CannaPharmaRX Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 23, 2023

There are 8 speakers on the call.

Operator

Hello, everyone, and welcome to Seadrill's Quarterly Earnings Call for the Q1 of 2023. We are currently live via a webcast and a conference call line. The format of today's call will start with a short presentation by Seadrill's President and CEO, Simon Johnson and its EVP and CFO, Grant Reed. For those tuned via conference call line, you can obtain a PDF copy of the presentation from the Investors section of Seadrill's website under reports and presentation. The formal presentation will be followed by a Q and A session where industry analysts and market commentators will be invited to participate.

Operator

To join the Q and A, you must be tuned in via conference call using the details provided on the notice of earnings release published on Thursday, May 11, 2023. Please note that the recording of today's call will be available on the company's website within the next few days. I will now pass the line over to Simon Johnson. Simon, the line is now open to you.

Speaker 1

Thank you very much. Welcome all to our 2nd quarterly earnings call this calendar year and the Q1 of the 2023 financial period. On the line today, Grant and I are joined by Leif Nelson, our Chief Operating Technology And Sameer Ali, our Chief Commercial Officer. Grant and I will shortly take you through our prepared remarks before we open up for a Q and A session. For further information regarding today's presentation on the Q1 earnings, I invite you to read the full earnings release published to the market earlier today, which is accessible on the Seadrill website.

Speaker 1

On slide 2, you'll find a disclaimer relating to today's presentation. This outlines important points around forward looking statements made in the earnings report and to be discussed on this call, which are based on current expectations and are subject to certain risks and uncertainties. There are many factors that could cause actual performance and results to differ materially. For further information, please take your time after the call to read this disclaimer and refer to the full quarter earnings report as well as our other SEC filings. In addition, please note that we'll be referencing non GAAP measures on our call and a reconciliation of operating income to adjusted EBITDA can be found in today's full earnings release.

Speaker 1

We've started this year strongly with an adjusted EBITDA more than doubling on a quarter on quarter basis to $85,000,000 This represents a 32% EBITDA margin. The significant improvement in financial performance was mainly due to a full quarter of operations for our drill ships operating in Brazil. As of today, Seadrill's backlog stands at approximately $2,600,000,000 which is especially strong in the context of our fleet size. This backlog total includes a 3 month extension secured for the West Neptune, which added $39,000,000 reflecting our long standing relationship with OLOG. We ended the quarter with an adjusted net cash position of $133,000,000 Going forward, free cash flow generated by the enterprise will be a key metric.

Speaker 1

Across our own fleet, we had good operational performance with technical utilization coming at 96%, while our economic utilization was 95%. As Seadrill stands today, we have a fleet of 22 units, including 13 ultra deepwater floaters. We're delighted that most floaters are contracted, including all of our 10 high specification drill ships, primarily deployed across the Golden Triangle. Ultra in our fleet, our 2 harsh environment units continue operations on the NCS. We have 3 benign jackups operating through our Qatari joint venture and lastly, 110 resist units operating in Thailand.

Speaker 1

Finally, we're proud to announce that we received a B rating under the Carbon Disclosure Project Framework, the equal highest rating amongst all offshore drillers, which reflects our commitments to minimizing our impact on the environment. I'll be covering ESG in a little more detail later in the presentation. Moving to Slide 4, I will touch on the market backdrop. Despite some volatility recently, the price of Brent has generally remained above the $70 mark And oil and gas market fundamentals continue to be supportive for offshore drilling. Many analysts expect oil demand year on year to increase by around 1,500,000 to 2,000,000 barrels per day in 2023.

Speaker 1

Whilst on the supply side, OPEC announced further production cuts earlier this year. Coupled with the healthy economics of offshore projects, this demand supply balance has a positive read across for our activity in the sector. Taking a close look at offshore drilling, in the benign ultra deepwater floater segment, market utilization for drillships has remained around the 95% mark, While leading edge day rates continue to increase with a recent fixture close to $500,000 per day. In our view, we expect to see a 5 handle fixture The leading edge in the second half of the year as the market tightens further. Brazil continues to be the main driver of floater demand with Petrobras in particular Moving to secure more capacity.

