfully reducing our debt, in early August, we initiated exchange transactions for multiple series of charities utilizing currency, and it's permitted by existing indentures and using guaranteed debt structure. As a result of these exchanges will be able to reduce our debt burden by almost a billion dollars by consuming any cash, thereby improving liquidity by approximately two hundred and sixty million dollars through Twenty twenty for.

[00:19:17] Which is inclusive of ninety million dollars of net interest savings. And to say savings to the maturity of the exchange bonds exceeds five hundred and sixty million dollars. Furthermore, during the quarter, we also opportunistically repurchase approximately forty nine million dollars of our debt in the open market, resulting in more than 20 million dollars of savings.

[00:19:39] To continue our efforts to improve our balance sheet in October by initiating a cash tender offer for civil service abominated maturity's. As noted in the press release last week, participation has been very good and we've already retired approximately three hundred and forty eight million dollars face value of debt, a discount of approximately thirty nine percent, resulting in a balance sheet improvement of more than 135 million dollars. Including cash, interest savings, this tend to also put liquidity through 2025 by proximity to a billion dollars thus far.

[00:20:15] It also closes on the number nine.

[00:20:18] Exchange transactions and cash tender are the latest actions in a long list of financing transactions undertaken to improve our financial flexibility and capital structure since the beginning of the initial downturn six years ago. So 2016, we're looking at approximately nine point four billion dollars of mostly new debt maturities through various ordinary course and liability management transactions and issued approximately nine point three billion dollars of new debt capital markets.

[00:20:48] Look, continue to take actions to improve our liquidity and capital structure for the benefit of our shareholders. Making up about an uptick on expectations for the fourth quarter, for the fourth quarter twenty twenty, we expect our adjusted contract revenues to be approximately seven to ten million dollars, reflecting a revenue efficiency of 95 percent Pequod. This influx of lower revenues, this reflects lower statewide activity as Firebrace to discover India, discover inspiration, Transocean parents, Transocean leader and Transocean Artecoll concluded their recent respective drilling campaigns. So the more the inspiration is now, Wolf, the U.S. Gulf of Mexico to India and the leader of both the coast back in Greece and Norway, respectively, and they certainly mentioned we have scrapped the Arctic, mobilizing the parents to Norway, which will be welcome to simple work in Twenty twenty one. We expect fourth quarter on an expense to be approximately four hundred and fifty five million dollars a quarter over quarter decrease attributable to another activity as a result of rich volume of contract. We expect the expense for the fourth quarter to be approximately forty two million dollars in line with the prior quarter. And interest expense for the fourth quarter is expected to be approximately one hundred and forty five million dollars, this forecast includes capitalized interest of approximately 13 million dollars of interest, income of one million dollars. Capital expenditures, including capitalized interest for the fourth quarter or anticipated to be approximately 55 million dollars, this includes approximately thirty million dollars for a new Beaudreau settlement construction and 18 million dollars of maintenance capex. Across Texas for the fourth quarter, expected to be approximately three million dollars. Now, I'd like to provide a first look at our financial expectations for Twenty twenty one with this adjusted contractual revenue to be between two point six and two point eight billion dollars.

[00:22:51] Eighty per cent of which monetizes previously established contract backlog. First of all, we believe a full year twenty twenty operations and maintenance expense will be between one point four billion and one point six billion dollars. And finally, we expect it to be between one hundred and fifty million dollars and one hundred and sixty million dollars. Turning now to our projected liquidity of December 31, 2022, including an underwater robotics facility, a potential securitization of the Deepwater Horizon of the year 2022, liquidity estimated between one point one billion and one point three billion dollars. This liquidity forecast estimates the many Twenty twenty Catholics of 35 million dollars and a twenty twenty one CapEx expectation of one point five billion dollars Twenty twenty one category is one point four billion dollars added to our Newbold's and 100 million dollars for maintenance capex. As always, got it excludes inspectors, the reactivations or upgrades. Now, I'd like to address the recent news regarding compliance with the New York Stock Exchange three October. We see the continued listing standard notice from the NYSE because the average closing price of our shares fell below one dollar for a consecutive 30 day. We plan to remediate this deficiency and regain compliance well within the time allotted by the NYSE and we remain in compliance with all other NYSE listing standards. In conclusion, in addition to a safe and efficient operation of our rigs, we continue to focus on preserving enhancing liquidity while opportunistically increasing our debt, proactively seeking capital expenditure requirements, and explore all opportunities to reduce costs without compromising operational integrity or the safety of our employees. I'm not turned over to Lex.

