Transocean Ltd
NYSE:RIG
Earnings Call Analysis
Q4-2023 Analysis
Transocean Ltd
Transocean's 2023 closed with substantial achievements, reflecting a resilient offshore drilling market. The company crowned the year with an adjusted EBITDA margin climbing to 26% for the full year, driven by a total adjusted contract drilling revenue of approximately $2.9 billion. Committing to a trajectory of fiscal strength, the early months of 2024 suggest persistent momentum with an anticipated adjusted contract drilling revenue of $780 million for the first quarter, promising an auspicious start to the year.
Trailing through 2023, Transocean embarked on strategic pathways, amassing approximately $880 million in backlog and undertaking significant refinancing activities. The company's operational advancements have been underscored by bolstering its fleet's average daily revenue from $360,000 to $432,000 by the fourth quarter. Transocean has also boasted both the launch of innovative offshore monitoring centers, achieving a record uptime performance of 97.6%, and the integration of new technology to further secure operational excellence. These measures not only laid the groundwork for an improved safety record but also contributed to shareholder value.
Transocean witnessed contracts with cutting-edge day rates, including fixtures in the Black Sea and Angola, cumulatively reinforcing its portfolio by an incremental $3.2 billion. These engagements signal the industry's trust in a sustained upcycle and offshore market commitment, as extended duration contracts become more prevalent. Moreover, the deployment of the Deepwater Titan and ingress of 1,000 offshore employees have fortified the company's operational capacity.
The company's foothold has extended into new geographies with promising market outlooks. Brazil's burgeoning sector is set to include Transocean rigs, potentially expanding the regional fleet. West Africa is projected to see the launch of up to 13 programs in the next 18 months, while Norway's demand remains robust, commanding higher day rates. Australia's outlook is equally positive, with additional programs starting in 2026 and Transocean's assets already strategically positioned to capitalize on these.
In a year of operational flux, the company has not only managed a growing fleet but has prudently sold assets and taken delivery of new high-spec rigs. The successful integration of new employees alongside rigorous safety measures has led to one of Transocean's strongest safety performances to date, underscoring the company’s commitment to its core value of operational safety.
With an eye on safeguarding shareholder interests, Transocean's consolidated $9 billion backlog and selective pursuit of lucrative opportunities echo a disciplined approach to financial management. The company's leadership pledges to convert the backlog to cash, reduce debt on the balance sheet, and enhance shareholder returns, striking a promising balance in a growing market.
Transocean navigated the capital markets with precision in 2023, managing liabilities and fortifying its balance sheet through strategic refinancing and debt retirement, which reflects in its reported liquidity of approximately $1.6 billion by the closing of 2023. These fiscal strategies are geared toward sustaining the company’s agility and financial health.
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Good day, everyone, and welcome to the Q4 2023 Transocean Earnings Call. [Operator Instructions]. Please note today's call will be recorded, and I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Allison Johnson, Director of Investor Relations.
Thank you, Todd. Good morning, and welcome to Transocean's Fourth Quarter 2023 Earnings Conference Call. A copy of our press release covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on our website at deepwater.com. Joining me on this morning's call are Jeremy Sigman, Chief Executive Officer; Keelan Adamson, President and Chief Operating Officer; Mark Mey, Executive Vice President and Chief Financial Officer; and Roddie McKenzie, Executive Vice President and Chief Commercial Officer. During the course of this call, Transocean management may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon current expectations and certain assumptions, and therefore, are subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for our forward-looking statements and for more information regarding certain risks and uncertainties that could impact future results. Also, please note that the company undertakes no duty to update or revise forward-looking statements. Following Jeremy Keelan and Mark's prepared comments, we will conduct a question-and-answer session with our team. During this time, to give more participants an opportunity to speak, please limit yourself to one initial question and one follow-up. Thank you very much. I'll now turn the call over to Jeremy.
