Image source: The Motley Fool.
Transocean (NYSE: RIG)
Q3 2024 Earnings Call
Oct 31, 2024, 9:00 a.m. ET
Transocean Overview: Strong Q3 Performance and Promising Contracts Ahead
Agenda for Today’s Call
- Prepared Statements
- Questions from Analysts
- Participants on the Call
Prepared Statements:
Operator
Welcome to Transocean’s third quarter 2024 earnings call. Participants are in listen-only mode. There will be a chance for questions later. This call is being recorded, and I am here to assist you.
Now, I’ll hand over the call to our Director of Investor Relations, Alison Johnson.
Alison Johnson — Director, Investor Relations
Thank you, Madison. Good morning and welcome to our call. Our press release covering financial results and additional details can be found on our website at deepwater.com. On the line with me today are Jeremy Thigpen, our CEO; Keelan Adamson, President and COO; Thad Vayda, our CFO; and Roddie Mackenzie, Executive Vice President of Commercial Operations.
During this call, we may make forward-looking statements reflecting our current expectations and assumptions. Actual results could vary due to various risks and uncertainties. Please check our SEC filings for more details.
Should You Invest in Transocean?
Before making any investment, consider the following:
The Motley Fool Stock Advisor team has recently named what they believe are the 10 best stocks for investors to buy. Notably, Transocean was not included in this group. The selected stocks have the potential for significant returns in the upcoming years.
For instance, if you had invested $1,000 in Nvidia on April 15, 2005, when it made the list, you would now have $853,860*!
Stock Advisor offers guidance on building a successful portfolio with regular updates from analysts and two new picks each month. The service has outperformed the S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of October 28, 2024
Please note that the company has no obligation to update or revise forward-looking statements. After the prepared remarks from Jeremy, Keelan, and Thad, we will open the floor for questions. To allow everyone a chance to speak, please limit yourself to one initial question and one follow-up. Thank you.
Now, I’ll hand the call over to Jeremy.
Jeremy Thigpen — Chief Executive Officer
Thank you, Alison. I appreciate everyone joining today. According to our earnings release for Q3 2024, Transocean reported adjusted EBITDA of $342 million from $948 million in contract drilling revenues. This reflects an adjusted EBITDA margin of about 36%. Our marketing efforts have yielded new contracts and extensions, indicating a robust pipeline for 2024, promising excellent fleet utilization over the next 12 to 18 months.
In the U.S. Gulf of Mexico, BP awarded the Deepwater Atlas a one-year contract at $635,000 per day, set to start in Q2 2028. This contract includes a one-year option at the same rate, which we expect will be exercised.
Additionally, the Deepwater Invictus secured two contract extensions, expected to keep it operational until November this year. Now, our active fleet is fully contracted for 2024. On another note, the Deepwater Conqueror was awarded a one-year contract at $530,000 per day, also set to begin in October 2025.
In India, Reliance Industries engaged the KG1 for a six-well contract at $410,000 per day, expected to start in Q2 2026, with options extending into 2029. Moving to our harsh environment fleet in Norway, Equinor exercised a three-well option on the Transocean Spitsbergen at $483,000 per day. If all options are exercised, the well schedule may extend to Q4 2027.
Equinor also exercised three one-well options for the Transocean Enabler at $438,000 per day, likely extending the contract to Q3 2026. In Australia, Woodside exercised options for six additional wells at $390,000 per day, with the firm period lasting until August 2026.
Currently, our fleet is solidly booked through most of 2025 and into 2026. Our backlog indicates that fleet utilization for 2025 is over 97% and approximately 86% through the first half of 2026. We successfully secured 23 fixtures this year, so we have minimized the gaps that many competitors have noted.
Our leadership in the industry is attributed to owning a highly capable fleet, delivering safe and efficient operations, and leveraging our market understanding to maximize value from our assets. I’ve noted that we have gradually optimized our portfolio of assets since 2014, resulting in a technologically advanced fleet that stands out among peers.
Transocean Reports Strong Demand for Premium Rigs as Market Expansion Anticipated
Transocean, a leader in offshore drilling, is witnessing a robust demand for their high-specification rig fleet. This strategy has delivered consistent success over the years.
