Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Shelf Drilling Ltd (SHLLF, Financial) achieved a year-to-date uptime of 99.4% across its fleet, demonstrating strong operational performance.
- The company successfully completed the merger of Shelf Drilling North Sea, enhancing fleet composition and simplifying the capital structure.
- Shelf Drilling Ltd (SHLLF) secured significant contracts in Nigeria and Southeast Asia, adding over $400 million in backlog, providing revenue and earnings visibility for 2025.
- The company reached an agreement with insurance providers for a $50 million payment for the Trident VIII rig, declared a total loss, which will contribute to cash flow.
- Shelf Drilling Ltd (SHLLF) reported an increase in adjusted EBITDA to $114 million in Q3 2024, up from $71 million in the prior quarter, driven by mobilization revenue and reduced operating costs.
Negative Points
- The total recordable incident rate rose slightly to 0.16 in Q3 2024 due to several incidents, although the company has operated incident-free in Q4 so far.
- Suspensions of rigs by Saudi Aramco significantly impacted financial results in 2024, with multiple rigs still suspended.
- The delay in the commencement of operations for the Shelf Drilling Barsk resulted in a cash shortfall at Shelf Drilling North Sea.
- Global jack-up market utilization is expected to temporarily fall below 90% due to contract suspensions in Saudi Arabia, adding short-term pressure on day rates.
- The company faces challenges in redeploying suspended rigs, with some rigs still idle and awaiting new contracts or sales.
Q & A Highlights
Q: How are you thinking about the recent suspension of the High Island IV rig by Saudi Aramco, and do you expect more suspensions?
A: Gregory Obrien, CEO: The suspensions have been gradual, and we believe there could be more to come. Saudi Aramco's rig count was in the low-50s three years ago and has increased significantly since then. We anticipate they might reduce the rig count back to the mid-50s, implying up to 10 more units could be released. However, this is speculative and depends on oil market conditions.
Q: Are local players in the Middle East, who also face suspensions, moving their rigs to other markets?
A: Gregory Obrien, CEO: Some regional players are trying to move assets elsewhere, but it's challenging. Southeast Asia has seen more competition, while West Africa remains less impacted due to higher costs and logistical challenges. We have a strong presence in West Africa, making it easier for us to deploy rigs there.
Q: Can the suspended High Island IV rig be deployed to markets outside the Middle East?
A: Gregory Obrien, CEO: The High Island IV has unique features suitable for shallow waters, limiting its deployment options outside the Middle East. We are prioritizing other rigs for redeployment, but we are exploring alternative uses, such as plug and abandonment (P&A) work, which doesn't require high-spec rigs.
Q: What is the expected timeline for ONGC's tender for four standard jack-ups, and when might these rigs commence operations?
A: Gregory Obrien, CEO: The tender process typically takes a few months, and contracts would likely start in the second half of 2025 due to the monsoon season in India. We have three rigs coming off contract soon that could be candidates for this tender.
Q: Can you explain the sequential decline in EBITDA guidance for Q4 2024, excluding the North Sea business?
A: Douglas Stewart, CFO: The decline is due to the $45 million accelerated mobilization revenue recognized in Q3 and delayed contract starts for rigs in West Africa. The High Island IV suspension in Saudi Arabia also impacts revenue. We expect improvements as contracts commence in Nigeria.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