Thank you, Alison, and welcome to our employees, customers, investors and analysts participating on today's call. As reported in yesterday's earnings release, for the fourth quarter, Transocean delivered adjusted EBITDA of $122 million on $748 million of adjusted contract drilling revenues, resulting in an adjusted EBITDA margin of approximately 16%. For the full year 2023, we delivered adjusted EBITDA of $738 million on approximately $2.9 billion of adjusted contract drilling revenues, resulting in an adjusted EBITDA margin of approximately 26%. As always, Mark will provide a more detailed review of our financial performance during his prepared remarks and provide revised guidance for the year 2024. 2023 was a very productive year for the company. We hit the ground running in January with a number of significant contract announcements that added approximately $880 million in backlog. These included harsh environment and ultra-deepwater fixtures in various jurisdictions around the world. We also opportunistically refinanced 4 senior secured notes totaling approximately $1.2 billion, and we raised $525 million from debt investors, secured in part by the Deepwater Titan's 5-year contract. By timely and opportunistically addressing certain debt maturities, we provided additional comfort to investors about our liquidity position. These transactions were positively received by our investors and resulted in the beginning phase of our share price more appropriately reflecting the reality of the improving offshore drilling market. 2023 also marked the beginning of the widespread transition of our rigs, higher revenue-generating coms. Throughout the year, the average daily revenue for our ultra-deepwater fleet increased from $360,000 per day in the first quarter to $432,000 per day in the fourth quarter. Key contributors to this improvement include the Deepwater Titan, which commenced operations with Chevron in May, joining the Deepwater Atlas as the second of the only 2 eighth generation drillships in the world, both operating in 20,000 PSI fields in the U.S. Gulf of Mexico. In addition to the Titan, we continue to add contracts with leading-edge day rates throughout the year, ending 2023 with an incremental $3.2 billion of backlog. Included in this total are 2 new fixtures added in the fourth quarter. First, we secured a contract for the Transocean Barents with OMV Petrom SA in the Romanian Black Sea at a rate of $465,000 per day for a minimum of 540 day duration. The contract includes a ra te increase to $480,000 per day for each day the rig operates beyond the initial term, including 2 option periods plus a fully paid mobilization into the Black Sea. Second, the deepwater Invictus was awarded a 40-day well in the U.S. Gulf of Mexico with an independent operator at a rate that is undisclosed at the request of the customer. In January this year, we signed a 3-well extension in Angola for the deepwater Ski rose with Total energies at a rate of $400,000 per day. The estimated 142 day contract extends the rig current firm term through May of 2025 at a rate that is meaningfully higher than the prior day rate. Despite the strong year of contracting, we recognize that some investors have been concerned by the pace of contract awards over the past few months. In an effort to ease their concern, it's important to note that our customers are increasingly focused on extended duration opportunity with longer lead times to contract commitment. While this tends to result in prolonged contract negotiations, it also demonstrates our customers' confidence in the longevity of this up cycle and their commitment to the offshore market. In short, we remain extremely encouraged about the current and future demand for Transocean's assets and services. With that, I'll ask Keelan to discuss what we are seeing in the offshore drilling markets around the world. Keelan?
Thanks, Jeremy, and good morning, everyone. To expand on Jeremy's last point, and as a reminder to those listening, in our corporate presentation available on our website, we provide an 18-month look ahead of floater opportunity commencements. The slide also includes a historical perspective. Over the past 9 quarters, we have observed the number of tendered rig years increased nearly 90% to 91 rig years. Overlaying this with the number of programs over the same time period, our customers' programs have increased and continue to increase in duration. Now looking closer at each region. Last year in Brazil, Petrobras alone awarded 7 rig lines, and we continue to see strong demand from the region with Petrobras and Equinor tendering for long-term programs. Over the next 18 months, we expect the award of 7 more rig lines based on open opportunities, including 5 between Petrobras' Sepia and Roncador tenders, which are expected to be awarded in the second quarter of this year. We anticipate that at least 1 of the 7 rigs will come from outside the region. If this materializes as expected, including rigs currently preparing for and mobilizing 2 contracts for previously awarded work, the rig count in Brazil will increase from 31 there today to 36 rigs by the end of 2025. The U.S. Gulf of Mexico continues to be a source of steady demand with several tenders and negotiations ongoing. We expect that most demand requirements over the next 18 months will be met by rigs already in the region and don't currently anticipate adding significant capacity to the area since the introduction of the Atlas Titan and Stena Evolution contracts. U.S. Gulf is shifting from a market characterized by short lead time short duration opportunities to a longer lead time, longer duration market. Beyond this 18-month horizon, additional demand for long-term work has materialized from several of the major E&P companies as they seek to secure the right high-specification assets for their ongoing developments. We continue to be encouraged by demand in West Africa and currently expect that up to 13 programs will commence in the next 18 months. Notably, half of these programs are at least 2 years in duration. Namibia continues to exhibit significant potential with recently announced discoveries by Total Energies, Shell and Gulf Energy, and we expect most of