Exclusive Ownership of Eighth-Generation Drillships
As noted, Transocean owns the world’s only two eighth-generation Ultra-Deepwater drillships: Deepwater Atlas and Deepwater Titan. These advanced rigs feature a hoisting capacity of 1,700 short tons along with 20,000-psi well control technology. Additionally, Transocean controls eight out of twelve 1,400 short-ton drillships available on the market. The remaining four rigs are allocated various long-term commitments, with two permanently deployed in Angola, one contracted to Shell for five years, and another recently awarded a three-year contract with Petrobras.
Market Positioning of High-Specification Rigs
This strategic positioning offers Transocean a unique advantage in the medium term, as it holds the only marketable assets within this attractive class. As highlighted in previous discussions, the hook-load capability is critical for customers, enabling them to run longer and heavier casing strings. This characteristic allows clients to optimize their well designs, which can lower drilling time and enhance overall well productivity by maintaining the wellbore diameter. Recent contract awards totaling $1.3 billion speak to this growing preference among clients, contributing to a total backlog now standing at $9.3 billion—a 7.5% increase from the July 2024 status report. The company’s portfolio of ultra-deepwater and harsh environment rigs remains highly favored, resulting in leading day rates and increased usage rates.
Strong Performance Despite Market Conditions
The strength of this strategy is evident in the contracts secured across the fleet, including the recent assignment to Deepwater Conqueror. Notably, this rig secured a day rate exceeding $500,000, even during a period when competitors expected below 60% fleet utilization. This reflects clients’ recognition of the value that Transocean’s assets and services provide. Premium rigs consistently attract premium day rates, as operators seek efficiency and flexibility in their drilling programs.
Future Outlook Driven by Increased Investment
Turning to future prospects, Keelan Adamson, President and Chief Operating Officer, outlined Transocean’s strong outlook based on market analyses and ongoing customer discussions. Forecasts from Wood Mackenzie predict that global upstream capital expenditures will remain stable at nearly $500 billion annually for the foreseeable future. Notably, investment in deepwater projects is expected to rise from 12% of that total in 2024 to 15% by 2026.
Planning for Upcoming Projects
Rystad Energy’s research shows that over 75% of new projects initiated by major operators are profitable even with oil prices below $60 a barrel. This scenario has led to advanced discussions with various clients for projects scheduled to begin in 2026. With limited availability in Transocean’s current fleet over the next 15 months, the focus is increasingly shifting towards the 2026 market. Specifically, Deepwater Proteus and Deepwater Asgard will complete their contracts in mid-2026, creating opportunities for project continuations.
Expanding Markets in Africa and Brazil
There are expectations for between 10 and 15 programs, each averaging about 12 months in duration, to commence in 2026, driven by development in Nigeria, Angola, Ivory Coast, and Ghana. In 2027, additional demand might arise in Mozambique and Namibia. In Brazil, developments surrounding Petrobras’s Pool 3 tender are imminent, and it’s anticipated that four rigs will be awarded, operational from late 2025 into early 2026.
Operational Advancements and Reliability Improvements
In terms of operations, Transocean has made meaningful strides in ensuring reliability. The company has implemented critical operations authorization centers (COAs) in Houston and Stavanger, providing expert oversight of offshore operations to enhance safety and efficiency. Since the establishment of COAs, operational reliability has improved by 20%. However, some reliability challenges have arisen with the introduction of the new 20,000 psi BOPs—issues not uncommon with groundbreaking technology. Transocean remains committed to resolving these matters swiftly, aiming to uphold high performance and revenue efficiency.
Conclusion: Focus on Revenue Transition
In conclusion, Jeremy Thigpen, Chief Executive Officer, reaffirmed that Transocean’s strong backlog and limited fleet availability are indicative of its market understanding, asset quality, and operational excellence. The immediate objective is the effective transition of the approximately $9.3 billion backlog into revenue, followed by converting that revenue into cash.
Financial Outlook Strengthens as Company Focuses on Deleveraging
Future Plans to Reduce Debt and Increase Stability
Having completed most of our newbuild capital expenditures, we are shifting our strategy to free cash flow generation aimed at deleveraging our balance sheet and improving financial stability. Our current internal forecasts indicate that we may reach a debt level conducive to shareholder distributions by the end of 2026. Overall, we maintain a positive outlook for our assets and services. We have effectively shielded ourselves from immediate utilization challenges due to our contracting efforts this year, which have provided a bridge to mid-2026, when the market is projected to continue rising for our high-specification rigs.
