Earnings Call Transcript
Transocean Ltd. (RIG)
Earnings Call Transcript - RIG Q1 2021
Operator, Operator
Good day, and welcome to the Q1 2021 Transocean Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lex May, Manager of Investor Relations. Please go ahead.
Lexington May, Manager of Investor Relations
Thank you, Shelby. Good morning, and welcome to Transocean's first-quarter 2021 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 Thigpen, President and Chief Executive Officer; Mark Mey, Executive Vice President and Chief Financial Officer; and Roddie Mackenzie, Senior Vice President of Marketing, Innovation, and Industry Relations. 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 the current expectations and certain assumptions and are, therefore, 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 our future results. Also, please note that the company undertakes no duty to update or revise forward-looking statements. Following Jeremy and Mark's prepared comments, we will conduct a question-and-answer session. Thank you very much. I will now turn the call over to Jeremy.
Jeremy Thigpen, CEO
Thank you, Lex. And welcome to our employees, customers, investors, and analysts participating in today's call. As reported in yesterday's earnings release for the first quarter, Transocean delivered adjusted EBITDA of $245 million on $709 million in adjusted revenue, resulting in an adjusted EBITDA margin of over 35%. Despite the many challenges over the past year, we have continued to deliver best-in-class operations for our customers picking up in 2021, essentially where we left off in 2020. As you may remember from our last call, we delivered the best overall annual operational performance in Transocean's history. This performance continued into the first quarter of 2021, as we delivered over 97% uptime across our global team, achieving one of the strongest operational quarters in company history in both uptime and safety performance. I cannot stress enough how proud I am of the dedication exhibited by our employees to deliver these amazing results. For that, I'd say thank you to our entire team at Transocean for their devotion each and every day to deliver best-in-class service to our customers. Turning now to the fleet, starting in the Gulf of Mexico. I am pleased to announce the Deepwater Asgard was awarded a three-well fixture with Beacon Offshore Energy, following a successful 2020 campaign. As compelling evidence of improving market conditions, this most recent fixture includes two wells priced at $240,000 a day, with a third well, which requires managed pressure drilling priced at $280,000 a day. This award adds over $30 million in backlog and provides us with the opportunity to reactivate a warm-stack asset in the Gulf of Mexico. The campaign is expected to commence in June and should continue through October and includes a one-well option. While we are still not earning the day rates we want or need to provide the appropriate returns to our shareholders, this fixture clearly demonstrates both the tightening market in the Gulf of Mexico and Transocean's ability to command premium rates based upon our industry-leading assets and services. As you may know, the Asgard is one of the most technically advanced and well-respected assets in the U.S. Gulf of Mexico. As such, we're excited to get her back on contract at what is currently a market-leading day rate. And we're actively bidding the Asgard on multiple follow-on opportunities in the Gulf of Mexico, reinforcing our belief that the offshore recovery is starting to take shape. Moving down to Trinidad. The DD3 continues to demonstrate operational excellence with Shell, and it's set to start her next fixture with BHP directly after completing her current contract in June. Including options, the DD3 could remain on contract with BHP in Trinidad through September. And because of her stellar reputation and versatility, we are bidding her into multiple opportunities around the world. Continuing our journey further south to Brazil, the Petrobras 10000 is scheduled to conclude her contract with Petrobras in September. As such, we're in the middle of discussions with Petrobras about a possible long-term extension. Jumping over to Norway. The Transocean Norge was just awarded another one-well extension by Equinor at $297,000 per day plus bonus. The rig is now expected to remain on contract through June and is actively being bid into multiple opportunities in the robust Norwegian market. This state-of-the-art rig has developed a strong operational reputation and continued to draw customer interest from both NOCs and Independents. Also in Norway, the Transocean Barents is scheduled to commence her campaign with MOL Norge next week, which is expected to run to the fourth quarter and possibly beyond. Again, we remain encouraged by the Norwegian market's resilience and future outlook. Turning now to West Africa. As we noted on last quarter's call, the Deepwater Skyros was awarded Total's Rig of the Year, thanks to its superior operational performance. As additional confirmation that our performance is a key differentiator, we are in the middle of discussions with our customer about