the 4 rigs currently on contract in country to be extended. In Nigeria, Shell has issued its multiyear tender, and we expect Chevron and Exxon will issue their multiyear rig tenders in the first half of this year. And lastly, in Angola, there are 7 rigs presently on contract with operators that include Total Energies, ExxonMobil and the E&I BP joint venture, Azul Energy. We expect that these rigs will remain in country and will be extended primarily through existing contract options. Moving now to the harsh environment market. Local supply of high-specification harsh environment semisubmersibles in Norway is currently fully utilized until the end of 2024 and the majority are largely contracted through 2025. Day rates, therefore, continue to increase and recent fixtures have been in the high 400s, a constructive trend. We expect there to be a need for incremental supply beginning the second half of 2025. The outlook in Australia remained strong with a number of additional programs set to start in 2026. Our rigs, the Transocean Endurance and Transocean Equinox are contracted with options through early 2026 and 2028, respectively, and are strategically well positioned for some of these future opportunities. In addition to the capability of our high specification fleet, our strong safety and operational performance is highly valued by our customers and positions Transocean well to secure contract opportunities. Flawlessly executing large-scale drilling and completion programs that consist of a wide range of highly complex operations, requires a commensurate level of operational discipline. For several years now, we've been acutely focused on improving our processes, tools and confidence as we strive to become a highly reliable organization. In 2023, we completed the implementation of what we call our global critical operations assurance centers. Located in both our Houston and Stavanger offices, these real-time monitoring centers are staffed 24 hours a day, 7 days a week by teams of subject matter experts from our offshore workforce. Equipped with live footage from our fleet and the ability to communicate directly with our offshore crews in real time, these teams provide an additional level of assurance and verification during the performance of key steps in these critical operations. Since the introduction of this capability, we have seen a significant improvement in our operational reliability, resulting in a company record uptime performance of 97.6% for 2023. In addition to normal day-to-day operations, we took delivery of the Deepwater Aquila, brought our second eighth generation drillship, the Deepwater Titan into service and installed the 20,000 BOP on the Titan sister ship, the Deepwater Atlas. We also completed contract preparation projects and subsequently mobilized 6 rigs. The development driller 3, Duravit Deepwater KG2, the Deepwater Orion, Transocean Barents, Transocean Endurance and the Transocean Equinox to new programs in different regions with different customers around the world. Additionally, Transocean has onboarded approximately 1,000 new offshore employees in 2023. Despite these operational changes, in 2023, we delivered one of our strongest process and occupational safety performances, beating our annual target for recordable injury rates. And much more importantly, none of our employees incurred a life-changing injury. We are very proud of our operational performance and the positive impact it has on our financial results, which ultimately creates value for our shareholders. This operational performance is not by chance. It is the direct result of our relentless drive to improve our willingness to constantly challenge the status quo and our holistic approach to optimizing how we deliver superior results for our customers. Innovation is a foundational principle at Transocean, and we continuously invest in technologies to improve the safety, reliability and efficiency of our operations. As an example, in 2023, we deployed the third robotic riser bolting system in our fleet on the Deepwater Titan. This system automates certain activities during Weiser operations, significantly reducing the exposure of our rig personnel to moving equipment on the drill floor. We have also continued to advance the automation of drilling control, where repetitive tasks are replaced with machine control sequences. This further improves the consistency and predictability of our operation while affording our drillers more time to focus on the well itself. We also recently agreed to conduct a trial of an automation solution in the West Gulf of Mexico and look forward to expanding this to additional rigs. From an asset perspective, we continue to proactively manage the composition of our fleet with a strategic focus on owning and operating high-specification, ultra-deepwater and harsh environment floaters. In the second quarter last year, we entered into an agreement to sell the Paul Be Lloyd Junior and the Transocean Leader, effectively exiting the moored fourth-generation semisubmersible asset class. The transaction closed last week. In the third quarter, we acquired the outstanding interest in the joint venture company that owns the deepwater Aquila, which was selected for a 3-year contract to work with Petrobras, making it the eighth 1,400 ton rig in our fleet and further strengthening our position in the high hook load ultra-deepwater drillship market. The Aquila is currently undergoing preparations for its contract in Brazil, which is expected to commence midyear. As a result of the substantial contract preparation work we have performed and the newbuild delivery experience we have accumulated over the years, we are confident that when the time comes and we start to reactivate our cold stacked assets, we will do so safely and efficiently and then transition into operations at the highest level of performance. The number of opportunities that could justify the reactivation of cold-stacked assets continues to grow. As always, we will remain disciplined in these decisions and will only do so to contracts that recover the investment required to reactivate plus generate an appropriate return for our shareholders. I'll now hand the call back to Jeremy.