Speaker 1

In the near term, we anticipate additional requirements from Brazil and results from ongoing Petrobras tenders leading to more rigs mobilizing to the region from different geographies. We also forecast incremental floater demand offshore Africa with active requirements for Angola, Nigeria, Namibia and Mozambique. To round off the Golden Triangle outlook, Gulf of Mexico demand visibility is typically limited with a lot of contracting activity undertaken by direct negotiations. However, this region is effectively sold out and we remain positive about its utilization outlook. With that all said, although demand is very important, we continue to believe that supply side discipline amongst drillers is the most salient factor as to how this up Turning to the harsh environment segment.

Speaker 1

We have 1 CJ-seventy jackup on long term contract with ConocoPhillips And 1 floater, the West Phoenix, operating with Var Energy on the NCS that is currently estimated to roll off in the second half of twenty twenty four. On the supply front, we've seen a string of announcements about floaters exiting the North Sea for contracts outside the region, including notably Namibia and Australia with more announcements to follow soon. On the demand side, anticipated requirements in 2024 and 2025 are beginning to materialize. Furthermore, we are seeing interest in the West Phoenix for harsh environment operations outside the North Sea. Altogether, we view these dynamics as supportive for our recontracting prospects next year.

Speaker 1

Overall, we are very optimistic about market developments in offshore drilling and continue to believe that we're in the constructive early stages of a multiyear upcycle. I'll now hand over to Grant, who will outline our Q1 financials, then cover a few points on our capital structure and set out our guidance for the full year of 2023. Over to you, Grant.

Speaker 2

Thank you, Simon, and welcome again to everybody joining us today. Before I jump into the figures, Please note that our Q1 results did not include the effects of our ACADROL acquisition that closed on April 3. The operating results and the assets and liabilities of ACADROL will be consolidated from April 3 and presented as part of our next quarterly earnings. And our full year 2023 guidance, which I'll outline later in this presentation, includes the consolidation of AcroDrol for a period of 9 months from the closing date to year end. Now to the key quarterly figures.

Speaker 2

Q1 revenue was $266,000,000 An increase quarter on quarter primarily due to a full period of operations in respect of our 4 drillships offshore Brazil. We also benefited from a higher day rate on the West Neptune and from the Savannah, Louisiana achieving higher economic utilization. That was slightly offset by no further revenue from West Hercules, which demobilized and was returned to the rig owner in Q4. Moving to OpEx. Q1 OpEx was $219,000,000 a reduction quarter on quarter, mainly driven by the demobilization and redelivery of the West to the rig owner, partly offset by a full period of operations for our drill ships in Brazil.

Speaker 2

As a result of these movements, we recorded adjusted EBITDA of $85,000,000 which marks a substantial increase compared to Q4. Further, this translated to an adjusted EBITDA margin of approximately 32%, which screens well compared to our peer group. On the balance sheet, unrestricted cash decreased to $376,000,000 at the end of the period. This was largely driven by the settlement of liabilities $150,000,000 This was partly offset by the receipt of $43,000,000 in net proceeds in respect of our sale of Paratus Energy services, which closed in February. Elsewhere on the balance sheet, the settlements of accrued expenditures and voluntary prepayments that I just outlined were the main drivers of reduction in our current and non current liabilities respectively.

Speaker 2

I'll now take a moment to focus a bit more on our leverage and Capital structure more broadly. Over the last year, we've been proactive in respect of our debt profile by making several mandatory and voluntary prepayments And our 2nd lien debt facility, including those in Q1 that I highlighted on the previous slide. This put us in an adjusted net Cash position of $133,000,000 at the end of March, as mentioned by Simon earlier. We are delighted that we have delevered our balance sheet And in turn reduced our interest expense in light of the prevailing economic climates. Nevertheless, as said in our prior earnings call, We are now focused on further optimizing and simplifying our capital structure, and we believe that we are well positioned following closing of the Acadrille acquisition.

Speaker 2

We are in active discussions with our Board and Capital Market Advisors as to the form this may take. On Slide 7, you'll find our financial guidance for the full year of 2023, which includes the consolidation of ACOdrol into Seadrill from April 3. We anticipate total operating revenues to be between $1,435,000,000 and $1,485,000,000 Our adjusted EBITDA range stands at $435,000,000 to $485,000,000 And lastly, We expect CapEx and long term maintenance to be between $210,000,000 $250,000,000 I'd like to draw your attention to a footnote in the earnings release, which essentially says our 2023 EBITDA guidance includes net $12,000,000 of non cash costs related to the amortized mobilization revenues received and costs incurred prior to January 1, 2023.

