Full Transcript: Transocean Q2 2026 Earnings Call

Transocean (NYSE: RIG ) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below. This content is powered APIs. For comprehensive financial data and transcripts, visit Access the full call at Summary Transocean reported strong Q2 2026 financial results, with revenue of $966 million, exceeding guidance, and an adjusted EBITDA margin of 32%.

Fleet uptime was 98%, showcasing operational efficiency. 7 billion over the past 18 months and strengthened its backlog with $300 million in secured contracts, excluding a pending $1 billion backlog from Equinor. Strategic initiatives include the expected closing of the Volaris acquisition later in the year and securing long-term contracts for rigs in Norway and Australia, indicating robust demand for high-specification assets. S.

Gulf, Brazil, and West Africa, with significant contract opportunities noted in these regions. Management emphasized the focus on operational efficiency and the strategic relocation of rigs to maximize long-term contract opportunities, alongside addressing cost-saving measures and integration planning with Volaris. Full Transcript OPERATOR Hello and welcome everyone joining today's Q2 2026 Transocean earnings call. At this time, all participants are in a listen-only mode.

Later, you will have the opportunity to ask questions during the question and answer session. To register to ask a question at any time, please press star one on your telephone keypad. Please note this call is being recorded, and we are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to David Keddington, Vice President and Treasurer.

Please go ahead. David A. Keddington, Vice President & Treasurer Thank you, Madison, and good morning, everyone. Welcome to Transocean's second quarter earnings call.

Leading today's call will be Transocean's President and Chief Executive Officer, Keelan Adamson. Keelan will be joined by Chief Financial Officer Thad Veda and Chief Commercial Officer Roddy McKenzie. In addition to the comments that will be shared on today's call, we'd like to direct you to our earnings release, fleet status report, and associated 8-Ks filed yesterday that contain additional information, all of which is available on Transocean's website at Following our prepared remarks, we will open the conference line for questions. Please limit your inquiries to one question and one follow-up to allow us to hear from more participants.

I'd like to remind everyone that today's call will include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. With that, I'll hand the call over to Transocean CEO Keelan Adamson. Keelan Adamson, President & Chief Operating Officer Good morning, everyone. Thanks for joining us.

This is what I will cover today. First, I'll summarize our operational performance. Next, I'll provide some thoughts on the industry and market, and why we continue to see strong demand for our assets. And lastly, I will update you on our Volaris acquisition, which we expect to close later this year.

Let's get started. The Transocean team again delivered exceptional operational performance in the second quarter, beating our guidance on both revenue and cost and generating a solid adjusted EBITDA margin of 32% during the quarter. Our fleet uptime was an exceptional 98%, an important driver in our continued focus to deliver superior customer service. 7 billion in the past 18 months.

We also strengthened backlog by about $300 million, securing work for several of our assets with near-term availability. This figure excludes the $1 billion in prospective backlog awarded by Equinor and pending approval by its partners, which we expect to receive in Q3. 1 billion in contracts this year so far, a very positive indication. With the exception of the KG2, which is currently bid on multiple opportunities, all our active drillships are now on contract or mobilizing to new contracts, improving our coverage to 94% for the remainder of 2026 and 81% for 2027.

S. Gulf, we recently extended the Deepwater Conqueror with its current customer at the same rate. The Deepwater Proteus, which was briefly idle, is now contracted and has commenced operations. As we had speculated on our Q1 earnings call in the context of higher commodity prices, this E&P operator has taken advantage of an open period on this high-performing rig to accomplish more work in 2026 than originally planned.

S. Gulf into early 2027. Finally, the Deepwater Skyros has been extended by her customer to perform additional appraisal work on a discovery in the Ivory Coast. This work allows the rig to move directly to our next contract in Australia with limited off-hire time related to contract preparation and mobilization.

In addition to drillship utilization and tightening in 2027, the outlook for high-specification harsh environment assets is very robust well into 2028, supported by the announcement of new fixtures for several of our rigs. In Norway, the Transocean Norgay was awarded a five-well contract by Harbour Energy, adding about $149 million of backlog. The program is expected to commence in the first quarter of 2028. Notably, we entered into an agreement with Equinor for seven years of work on three of our CatD harsh-environment rigs: the Transocean Enabler, Transocean Encourage, and Transocean Endurance.

