Transocean LTD. 2026 Q2 Earnings Call

Please go ahead. Thank you, Madison.

Good morning, everyone. Welcome to Transocean's second quarter earnings call. Leading today's call will be Transocean's President and Chief Executive Officer, Keelan Adamson. Keelan will be joined by Chief Financial Officer, Thad Vega, and Chief Commercial Officer, Roddie Mackenzie. In addition to the comments that will be shared on today's call, we'd like to direct you to our earnings release, fleet status report, and associated 8-Ks filed yesterday that contain additional information, all of which is available on Transocean's website at www.deepwater.com. Following our prepared remarks, we will open the conference line for questions. Please limit your inquiries to one question and one follow-up to allow us to hear from more participants. I'd like to remind everyone that today's call will include forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially.

With that, I'll hand the call over to Transocean CEO, Keelan Adamson.

Good morning, everyone. Thanks for joining us. This is what I will cover today. First, I'll summarize our operational performance. Next, I'll provide some thoughts on the industry and market and why we continue to see strong demand for our assets. Lastly, I will update you on our Valaris acquisition, which we expect to close later this year. Let's get started. The Transocean team again delivered exceptional operational performance in the second quarter, beating our guidance on both revenue and cost and generating a solid adjusted EBITDA margin of 32%. During the quarter, our fleet uptime was an exceptional 98%, an important driver in our continued focus to deliver superior customer service. At quarter end, net debt approximated $4.3 billion, a significant decrease of nearly $1.7 billion in the past 18 months.

We also strengthened backlog by about $300 million, securing work for several of our assets with near-term availability. This figure excludes a $1 billion in prospective backlog awarded by Equinor and pending approval by its partners, which we expect to receive in Q3. Including this Equinor work, we have added $3.1 billion in contracts this year so far, a very positive indication. With the exception of the KG2, which is currently bid on multiple opportunities, all our active drill ships are now on contract or mobilizing to new contracts, improving our coverage to 94% for the remainder of 2026 and 81% for 2027. In the U.S. Gulf, we recently extended the Deepwater Conqueror with its current customer at the same rate. The Deepwater Proteus, which was briefly idle, is now contracted and has commenced operations.

As we had speculated on our Q1's earnings call, in the context of higher commodity prices, this E&P operator has taken advantage of an open period on this high-performing rig to accomplish more work in 2026 than originally planned. Both rigs are expected to continue working in the U.S. Gulf into early 2027. Finally, the Deepwater Skyros has been extended by her customer to perform additional appraisal work on a recently announced discovery in the Ivory Coast. This work allows the rig to move directly to our next contract in Australia with limited off-hire time related to contract preparation and mobilization. In addition to drill ship utilization and tightening in 2027, the outlook for high-specification, harsh environment assets is very robust well into 2028, supported by the announcement of new fixtures for several of our rigs.

In Norway, the Transocean Norge was awarded a five-well contract by Harbour Energy, adding about $149 million of backlog. The program is expected to commence in the first quarter of 2028. Notably, we entered into an agreement with Equinor for seven years of work on three of our Cat D harsh environment semis, the Transocean Enabler, Transocean Encourage, and Transocean Endurance. We are pleased to have the opportunity to strategically relocate the Endurance from Australia to Norway. For these fixtures, the base day rate, excluding third-party services, will likely exceed $400,000 a day when the contracts commence as a result of escalation provisions. The Transocean Spitsbergen is now the only Transocean harsh environment semi available in Norway before 2029, and she is scheduled to complete her existing contract at the end of 2027.

In Australia, the Transocean Equinox was awarded a two-well contract with Santos, adding approximately $36 million of backlog. The program should commence in the second quarter of 2027. If all options are exercised, this rig continue with this customer through most of 2027 as well. We are encouraged by the fact that operators are beginning to make awards for multi-year offshore programs. Importantly, they are doing this while remaining disciplined, but with a reprioritization of capital towards offshore and deepwater activities, supporting our constructive outlook. As rig availability tightens, we expect customers to continue securing rigs for longer durations to ensure they have access to the required rig capacity for their upcoming programs. Once again, this supports our view that we are in a constructive period for the deepwater drilling sector. Operators are also starting to allocate more rig time to exploration and appraisal activities.

Rystad Energy recently cited that the number of countries with at least one exploration well is on the rise from 35 in 2025 to an estimated 51 by 2028, a 65% increase. This geographic expansion is significant, and we expect customers to grow their portfolios in less developed regions in the coming years. Our customers select suppliers offering products and services that best align with their value creation objectives. This is where Transocean is distinctly advantaged, offering the optimal combination of differentiated assets, people, and processes to deliver exceptional service in the form of highly reliable, efficient operations that consistently exceed customer expectations. We look forward to delivering similar performance across a broader fleet and a customer base when the Valaris transaction is concluded. I'll now take you through an overview of market opportunities around the world.

We saw a high number of contract awards and tendering opportunities in the first half of the year. S&P Petrodata cited almost 100 rig years added year to date, and operators are evaluating approximately 40 open tenders, representing another 75-80 additional rig years. These statistics underpin our expectation for deepwater utilization to approach at 100% by the end of 2027, with several rigs relocating from well-established areas to emerging regions to meet incremental rig demand. Looking first at the U.S. Gulf, long-term demand fundamentals remain constructive, with several operators securing capacity for future activity. As demand levels rise globally, we are also seeing strong overseas interest in U.S. units that currently don't have long-term commitments. We believe the number of deepwater rigs in the U.S. will continue to decline in the short term, with two to four units already scheduled or expected to depart the region.

This redistribution of global rig supply will satisfy increasing contract requirements in other geographies. In Brazil, Petrobras recently completed one of its largest contracting cycles in years and continues to evaluate future rig requirements for its major development projects. Supported by IOC demand, the overall rig count in Brazil is expected to remain stable between 30-33 rigs over the next five years. Africa is reestablishing itself as a key deepwater region. Operator activity continues to grow across multiple basins, which should drive the rig count from roughly 15 units to at least 20-25 units over the next 18 months. Multi-year awards are expected in Ghana, Mozambique, Namibia, and Nigeria, fueled by an uptick in recent discoveries and work resulting from successful exploration campaigns over the past few years.

In the Med, with recent contracts for drilling programs starting in 2027 and a number of new discoveries that will call on rig capacity, we expect the future rig count to increase to around 10-12 units. In Southeast Asia and India, we expect domestic exploration and production initiatives to drive a material increase in activity beginning in 2027. Indonesia, for example, could potentially add 10 rig years across five rig lines to a region that currently has only one rig operating. India is expected to expand activity by up to four drill ships in 2027, potentially adding around 10 incremental rig years. In Norway, utilization of high-specification, harsh environment semi-submersibles is strong through 2028, supported by recent awards from Vår Energi, Equinor and Aker BP.

Most operators are already in the market to secure capacity from 2028 onward, suggesting that future utilization for this region should remain near 100%. Additionally, work in Canada for Equinor and Cenovus could further tighten harsh environment supply in 2028 onward. In summary, the combination of sanctioned development programs, increased exploration spending, and major discoveries continues to drive a compelling outlook for deepwater and harsh environment offshore drilling. Now, a quick update on the Valaris transaction, which is expected to close in the fourth quarter. We continue to operate as separate companies but are rapidly advancing integration planning and have recently achieved some key milestones. In June, we received CFIUS approval satisfying an important U.S. national security clearance condition. Recall that we required regulatory clearance from a total of seven jurisdictions, and we have previously received clearance from Saudi Arabia and Trinidad and Tobago.