Speaker 1

I'll now hand the line back to Simon. Thanks, Grant. On screen, you'll see Cedar Oil's ultra deepwater floater fleet. During the last year, we pivoted strategically to the segment through 2 transformative M and A transactions in the belief that this part of the rig market will produce outsized growth and value for our shareholders. Now taking a closer look at the fleet, all 11 all 13 floaters on screen are at least 10,000 foot capable in terms of water depth.

Speaker 1

We have 10 drill ships that are all dual activity and 7 that are of 7th generation design, which typically have better specification, require less maintenance spend and deliver superior contract economics as a result. Lastly, on managed pressure drilling, Seadrill is a trailblazer on this adaptive drilling technology and we continue to be amongst the market leaders On this equipment, the 6 units currently outfitted across our fleet, we have contributed strongly to industry knowledge and technology in this important drilling approach, which will be increasingly vital for penetrating the deeper geological horizons in our targeted ultra deepwater markets. Moving to the next slide, I want to focus on our ESG strategy, which has delivered our leading position as part of the Carbon Disclosure Project. As a major offshore driller, we have a critical role to play in the global energy transition. Our aim at Seadrill is to deliver oil and gas wells to our customers responsibly and with the best carbon footprint possible.

Speaker 1

In our latest sustainability report, we published Seadrill's ESG framework with its contributions towards the United Nations Sustainable Development Goals. I won't outline all the elements here, but there are 2 of particular focus for us, which I'll explain in a little bit more detail. 1st on the environmental front, we are committed to adopting greenhouse gas reducing technologies. In offshore drilling, Seadrill has developed the 1st methanol injection system for an drilling rig and we pioneered the introduction of Modu Hybrid Power Technology. More recently, we installed a closed bus tire system on the West Saturn working for in Brazil, enabling the rig to position itself dynamically with fewer engines running, which is a substantially more efficient operating mode, reducing fuel burn and emissions.

Speaker 1

We've also deployed the first version of NOV's DOORS technology, which enables remote operation of the mud system And we continue to advance automation of the drilling process. 2nd, I want to highlight our commitment to the development of our employees with the Seadrill Development Academy, which we rolled out earlier this year. The program uses an enhanced facility that is owned and managed by Seadrill, complete with the state of the art drilling simulator. Seadrill has a best in class workforce that is integral to the development of safe and efficient operations for our customers. And investments Such as this one illustrate our commitment to operational excellence and also our employees' development and growth.

Speaker 1

Furthermore, in the expanding business environment, Our ability to train our own people will be critical to service delivery quality and cost control. To wrap up, we're very pleased with our start to the year With a nearly fully utilized fleet and the closing of our AquaDrew acquisition in April on an accelerated timeline, the offshore outlook is promising. And looking ahead into future quarters, we're focusing on further refining our fleet and enhancing our exposure to our core segments including through organic transactions if accretive whilst optimizing our capital structure to enable the implementation of a sustainable shareholder returns policy. We've demonstrated during the past 12 months that our management team has a bias for action. And put simply, we fully intend to continue to deliver on what we promise.

Speaker 1

That brings an end to today's presentation. I'll now hand the line back to the operator who will handle the Q and A session to answer any questions that you may have for the management team.

Operator

Our first question comes from Gregory Lewis from BTIG. Gregory, your line is now open. Please go ahead.

Speaker 3

Yes. Hi. Thank you and good afternoon everybody. Simon, I realize the ink is barely dry on the Aqua There is this around continued consolidation Across the offshore drilling sector. Just kind of curious maybe how active The company is at this point realizing we're still integrating AquaDrill and really as you think about it bigger picture.

Speaker 3

Do we think that there's still opportunities, whether it's Seadrill or others to help or to continue to consolidate the market? Realizing at this point, as I look at most Publicly listed drillers, whether it was this year or last year or even over the last couple of years, Each one of you has kind of put a stake in the ground and done some M and A. Just kind of curious on your thoughts around that.

Speaker 1

Yes. Thanks, Greg. Look, I don't think the window is closed for consolidation. But obviously, as the community shrinks, it gets harder and harder to do Interesting deal. So, we believe there's still considerable market upside and that's really the most important factor.

