Seadrill Ltd

NYSE:SDRL

Earnings Call Analysis

Seadrill's Q3 2024 Performance and Optimistic Outlook

Seadrill reported a strong Q3 2024, exceeding expectations with $93 million in adjusted EBITDA. The company raised its full-year EBITDA guidance midpoint by 13% to $385 million, driven by sustained contracts in the U.S. Gulf and progress in Brazil. They've maintained 70% utilization for 2025, while also planning to optimize operations and reduce costs amidst increased competitive pressures. Seadrill is committed to returning capital to shareholders, having repurchased $692 million worth of shares, and aims for continuous cash flow generation from its ongoing contracts. The focus on maintaining a healthy balance sheet positions them well for future opportunities.

Strong Third Quarter Performance

Seadrill's Third Quarter 2024 results were strong, exceeding expectations with an adjusted EBITDA of $93 million. This was driven by continued contract work, particularly from the Sevan Louisiana, which maintained its contract in the Gulf of Mexico. As a result, the company increased its EBITDA guidance midpoint by 13% to $385 million for the full year, reflecting an optimistic outlook.

Operational Adjustments and Strategy

Despite success, Seadrill is strategically adjusting its operations due to market uncertainties. The company decided to stack the West Phoenix to minimize operational expenses in a period of reduced contract availability. Their approach focuses on maintaining a strong balance sheet and retaining resources in anticipation of future market opportunities.

Market Dynamics and Outlook

The overall market remains volatile, characterized by a tight supply and variable demand. Current rig availability is softening demand with approximately 30 competitive drillships expected to become available next year. Seadrill anticipates this will pressurize rates in 2025 as competition increases.

Recontracting Focus in Brazil

In terms of geographical focus, Brazil represents a resilient market for Seadrill, where the company holds robust positions with several key contracts. Seadrill is optimistic about securing contracts for the Jupiter, Carina, and Tellus, expected to enhance their revenue stability amidst broader market fluctuations.

Cost Management and Capital Returns

Seadrill continues to be disciplined with capital allocation, emphasizing cash flow generation per rig. The company successfully returned $692 million to shareholders through a share repurchase program and aims to maintain this momentum while navigating a landscape of fluctuating operational expenses.

Guidance for 2024

For 2024, Seadrill's guidance indicates an expected adjusted EBITDA between $375 million and $395 million, with total revenues around $1.4 billion. They also narrowed their CapEx guidance to between $420 million and $440 million. The performance of the Sevan Louisiana will be pivotal in achieving these targets.

Long-Term Strategic Positioning

Seadrill remains cautiously optimistic about the long-term opportunities within offshore drilling, particularly as market conditions stabilize and 2026 contract repricing comes into view. The company aims to remain agile and responsive to market changes, ensuring they maintain a competitive edge through well-managed assets and operations.

Conclusion

In conclusion, while Seadrill faces some near-term market challenges, the management's proactive strategies in cost management, strong focus on recontracting in Brazil, and commitment to returning capital to shareholders position the company favorably for future growth.

Earnings Call Transcript 2024-Q3

[Operator]

Hello, and welcome to the Seadrill Third Quarter 2024 Earnings Call. [Operator Instructions].

I would now like to turn the conference over to Lydia Mabry, Director of Investor Relations. You may begin.

[Lydia Brantley Mabry, executive]

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 uncertainty. 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.

[Simon Johnson, executive]

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 4 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, efficient, responsible operations customers expect from our organization.

Now on to market outlook and strategy. We firmly believe underlying industry fundamentals remain intact. Characterized by the interaction between increasingly inelastic supply and inherently variable demand, the prevailing market question is when and where those lines intersect. In our view, the temporary imbalance between drillship supply and demand is not a true reflection of the fundamentals that support sustained strong industry cycle, but rather a reminder of the market's volatility. This volatility only deepens my conviction in our strategy, operating a [ floor-focused ] fleet that benefits from strong contract coverage, preserving a good balance sheet and maintaining a relentless and virtuous focus and continued efforts to strengthen and simplify our business.

At the heart of our plan to win is operating the right rigs in the right regions. In our experience, most deepwater opportunities require dual activity drillships with 150,000 BOPs and MPD capabilities. rigs focused on achieving operational efficiency and endurance rather than exploring technical frontiers. Our fleet meets size requirements. All our drillships are dual activity and dual BOP capable or equipped. 75% of the drillships we operate are 7th gen. And in 2025, we expect 80% of our own drillships will have NPD as we focus on leading the industry in thought and practice in this important operational activity.