[Lexington May, Manager, Investor Relations]

[00:24:49] Thanks, Mark David. We're now ready to take questions and as a reminder to the participants, please limit yourself to one initial question and one follow up question.

[Operator]

[00:25:02] Thank you, ladies and gentlemen, at this time, the floor is open for your questions. If you would like to ask a question, you may do so by pressing star one. Now, if you're using a speakerphone, please make sure that your mute function is disabled to allow your signal to reach our equipment. Again, to ask a question, please. Press star one. Now, our first question comes from Connor Lenore with Morgan Stanley.

[Connor Lynagh, Morgan Stanley]

[00:25:29] Yes, thanks. I wanted to focus on the the back half 21 opportunities you were discussing, and I appreciate the commentary around that. I guess what we're trying to figure out is, is what do you think the customer sensitivity to oil prices is these days? And how would you think about if oil prices remain, you know, probably where they are today or move up, you know, five to ten dollars? How would you think about the relative sensitivity of those opportunities?

[Jeremy Thigpen, President and Chief Executive Officer]

[00:25:57] Yeah, kind of a let ruddy chime in the you know, from our perspective, there's still so much uncertainty in the world. You know, when do we find a real solve, if you will, for covid? And what does that do to global economies? And when does that take place? And then how does that impact oil prices? Certainly, you know, as we saw in 2019, we had a relatively stable oil price that bounced around sixty dollars a barrel for quite a period of time. And that's really where we started to see these offshore projects pick up with with some earnest. So I think right now our customers are growing increasingly encouraged that, you know, oil prices have moved up from the from their bottoms have stabilized a bit. And that if we can get through, I think, the election and kind of determine what the landscape is going to look like there and then and then start to find whether it's a vaccine or whatever kind of Sopher covid, I think that that gives them even more more confidence and that we can get our prices up closer to fifty dollars a barrel. I think we start to see quite a bit more activity and write down, if you want to add to that.

[Roddie Mackenzie, Senior Vice President, Marketing and Contracts]

[00:27:01] Yeah, I would just add to the fact that, you know, if we do give up another 10 or 15 dollars, that will really make a huge difference, because I think, as we mentioned just before, our customers have spent a tremendous amount of time retooling their wells, simplifying the designs to make them more and more profitable at, you know, around about 50 billion mark. So I think if we can see something sustained around the 50 dollar mark, then, you know, that's that's going to bodes very, very well for offshore drilling where, you know, our competitiveness is relatively increased substantially over the past few years.

[Connor Lynagh, Morgan Stanley]

[00:27:37] Yeah, makes sense if if you could speak in broad terms, I know you don't want to give away too much for competitive reasons, but but these opportunities that you're starting to see, how should we think about? And certainly I think you alluded to this on the on the harsh environment side of things, but under benign environment. Riggs, what do you see? The contract durations, rates trending? You know, it seems it certainly seems like things have been holding up a bit better relative to the prior downturn. But just any broad comments around that would be helpful.