Thanks, Keelan. 2023 will be remembered as a significant year for Transocean. We take great pride in being the sole company among our peer group of publicly traded international offshore drilling contractor to successfully navigate the financial challenges of the downturn, ensuring the preservation of value for our shareholders. Our fleet is largely contracted through 2024, and we will continue to actively seek work to fill any gaps in utilization. Having said that, our $9 billion backlog and superior assets provide us with the confidence and flexibility we need to be selective in the opportunities we pursue as we constantly endeavor to strike the right balance between utilization and day rate optimization. As previously mentioned, we're encouraged by the longer-term programs we see materialize with start dates well into the future. As we move into 2024 and further into what appears to be a sustained up cycle, our priorities remain: first, converting our industry-leading backlog to cash. We'll do this by maintaining acute focus on safety and the uptime performance across our fleet, which directly impacts our overall revenue efficiency. Second, deleveraging the balance sheet. Assuming the market materializes as we expect, we will generate significant free cash flow over the next few years. And while we recognize that operating a growing fleet is a competing priority with deleveraging, we will be sure to balance the two in a manner that best serves our shareholders. Third and finally, manage the business with the ultimate goal of returning more value to our shareholders, either through share repurchases or dividends. Before I hand the call over to Mark, I would like to thank each member of the Transocean team for their dedication to delivering safe, reliable and efficient operations for our customers and contributing to our strong and constantly improving operational and financial performance. You all did a great job in 2023, and I look forward to continuous improvement in 2024. With that, Mark will now discuss our financial results and future outlook. Mark?
Thank you, Jeremy, and good day to all. As Jeremy mentioned in his remarks, we've had a very active year in the tech capital markets in 2023. In addition to the January 2023 refinancing and secured debt issuance we discussed in October 2023, we issued $325 million of 8% senior secured notes due 2028. The notes are secured by a deepwater killer to support the purchase and upgrade of the rig. We also executed several liability management transactions during the year. These include the retirement of $243 million outstanding principal of the 5.375% senior secured notes due in May 2023, releasing the collateral rigs, Transocean Equinox and Transocean Endurance. The completion of exchanges with approximately $339 million of previously issued exchangeable bonds with maturities in 2025, 2027 and 2029, mainly for equity and the repayment of the remaining $49 million of the 0.5 exchangeable bonds at maturity in January 2023. I extend a sincere thank you to the entire Transocean team for your continued efforts as we work to optimize our capital structure. I will now briefly recap our fourth quarter results then provide guidance for the first quarter as well as give an update on expectations for the full year 2024. Lastly, I'll provide an update on our liquidity forecast through the end of 2024. As reported in our press release, which includes additional details on our results, for the fourth quarter of 2023, we reported net loss attributable to controlling interest of $104 million or $0.13 per diluted share. After certain adjustments sustained in Say's press release, we reported adjusted net loss of $74 million. During the quarter, we generated adjusted EBITDA of $122 million, which translated into cash flow from operations of approximately $98 million. Our negative free cash flow of $122 million reflected the CapEx associated with the Deepwater killer, including the final shipyard milestone payment upon taking delivery of the rig from the shipyard. Looking closely at our results during the fourth quarter, we delivered adjusted contract-driven revenues of approximately $748 million and an average value revenue of $408,000 per day. Our reported revenue is below our guidance, primarily due to the late start of Deepwater Mykono s, which is now on contract with Petrobras and lower-than-anticipated revenue for MoneyPass drilling services, mainly for the Deepwater Conqueror, partially offset by higher fleet-wide revenue efficiency. Operating and maintenance expense in the fourth quarter was $569 million. This is slightly higher than our guidance, mainly due to certain customs duties, indirect taxes and litigation costs incurred mostly in South America. General and administrative expense for the fourth quarter was $50 million. This is below our guidance, primarily due to lower than anticipated professional fees and legal expenses. Turning to the cash flow and balance sheet. We ended the fourth quarter with total liquidity of approximately $1.6 billion unrestricted cash and cash equivalents of approximately $762 million, which comprises approximately $198 million of restricted cash for debt service and approximately $600 million from our revolving credit facility. I will now provide financial guidance for our first quarter 2024 and update on our expectations for the full year 2024. Our revenue guidance is primarily based on firm contracts as listed in our fleet center support and an average fleet-wide revenue efficiency of 96.5%. For the first quarter of 2024, we expect adjusted contract drilling revenue of approximately $780 million. This quarter-over-quarter increase is largely due to increased activity on the following rigs, including the Deepwater Mykonos, People Orion, KG2 in Brazil and Transocean Endurance in Australia and the deepwater in vectors in the Gulf of Mexico. This is partially offset by lower activity on the Transocean Barents, which concluded its contract in the Eastern Mediterranean in February, and the KG1, a pareto its next contract in India. In addition, the sale of the Paul B Loyd Jr., which closed last Thursday, results in lower revenue of approximately $11 million. We expect first quarter O&M expense to be approximately $545 million. This is less than we reported for the fourth quarter of 2023 relating mainly to reduced activity for Transocean Barents, lower maintenance costs for the operating fleet generally, the sale of