Speaker 1

We're still there's a lot of work a lot of room for improvement with leading edge day rates. We're early in the business cycle, we believe. We think that as people progress their refinancing efforts and the restrictive covenants that act as somewhat of a barrier to further Consolidation, some of those will fall away. So that could be a catalyst for further combinations across the space. But I think the most deals will continue So likely be stock transactions.

Speaker 1

Few of us have enough cash consideration at this point to do outright cash deals today. We've been active in concentrating our asset base. There's an opportunity for some of our peers to do similar things. So I think it may not be sort of large scale M and A necessarily, although there's probably room for some terminal transactions, but Certainly, our larger peers. I think there's a possibility of people specializing and concentrating their asset base.

Speaker 1

So yes, no, I don't think it's behind us. I think there's still a lot of opportunities for people to choose the part of the market that they want to play in and focus Their asset acquisition and divestment activities around that.

Speaker 3

Okay, great. Thank you. Thank you for those thoughts. And then I did want to touch on a couple of the rigs. The West Polaris, which It's being managed.

Speaker 3

It's still it's being managed by a third party manager. I guess September is going to be here before we know it. Unfortunately, summer is going to fly by. But could you maybe talk a little bit about the outlook for that rig and how we should be thinking about The continuation or termination of that management contract?

Speaker 1

Yes, you're back, Greg. Well, let me start and then I'll throw to Sameer and he can give you The market color. So I mean, when we announced the AquaDrill transaction, you'll recall that we anticipated realizing all of the synergies within the 1st 2 years. So as a practical matter, transition of management is still some time off and we've only really started the conversations with the existing rig managers and the customers who would be affected. So there's not much to report this time other than to let you know that we had started those conversations.

Speaker 1

But so Nick can probably put a little bit more granularity around that.

Speaker 4

Hey, Greg. So I'd say we are in active dialogue with the current client that they have an open tender In the same region. So we think we're well positioned, but in this business, it's not done until it's signed. So we are optimistic that we'll be able to keep her working where she is today. But we are also looking at other For the rig and we are bidding her around the world, but our working assumption right now is that she will stay in India and continue on with ONGC.

Speaker 3

Okay. Perfect. That's kind of what I was curious about. And then Sameer, while I have you, realizing that The bulk of the fleet is contracted out, but there are as we look out over the next 12 months, There are rigs that start to at least roll off their contracts. Any kind of sense realizing that there's always a spot market in the U.

Speaker 3

S. Gulf of Mexico for short term work. But as we look, Go for short term work. But as we look maybe West Africa, Brazil, Asia, How far ahead are customers at this point looking to fix out, I. E, we're in May of 2023.

Speaker 3

Is any way to characterize, maybe on a quarterly forward basis as you're Looking at the market, are we seeing tenders pop up for work next summer, next fall, next spring? How far out is it going just to kind of get a feel for how anxious maybe some customers are starting to get?

Speaker 4

Sure. So I'd say as a sign of the market continuing to tighten, clients are looking for rigs further and further out. There's one data point where there's a client looking for a rig in 2026. So that's probably the outermost part of where clients are right now. But I'd say You are seeing it elongate out, right?

Speaker 4

Clients are starting to come to us earlier and saying, hey, can we talk about options that aren't due for a while or can we talk about Rigs in 2024, 2025. So you are seeing it as a reaction just to a tightening market. They're looking to secure supply as they build out their Drilling plans, we are seeing elongation of the kind of time before award and the when customers are looking to secure rigs.

Speaker 3

Okay. Super helpful. Thank you all for the time.

Speaker 1

Thanks, Greg.

Operator

Our next question comes from Frederik Steen from Clarkson Securities. Frederik, your line is now open. Please go ahead.

Speaker 5

Hey, Simon and team, hope you are well and congratulations on the nice performance this quarter. I wanted to touch a bit more on the fleet here. You're mostly locked up for 2023 and a large part of 2020 It's also locked up. But then, of course, as we touched upon, I think, last quarter as well, you have your stacked assets. And first, since we spoke last time, have anything kind of changed in your approach to those assets?

Speaker 5

Simon, you talked about supply discipline. So I guess my question is either have you changed anything in your requirements to take those rigs back? Or have you since then noticed Difference from your clients in terms of more opportunities and more active discussions for those rigs.