[Roddie Mackenzie, Senior Vice President, Marketing and Contracts]

[00:28:09] Yeah, that's a really interesting point. We were actually going to make that point that if you compare to where we were before and the previous blip there said Jeremy had alluded to had had been down pretty low in the kind of mid one hundreds. But, you know, now we're seeing that the bottom end of this is clearly not there. You know, I think some of the lowest rates, we're really seeing a 180 to 190 mark. You know, while we are certainly not there, some folks are. But there seems to be, you know, just the economic reality of delivering the service is kicking in. And I think we also expect to see that with a number of tenders that are coming out in places like Brazil, a lot of awards being made in other parts of Latin America, that today rates seem to be less of a spread and everything seems to be moving up a bit. So and you may see some near-term competitive stuff, but we think because of a lot of these tenders are now multi-year, in fact, is probably at least half a dozen multi-year tenders just now. We think that is going to have folks bidding, you know, above 200. And those that are still looking at four and five year terms are well above 200. They're going to be equal to the 300. So, you know, remains to be seen whether the operators move on those right now. But certainly we're optimistic about that because we certainly haven't seen that the depth of day drop that we did last time around. So clearly, economics are better this go around.

[Connor Lynagh, Morgan Stanley]

[00:29:46] Yeah, just to sneak one more in here is what do you attribute that changing behavior to? Is it is it less optimism, less less sort of logic? Well, I just maintain the customer now and I'll monotype later. Is it is it more financial constraints? What basically what I'm what I'm, you know, trying to figure out here is if if your competitors do emerge with a cleaner balance sheets, probably not a ton of liquidity, but maybe more than they're working with today, does that derail this discipline or do you think it's more sustainable than that might first one?

[Jeremy Thigpen, President and Chief Executive Officer]

[00:30:22] So I don't believe it does. I think it could in the short term, if you're looking at individual rigs that are rolling off contract and they're just looking for a near-term filler opportunity, you might see a little more competitive play to try to just position that rig for for a short duration. But but as we said in the prepared remarks, and we're starting to see play out, we're starting to see more rigs cold stacked more quickly, more rigs scrapped. And so the real active marketable fleet is shrinking. And so if you want to get into one of these long term arrangements and it's going to require rig regulation, like you said, the liquidity will be improved. But, you know, you're looking at a 50 million dollar plus ticket to to reactivate an asset. You can't do that in today's day. Right. You have to go much higher or you have to get compensated on the front end from from the operator.

[00:31:08] Go ahead. Ready?

[Roddie Mackenzie, Senior Vice President, Marketing and Contracts]

[00:31:09] Yeah. Yes, I was going to add to that that, you know, there's been a few mistakes made in the past. You've seen folks do the reactivation and mobilization speculatively and it just didn't work out. So I think there's a lot of hard lessons to be learned. And I also think there's going to be a tremendous expectation to create some form of earnings from these contracts. So, as Jamie said, reactivation costs are going to curtail that that dip in the rates again. But, you know, more interestingly, that than not the the relative utilization of of high spec assets is only going to get better. You know, as the opportunities have dropped in the latest covid debt, so has the number of active rigs. So if you look at the chart of the seventh gen drillships of those that are stacked, the vast majority are cold stacked. So they aren't coming anytime soon. And we actually look at the list that I track six or seven rigs, you know, that are listed as being warm, stacked. And we know that four or five of them already have leading positions in tenders that will take them out of the market. So you really do find yourself in a situation that's similar to the back end of twenty nine, twenty nineteen when we we saw that that boost in rates from that kind of 150 level up to the 250 level. And it's just driven by the fact that there are fewer assets available.

[Connor Lynagh, Morgan Stanley]

[00:32:41] Makes sense. Thanks for the color.

[Operator]

[00:32:45] Thank you. Our next question comes from Taylor, researcher with Tudor, Pickering and Holt.