the Paul B. Lloyd Jr and the aforementioned South American costs incurred in the preceding quarter. This will be partially offset by higher operating costs resulting from more operating days for the Deepwater mechanize, the Deepwater Orion and the KG2 in Brazil and the Transocean ingurance in Australia, which commenced their new contracts. We expect G&A expense for the first quarter of $47 million. For the full year 2024, we estimate that our adjusted contract drilling revenues will be between $3.6 billion and $3.75 billion, also based on 96.5% revenue efficiency. Our expectations are lower than the prelim guidance we provided on the third quarter 2023 earnings call, mainly due to changes in fleet activity. These changes are reflected on our February 14 free status reports and include the following: contract commencement for the Deepwater Orion Transocean Equinox and Transocean Endurance were delayed due to prolonged mobilization and contract preparation activities. Lower anticipated revenue for the Deepwater Atlas as a portion of the customers' contract requiring the 15,000 PSI capabilities is running longer than originally anticipated. As a result, the rigor has not yet transitioned to the higher day rate segment of its contract. Changes in activity on the Transocean variance versus our expectations included in the prior customers decision to forgo its option wells under the rig's prior contract, partially for security reasons in the Middle East. In line with our prelim guidance, we're anticipating a full year 2024 O&M expense to be approximately $2.2 billion and full year G&A expense of approximately $196 million. Excluding any noncash changes associated with the fair value adjustment of the basic exchange feature embedded in our exchangeable bonds issued in the third quarter of 2022. Net interest expense for the first quarter is forecasted to be approximately $131 million. This includes capitalized interest of approximately $7 million. For the full year, we're anticipating net interest expense of approximately $513 million, including capitalized interest of approximately $16 million. Capital expenditures, including capitalized interest for the first quarter are forecasted to be approximately $120 million, including approximately $81 million to the preparation of the Deepwater killer for its 3-year contract with Petrobras in Brazil. Cash taxes to be paid in the first quarter are expected to be approximately $10 million and approximately $51 million for the full year 2024. Our expected liquidity in December 2024 is projected to be approximately $1.45 billion, reflecting our revenue and cost guidance and including the approximately $600 million capacity of our Aviva credit facility and restricted cash of approximately $350 million, which is mainly reserved for our debt service. This liquidity forecast includes 2024 CapEx expectations of $242 million, including $134 million related to the Deepwater killer. As briefly mentioned earlier and discussed in detail on our third quarter 2023, we had significant contract preparation activities in 2023. In total, we spent more than 800 days across 7 rigs preparing for new contracts. In 2024, we only expect to have approximately half the amount of contract preparation days we had last year. As these rigs continue to commence their respective programs, our focus is on operational execution to ensure we maximize different version of our backlog to revenue. We continue to proactively manage our debt maturities and combined with our $9 billion of contract backlog, we believe the strength and longevity of this up cycle will support our ability to meet our priorities of deleveraging the balance sheet and returning cash to shareholders. In this regard, we continue to evaluate various liability management opportunities that satisfy our objectives of reducing debt, extending the liquidity runway, simplifying the signet structure of our balance sheet and reducing interest expense. This concludes my prepared comments. Jeremy?
Thanks, Mark. Before we transition to Q&A, I'd like to take a moment to announce our preparation for a transition within our executive team. As part of our executive succession planning, Mark May, who has been a key member of this executive team since he joined Transocean 2015 will soon transition his role of Chief Financial Officer to Tad beta, our Senior Vice President of Corporate Finance and Treasurer. Many, if not all, of our analysts and investors already know that from his many years leading our investor -- so this move will likely come as no surprise. Needless to say, that is unbelievably prepared for and deserving of this opportunity, and I could not be more delighted for him as he assumes the leadership of our finance organization. Over the next few months, I will work with Mark and [indiscernible] to help finalize the succession plan that has been in development for several years and ensure a smooth transition, which we expect will take place during the second quarter of 2024. As we Transocean and many in the investment community already know, Mark has made an incredibly significant contribution to Transocean's success throughout his tenure here. His leadership, strategic thinking and financial discipline have been instrumental in helping guide the company through an unbelievably challenging market downturn while also preserving and driving significant shareholder value. From leading multiple timely and opportunistic capital markets and liquidity enhancing transactions to helping to identify and consummate numerous strategic acquisitions, joint ventures and divestitures. Mark has played an absolutely critical role in fundamentally transforming Transocean into a company that not only survived the downturn that forced all of our primary competitors into bankruptcy, but into a company that is better positioned to take advantage of a multiyear up cycle with a streamlined cost structure and a fleet of the most desirable and technically capable drilling rigs in the offshore industry. So before we move forward with the rest of the call, I wanted to pause and on behalf of the Board of Directors, every employee at Transocean and me personally thank Mark for his dedication, his leadership, his service and his partnership these past 9 years. I honestly can't think him enough for what he has done. We look forward to continuing to build upon the financial discipline and strong foundation that he helped to create. Thank you, Mark.