a possible six-well option expected to last for more than a year for the rig. And finally looking at the Asia-Pacific region. Just last week the Deepwater Nautilus began her 90-day campaign with POSCO. This contract will keep the rig active through July. We are actively bidding the Nautilus into multiple follow-on opportunities in the Asia-Pacific region. Looking forward, we are encouraged by the relative stability in oil prices, as they remain persistently above $60 per barrel since early February. As the COVID-19 vaccines are distributed around the world, we expect that global demand for hydrocarbons will continue to recover. And as global oil inventories decline, prices are likely to push even higher. Most importantly, we believe our customers also subscribe to this view. Their confidence in improving oil market fundamentals has resulted in accelerated planning for new or previously delayed projects, many of which are expected to commence later this year. Taking a closer look around the global market environment, starting in the U.S. Gulf of Mexico, activity is expected to increase with several projects starting late this year and in early 2022, with awards expected in the next several months. Importantly, if all of these projects move forward as expected, we believe that the entire Gulf of Mexico fleet of active rigs will be sold out later this year. This is something that the industry hasn't even contemplated since 2014, and clearly supports a meaningful inflection in day rates from current levels. It's important to note that we are not only responding to more tenders, we are also engaging in far more direct negotiations, particularly with customers operating in the Gulf of Mexico. In fact, one IOC has recently submitted a request for a proposal for multi-year contracts for two of our highest spec rigs. And there are other indications that there will be more projects moving forward. Independents and IOCs are both requesting information on available assets in this region, with an urgency not seen in quite some time. In fact, operators are increasingly entertaining paid mobilizations and reimbursement of project-specific rig upgrades, another important data point that indicates improving market conditions. The increased level of activity we're seeing in the U.S. Gulf of Mexico corresponds to the belief that many of our customers are redirecting their focus to offshore projects from onshore shale opportunities. This is the result of pressure our customers are facing to generate cash flow and acceptable economic returns while maintaining spending discipline, something that Shell has not been able to deliver. We also believe the focus on carbon emissions are playing into investment decisions for our customers. We believe that the shift from shale and oil sands to offshore could also be influenced by the fact that according to NOIA, one barrel of oil from the Deepwater Gulf of Mexico has the lowest carbon intensity of any other oil in the United States. Remaining in the U.S. Gulf of Mexico, we remain optimistic about our new build drillships, the Deepwater Atlas and the Deepwater Titan on order from Sembcorp Marine's Jurong Shipyard, which are expected to commit their maiden projects with Beacon Offshore Energy and Chevron, respectively. That said, global supply chain disruptions related to the pandemic are expected to result in delays in deliveries from the shipyard for both rigs, thus affecting the timing of our CapEx spend, which Mark will provide additional details on, as well as a delay in the commencement of each rig's maiden drilling campaign. As you might expect, the delay has a fairly broad impact, and we are in ongoing discussions with Sembcorp work with a range of potential outcomes. Since we are actively engaged in discussions with all parties, we are unable to provide any additional detail at this time. However, I can tell you that the conversations with Chevron, Beacon, and Sembcorp remain constructive. In Brazil, Petrobras continues to award contracts, adding long-term fixtures for several projects. They also recently launched several additional multi-year tenders for the Campos and Santos basin that should absorb many, if not all of the available rigs in Brazil. Based on Petrobras' tendering activity and the incremental demand forecasted from the IOC, we expect the rig count in Brazil to rise steadily over the next couple of years. We are also optimistic that a handful of successful exploration wells in the pre-salt fields by the IOC will signal a welcome return of activity in Brazil to levels not seen in several years. In Norway, we are excited about the opportunities unfolding as a result of the government's enactment of favorable tax incentives for oil and gas projects sanctioned during the next two years. We anticipate this market will continue to remain in balance, as more products are brought forward to capitalize on the favorable investment incentives. With much of the Norwegian fleet already contracted, opportunities for 2022 and beyond are now beginning to appear on our radar, boding well for the continued high utilization and strong day rates for our assets. Looking now at the U.K. We are witnessing a