Our ongoing discussions with clients about future programs bolster our confidence in participating in a long-term market upcycle. Additionally, our current backlog offers a solid visibility on future free cash flows, which will be crucial for meaningful debt reduction. Now, I’ll pass the call over to Thad for a review of our financial results.
Robert Thaddeus Vayda — Executive Vice President, Chief Financial Officer
Thank you, Jeremy, and hello to everyone on the call. Today, I will briefly summarize our third quarter results, provide guidance for the fourth quarter, and share our preliminary expectations for the full year 2025. As usual, we’ll offer more detailed guidance when we report our full 2024 results in February 2025. In our press release, we disclosed a net loss attributable to controlling interest of $494 million, equating to a loss of $0.58 per diluted share for the third quarter.
For this quarter, we achieved adjusted EBITDA of $342 million and generated cash flow from operations of roughly $194 million. Our unlevered free cash flow was a positive $136 million, stemming from operating cash flow of $194 million minus $58 million of capital expenditures. These capital expenditures included $32 million for the newbuild at Deepwater Aquila, with the remainder supporting various projects throughout the fleet. Contract drilling revenues for the third quarter totaled $948 million, with an average daily revenue of about $437,000.
Our contract drilling revenues slightly exceeded expectations, primarily due to the extended operations of the Deepwater Invictus and reduced downtime for the Deepwater Atlas and the PETROBRAS 10000. However, this was partially offset by lower fleet revenue efficiency mainly related to downtime from reliability issues with our new 20,000 psi blowout preventers. Operating and maintenance expenses for the third quarter stood at $563 million, which was below our guidance due to delays in non-critical maintenance and favorable resolutions of prior contingencies.
General & Administrative (G&A) expenses were $47 million, slightly under our guidance due to delays in professional and IT services that are now expected in the fourth quarter. By the end of Q3, we had total liquidity of approximately $1.4 billion, which includes $435 million in unrestricted cash, $365 million in restricted cash (mostly for debt service), and $576 million from our undrawn revolving credit facility.
Looking forward, we anticipate contract drilling revenues in the fourth quarter to range from $950 million to $970 million, assuming a fleetwork midpoint revenue efficiency of 96.5%. This estimate includes an additional $55 million to $60 million in service expenses, which generally have low single-digit profit margins. In terms of expenses, we expect fourth quarter operating and maintenance costs to fall between approximately $585 million and a higher figure to be confirmed. The rise reflects greater in-service maintenance costs resulting from postponed activities earlier in the year, alongside increased out-of-service expenses related to contract preparations.
We forecast G&A expenses for Q4 to be approximately $50 million to $55 million, primarily due to the aforementioned delays in services. Our net interest expense for the upcoming quarter is projected to be around $144 million, consisting of $153 million in interest expense and $9 million in interest income. We also estimate capital expenditures and cash taxes at about $35 million and $9 million, respectively.
By year-end, we expect our liquidity to settle in the $1.35 billion range, factoring in our undrawn facility and reflecting our financial forecasts. Moving to 2025, we project contract drilling revenues will range between $3.85 billion and $4 billion. This expectation is based on revenue efficiency assumptions and fleet availability. Within our guidance, we anticipate $220 million to $230 million in additional services and reimbursable expenses, alongside an O&M expense estimate between $2.3 billion and $2.45 billion, and G&A costs expected to be around $190 million to $200 million.
Our preliminary liquidity projection at the end of 2025 is subject to changes based on revenue and costs, incorporating around $60 million for customer-acquired upgrades and about $70 million for sustaining capital investments. It’s important to note that the capacity of our revolving credit facility will adjust from $576 million to $510 million by late June 2025. Based on our debt maturity schedule, we anticipate reducing debt by at least $715 million in 2025, targeting a year-end gross debt of approximately $6.2 billion.
We are committed to directing any surplus cash toward debt repayment to achieve a net debt-to-EBITDA goal below 3.5 times. Achieving this goal is essential before considering shareholder distributions. Based on our current backlog and visibility of future demand, we expect to reach this target by late 2026. To support this initiative, we will emphasize operational efficiency and cost management to ensure we can convert backlog into cash. With that, I’ll now hand the call back to Alison for the Q&A session.
Alison Johnson — Director, Investor Relations
“`html
Thanks, Thad. Madison, we’re now ready to take questions. And as a reminder to the participants, please limit yourself to one initial question and one follow-up question.