[Taylor Zurcher, Tudor Pickering Holt]

[00:32:51] Hey, good morning and thank you, appreciate all the color or the initial color on Twenty twenty one, and if I'm doing my math correctly, that implied even a number for Twenty twenty one is much better than what consensus is thinking right now. And so, Mark, I think I heard you say that at the revenue line, about 80 percent of your forecast is contracted today. And so a two part question for the other 20 percent. Could you help us understand which rigs that are currently idle today are going to help move the needle the most or that you see the best opportunity for work in Twenty twenty one embedded in that forecast? And then secondarily, it seems like the biggest delta would be at least versus our thinking would be on the cost side. So good to see that if I just take the the midpoint of the cost guidance for 2021, I think it's about one point five billion and divide that by four. That's that's three hundred and seventy five million type quarterly run rate for Twenty twenty one relative to four hundred and fifty five million you're guiding to in Q4 of this year. So just, just hoping you could help us understand how you get to that structurally lower cost run rate moving forward, absent a number of rigs rolling off contract in the coming quarters. Thank you.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:34:12] So thank you. Good morning. Let me respond to your first question regarding the 20 percent of expected revenue. According to our forecast, it's really comes down to four or five rigs, one being the Asgard, the inspiration, the three and the nordia. And those are almost equally split between those. And then we've also got two other rigs, the Petrobas 10000 and the Nautilus coming in, much lower numbers for for next year. So, like I said, four rigs will drive the vast majority of that 20 percent of spec revenue. As you look at the costs for next year, it's not I think your your calculation of providing the one point five bucks for is is a is a way of doing it. But as you know, winds are going to be coming up throughout the year as they come off. Costs would be reducing on a quarter by quarter basis next year. We also see the full benefit of our cost cutting efforts, which we implemented this year. So like the second half of the year, as of this time of contract, we've had to reduce costs. We've stacked cold, stacked several rigs. So all of that has happened incrementally in twenty twenty eight. In twenty twenty one. The people who benefit and they want.

[Taylor Zurcher, Tudor Pickering Holt]

[00:35:43] Got it, that's helpful. Second question is on liability management from here clearly been extremely busy over the past few months, which has been really good to see moving forward. You still have a quite a bit of CapEx slated for Twenty twenty one on the two new builds that you have remaining. Can you talk about the timing of those back and payments and whether there's any potential to potentially push those out a little bit to the right that you've seen a lot of your competitors do that over the years. And I know you've got contracts in place for these two rigs and there's some time constraints there. But do you see any potential as part of your liability management playbook to to figure out a way to push those those back in payments to the right a little bit?

[Jeremy Thigpen, President and Chief Executive Officer]

[00:36:32] I would look at that in a different light that really isn't a liability management, that we have a commitment to shipyard for those two rigs. And obviously the final payments have been delayed several times in the past. With those rigs now slated to be delivered next year, we would need to take delivery of those rigs and pay the payments at the time. That being said, we're always in conversation with our vendors, including the shipyards, and there's a potential that something could happen there. But at this stage, we are we are not pointing to anything specific.

[Taylor Zurcher, Tudor Pickering Holt]

[00:37:11] Understood. Well, thanks for the answers.

[Operator]

[00:37:16] Thank you. Our next question comes from Kurt Halyard with RBC.

[Kurt Hallead, RBC]

[00:37:20] Hey, good morning.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:37:21] Morning, Kurt.

[Kurt Hallead, RBC]

[00:37:23] Hey, thanks for that, thanks for that color. I wanted to come back around, make sure that I understood some of the dynamics around the market outlook correctly. You guys talked about how currently ultra deepwater rigs are in the 180, 190 range. Effectively, it looks like they're unchanged over the last few months. Then you mentioned at least half a dozen tenders or multiple years. And then I thought I heard something, heard something that with day rates approaching three hundred thousand dollars a day for those multi-year tenders. Could you could you go back and just kind of clarify that a bit?

[Jeremy Thigpen, President and Chief Executive Officer]

[00:38:00] Yeah, sure. Hey, look, so I said that the low end is that one eighty one ninety, we're seeing responses to tandas all the way up to 300 a day. But that's really because of the length of time. So, I mean, I would say the near term market is somewhere between like 180 to 230 and then not long term market. That looks to be substantially higher. And that really depends on how many rigs will be taken by these long term prospects. And what you see there is essentially a little bit of being taken for. So as those rigs come off the market, in other words, they're committed, then the balance of rigs available combined with relative to the number of warm assets, we think that's going to really help push the dynamic. So hopefully that makes sense. You know, as we see an uptick in bidding activity, no, that should translate into an uptick in a ward six, nine, 12 months from now.