Thank you, Jeremy. Reflected in my 3 decades in the offshore drilling industry, I can say with certainty that while the last almost 9 years at Transocean, have been some of the most challenging, they've also been the most fulfilling and enriching of my career. Each day, I've had the privilege of working alongside an extraordinary team whose dedication, talent and motivation have been nothing short of inspiring. To my colleagues at both past and present, I extend my deepest gratitude. Your unwavering support, collaboration and friendship have not only made the work extremely rewarding, but also contributed significantly to our collective success. It has been an honor to learn and grow both personally and professionally within this incredible team. To our stakeholders and partners, thank you for your trust, support and collaboration over the years. It has been a privilege to work alongside you and contribute to our mutual success. I'm delighted that [indiscernible] whithin whom I've worked closely since 2015 will be elevated as CFO. I look forward to working with Jeremy Ted and the rest of the team to facilitate a smooth transition, which our approach with a profound sense of gratitude for the opportunities afforded me and the relationships formed along the way. I will always carry with me the adverse respect and admiration for each of you. Thank you. Todd, we're ready for questions.
[Operator Instructions]. Our first question will come from Kurt Hallead with Benchmark.
Mark, it's been a pleasure working with you. I wish you nothing but the best. Randy, you've had a tough slog and kind of fantastic job, at least from my standpoint. So good luck, and I appreciate everything you've done. Absolutely. All right. Jeremy, it looks like we got some guidance numbers coming down relative to the prior conference call. I think Mark did a decent job here at selling out some of the pluses and minuses. So I'm kind of looking at where Street consensus numbers are, looks like at least $90 million of the $125 million differential in the guidance -- on the prior guidance is coming in the first quarter with some more modest effects kind of going forward. So just in that context, am I understanding the dynamic where it's going to be a little bit more choppy in the first half of the year and it's going to be a little bit more smooth sailing in the second half?
Yes, Kurt that's exactly right. If you look at the progress over the year, quarter by quarter, we're actually -- we are net income positive definitely in the third quarter and maybe even the second quarter with the first quarter still being at a net loss. So yes, it does grow throughout the year, as the 7 rigs, which Keelan mentioned, having completed the contract prep, so all those costs have now stopped for the rigs that are working and they're generating revenue. So it's a pretty big contribution to our bottom line.
Okay. Great. And then in your Analyst Day back in January, I think you guys gave some general indication that even if market rates don't improve from what you currently have in backlog that you still have line of sight to reducing your debt by something along the lines of like $3 billion over the course of the next couple of years. So given the change in your kind of guidance here for 2024, how confident are you and still able to reduce that debt load, assuming there's no change in market dynamics?
Yes, I think that's the key part to this question, isn't it? Assuming that the market stays the way it is. And I think we feel very confident about that. I think a couple of years, I think what we spoke about was really 3 years. And if you look at our increase in EBITDA this year versus last year on a projected basis, it's over 60% increase. And you can expect maybe not as much next year, but certainly double-digit increases for '26 and '27. And as we mentioned, we do have $9 billion of high day rate contract in our backlog. So I think we're pretty well set, certainly through '26 and maybe even into 2027 in achieving our deleveraging target.
I think just to add to that, I think something that gets overlooked. You heard Keelan's remarks and the number of rigs that we took delivery of are relocated and the amount of investment we had to put. Now these rigs are on longer-term contracts. And so the costs associated with them are just going to be daily operating costs, which is certainly more than covered by the day rate and we're putting ourselves in a very, very good position. And as we also said on the prepared remarks, most of the negotiations that are taking place right now are for longer-term contracts. And so that's where you can really start to get that flow through and start to generate a lot of cash.
Our next question comes from Fredrik Stein with Clarkson Securities.
Thank you and [indiscernible] as well for our discussions over the year. So I wish you all the best in the future and look forward to working with you as well, Mark. So with that, I will I wanted to touch a bit on the first, the Skyros rate of $400,000 per day. And that was announced, I had a couple of discussions with investors around the 400 mark and that potentially being at the low end of what to expect when we do get the specs of the rig. So could you just clarify if that was anything particular on that? Was it any sort of price element? And if it were I'm sorry to kind of miss it? Or was it other considerations that made that at the right rate for that rig for that work?