Speaker 1

Yes. Hi, Frederic, good to hear your voice. Look, firstly, I'd say that we consider those assets to be fungible And we're as just possible that we may even divest them. But insofar as reactivating is concerned, I think we've been Pretty forceful in our view is that we require a full recovery of the capital upfront from any potential customer. I'll pass to Sameer to talk about the individual market opportunities, but nothing's changed in our position or in our approach in terms of what we require.

Speaker 1

And I think as we go further into this cycle, we're just going to be increasingly resolute in that stance. Sameer Pepsi, care to add something to that?

Speaker 4

Yes. So we're definitely looking at opportunities for our stacked fleet, but we're going to remain disciplined, Right. I mean, there is significant cost to reactivate these rigs. And given supply chain constraints, those costs aren't going down. They're actually going up.

Speaker 4

So for us, it's making sure that we can find the right job, the right opportunity to invest in the rig and bring her back out. So We're absolutely chasing opportunities for our stacked fleet, but we are going to be judicious about it and we're going to make sure that we're getting a return on our capital and we're not going to take it on our balance sheet just because.

Speaker 5

Thanks. And a follow-up to the comment about potential divestment there. If you were to divest some of those stacked assets to other players, would you be willing to divest it To competitors? Or would you try to channel them into local or non internationally competitive markets or owners, If you were to do that.

Speaker 1

I think we look at every opportunity on its merit. So I don't think necessarily we would be averse to selling to A competitor, whatever shape and form that may take. So yes, no, I think it's whatever would generate the best return For us, Fredrik, so we have an open mind.

Speaker 5

Okay. And specifically on the West Phoenix just turning away from the stacked fleet. You've got an extension now until August, if I remember correctly. But you said that, that Rigos also being bid outside Norway or outside the NPS. So Do you have any or any thoughts or comments around your preference in terms of keeping that rig In Norway, I guess, kind of in a way, you're right now a bit subscale in that region.

Speaker 5

Would it be better if it actually worked elsewhere? Or do you think, based on your market view, that the NPS is actually going to tighten quite significantly 24% 25% that you would like to keep it there still even though you're exploring other opportunities?

Speaker 4

Hey, Patrick, it's Samir. So I'd say our preference is going to be to keep her in Norway, but that is from a cash flow perspective, Right. Setting up another shore base in another location, unless it's a region that we operate in, there is just that. So our preference is to maximize cash flow Wherever that is. And the math would tell you that that's most likely Norway, but by no means are we married to keeping the rig in Norway.

Speaker 4

That is Again, it is maximizing our return profile and our cash flow. So if we can co locate the rigs, that does help us in the long term. But We find the right opportunity outside of Norway, and I would say there are a number of opportunities outside of Norway for that rig now. The harsh environment market, you've seen some of our peers pull out rigs from that market. You're going to continue to probably see rigs leave that market and The market is starting to tighten in Norway.

Speaker 4

So you're finding that perfect storm in 2024 and 2025 in the Norwegian market. So for us, we will maximize cash flow ideally in Norway, but we have no problems taking the rig outside.

Speaker 5

Perfect. Thank you so much all for the answers. I'll leave it at that. Have

Speaker 2

a good

Operator

day. Our next question comes from Hammad Khorsand from BWS. Hammad, your line is now open. Please go ahead.

Speaker 6

Hi. So the first question

Speaker 7

I had was about AquaDryl, just given that you've only provided Q4 2022 numbers. Is there any operational enhancements or improvements since then? Or is that because they're all fully operational rigs now, That's going to be the operating kind of rate per quarter for them.

Speaker 4

So

Speaker 2

let me try to take it, Hamid. I'm not sure I fully understand the question. But So Q1 doesn't include any results from AquaDryl, right? So from a financial perspective, you don't see anything in there from AquaDryl. You'll start seeing that come through Q2.

Speaker 2

From a financial perspective, Q2 will, of course, include Arega, Vela and Polaris and some of Capella. Capella is just starting up now or has just recently started up, but you won't get Full Court from Capella. From Q3 onwards, you'll get full run rate performance on the 4 AquaDryl drill ships. I hope that answers your question from a financial perspective, but if you're looking for more of an operational sort of technical asset Simon, so I can hand over to Lee for Simon.