We operate premium quality assets in the heart of the market. We cluster almost all our rigs in the Golden Triangle spanning the Gulf of Mexico, South America and West Africa, which represents the greatest concentration of deepwater drilling activity now and into the foreseeable future. We have secured 70% contract utilization for our market and managed fleet in calendar year 2025 and a figure that is expected to improve the time as customer conversations convert to contracts. In addition to our contract coverage, we benefit from a strong balance sheet and our current cash position feels present in today's market. However, we recognize this does not completely insulate us from competitive market realities.

We will not rest on our laurels. We will continue to evaluate better smarter ways of running our business. 2025 will be a year in which we focus increasingly on optimizing our operations. We want to be a lean, efficient, rightsized drilling contractor. We plan to reduce bureaucracy across the organization empowering our senior leaders offshore to do what they do best: leading, supervising and mentoring their teams to the benefit of our customers who cannot ask every day to deliver safe, efficient, responsible operations. By doing right for our employees and our customers will do right for our shareholders.

We must remain agile. We will continue to evaluate opportunities to refine and grow our fleet, dynamically adjust our costs as our active rig count fluctuates and further solidify our formidable financial position. Now as ever, we're focused on what we can control, how we sign our contract, how we write our rigs and how we allocate our capital. Our commercial team continues working to secure contracts with terms that maximize each rig's earnings and cash flow. Our operations teams continue to keep drill bits turning to the right, operating costs low, cruise, safe and customers happy. And our leadership team endeavors to remain disciplined stewards of shareholder capital.

We constantly evaluate our approach to capital allocation based on market conditions, outlook and competitive positioning and the relative impact these decisions have on strengthening the Seadrill story. Clear examples of that capital stewardship have been our continued fleet refinement and an industry-leading share repurchases. We were the first of our peers to pursue a meaningful buyback program and have reduced our issued share count by 19% since September '23, improving our per share performance across key metrics.

At Seadrill, we've continuously made decisions to simplify and strengthen our business for the benefit of our shareholders. And as we make our way through 2025, it should become increasingly clear that we've built a resilient business that can deliver real returns to shareholders through the cycle, especially once 2026 contract repricing comes more clearly into focus.

With that, I'll pass the line to Samir.

[Samir Ali, executive]

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 if [indiscernible] markets 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. Drill ship 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 well is not working through the third quarter of 2025 and the West Carina and the West Tellus are not 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 Sonadrill 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 we'll stack the rig.

For the Capella, the Gemini, the Quenguela and the Libongos, our focus remains on securing contracts for the second half of the year. We believe all these rigs are competitively advantaged. They benefit from premium specification, proven work history and deep customer relationships making us a preferred provider for customers who have chosen Seadrill time and time again. However, there is a scarcity of immediately available visible opportunities. We continue to see a slow pace of contracting tied to the market uncertainties and capital restraint.

In Angola, for example, we're seeing indications of softening rig demand as the basin commuter for capital across customers' global portfolios. We continue to make positive progress on recontracting and repricing the Jupiter, Carina and the Tellus seeing term contracts that provide visibility of earnings and cash flow. As we consider the market, we don't believe drilling contractors can create demand, and we're not willing to contribute to our own white space, ideally burning OpEx waiting for the desired opportunities to emerge.

With every decision we make, we consider cash flow per rig. We strive to achieve favorable economics across our individual units in our full fleet. When those economics are challenged, we will act decisively. We are dispassionate managers of valuable shareholder capital. As we navigate through near-term air pockets, we intend to remain disciplined with the way we've managed our fleet across the market, competitive choices will dictate financial outcomes.

And with that, I'll turn it to Grant.

[Grant Creed, executive]

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 jackup 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, we spent $131 million in CapEx, including $78 million of long-term maintenance captured within operating activities in the cash flow statement and $53 million of capital upgrades captured in investing cash flows. In the third quarter, we continued our share repurchase program, completing $183 million of share repurchases under our current $500 million authorization.

Now that we're no longer listed in [indiscernible], we intend to report repurchases on a quarterly basis in arrears. Since initiating our repurchase programs in September 2023, we have returned a total of $692 million to shareholders through the end of the third quarter and reduced our issued share count by 19%.

Now on to our outlook for the rest of the year. As Simon mentioned earlier, we're increasing our full year guidance. For 2024, we now expect adjusted EBITDA of $375 million to $395 million on revenues of roughly $1.4 billion. And we're narrowing our full year guidance for CapEx to $420 million to $440 million. Our ability to secure additional work on the Louisiana is the primary driver behind the guidance range. The rig continued working from August into November and potentially through December, effectively lifting our full year EBITDA midpoint to $385 million.