surge in market opportunities and are actively responding to a number of new tenders that emerged over the past couple of months. Current opportunities could add over five rig years of work that would start within the next 12 months. And due to the lack of warm assets in this market, available assets could command increasingly stronger day rates. If this happens, given the prohibitive cost of reactivating a cold stack rig, we could find ourselves in an environment in which hot rigs from Norway are being attracted to this market to perform some of the work anticipated over the next year. Turning to West Africa. Our customers are becoming more willing to consider programs in this region. In fact, we're seeing multiple opportunities emerge for both short and long-term work. Additionally, we are eagerly awaiting both Total and Exxon awards for multi-year programs in Angola that would add a minimum of three and a half rig years of work beginning in 2022. We believe we are well-placed to capitalize on one or more of these opportunities. In the Asia-Pacific region, which includes Australia, we see several short- and medium-term opportunities starting in the second half of this year and carrying over into next. We are encouraged by the continued volume of opportunities this region has generated. In fact, this morning, we also secured additional work for the Deepwater Nautilus in Southeast Asia that is in direct continuation of its current contract, and will keep the rig busy into 2022. In summary, we believe we are in the early stages of a sustained recovery for offshore drilling. We're very encouraged by the improving macro environment and the ongoing conversations with our customers for opportunities emerging in the second half of 2021 and into 2022. On last quarter's call, we noted that the volume of opportunities is now back to pre-pandemic levels. This trend has not only continued but further strengthened in certain parts of the world.
Mark Mey, CFO
Thank you, Jeremy, and good day to all. During today's call, I'll briefly recap our first-quarter results, provide guidance for the second quarter, and then update you on our secluded forecast for 2022. As disclosed in our press release, which includes additional details on the first quarter of 2021, we reported a net loss attributable to controlling interest of $99 million or $0.16 per diluted share after adjustments associated with the retirement of debt, disposal of assets, and discrete tax items. We reported an adjusted net tax loss of $117 million or $0.19 per diluted share. Highlights for the first quarter include adjusted EBITDA of $245 million, reflecting robust revenue generation and excellent cost control. Fleetwide revenue efficiency of 97.4%, showcasing our operational excellence and yet another quarter of excellent backlog conversion and $96 million of positive cash flow from operating activities. Looking closer at our results, during the first quarter, we delivered adjusted contract drilling revenues of $709 million. This was above our guidance, primarily due to stronger-than-forecasted revenue efficiency as well as higher-than-anticipated reimbursable expenses. Operating and maintenance expense in the first quarter was $135 million, which is slightly below our guidance, primarily due to the timing of certain shipyard projects. Turning to cash flow and the balance sheet, we ended the fourth quarter with total liquidity of approximately $2.7 billion, including unrestricted cash and cash equivalents of approximately $1.1 billion, approximately $300 million of restricted cash for debt service, and $1.3 billion from our undrawn revolving credit facility. We will now provide an update on our financial expectation in the second quarter. We expect adjusted contract drilling revenue of approximately $675 million based upon an average fleetwide revenue efficiency of 95% and lower reimbursable revenues. We expect second-quarter O&M expense to be approximately $245 million. A $10 million quarter-over-quarter increase is primarily attributable to the Transocean Barents and Deepwater Asgard activation, as well as hiring service maintenance expenses across the working fleet. From an activity standpoint, the Deepwater Nautilus commenced its campaign with POSCO in April. The Transocean Barents will begin her campaign next week with MOL Norge, and Deepwater Asgard will look to commence her campaign with Beacon at the end of June. The increasing activity will be largely offset by the KG2, which concluded the contract with Woodside in April and is temporarily warm stacked back in Asia as we wait for multiple opportunities. We expect G&A expense in the second quarter to be approximately $40 million, in line with the first quarter. Net interest expense for the second quarter is forecasted to be approximately $110 million. This includes capitalized interest of approximately $12 million. Capital expenditures, including capitalized interest, for the second quarter are forecasted to be approximately $60 million. This includes approximately $40 million for new build drillships under construction and $20 million of maintenance CapEx. Cash taxes are expected to be approximately $15 million for the