Fredrik, this is Roddie. I'll take that one. Yes, so the 400,000 day rate, I mean, that was something that -- it's been in the works for a while. So it's kind of an older rate. But the truth of matter for us is a reasonably short-term extension on that rig staying in the jurisdiction that it's in, doesn't have any changes, doesn't have any upgrades to do. So that was just a bridge to other opportunities, shall we say. So I mean stay tuned on that one, but certainly a decent fixture in terms of just continuing to produce the EBITDA that, that rig produces and hang on to that steady-state operation, which is obviously our preferred choice at this stage.
Yes. I would add to that. We have a fairly clear line of sight to the next opportunity. And so keep your hot and generating significant cash flow was very important to us.
Yes. Okay, that makes perfect sense. I figured it likely something rational behind it. Second... On the idle -- that's good. Okay. Second, the Invictus inspiration and development driller, there's been some idle time on those rigs. And as you said in the prepared remarks, there's this trade-off between higher day rates and utilization. You have a short-term program now in the indices, but are we able to share any color or thinking around the future, both near and long term on those rigs?
Yes. So... I can't give you...
also have a long-term contract, but still...
Yes. So obviously, I can't give you the details of the things that we're working on, but we are in discussions on several things to add some more time to the Invictus. But as you know, she has that long-term contract at super solid day rates in Mexico coming up. So on that one, certainly, I think stay tuned, there'll be some more interesting stuff that comes on that in the next few months. The -- on the other rigs, we've got them bid into several different things. We -- it just so happens that the inspiration and the DD3 are amongst our lower specification sixth-generation assets. So we continue to look at all that stuff. There are several opportunities for it. So again, I can't really give you the details of the things that we're working on, but we think there's some good things coming that way. And even if there is some additional idle time on those rigs. We've been very disciplined about that. We're certainly not going to go and chase something for the sake of it. And if we needed to, we would even take them off the market. But as we think about how things are evolving in the market for us today, I think the guys had rightfully pointed out this big transition towards long-term contracts. As I sit here and look at the charts that we have, I mean, again, we can't give you the details of it, but we're looking at things that are currently in negotiation. And if we are proportionately successful on those negotiations then we'll be looking at something like 23 out of the 25 active rigs we have in the fleet will be contracted through the end of '25. It's been a long time since we've been able to say that. And when I think about even longer term, and this is kind of to the point that Keelan made in his prepared remarks is the shift that the operators are going towards much longer term is evidenced by the fact that we could be looking at more than half of the fleet by the end of this year would be fully booked through the end of '27. Again, it's been a very long time since we've been able to say that kind of stuff. So I think those are extremely important fixtures to happen. It's a real trend that's happening in the market at the moment. And of course, that's going to guide us towards very solid EBITDA margins on those rigs because as Mark and Jeremy had pointed out, we've put a tremendous number of these rigs back to work. We've relocated them. So now we're looking over the next few years to keep that steady state operation going and make sure we maximize the EBITDA numbers.
Perfect. So to sum it up, it seems like the stock market is currently wrong, I would say them based on our outlook.
Yes, far from it for me to say good observation.
Our next question comes from Eddie Kim with Barclays.
Mark, it's been great listening to you from your days at Adwood, and you deserve a lot of credit for navigating Transocean through a very difficult time. So all the best in your future endeavors.So my first question is on the Deepwater Atlas, which is now coming out of contract April next year as opposed to September this year, and you highlighted kind of the reasons for that. Just wanted to ask about some of the prospects for that rig when it does come off contract next year. We just saw a big subsea order for Shell's Sparta development in the Gulf of Mexico, which is 20 KPSI. So there's clearly at least one very strong suitor for that rig, I would think, probably others as well. So just any color there would be great.
Yes. So currently, there are 4 operators that are active in the 20K market, and there's a few more that are looking to perhaps expand into that. So the opportunities for that rig are very solid. As you know, we can't divulge any details of what we're working on just now. But we are increasingly confident that there will be a firm fixer on the rig very, very soon. And we never talk about letters of intent, but it's safe to say that the near-term future of that rig is looking very positive. And in due course, we'll be able to give you more details as things firm up. But I think the 20K markets arguably never looked as good. So we certainly think there's plenty of room for her to pick up additional work for the foreseeable future. So I think we'll be pleased with the decision to bring her to market and, as I say, stay tuned, and we'll make announcements on that soon.
Got it. Okay. Great. And my follow-up is just on Total's recent purchase of a drillship. They had a tender out for a 10-year contract for a while and clearly decided to purchase 75% of the rig instead of entering into that 10-year contract. Was that a surprise to you? And do you expect we could see a few more rig purchases by operators here? Or was that likely more of a one-off case?