Our full year outlook implies lower run rate EBITDA for the fourth quarter. primarily attributable to lower operating activity. Specifically, the Phoenix being stacked following its most recent contract completion, the Compella finishing its latest job in September before starting new work in mid-December. The Neptune is spending approximately 50 days out of service, while it undergoes its SPS and other upgrades. And lastly, the Vela incurring out-of-service time in October when it was reintegrated into the Seadrill fleet. In addition to this, on the cost side, we have expectations for increased OpEx based on the timing of repairs and maintenance activity planned to take place in the fourth quarter.

The Oregon and Polaris are on track to commence contracts in the fourth quarter. Precise timing of these start dates will impact Q4 results and having these rigs working again will help drive run rate EBITDA higher in the new year. Year-to-date, we have spent a total of $286 million on CapEx, and we anticipate a meaningful increase in Q4 as we complete Brazil contract preparation for the Area and Polaris. Looking into 2025, we believe it's too early to provide guidance. As contract discussions and negotiations for uncommitted capacity are ongoing and the outcome of which will materially affect our financial outlook.

Back to you, Simon.

[Simon Johnson, executive]

Thanks, Gram. 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 jackups, 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?

[Operator]

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

[David Smith, analyst]

Congratulations on the quarter and the increased guidance. 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?

[Simon Johnson, executive]

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 boat 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 precent decision and bet on Brazil at the right time. So as an incumbent in Brazil, we will soon have 5 rigs working for Petrobras that we've deployed over the last 2 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.

[Samir Ali, executive]

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.

[David Smith, analyst]

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 6th gen drillships for 7th gen capabilities. And I wanted to ask how you see the potential for additional 6th to 7th gen upgrades and whether this might reshape, as Simon said, the applied demand balance going forward?

[Simon Johnson, executive]

Yes. Great question. Look, I think the distinction between 6th and 7th 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 6th gen fleet. Most 6th 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 hookload upgrades. Samir will have some comments on that, I'm sure.

[Samir Ali, executive]

Sure. So I'd say [ hook load ] is one factor between a 6th and 7th, 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 6th 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 6 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.

[Operator]

Your next question comes from Kurt Hallead with Benchmark.

[Kurt Hallead, analyst]

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.

[Samir Ali, executive]

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 year. 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.

[Simon Johnson, executive]

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.

[Kurt Hallead, analyst]

Got you. 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.

[Grant Creed, executive]

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.

[Kurt Hallead, analyst]

Got you. Got you. 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 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?

[Simon Johnson, executive]

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.

[Operator]

Your next question comes from the line of Frederik Stene with Clarkson Securities.

[Fredrik Stene, analyst]

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?

[Simon Johnson, executive]

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.

[Samir Ali, executive]

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.

[Fredrik Stene, analyst]

Okay. No, 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 1 of the 2, is that?

[Simon Johnson, executive]

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.

[Samir Ali, executive]

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.

[Fredrik Stene, analyst]

Okay. 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. Is there any -- should we expect that to 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 [indiscernible].

[Grant Creed, executive]

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 subauthorization. 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.

[Operator]

Your next question comes from Hamed Khorsand with BWS Financial.

[Hamed Khorsand, analyst]

Could you just talk about a little bit of the negotiation of the talk process that you have with potential customers? Is there -- 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.

[Samir Ali, executive]

It's uncertainty. So it's 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 '26 from 2025.

[Hamed Khorsand, analyst]

All right. And then the other question is, are you done with your special surveys for '25? Or are they being pushed into the actual contracts?

[Simon Johnson, executive]

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 1 potential ingredient, but another 1 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?

[Hamed Khorsand, analyst]

Yes, it does.

[Operator]

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

[Joshua Jayne, analyst]

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?

[Simon Johnson, executive]

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 recontracting 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 signaling 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.

[Joshua Jayne, analyst]

Understood. 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.

[Simon Johnson, executive]

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...

[Samir Ali, executive]

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.

[Operator]

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

[Noel Parks, analyst]

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?

[Simon Johnson, executive]

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.

[Samir Ali, executive]

If I take our portfolio -- our rigs as a microcosm, we are starting to see some exploration. 2 years ago, there's almost 0 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.

[Noel Parks, analyst]

Got it. 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?

[Samir Ali, executive]

Yes, absolutely. There's real start-up costs and switching costs, right? 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.

[Noel Parks, analyst]

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.

[Operator]

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.