We are pleased to have the opportunity to strategically relocate the Endurance from Australia to Norway for these fixtures. The base dayrate, excluding third-party services, will likely exceed $400,000 a day when the contracts commence. As a result of escalation provisions, the Transocean Spitsbergen is now the only Transocean harsh-environment semi available in Norway before 2029, and she is scheduled to complete her existing contract at the end of 2027. In Australia, the Transocean Equinox was awarded a two-well contract with Santos, adding approximately $36 million of backlog.

The program should commence in the second quarter of 2027. If all options are exercised, this rig could continue with this customer through most of 2027 as well. We are encouraged by the fact that operators are beginning to make awards for multi-year offshore programs. Importantly, they are doing this while remaining disciplined, but with a reprioritization of capital towards offshore and deepwater activities.

Supporting our constructive outlook, as rig availability tightens, we expect customers to continue securing rigs for longer durations to ensure they have access to the required rig capacity for their upcoming programs. Once again, this supports our view that we are in a constructive period for the deepwater drilling sector. Operators are also starting to allocate more rig time to exploration and appraisal activities. Rystad Energy recently cited that the number of countries with at least one exploration well is on the rise from 35 in 2025 to an estimated 51 by 2028, a 65% increase.

This geographic expansion is significant, and we expect customers to grow their portfolios in less developed regions in the coming years. Our customers select suppliers offering products and services that best align with their value-creation objectives. This is where Transocean is distinctly advantaged, offering the optimal combination of differentiated assets, people, and processes to deliver exceptional service in the form of highly reliable, efficient operations that consistently exceed customer expectations. We look forward to delivering similar performance across a broader fleet and a customer base when the Volaris transaction is concluded.

I'll now take you through an overview of market opportunities around the world. We saw a high number of contract awards and tendering opportunities in the first half of the year. S&P Petrodata cited almost 100 rig years added year to date, and operators are evaluating approximately 40 open tenders representing another 75 to 80 additional rig years. These statistics underpin our expectation for deepwater utilization to approach 100% by the end of 2027, with several rigs relocating from well-established areas to emerging regions to meet incremental rig demand.

S. Gulf, long-term demand fundamentals remain constructive, with several operators securing capacity for future activity as demand levels rise globally. S. units that currently don't have long-term commitments.

S. will continue to decline in the short term, with two to four units already scheduled or expected to depart the region. This redistribution of global rig supply will satisfy increasing contract requirements in other geographies. In Brazil, Petrobras recently completed one of its largest contracting cycles in years and continues to evaluate future rig requirements for its major development projects.

Supported by IOC demand, the overall rig count in Brazil is expected to remain stable between 30 to 33 rigs over the next five years. Africa is re-establishing itself as a key deepwater region. Operator activity continues to grow across multiple basins, which should drive the rig count from roughly 15 units to at least 20 to 25 units over the next 18 months. Multi-year awards are expected in Ghana, Mozambique, Namibia, and Nigeria, fueled by an uptick in recent discoveries and work resulting from successful exploration campaigns over the past few years.

In the Mid— with recent contracts for drilling programs starting in 2027 and a number of new discoveries that will call on rig capacity, we expect the future rig count to increase to around 10 to 12 units. In Southeast Asia and India, we expect domestic exploration and production initiatives to drive a material increase in activity beginning in 2027. Indonesia, for example, could potentially add 10 rig years across five rig lines to a region that currently has only one rig operating. India is expected to expand activity by up to four drillships in 2027, potentially adding around 10 incremental rig years.

In Norway, utilization of high-specification harsh-environment semisubmersibles is strong through 2028, supported by recent awards from Vår Energi, Equinor, and Aker BP. Most operators are already in the market to secure capacity from 2028 onward, suggesting that future utilization for this region should remain near 100%. Additionally, work in Canada for Equinor and Cenovus could further tighten harsh-environment supply in 2028 onward. In summary, the combination of sanctioned development programs, increased exploration spending, and major discoveries continues to drive a compelling outlook for deepwater and harsh-environment offshore drilling.

Now a quick update on the Volaris transaction, which is expected to close in the fourth quarter. We continue to operate as separate companies but are rapidly advancing integration planning and have recently achieved some key milestones. S. national security clearance condition.

Recall that we required regulatory clearance from a total of seven jurisdictions, and we have previously received clearance from Saudi Arabia and Trinidad and Tobago. In July, we received clearance from Egypt and Australia, and just yesterday we received clearance from Angola. S. Both are progressing as expected.