quarter. On liquidity, December 31, 2022 estimates to be between $1.2 billion and $1.4 billion. This estimate includes the potential securitization of the Deepwater Titan. This liquidity forecast includes an estimated 2021 CapEx of $725 million and a 2022 CapEx expectation of $835 million. The 2021 CapEx includes $670 million related to our new builds and $55 million for maintenance CapEx. As Jeremy mentioned, our CapEx policy reflects participation to take the delivery of Atlas at the end of this year and the delivery of Titan in 2022. And to reiterate Jeremy's comments, we will not provide any further information regarding the new build, as we're in active discussions with the shipyard and others. As always, our guidance excludes speculative rig reservations or upgrades. In addition to the safe and efficient operation of our rigs, we will continue to focus on optimizing cash flow generation through revenue enhancement and cost control initiatives. As the market improves, we are mindful of direct investment expenses associated with our stacked assets and furthermore, we will maintain discipline that will not direct very cold stacked assets to contracts that do not justify the associated expense. In conclusion, we will continue to take steps to opportunistically improve our balance sheet and liquidity. As evidenced by history, you can expect we will continue to monitor the capital markets, and when appropriate, execute timely and strategic transactions.
Lexington May, Manager of Investor Relations
Thanks Mark. Shelby, 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.
Operator, Operator
Thank you. We'll take our first question from Taylor Zurcher with Tudor, Pickering, Holt.
Taylor Zurcher, Analyst
Good morning, and thank you for taking my question. Jeremy, you've presented a fairly optimistic picture for a continued recovery across nearly all deepwater markets over the next 12 to 24 months. Looking at your fleet, there are some near-term contract rollovers coming up, but it seems that only the Orion and Inspiration are currently warm stacked. Could you help clarify what might be truly incremental to your rig fleet over the next year, and how much of that involves renewals or new contracts related to rigs that are already contracted?
Jeremy Thigpen, CEO
Hey, Taylor. Good morning. Thank you for the question. We are very encouraged by what we're seeing in the marketplace. If you go back to the fourth quarter of 2019 before the pandemic, we had a similar tone. And as you remember at the end of the fourth quarter and the beginning of 2020, we signed five ultra-deepwater fixtures at day rates that were kind of $250,000 a day, which was significantly above where we were at the beginning of 2019, where fixtures were being signed at $135,000, $140,000 a day. So, we have a similar feel about the market as we did then. Now we'd had a couple of headaches over the last six or seven years with some macro issues that were beyond our control that sent oil prices down and certainly demand from our customers down. So, we are mindful that something like that could occur again, we are hopeful that it doesn't, and that actually the market improves as vaccines are distributed around the world and global economies pick up again, demand for oil picks up. And as you know, there's been very little investment in replenishing reserves over the course of the last seven years. So, all of that bodes well, the fact that our competitors are consolidating and retiring assets more rapidly also helps the view. So, everything seems to be lining up and we're seeing it in our customer conversations and the opportunities that are presenting themselves for later this year and next. With regard to our fleet specifically, I'll hand it over to Roddie to get some of his thoughts regarding what he's seeing and hearing from our customers around specific regions and specific rigs.
Roddie Mackenzie, Senior Vice President
Sure. Taylor, regarding the two points you mentioned, we are currently in discussions about them and expect positive outcomes soon. I cannot share specific details since we are in negotiations, but I want to echo Jeremy's remarks. It’s clear that all sectors are showing growth, as our charts indicate, and this trend is likely to continue in response to demand. As we proceed with the call, we'll dive into more specifics. With Brent prices at $69 and many experts predicting an oil supercycle, the decreasing reserves and declining production rates from current assets suggest that significant new development is needed just to keep up with current demand. As Jeremy pointed out, we've encountered some challenges, but this opportunity appears promising, and we are excited about it.
Taylor Zurcher, Analyst
Good to hear. My follow-up is about the Titan. I specifically want to ask about the delivery timeline and related details. In your liquidity forecast for year-end 2022, you mention the expected secured proceeds from Titan. Can you remind us how that process works? Does the rig start working in the latter half of 2022, allowing you to immediately secure $400 million in proceeds, or will there be a delay? Any clarification on the mechanics would be appreciated.