[Kurt Hallead, RBC]

[00:39:03] Got it. So that's helpful. And then, Jeremy, I wonder if you could help us put into context, you've been among the leaders of taking assets out of the market and rationalizing, you know, your fleet. I was wondering if you give us some general sense as to maybe how many rigs you could expect to rationalize in in twenty twenty one and maybe put that into the broader context of how many industry wide assets could be rationalized next year.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:39:30] Well, I take offense to among the leaders, I mean, we've been the clear leader, unfortunately, with respect to our own fleet, I think you can you can continue to watch us follow past practice. I mean, we've been pretty consistent as rigs roll off contract and we we see limited prospects for them and we don't see them as overly marketable or profitable going forward. We won't waste any time and removing those assets from from our fleet. But I tell you, you know, given what we've done so far, we've got a vast majority of those assets out of the fleet, as you well know. But certainly there could be a couple more going forward. But we'll address those as they come regarding the rest of the industry. It'll be interesting to see how these competitors emerge from restructuring and whether as part of that restructuring, they are forced to to retire, recycle some of the the older, less capable assets are our expectation that they will because they're just too costly to keep around and not overly viable going forward. And so that'll that'll certainly help with the the supply side on the spreadsheet. But candidly, we've said for for a long time now, we're not as worried about the total number and the Excel spreadsheet because we know a lot of these rigs will never find another contract. But optically it'll certainly it'll certainly improve things.

[Kurt Hallead, RBC]

[00:40:46] Ok.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:40:48] Yeah, we just see, you know, several of our competitors as they're transitioning, management teams are making a lot of overtures around simply taking that supply out because it's just not viable. It does not help market dynamics. So we encourage that.

[Kurt Hallead, RBC]

[00:41:06] But it may be one for Mark. What do you what do you anticipate the securitization of the title to be?

[Mark Mey]

[00:41:15] So, as you know, that's a five year contract with Chevron at a pretty healthy rate, so I think we could get somewhere between 350 and 400 million dollars of financing against that rig.

[Kurt Hallead, RBC]

[00:41:28] Ok, awesome. Hey, thanks for the color, everybody, appreciate it.

[Operator]

[00:41:35] Thank you. Our next question comes from Frederic Stein with Clarksons Plateau's Security.

[Unidentified Analyst]

[00:41:42] Hey, guys, thank you for for your optimistic comments today. It's nice to hear that it's more activity out there now than it was three months ago. What I'm wondering about today is or has to do with rig efficiency and how your customers have approached that. And I'm thinking, you know, what's with the recent strike? The record was very vocal that they're now looking even more at cost per wells versus just the day rate. So so have you. I think it's been in place for some time, but have you kind of felt that even more now when you're hearing about the high grading of fleets called stacking, scrapping, et cetera, and leaving the best assets on water? Is that something that you feel will be important both from our competitive, confident point going forward, but also from a utilization standpoint? And as a follow up to that, I think I mentioned that aquanaut you're taking the Barents to Norway. How do you view the recontracting chance for the four rigs you have with Ecuador already? Thanks.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:43:04] Yes, let me take the efficiency question first, and so that's been the push over the past several years and really I think why we're seeing offshore, particularly deepwater and harsh environment doing well in terms of collecting bonuses and that kind of stuff. It's all about that well cost and the push for the well cost as and not only obvious that it's better to drill a well for less the cost, but it typically brings the whale on earlier. So then you have less spread rate that runs for a longer time and then you get earlier production and you get to drill more wells in the same period of time. So it really is the catalyst to more and more activity. So, yes, we are fully behind that push. We we have our customers, you know, equally participating and upgrades to rigs and allowing us to make substantial compensation on that. So it's it's a very healthy environment from that point of view in terms of performance and high specification assets. So you'll have to see many times that that is our philosophy is to be at that cutting edge of performance, but not because it's just not only fun to be there, but because it drives the economics of more activity and puts you in a better spot reputation wise with the customers. They know if they pick up a translation rig, then they're going to drill in fast as well. So that's really important for us and obviously makes a big difference in terms of how much we can collect on a contract and how much profitability is in it for the operators as well. The second part of your question was around, you know, bringing the balance to Norway. So that's her natural home. She was in Norway for a long time. She operated extremely well there. So she brought over to Canada. Very successful campaign from our point of view operations wise. Also from a financial point of view, what? Very well. So, yes, we bring it back to Norway, you know, without tipping our hand where we're in discussions with a few folks. But we think the market in Norway is.