Speaker 7

No, that was exactly what I was looking for. Thank you. And then as far as Your fleet is concerned, just given the lockup trends right now with your fleet, is there much to do as far as contracting goes? I mean, you're talking about customers looking out for 2024 and 2025, but you're pretty much locked in. Is there any advantage to Getting in those conversations now just given the trajectory of day rates.

Speaker 1

I think one of the Part of the rationale for the AquaDrill transaction was to get more exposure to the spot market. And we had some opportunities there with the Polaris. There's one that's crystallized the Capella here in the near term. So I think relative to

Operator

the comments

Speaker 1

that Sameer made about opportunities in the marketplace and how that's stretching out, We think that what you've mentioned may have been a weakness in our story maybe 3, 6 months ago, but it's increasingly Irrelevant in terms of how we see the market developing going forward and the spread of availability of the units That are either rolling off contracts over the next couple of years or will be available. Sameer, anything to add?

Speaker 4

No, I think that's right. And I think as clients are starting to look further out, that's where we're spending our time and starting to layer in contracts and Build a layered approach to our contract with some short term duration and some long term duration. I think that's what we're focused on kind of going forward $125,000,000

Speaker 7

Got it. And my last question was, are you seeing any customer Conversations talking about bringing those cold stacked or warm stacked fleets online.

Speaker 4

There's some conversation around that, right? So you've seen a few of the new stranded assets get brought back into the market. The cost of bringing these things back is increasing. So we are having conversations with clients about our stacked fleet. But I'd say it's We haven't reached a point obviously of where we can announce a contract and we feel comfortable bringing a rig back.

Speaker 4

I'd say we are progressing those conversations, but The market is not there yet in our view given that we just can't get that return profile where we need it to be. But I'd say if the market continues the way it is, we should be Seeing some of those conversations materialize or kind of crystallize later this year or next year.

Speaker 6

Okay, great. Thank you.

Operator

Our next question comes from Konstantin Chynorov from Aptur Capital. Konstantin, your line is now open. Please go ahead.

Speaker 6

Hi, guys. Thanks so much for taking my questions. When I think about adjusted EBITDA guidance, so that range of 435 to 485. Could you please talk a bit more about what's behind that guidance? Is it basically just saying that you can execute the backlog that you've locked in for this year or there are some other assumptions behind that?

Speaker 6

And also curious if that guidance include any synergies from Aqua Drill acquisition? That's my first question.

Speaker 2

Hey, Constanin, thanks. So I would break it down by looking at the old Seadrill legacy fleet, 1st of all, and I'd say that that is that's pretty clear. You saw Q1 was that fleet. And so that kind of gives you a good idea what to expect from Seadrill for the rest of the year in that sort of I think it was a relatively good quarter, so the 80% to 85% region for the rest of the quarter on the Seadrill legacy fleet. On the AquaDryl fleet, AregaVela, they come into the 2023 results.

Speaker 2

Well, all the AquaDryl fleet, I should say, comes in from April 3. Aregavela, of course, on contracts for the full year, so you get the benefit of all of those. Like I said earlier to Hamed, Capella just started up recently. And then Polaris Polaris is the only other variable then because she has a firm term ending end of August. So Q4, you do need to take a view on what the recontracting assumption is.

Speaker 2

And there's a range of possibilities and a range of And that's what we've sort of taken into account when setting the guided range. Final part of your question, I think, was whether there are any synergies coming in. And the answer to that is no for now. We said to you that we said when announcing the transaction that, that will take some time. It will take a period of Well, at least up to the 1st 2 years to realize those synergies.

Speaker 2

So we're just going to wait for the for those aquedore rigs to roll off their existing contracts.

Speaker 7

Sure.

Speaker 2

And That answer, Konstantin, I should just add. That's in relation to The key synergy area of the MSA, there are a smaller amount of synergies to be realized in respect to their overheads. We said that, that was $10,000,000 per annum. We will start realizing those synergies sort of more Late Q3, Q4. So there's a small element of that.

Speaker 2

It does take some time to start realizing those, but there'll be a There will be an element, albeit small, for that piece.

Speaker 6

Got it. And you're still looking to get $70,000,000 of run rate synergies out of Aqua Drill transaction?

Speaker 2

That's right. It's on a recurring basis, yes, once the rig closes.

Speaker 6

And that's from 2024 or And is that from 2024 or from 2025?