Yes. I'll take that one. I think kind of unique circumstances there. I think you had 2 motivated parties. I think the key messages that we get out of that is clearly, this is like underscores the view to the long-term prosperity of this upcycle. If you see operators looking at 3- and 4- and 5-year contracts, we're very excited by that. To be making fixtures for 10 years, this early in the cycle, I think, is a super positive indicator. We can't comment on the specifics of the economics of it. Everybody has their own drivers. But certainly, we view that as a very positive picture. In terms of other fixtures that would be the same, I'm not sure you would see exactly the same model again, but we do know that there are several very long-term contracts that are out there in the market. There even is perhaps another 1 or 2 of the 10-year variety to happen, but I think you'll see kind of a flurry of fixtures for 3, 4 and 5 years over the next kind of 6 months, certainly in the first half of this year.
Our next question comes from David Smith with Pickering Energy Partners.
And Mark... Tons on a great run. It's just an amazing achievement to make it through that downturn without restructuring the balance sheet. So a lot of hard work and definitely deserve a break. I just had a housekeeping question, which is how should we think about the mobilization time for the parents into the Black Sea. And if you addressed it, I'm sorry, but do you see the potential for that rig to work this year ahead of the move?
Okay. David, I'll take that one. I think in terms of the mobilization period for that rig, it's largely due to the fact that we will have to take the Derrick down in order to get into the area and then put it back up again. So that's largely -- and 6 months is probably a reasonable time frame for that sort of work. In terms of opportunities, obviously, we're looking for opportunities upfront, Roddie can speak to that a little bit. We will reach a certain point in time, though, where we want to commence that project work to get into the Black Sea for that work at a certain time frame. So we have a small window here upfront, but I'll let Roddie talk to that.
Yes. So the Black Sea project, super interesting for us. At the time, we decided, Hello, let's take the long-term opportunity. I mean the day rate is very solid. Customers paying for the mobilization. So that's great. And really kind of keep the rig busy if you would, until pretty much through '26 and perhaps a little bit into 2017. So look, a great long-term fixture for us at very constructive day rates in a reasonable cost environment. So we're very pleased about that. Also at the time, there was an option well on the rig that would have built the gap that we have now perfectly. Unfortunately, that didn't go ahead. But there are a couple of other opportunities that we're chasing just now. So we do have a little bit of flexibility on when we start the rig in the Black Sea. So as Keelan pointed out, we'll basically make a call at some point. If we can slot in a well or 2 between now and the start of the project to take it in, then we would be very interested to do that. And we do have a couple of bites on that. So we'll let you know how that pans out soon.
Our last question will come from Noel Parks with Towey Brothers.
I was just interested in getting some thoughts from you on what you're seeing in the supply chain for components at this stage. Just over the last quarter, do you have a sense that it is improving, loosening up? Are you still seeing tightness or you anticipate that that's sort of going to be the new normal going forward, given what we have as far as limited capacity in the marketplace.
Yes. Noel, it's Keelan here. I would say from operational support from our e-vendors, they've been doing a very, very good job of keeping us appraised of their delivery times from their suppliers. I would say that our perception is that, that has actually improved over the last few months and a lot more predictable in terms of delivery times, which is typically nearly more important to us at this point in time, the cost inflation hasn't been that significant to that point. It's been more that we've been focused on the lead times needed to get those components. So it's improving. It's obviously a challenge, but we're working with our partners to ensure that we get the components when we need them, and we work with them to understand the components that we're going to need so that we're always prepared for that eventuality.
Great. And do you have any sense of how to characterize how that might be useful either in terms of your contract visibility? Or I don't know if having more confident about timing also helps you as far as the actual rate negotiations. But any thoughts on that would be great.
GNo, I would say that we carry a lot of capital spares in our fleet that based on the size of our fleet and the nature of our fleet, we keep good installed base available to us to be able to lever for opportunities when we need to. We have reasonably good visibility to the opportunities that Roddie talks about. And when we're looking at the rigs that we are bidding into those jobs, clearly, we understand the work that needs to be done to those, and we build in a project plan in terms of addressing the work and any upgrades that are needed. So to that point, we're not really constrained from a parts perspective to be able to capitalize on opportunities that are coming.
Thank you. I'll now turn the call back over to Alison Johnson for any additional or closing remarks.
Thank you, Todd, and thank you, everyone, for your participation on today's call. We look forward to talking with you again for our first quarter 2024 results. Have a good day.
This does conclude today's call. We thank you for your participation. You may disconnect at any time.