[00:45:17] Continues to be robust for Lewis, high specification and high performing assets. We do see a bifurcation between the lower spec assets or the how you say the lower performance reputations and and rate that is driving up are at a substantial clip. So really, we think those high specification assets are going to see what they're going to see a solid rate. And while there may be a few gaps here and there on some scales, we think it's going to be a fairly robust activity, especially towards the second half of twenty one when we begin to see a lot of the tax incentives that were offered by the Norwegian government to kick in and stimulate more activity. So maybe that's the long and short of the reason for bringing it to Norway, but that seems to be a really good fit for the Reagan. We're fairly positive on our.

[Unidentified Analyst]

[00:46:17] Yeah, super thanks also on the just to follow up there, the four rigs that you had with aquanaut in Norway already. How do you view the outlook of those rigs? I've I spent a lot of time discussing with investors around those recently. So I think, you know, anything that you can give, do you think that they will be extended, that there's work for that kind of rigs?

[00:46:43] We would, you know, the midwater rigs, completion, drilling, et cetera, in the same way that you will find work for for the balance that you believe that these will continue to be kind of aquanauts, which, of course, is also when the firm terms expire.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:47:01] Yes, so when we look at those, the cat deals and the kind of work that they deliver, that they are absolutely fit for purpose and not only they fit for purpose for when they were built, but, you know, we've done some upgrades to them. We've brought them more and more into the digital realm. So, you know, with Ecuador, we've worked to enhance the performance of those rigs and they're extremely pleased with the results that that has borne. And actually, again, for us results and collection of bonuses and those kind of things. So we continue on that push of keeping those rigs right up there in terms of performance in the latest digital technologies. And as we see it and as the feedback we get is that I think Ecuador very keen to see them continue in that vein beyond their phone contracts. The contacts do have options on them. So we think there's plenty of scope for those to be extended in the not too distant future.

[Unidentified Analyst]

[00:48:00] As the final follow up to that, do you think if there is an extension, that it's fair to assume that, you know, they have options, but that may be a rate that's more in line with the current market? I think it's the type of discussion.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:48:20] I think it's a little early to say, but, you know, there's always a possibility, but, you know, without engaging in significant and earnest negotiation on those, I think I'll I'll not be drawn on that for now. We'll just wait to see how that pans out and when we do enter full, full time negotiations.

[Unidentified Analyst]

[00:48:44] Ok, thank you so much. That's all for me.

[Operator]

[00:48:49] Thank you. Our next question comes from Greg Lewis with BTIG.

[Greg Lewis, BTIG]

[00:48:54] A thank you and good morning, everybody. You know, Mark, I guess I just wanted to ask a question around the ongoing tender, realizing that it's ongoing. You know, I know when I initially came out, it was was a two hundred million dollar number. And then you kind of reserved the right to increase or decrease it, you know, assuming that it's successful. How should we thinking about how should we think about the capacity or scope to to increase it beyond that, that two hundred million dollar number, if there is any.

