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Client Id: 77 OCTOBER 30, 2018 / 1:00PM, RIG - Q3 2018 Transocean Ltd Earnings Call In addition to producing solid operating results, during the third quarter, we entered into a definitive agreement to acquire Ocean Rig and its fleet of 13 floaters. When we considered all of the possible options for further high grading our fleet of ultra-deepwater and harsh environment floaters without compromising our liquidity position or balance sheet flexibility, Ocean Rig provided the right strategic opportunity for us. The Ocean Rig fleet is currently comprised of 9 ultra-deepwater drillships, which are 7 years of age or younger, 2 harsh environments semisubmersibles and 2 high specification ultra-deepwater drillships, the Santorini and the Crete, which are currently under construction. It's important to note that the shipyard has extended Ocean Rig attractive financing in terms on the 2 newbuilds. The Santorini is scheduled for delivery in 2019 with the final shipyard payment not due until 2023, and the Crete is scheduled for delivery in 2020, with the final shipyard payment not due until 2024. According to our internal rig ranking tool, upon completion of this acquisition, we will control 31 of the top 100 ultra-deepwater and 7 of the top 25 harsh environment assets in the world, strategically positioning us well ahead of the competition and better equipping us to capitalize on the market as it continues to recover. Additionally, Ocean Rig will add approximately $743 million to our industry-leading backlog, with ongoing operations with strategic customers in Norway and West Africa. The Extraordinary General Meeting, providing our shareholders the opportunity to vote on the proposed transaction, has been scheduled for November 29, and we anticipate closing the transaction in December. Once closed, we will work quickly to fully integrate Ocean Rig into Transocean and begin realizing the $70 million in annualized synergies that we expect to generate through this combination. While we are pleased with the size, composition and quality of our floater fleet, we may consider future opportunities that would enhance our industry-leading position. Having said that, we will remain very consistent and disciplined in our approach, exclusively targeting top-tier ultra-deepwater and harsh environment assets as part of transactions that do not materially compromise our near-term liquidity position. As you will remember, just over a year ago, we employed that disciplined approach when we entered into an agreement to acquire Songa Offshore. With Songa, we acquired almost $4 billion in high margin backlog and 4 new high-specification harsh environment semisubmersibles at a time when demand for these assets was beginning to strengthen in Norway. Since that time, the market has continued to improve, driving a 40% increase in purchase prices for similar assets. Today, we believe that the global ultra-deepwater drilling market is on the verge of a similar recovery, which is why we made the decision to approach Ocean Rig. While the precise timing and trajectory of that recovery is still materializing, many data points clearly suggest that we are poised for an increase in demand and ultimately, in day rates, in the ultra-deepwater market. In support of that thesis, we recently executed a contract for the Petrobras 10000 in Brazil, at incremental day rates that are well above the spot prices seen in the market over the past 3 years. In addition to this contract, we have witnessed a material increase in offshore contracting activity in recent quarters. And based on our frequent and direct conversations with our customers, we know that there are a number of ultra-deepwater projects on the horizon across our customer base and in every major ultra-deepwater basin around the world. As such, we are confident that our acquisition of Ocean Rig provides us with a unique and timely opportunity to increase the number of modern high-specification ultra-deepwater drillships that we have in our fleet, better positioning us to capitalize on the market recovery. Following the transaction, we will have 5 high-specification ultra-deepwater drillships constructed within the past 5 years, which will be available for contracting in 2019, with 3 more available in 2020. Since these are the efficient drilling machines that our customers prefer, we expect them to be in high demand as the recovery continues to take shape. While we're certainly excited about the prospect of adding new high-specification assets to our fleet, we recognize that we must continue to evaluate the competitiveness of some of our older rigs. To that end, during the quarter, we identified and retired 2 additional assets: the CR Luigs and the Songa Delta. These retirements were executed because we determined that these rigs were unlikely to be competitive with the newer, more efficient assets, which have been recently introduced to the market. Overall, we have now recycled 45 floaters, and when including our decision to exit the jackup market, we have divested a total of 60 rigs since the start of the downturn. Considering the addition of the Songa Offshore fleet, our acquired interest in the Transocean Norge and upon completion of the Ocean Rig transaction, we will have a fleet of 57 floaters, over twice the number of our next nearest competitor, of which almost 90% are 3 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2018 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
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