Mark Mey, CFO
Yeah. So, thanks Taylor. We have options. So, if you look at our various debt capacity baskets, we can put financing on that rig right before delivery, right after delivery, or to optimize our baskets within 12 months rig starting to work, not from delivery, but actually operating. So, if you consider the fact that you're going to be operating the rig somewhere three to six months after the yard, we have that plus 12 months to raise the financing. So, we put a 2022 estimate, but quite realistically, you could see it in 2023.
Taylor Zurcher, Analyst
Okay. Understood. Thanks for that.
Lexington May, Manager of Investor Relations
Thanks, Taylor.
Operator, Operator
And we will take our next question from Ian MacPherson with Simmons.
Ian MacPherson, Analyst
Thanks. Good morning. Jeremy, you made a relevant comparison between the current market conditions and where we stood just before COVID disrupted us, particularly regarding the emerging pricing power. The significant difference now compared to that time lies in the status of your competitors and their processes. Previously, we faced a recovery market with the entire competitive landscape in turmoil, whereas today, we see a recovery market with competitors beginning to recover. Many people viewed the improvement in your competitors' financial situations as a bearish sign for Transocean. However, you're indicating a market that doesn't seem to show any specific disruptive pricing strategies from your competitors. Given the changes in the landscape, do you feel as confident about price discipline among competitors now as you did 15 to 18 months ago?
Jeremy Thigpen, CEO
I believe we will observe significantly different behaviors from our competitors after their restructuring. They now have new ownership and governance, while our focus has been on maximizing cash flow from our drilling contracts. Some competitors may have aimed to maximize utilization, but I expect that will shift under their new leadership. The swift collaboration between Pacific and Noble following their restructuring indicates a desire to optimize cash flow. They aim to achieve this by consolidating businesses to reduce overhead and executive costs, as well as by expediting the retirement of assets to minimize future costs. We anticipate a more disciplined approach to cash flow generation among our competitors. They have eliminated their debt, which means they won't have the same interest expenses we do, giving them a lower cost structure to leverage. However, they emerged from restructuring with limited cash; for instance, Pacific started with $100 million but fell to $30 million within four months after merging with Noble. This industry consumes a lot of cash, and with a backlog that isn't generating much due to low day rates, they can deplete their resources quickly. We believe our competitors will, like us, focus on maximizing cash flow from drilling contracts. As we progress through the year, we hope everyone recognizes the tightening market, particularly in the Gulf of Mexico, and adjusts their bidding practices accordingly.
Roddie Mackenzie, Senior Vice President
Yeah. I think I would just add that disruptive bidding practices are just not required because the market's there to support something much, much better. And everybody's looking at the same data as we are. So, we think there's going to be a significant shift for sure.
Ian MacPherson, Analyst
Okay. Good. Thank you both. And then, I wanted to ask you, Mark, you gave some full-year guidance parameters last quarter, including $2.7 billion for revenues and $1.6 billion for O&M expense for the year. Are we still good with those? Any reason to refine either or both of those at this point in the year?
Mark Mey, CFO
No. Ian, as of right now, we stand by those numbers. There is some upside obviously given the comments from Roddie and Jeremy, but not enough at this stage to adjust it.
Ian MacPherson, Analyst
Great. Thanks everyone.
Lexington May, Manager of Investor Relations
Thanks, Ian.
Operator, Operator
We'll take our next question from Connor Lynagh with Morgan Stanley.
Connor Lynagh, Analyst
Yeah. Thanks. I just wanted to return to the new build just for a minute. Obviously, it's one of the most topical things we've discussed with investors on your stock right now. And I just wanted to confirm, or at least see if you could comment on the probability. There's obviously some concern that your customers could change their minds with delays and things like that. So, I just wanted to get a temperature check on how you're thinking about your customer's willingness to move forward and the probability of a worst-case scenario where customers walk, but you still have to pay to the shipyard. Do you think that's a reasonable possibility at all?