[Mark Mey]

[00:49:33] Thanks, Greg, I think at this stage, we are disinclined to increase that cap beyond two hundred million dollars. Clearly, once we finish this, it will be, I think, a false liability management initiative we completed this year. So we're going to we're going to take a step back, take a look at our five year plan, look at our liquidity and reassess the next step in our efforts to improve our capital structure and increase our liquidity. But for this change, I think we're going to keep it at 200.

[Greg Lewis, BTIG]

[00:50:07] Ok, great. And then just, you know, I mean, whether this is Perrotti or more, you know, I know on on the question around revenue, the Asgard was was mentioned as a rig that's going to or has the potential to generate revenue with Twenty twenty one that, you know, that rig is scheduled to roll off at some point, you know, this quarter. Just kind of curious how we think about that. And should we be thinking about maybe, you know, heading into winter, should we be thinking about maybe some idle time around that rig before it starts working, maybe in the spring or summer? Or do we think that there could be an opportunity really to just keep that rig? You know, really working to roll off later this year.

[Roddie Mackenzie, Senior Vice President, Marketing and Contracts]

[00:50:59] Know, I think you do have that opportunity to keep it going, but, you know, if there are some gaps in the schedule, we expect that there will be relatively short, you know, a month or two, you know, there. But, yeah, she's performing well in general. She's really a high specification unit. So we've we've got a few irons in the fire on her. So, yes, I would expect to see her working, but it certainly is possible that a few idle spots on her schedule.

[Greg Lewis, BTIG]

[00:51:30] Ok, and then just in thinking about that, knowing that, you know, it's I mean, things looked at bottomed and, you know, turning the corner. But as we think about, you know, and clearly, once you guys don't see much tragedy, once you don't see much of an opportunity to keep the rig working, you probably start lowering your daily OpEx. You know, what is kind of the window that we didn't make? And we realized the new tricks, probably different is a kind of, hey, if we have line of sight for 90 to 100 days, we'll kind of keep everything staffed up or just trying to understand, you know, if that's changed relative to, you know, what it was a couple of years ago.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:52:12] I'm not sure it's really changed tremendously, I mean, as we go into the short Idol periods and we have some levers to pull that, you know, reduce costs quite significantly, there is an idle spot on a campaign. But then, you know, you've got to work on the back end of that.

[00:52:31] But it really depends on that. The future marketability of the rig, which, of course, they thought is right up there at the very top of the list on and also the prospects in that region. And look, the Asgard has been down to some parts of Latin America several times. She's very mobile unit. So, you know, with with Latin America in general, doing extremely well just now. We would expect that the idle time on Earth would be would be limited, but we would be able to reduce expenditure during that time. But again, I think because this rig is in good demand or this class of rig, is that the day rates are going to be pretty reasonable. So you can offset a little bit of idle time with that.

[Greg Lewis, BTIG]

[00:53:18] Sounds good. Good to hear. All right, everybody. Thank you very much for the time.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:53:23] Thank you.

[Operator]

[00:53:25] Thank you. Our next question comes from Mike Isabella with Bank of America.

[Mike Sabella, Bank of America]

[00:53:30] Hey, good morning, everyone. I was kind of hoping we could maybe go back back to the kind of cost discussions and really kind of try to unpack the guy for next year, you know, when we think of, you know, bottom of the cycle type activities and layering into the advance and we've seen sort of globally in remote honoring, I you'll understand, lower activity and lower costs here. You know, how should we be thinking about, you know, lowering costs on the rigs that are that are working just as we see advancements, you know, here in Asia and remote monitoring and the same question on where you think you can take the sorbets.

[Mark Mey]

[00:54:10] So, Mike, let me take a shot of this first with regard to show that is firstly obviously has some of the few people on the show base to manage and support, as Rick. So that happens as the recount varies over time as it relates to digitization or A.I. or any other current initiative, there's going to be an investment into that that initially offsets any cost savings you're going to see in that in that quarter or that year. We've done a lot of this over the last several years. So we're starting to see the benefit of that right now. And we'll continue to see this into the future as we continue to invest in our respect, make them more efficient and more able to support the customers and their visitors around digitization.

