SDRL Q3 2026 earnings call transcript, November 4, 2026

Hello, everyone. Welcome and thank you for joining us to the SDRL third quarter 2026 earnings call.

After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star. I will now hand the conference over to Kevin Smith, Vice President of Corporate Finance and Investor Relations. Please go ahead.

Hello and welcome to SDRL's third quarter 2026 earnings call. I'm Kevin Smith, Vice President of Corporate Finance and Investor Relations, and I'm joined today by Samira Lee, President and Chief Executive Officer, Grant Creed, Executive Vice President and Chief Financial Officer, and Jacob Taylor, Vice President. Commercial. Our call will include forward-looking statements that involve risks and uncertainty. Actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or year. And we assume no obligation to update them except as required by securities laws. Our filings with the U.S. Securities and Exchange Commission provide a more detailed discussion of our forward-looking statements and the risk factors affecting our business. During the call, we will also reference non-GAAP measures. Our earnings release, furnished to the SEC and available on our website, includes reconciliations with the nearest corresponding GAAP measures. Use of the term EBITDA on today's call corresponds with the term adjusted EBITDA, as defined in our earnings release. I'll now turn the call over to Samir.

Thanks, Kevin. Welcome, everyone. Thank you for joining us. I'll begin with our third quarter highlights and progress against our core priorities, then turn to the market outlook. Jacob will cover our recent contracting success before Grant reviews our financial results and updated full. Your 2026 guidance. The third quarter demonstrated strong execution against our core priorities, delivering safe, reliable operations, generating free cash flow and capture.

Starting with our first priority, safe and reliable operations, we delivered another solid operational quarter, achieving 95% economic utilization and EBITDA of $121 million. Revenue and EBITDA again exceeded expectations, leading us to raise full-year guidance for the third consecutive quarter. Our customers value safe, efficient, and reliable execution. Consistent delivery strengthens our customer relationships and supports our long-term backlog visibility, as demonstrated by recent contract awards. In Angola, the Sonagal Libongos secured an extension of a approximately three years, keeping the rig contracted into 2030. With an average technical uptime of greater than 98% since 2019, this extension underscores the value of SDRL's operational and technical expertise. In Malaysia, the client's exercise of options will keep the West Capella working in direct continuation through February 2028, building on the rig's strong operating history in the region and in the U.S. Gulf. The Savant, Louisiana was awarded a 60-day contract with LOG. When the rig commences this contract later this year, all three of our rigs in the region will be working for LOG. We are pleased to expand on what has already been a highly successful long-term project. partnership built on performance. Safety remains fundamental to everything we do. We are encouraged by our progress, but we recognize that sustained improvement requires continuous focus.

Disciplined execution and unwavering commitment across the organization. Moving to our second priority, free cash flow generation. On our prior call, we said we were on track to generate meaningful free cash flow in the second half. 2026. This quarter, we delivered on that expectation. Generating $179 million in free cash flow and demonstrating our ability to convert backlog into cash. We also continued returning. Capital to shareholders. Opportunistically, repurchasing $22 million of shares during the quarter and bringing total repurchases for the year to $42 million into our third priority, capturing the. upside. Since our August call, we have added approximately $800 million of total contract value through new awards in Indonesia and the U.S. Gulf, together with extensions in Malaysia and Angola. Our drill ship fleet is fully contracted or preparing for upcoming contracts, with more than 85% of available days already booked for 2027. This strong coverage gives us clear visibility into the earnings growth and substantial free cash flow generation. Expect next year. The West Korean Award in Indonesia marks an important milestone in our commercial strategy. Specifically, repricing of three legacy day rate contracts to current market levels. The West TELUS and West Jupiter. Successfully commenced operations in Brazil at substantially higher rates earlier this year and the West Carina will follow in 2027. Turning to the market outlook. The tender pipeline remains healthy.

Several multi-year contracts are expected to be awarded over the coming months, which would drive drill ship utilization higher next year. The longer term outlook is equally compelling. After a decade of underinvestment, oil companies are refocusing. their core businesses and placing greater emphasis on production growth. At the same time, peak oil demand expectations have shifted further into the future. While U.S. shale production is expected to plateau. In its 2026 global outlook, Exxon estimates an underlying natural production decline rate of approximately 15% annually, reflecting the growing contribution of faster declining unconventional resources. Without new investment, it is projected global oil supply would fall approximately 80 million barrels per day short of demand within 10 years. With the reserves declining, and the hydrocarbon cycle extending, operators are renewing their focus on frontier exploration. Recent discoveries, planned exploration wells, and license awards across multiple regions provide tangible evidence.

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