We continue to believe that this combination will benefit customers and shareholders alike. I'll now hand the call over to Thad for comments on the quarter and our guidance. David A. Keddington, Vice President & Treasurer Thanks, Keelan, and good day, everyone.

As Keelan highlighted, our second quarter financial results reflect strong operating performance and also exceeded the guidance we provided to you in May. Revenue for the second quarter was $966 million, at the upper end of our guidance range, and primarily the result of the Deepwater Skyros continuing to work the entire quarter, one month longer than we forecast, and additional recharge revenue. Contractual cost escalation provisions becoming effective for certain rigs also contributed.

O&M expense was $608 million and capital expenditures were $24 million, both below the low end of our guidance ranges, primarily due to timing and deferrals in maintenance and out-of-service expenditures. At $56 million, G&A exceeded our guidance; however, this figure includes about $11 million of acquisition costs associated with the Valaris transaction. Adjusting for this expense, our result is in line at a quarterly run rate of about $45 million. Our adjusted EBITDA was $312 million, implying a margin of about 32%.

Free cash flow of $212 million carried a margin of 22%, which, while primarily the product of strong operational performance, was complemented by favorable changes in working capital. Recall that last quarter's cash flow was detrimentally affected by the timing of both collections and payments. 2-times ratio at the beginning of 2025. We finished the quarter with about $510 million in unrestricted cash, up sequentially from $330 million.

3 billion. We intend to use some of this cash to reduce leverage and continue to simplify the balance sheet. In this regard, we expect to call the remaining $200 million of outstanding principal on our 8% Deepwater Aquila notes at the end of the third quarter, after the next reduction in the notes’ call premium. 8 billion of gross debt.

35 billion over the next 12 months. We will consider refinancing additional secured debt into unsecured instruments, reflecting improved debt capital market conditions and the tight trading levels observed in our debt complex over the last several quarters. As you probably know, we recently earned ratings upgrades from both S&P and Moody's to B and B2, respectively, and we're on positive outlook for further upgrades pending the closing of the Valaris acquisition.

You'll note in our earnings release that we've increased our 2026 revenue guidance to reflect contract extensions on several rigs that we previously expected to roll off this year, as well as a new contract on the Deepwater Proteus. Similar to last quarter, the upper end of our guidance range assumes that existing contracts continue longer than shown in our fleet status report, with the low end reflecting certain contractual options not being exercised by our customers. As a result of this incremental activity, we have also increased our full-year cost guidance slightly.

G&A guidance of $170 to $180 million for the full year is unchanged since the last update; however, this range ignores transaction-related costs, which would typically be excluded from adjusted EBITDA. I also note that our full-year interest expense guidance of approximately $475 million consists of Q1 and Q2 results that include the rather unpredictable mark-to-market effect of the bifurcated exchange feature in our 2029 exchangeable bonds, plus our forecast for second-half interest expense, approximately $113 million per quarter, which is unadjusted for any effects of these bonds.

Revisiting a topic we discussed last quarter, we are observing only minor inflationary frictions, mainly in logistics and fuel. Despite the persistent conflict in the Middle East, fuel costs remain 20% to 40% above pre-war levels, but I remind you that we are typically only responsible for fuel when our rigs are off hire, limiting the impact on our costs. Logistics costs have also increased slightly but are not materially affecting our O&M expenditures. S.

tariffs, at the present time we do not anticipate that they will have a meaningful impact on our cost structure. This concludes my prepared remarks. Keelan, before opening the line for questions, let me recap today's highlights. Transocean is executing exceptionally well today across the enterprise.

Our people continue to provide our customers with superior service from the industry's highest-spec fleet. As a result, we have successfully filled most of our open availability in 2026, allowing us to enhance our full-year outlook. Supply disruptions around the world, continued growth in oil and gas capex, and strong demand for our rigs all reinforce our view that we are in a multi-year upcycle for offshore drilling. The combination of Transocean and Valaris will further enhance our ability to provide superior service to our customers in all key oil and gas-producing regions and deliver exceptional value to shareholders.

We'll now open the line for questions. OPERATOR Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two.

Once again, that is star one to ask a question, and we will take our first question from Eddie Kim with Barclays. Please go ahead. Your line is now open. Eddie Kim, Analyst at Barclays Hi, good morning.