Speaker 2

We said 2 years, yes. So I think 2025. We said 2 years from when the deal closed and allow the contracts to roll off.

Speaker 6

Got it. I see. And if you do you have a sense of adjusted EBITDA number if you were to effectively deploy The whole fleet, including AquaDryl at the moment at the current spot market? Just to get a sense of the earnings power of the combined business.

Speaker 2

We have a you'll see on our website an investor deck where we do an analysis like that where we assume the entire fleet Is contracted at Spot? And then you take a view on what Spot is. And so I encourage you to go and look at that deck, but it's more or less $1,000,000,000 EBITDA in that range when you start getting $450,000 to $500,000 a day. So it's Yes. Dollars 800,000,000 to $1,000,000,000 when operating between that $450,000,000 to $500,000,000 for a 7 gem.

Speaker 6

Got it. And then if I look at Page 6, the capital structure, it looks somewhat deficient. So I guess some of your peers went out and took advantage of the high yield market and raised debt. Are you looking to optimize the capital structure anytime soon, maybe return capital to shareholders? What's your latest thinking there?

Speaker 2

We are so we see our existing debt facilities as in Suboptimal, both in terms of pricing as well as the covenants contained in them. And so we are Looking into what a refinancing would look like, we did take the view that The best approach was to complete the Equidor transaction so that we could go to market on a refinancing with a stronger collateral package. We've now done that, Of course, in April and been working since then on a refinancing. But and like I said in the prepared remarks, we're in active discussions with our Board to discuss the pros and cons of the options we see in front of us.

Speaker 6

And is the idea to run an unlevered balance sheet? Or you're happy because at the moment, net debt is actually 0, which is Arguably suboptimal.

Speaker 2

Yes.

Speaker 6

So what's how do you think about sort of optimal leverage for the business? And then related to that, This year on unlevered basis, the business is going to be cash generative. So wondering what you're thinking to do with excess cash flow? Would you invest in the business or you might buy back shares or whatever? Like what's your latest thinking there?

Speaker 2

So on the quantum of debt, like I said, we're in active discussions with the Board, so I don't want to get too far out in front of that discussion. But I can say at a high level, we'd expect to have some debt on the balance sheet, But certainly not we're certainly going to maintain a prudent or conservative balance sheet. So talking about net leverage, Yes, certainly not exceeding the 2 times net leverage on a through cycle basis. But like I said, those discussions are live with our Board, so I can't give too much for you at this stage. And then on the as it relates to What we do with the cash?

Speaker 2

Let me hand over to Simon and he can give you some comments there. Sure.

Speaker 1

I think we mentioned earlier, Constantine, that our loan docs currently prohibit the issuance of dividends. So As Grant said, we recognize that we have a need to refinance first, and that's an area of current focus. But we've been explicit through time on the need With the potential to return capital to shareholders, be it via dividends or buybacks, if we can't use those funds elsewhere within the enterprise. So you're going to be hearing something from us very soon on this. It's a topic of constant discussion and debate.

Speaker 1

But we do believe that dividend should be supported by sound capital structure and strong cash flows, and we think they're well placed in that regard. When we look at our peer group, we see a lot of people who are either highly leveraged or have poor cash flows in the near term. And we think that's an area where Seadrill represents extremely good value compared to our competitors.

Speaker 6

Got it. Makes sense. And finally, on the asset base, are there any assets that you're planning to Retire anytime soon? Or are there any sort of non core assets that you might consider selling, let's say, jackups or certain Drill ships, anything like that on the horizon?

Speaker 1

Yes, sure. Yes, I think we've been pretty open And there's some things that we've communicated in our 20 F. Now we're actively considering options to dispose non core assets. We can't provide any specific comments at this time. We'll come back if we have any news in that regard.

Speaker 1

But I think generally speaking, we want to be an important player in a smaller number of asset segments so that we can be more efficient and harness economies of scale across the cost base. So we're focusing our So you should expect to see movement from us as we continually refocus and refine Other parts of the market that we want to play in.

Speaker 6

Got it. Okay. Thanks for your comments.

Operator

We currently have no further questions. Ladies and gentlemen, this concludes today's call. Thank you for joining. May now disconnect your lines. Thank you.

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Earnings Conference Call
Yatra Online Q1 2023
00:00 / 00:00
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