Industry Leaders Discuss Future Day Rates and Market Consolidation
Questions & Answers:
Operator
Thank you. [Operator instructions] We will pause for a moment to allow questions to queue. Our first question comes from Eddie Kim with Barclays. Please go ahead.
Eddie Kim — Analyst
Hi. Good morning.
Jeremy Thigpen — Chief Executive Officer
Good morning, Eddie.
Eddie Kim — Analyst
I’d like to ask about your expectations for day rates in the upcoming year. Leading edge rates have been around the high 400s for the past year and a half, with some exceptions above 500. Considering the challenges your competitors face, do you think leading edge rates might drop into the mid-400s before rising again in 2026? How do you see day rate trends evolving?
Roddie Mackenzie — Executive Vice President, Chief Commercial Officer
Eddie, this is Roddie McKenzie here. Currently, our average day rates for our 1,400-ton class and above in 2024 are about 520. So we are firmly in the 500s for those assets.
While there may be some fluctuations, many active rig programs tend to extend longer than anticipated. We also engage in direct negotiations that aren’t always visible, much like our experience with Invictus this year, which continued working despite lacking a contract after April.
Moreover, with our recent long-term contract with BP, we’ve seen resilience in day rates. I believe that, barring significant issues, the day rates for our seventh-gen premium units should stay relatively stable. If lower-tier assets start to go idle, many may retire, which could stabilize the active usage of higher-performing rigs. Thus, we anticipate minimal impact on day rates for our newer dual BOP rigs.
Robert Thaddeus Vayda — Executive Vice President, Chief Financial Officer
To add on that, it won’t affect us much. Our 1,250-ton rigs are mostly under long-term contracts, so we aren’t actively bidding for 2026 contracts now. Even throughout the recent downturn, our 1,400-ton and 1,700-ton rigs managed to secure premium day rates, indicating little concern over upcoming months for 2025 contracting. We are closely monitoring our competitors, noting that some prioritize utilization over maximizing rates, though we expect market dynamics to shift.
As Roddie mentioned, this situation may present an opportunity to phase out lower-spec assets as they finish their contracts and struggle to find new ones.
Eddie Kim — Analyst
Understood. My follow-up question is about the sidelined 7G drillship capacity. There are about 10 considered viable in the market, among which you own three. So far, only one has secured a contract recently. Given the concerns about industry demand, how many of the remaining sidelined rigs do you expect will secure contracts next year? Are we looking at one or two, or is that too optimistic?
Keelan Adamson — President and Chief Operating Officer
Looking at our three sidelined rigs, we aren’t rushing to reintroduce them. Jeremy estimated that about $500 billion will be spent annually on upstream investments, with roughly $50 billion currently allocated for deepwater projects each year. Rystad projections indicate that these numbers are expected to double by 2026 and 2027.
Given this outlook, waiting to market these rigs makes more sense. Aiming for 2026 and 2027 aligns with times when project sanctions are expected to surge, offering us better prospects.
Jeremy Thigpen — Chief Executive Officer
However, bringing these assets out of cold storage typically takes over a year. As a result, decisions for contracts might happen in 2025 for projects starting in late 2026 or 2027. Overall, we might see one, two, or perhaps three contracts awarded for cold-stacked rigs during 2025.
Eddie Kim — Analyst
Got it. That makes sense. Thank you both for the insights. I’ll turn it back to you.
Operator
Thank you. We will now take our next question from Arun Jayaram with JPMorgan. Please go ahead.
Arun Jayaram — Analyst
Hi Jeremy and team. I’d like your insights on the premium end of the market and recent consolidation rumors involving Transocean and Seadrill. What are your views on industry consolidation, and can you comment on the press reports circulating?
Jeremy Thigpen — Chief Executive Officer
We won’t comment on speculative press reports. Media often does a decent job at factual reporting, albeit not always perfect. What we can say is that consolidation can be beneficial for our sector. We’ve been part of this trend toward consolidation and believe it creates a healthier industry environment.
Compared to 2014, the industry features significantly fewer players and assets. The structure of the market has improved over the last several years, indicating we are in a stronger position. We also think there is still potential for further consolidation, which could yield additional value through strategic transactions.
“““html
Industry Insights: Rig Operations and Inflation Pressures Ahead
We have the potential to take on 10 to 15 more rigs with minimal additional shore-based support.
There are significant synergies to exploit. We are consistently evaluating opportunities. However, ensuring asset quality and value alignment is crucial.