[Mike Sabella, Bank of America]

[00:55:05] Yeah, I think I'd just add to that to say, you know, the equivalent equipment analytics programs and systems that we put on the rigs that are remotely monitored from shore have already proven to be extremely useful and primarily around being much more accurate in your maintenance and your assessment of the condition of the equipment, thereby not spending unnecessary maintenance dollars, time and effort. So we're already well down that track. And, you know, our steady implementation of digitization projects like that, whilst they may not be grabbing headlines, they are certainly helping us manage costs through these difficult times.

[Jeremy Thigpen, President and Chief Executive Officer]

[00:55:45] You can just just one more add to that, I mean, we have been working extremely hard over the last several years now to optimize the size of our crew and the activities on board to optimize fuel consumption, not only from a cost standpoint, but from a carbon footprint standpoint. And so continuing to work down those areas and then just delivering these wells faster drives cost out of the out of these projects and out of the organization while also improving our carbon footprint as well.

[Mike Sabella, Bank of America]

[00:56:14] Perfect. Appreciate all that. And that just kind of switching gears, maybe maybe on the working capital front, it was a bit of a back there in 3Q, you know, as revenues kind of come lower or are there targets for working capital you could share with us, you know, as we head into next year how we should be thinking about the working capital from your.

[Roddie Mackenzie, Senior Vice President, Marketing and Contracts]

[00:56:36] So if you're looking at working capital for this year, we've had for the year to date, you have two things that happen that you're not going to see an ongoing basis. One, we had the Macondo PSC settlement of one hundred and twenty five million dollars this year and also the ENI settlement, which we only received one installment of that settlement with the rest of it being expected to be collected over the next three years because looking at the quarter specifically, we had a increase in our interest payments for the quarter given the liability management actions we took, in addition to the fact that we accelerated some payments that were a little slower in Q2. So between the two of those, you got to about 80 to 90 million dollars. That also is not a trend and it shouldn't reoccur in the ordinary course.

[Greg Lewis, BTIG]

[00:57:34] Great, thanks a lot, everyone.

[Operator]

[00:57:37] Well, thank you, our final question will come from Sean Meakim with JPMorgan.

[Sean Meakim, JPMorgan]

[00:57:44] Thanks. Good morning. Which just of my questions have been, yeah, most of my questions have been covered here. So just one on the back end, maybe more. Can we just talk about what type of liquidity levels are needed to run the business at current activity? And if you take possession of the new bills next year, how did you look? Liquidity position look relative to your needs exiting twenty one. Anything else that needs to be done besides securing the secured financing on the Titan?

[Mark Mey]

[00:58:14] So, Sean, I gave you our estimate at the end of Twenty twenty two, I don't have it broken out the Twenty twenty one right now, but they certainly get that to you. But we both and the payments to GBL for those rigs, that testimony and the we also both in the potential financing, are using the cash flow from the Sherbon contract on the Titan. So all of that has been in addition to that. As I mentioned earlier, we we took a significant action this year with regard to reducing our show based overhead, our DNA and any other costs associated with running the business, which has been implemented as our rig count came down during the second half of this year. You just heard me talk about five rigs are kind of contract this quarter. So as those rigs come off, obviously, correspondingly, we reduce the folks involved in managing those rigs. So that is what I would I would point to with regard to costs.

[Sean Meakim, JPMorgan]

[00:59:18] Ok, fair enough, I appreciate it.

[Operator]

[00:59:23] Thank you. I'll now turn it back to Mr. Lexington Main for closing comments.

[Lexington May, Manager, Investor Relations]

[00:59:28] Thank you, David, and thank you, everyone, for your participation on today's call. If you have further questions, please feel free to contact me. We look forward to talking with you again when we report our fourth quarter twenty twenty results. Have a good day.

[Operator]

[00:59:47] Ladies and gentlemen, that concludes the third quarter Twenty twenty Transocean earnings conference call, you may disconnect your phone lines and thank you for joining us this morning.