Finding suitable deals in the current market is challenging, especially as many anticipate a steady upward trend in the near future. There might be a slight slowdown in the coming months, but consolidation in the industry remains beneficial. Overall, the sector appears significantly stronger today compared to the downturn that began in 2014.
Arun Jayaram — Analyst
Could you clarify the issues with the blowout preventers (BOPs)? Are these typical challenges faced during the commissioning of new equipment?
Keelan Adamson — President and Chief Operating Officer
Hi Arun, it’s Keelan. While these challenges are not entirely typical, they do arise as part of the technology’s complexity. Some components have shown early-life failures. The tolerances required in our operations are very tight. Certain issues can be predicted during qualification testing, while others only become apparent during actual use. We’re revisiting qualification testing to enhance the reliability of these units going forward. It’s not unexpected—we encountered similar challenges with high-spec 15,000 BOPs during the last cycle.
We are confident that, working with our partners, we will resolve the current issues with the 20,000 BOPs quickly.
Jeremy Thigpen — Chief Executive Officer
Given the advanced nature of this technology, it’s important to note that we operated for an entire year without significant issues. Although equipment failures happened sooner than we hoped, we’ve had a strong overall performance considering the newness of the equipment.
Keelan Adamson — President and Chief Operating Officer
That’s a fair point, Jeremy.
Arun Jayaram — Analyst
I appreciate your insights, gentlemen.
Operator
Next, we’ll hear from Scott Gruber with Citigroup. Please proceed.
Scott Gruber — Analyst
Good morning. Thad, what underlying cost inflation should we expect in the 2025 cost guidance? We’re hearing some inflation trends from Brazil and West Africa and are curious about current trends.
Robert Thaddeus Vayda — Executive Vice President, Chief Financial Officer
That’s an excellent question. Inflation rates do vary by location and activity level. In 2024, we observed an average inflation rate of about 5% to 6%. Looking forward, we anticipate an average reported inflation rate closer to about 3% for 2025 and beyond, which we believe is a reasonable estimate.
Scott Gruber — Analyst
Thank you for that information. Can you elaborate on how inflation is handled in longer-term contracts?
Robert Thaddeus Vayda — Executive Vice President, Chief Financial Officer
Of course. We incorporate anticipated inflation rates into our long-term contracts, allowing the majority of that inflation to be passed through to the customer.
Scott Gruber — Analyst
That’s helpful to know. As we consider potential demand in 2026, Namibia remains a key focus. Which types of rigs are clients considering for their offshore development projects there?
Robert Thaddeus Vayda — Executive Vice President, Chief Financial Officer
Great question. The choice will boil down to a mix of drillships and semisubmersibles, depending on specific project requirements.
Jeremy Thigpen — Chief Executive Officer
Yes, the option chosen will likely be influenced by both location and environmental conditions. Given the harsher conditions closer to South Africa, clients might prefer semis for their durability in difficult weather. Conversely, drillships could be more effective in less severe environments.
Keelan Adamson — President and Chief Operating Officer
The choice of equipment hinges on both the project phase and the location’s environmental challenges. In a drilling phase, the tolerances may be wider, while a semisubmersible might be favored for completions due to its stability during such operations.
Jeremy Thigpen — Chief Executive Officer
In essence, while ultra-deepwater drillships are efficient, semisubmersibles can remain on-site longer during tough conditions, giving our clients important considerations to weigh.
Scott Gruber — Analyst
Thank you for the clarification. I’ll pass the floor back to you.
Operator
Thank you. Next, we will hear from David Smith with Pickering Energy Partners.
David Smith — Analyst
Congratulations on successfully contracting premium assets, which have helped you avoid the setbacks faced by some competitors.
Jeremy Thigpen — Chief Executive Officer
Did Roddie suggest you say that, David?
David Smith — Analyst
No, it was my own observation.
Jeremy Thigpen — Chief Executive Officer
Thank you very much.
David Smith — Analyst
This success is notable.
Roddie Mackenzie — Executive Vice President, Chief Commercial Officer
Thank you.
David Smith — Analyst
I recognize that you aren’t facing immediate decisions about stacking rigs, but given your historical success in managing industry capacity, could you explain the considerations that influence the decision to stack a rig?
Jeremy Thigpen — Chief Executive Officer
We review this extensively, performing evaluations on a more frequent basis than quarterly. Over the years, we’ve retired or sold off over 60 floaters, demonstrating our commitment to managing asset capacity. If long-term forecasts for an asset are dim, we see little reason to continue incurring costs associated with it.
“`
Transocean Outlines Rig Demand Outlook and Future Cash Distribution Plans
In a recent call, Transocean leaders shared insights regarding their drilling rigs and the future financial strategy of the company.
Current Rig Operations and Market Position
As previously discussed, Transocean’s operations with their 1,700-ton and 1,400-ton rigs, categorized as eighth-generation and premium 7G, respectively, will likely remain stable. There may be minor gaps between contracts if client timelines do not align perfectly, but these rigs are expected to have consistent work. Approximately 1,250-ton rigs that are operational are secured on long-term contracts or engaged in work in Brazil, where there is a high likelihood of recontracting.
The company has a strong position in Brazil, reducing concerns over rig availability. In contrast, many competitors are seeing their 1,250-ton and lower specification rigs approaching the end of their contracts, raising questions about the demand for these older assets.
Industry Trends Affecting Competitors
Keelan Adamson, President and COO, noted that many companies are striving to maximize the value of their lower-spec rigs up to the end of their contracts. Minimal spending on operational and capital expenses allows these companies to save cash until they decide to retire these rigs. This strategy not only conserves cash but also improves the quality of the remaining fleet.
Roddie Mackenzie, Executive Vice President and Chief Commercial Officer, highlighted that while discussions about rig availability are competitive, a reduced number of drilling rigs benefits the industry by providing more stability through market cycles.
David Smith, an analyst, raised an interesting point regarding Transocean’s potential to return cash to shareholders by late 2026. He inquired about the specific metrics desired before the company shifts focus from debt reduction to shareholder payouts.
Jeremy Thigpen, CEO, responded that key metrics are defined within their credit facility, established a couple of years ago. For Transocean to begin contemplating cash or share repurchases, a net debt-to-EBITDA ratio of 3.5 turns must be achieved. Furthermore, while debt reduction remains a priority, the goal now focuses on accelerating conversations regarding cash deployment.
Investor Sentiment and Future Projections
Kurt Hallead, an analyst, expressed confusion regarding Transocean’s stock performance, which has declined 35% year-to-date despite the firm contract coverage and positive pricing prospects. Investors worry that the industry may have reached its peak cycle.
In a reflective response, Thigpen acknowledged the concerns around future oil supply and demand dynamics. However, he emphasized that their outlook is anchored more in the behavior and feedback of their customers rather than broader market speculation.
Oil Industry Insights: Long-term Commitment and Future Projects Ahead
In-depth Analysis of Future Prospects for the Offshore Drilling Sector
The commitment to long-term projects is evident in the actions of oil companies. These are not short-term plays; they represent extended cycles that require patience and financial investment. Currently, the breakeven cost for customers in deepwater drilling sits around $40 per barrel. Even with slight fluctuations in oil prices, businesses are still enjoying respectable returns. Presentations reveal that at $50 per barrel, many customers are securing up to a 20% internal rate of return (IRR). This profitability reinforces their dedication to upcoming initiatives.
A crucial concern for these companies is the need to replace reserves, with offshore drilling often being the most effective strategy. While the market only sees limited information, significant ongoing discussions and negotiations are developing behind the scenes. Our unique assets, like the 1,700-ton and 1,400-ton rigs, eliminate the need to go through tenders; companies will come directly to us. This situation instills confidence as we engage in long-term conversations with customers. While the stock market may not yet reflect this sentiment, a consistent track record of signing contracts at premium rates and maintaining nearly 100% fleet utilization speaks volumes.
Roddie Mackenzie, Executive Vice President, Chief Commercial Officer
According to Roddie, while oil prices impact stock movement, there is a threshold below which our business remains unaffected. Clients are eager to advance with their operations, particularly in harsh environments and deepwater settings. Notably, capital expenditure is increasingly directed toward deepwater projects, which are economically favorable even though they require more time to develop.
Looking ahead to 2026 and 2027, it’s promising that half of our fleet is already booked for projects. This advance planning helps to cushion against the usual ebb and flow of oil prices. Contracts have been secured at rates sanctioned when prices were between $35 and $40 per barrel, solidifying our position in the market. The long-term nature of deepwater drilling is essential for understanding the continued potential of these investments compared to other energy sectors, including renewables.
Despite recent price fluctuations, oil prices remain consistent with those from previous years, demonstrating a stable environment for deepwater drilling. Additionally, Roddie emphasizes a notable rise in approved project frameworks and essential equipment orders, signaling healthy future developments.
Keelan Adamson, President and Chief Operating Officer
Keelan highlights another critical aspect beyond rig bookings: the increase in final investment decisions (FIDs) in deepwater. The long-lead nature of consumable equipment such as wellheads indicates a robust outlook. Recent upticks in exploratory activities also suggest companies are preparing for upcoming projects.
Kurt Hallead, Analyst
Kurt expresses gratitude for the in-depth explanation and analysis provided. Further down the discussion, Fredrik Stene from Clarksons Securities engages with the team about the implications of mergers and acquisitions (M&A) in relation to fleet quality and potential expansions.
Fredrik Stene, Analyst
Fredrik returns to the topic of M&A, highlighting comments made earlier about fleet quality. Jeremy Thigpen, CEO, responds with clarity. He asserts that no acquisition could enhance the quality of their existing fleet, given that they own unmatched eighth-generation rigs. However, he acknowledges the potential for acquiring marketable assets that could yield immediate returns.
The discussion turns to the sale of the Development Driller III and the Discoverer Inspiration earlier this fall, which are essential facets of their ongoing strategy.
“`html
Transocean Updates on Rig Sales and Future Operations
During a recent conference call, executives from Transocean provided insights into their ongoing transactions regarding rigs and future operations in Brazil.
Robert Thaddeus Vayda — Executive Vice President, Chief Financial Officer
We are currently in the process of selling two rigs with plans to complete the transactions by the end of this year. Once sold, there are no restrictions on how the new owner can use the assets. Despite selling these rigs, the unique specifications reduce the likelihood of competing against them again in the future. We’re working closely with the prospective buyer to finalize everything.
Fredrik Stene — Analyst
Thank you for the update. I appreciate your time and look forward to your future disclosures.
Jeremy Thigpen — Chief Executive Officer
Thanks, Fredrik. We appreciate your questions.
Operator
Next, we have Greg Lewis from BTIG. Please proceed.
Gregory Lewis — Analyst
Good morning. I have some questions regarding Brazil’s upcoming tenders. You previously mentioned the high-spec tender related to Sepia and hinted at a third tender. Could you clarify when we might expect that to roll out? Additionally, regarding rig contracts expiring in ’25, is Petrobras still considering direct negotiations for extensions on rigs currently under contract?
Roddie Mackenzie — Executive Vice President, Chief Commercial Officer
Yes, the Roncador tenders are confirmed, and we anticipate more tenders will follow. Petrobras continues to conduct direct negotiations, especially for rigs they already have in operation, which can be more efficient than starting anew. Regarding idle rigs, the previous requirement to remove them after contract expiration no longer exists. This means rigs can remain in Brazil longer while awaiting further opportunities, likely influencing decisions in upcoming months.
Gregory Lewis — Analyst
Thank you for clarifying; that information is very helpful.
Operator
We have reached the end of our Q&A session, and I will now hand the call back to Alison Johnson.
Alison Johnson — Director, Investor Relations
Thank you all for joining us today. We look forward to our next call following the release of our fourth quarter 2024 results. Have a great day.
Operator
[Operator signoff]
Duration: 0 minutes
Call Participants:
Alison Johnson — Director, Investor Relations
Jeremy Thigpen — Chief Executive Officer
Keelan Adamson — President and Chief Operating Officer
Robert Thaddeus Vayda — Executive Vice President, Chief Financial Officer
Eddie Kim — Analyst
Roddie Mackenzie — Executive Vice President, Chief Commercial Officer
Thad Vayda — Executive Vice President, Chief Financial Officer
Arun Jayaram — Analyst
Scott Gruber — Analyst
David Smith — Analyst
Kurt Hallead — Analyst
Fredrik Stene — Analyst
Gregory Lewis — Analyst
More RIG analysis
All earnings call transcripts
This article is a transcript of the conference call produced for The Motley Fool. While we strive for accuracy, there may be errors or omissions. The Motley Fool does not assume responsibility for your use of this content, and we encourage you to conduct your own research.
The Motley Fool recommends Transocean and recommends the following options: long January 2025 $1 calls on Transocean. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the author’s opinions and do not necessarily reflect those of Nasdaq, Inc.
“`