Jeremy Thigpen, CEO
I can't comment on this at the moment. However, I would like to emphasize that our discussions with Chevron, Beacon, and Sembcorp are all positive and progressing well. Additionally, the current macro environment is very favorable. If these projects seemed appealing to our customers when oil prices were low, they likely appear even more attractive now. While I cannot speak for our customers at this time, I can assure you that our interactions with all parties are constructive, and we expect to reach a resolution in the coming weeks and months. We will make sure to communicate any updates publicly, as we understand this is important to you and is significant for the company.
Connor Lynagh, Analyst
Yeah. Understood. Understood. Sorry, go ahead.
Roddie Mackenzie, Senior Vice President
I wanted to mention that while this may not directly answer your question, there is a parallel we can draw to the macro environment. A few years ago, many promising projects were set aside because operators were overly cautious about proceeding. Now, we are witnessing a revival of those projects, many of which were close to being profitable and are now poised to deliver significant returns. This explains the substantial increase in bids, inquiries, and future demand for rigs. Specifically regarding the Gulf of Mexico, we have gone from having no bids and tenders at this time last year to currently having 17. This clearly illustrates how rapidly conditions are changing.
Connor Lynagh, Analyst
I appreciate that. Maybe sort of pivoting here, your prepared remarks were pretty constructive, not just on the development drilling prospects, but also the general reserve replacement theme and need for exploration activity. I guess, there's certainly been some visible large customers out there that have signaled a willingness or a desire even to see their production decline over time, which implies less need for reserve replacement, but maybe they're a bit overrepresented in the market's mind. I'm just curious if you could give some context for how you think customers are thinking about that? What sorts gives you conviction that there won't just continue to be under investment in the near term here?
Roddie Mackenzie, Senior Vice President
I believe one of the main factors here is that due to the extent of the loan investment and the length of time it has taken, third-party projections indicate that project sanctioning is expected to double from 2021 to 2022 and then double again in 2023. This is largely because production declines are genuinely happening. The energy transition is crucial for us and everyone else. During this transition, the idea that "black pays for green" has never been more accurate. We are currently in a position where cash flows are generated from oil and gas production, which is necessary to support this significant investment. Even in those projections, we see that current demand for oil and gas does not actually decrease; instead, it shows that the overall global energy demand starts to be satisfied by green technology. However, this reflects a more optimistic scenario for renewables. In a base case scenario, it actually suggests that oil and gas production, along with demand, will continue to rise over time despite the shift to renewables. Thus, I think all of these factors combined with years of delayed investment have now reached a critical point, leaving us with few alternatives but to address this situation.
Connor Lynagh, Analyst
Thanks very much. I'll turn it back.
Operator, Operator
We'll take our next question from Greg Lewis with BTIG.
Gregory Lewis, Analyst
Thank you and good morning, everyone. I wanted to ask Jeremy or Roddie about the tightening situation in the Gulf of Mexico. There's a lot of discussion regarding what constitutes a warm stack rig versus a hot stack rig. Everyone seems to be looking at the same data, and we can argue that there are around 50 warm stacked rigs reported. I'm curious if there are specific details you consider that would lead to a different perspective on what makes a rig competitive in the hot stack category. As we evaluate this tight market, what are your thoughts on that?
Mark Mey, CFO
Yes. Good morning, Greg. Let me take a shot at this on the financial side, and then Roddie or Jeremy can add something as well. When I look at this, a hot rig is a rig that can go to work tomorrow, it doesn't require any capital to fully recruit, and it's been working very recently. A warm stack rig should be able to go to work within 30 days and cost you around $5 million at most. So you have to add some junior crews, and you can do that like I said, within 30 days. When you get beyond that, then it becomes a little gray. Now you mentioned about 40 rigs in the warm stack category. I would bet you the first 10 lucky because there are very few rigs actually that can go to work in 30 days with $5 million or less. It's going to take a lot more than that. So, I think that supports the comments that Jeremy made and the comments that Roddie made, that's going to require a lot more capital to get these rigs working again, balance sheets have a strain, which means they raised or mobilizations or both have to go.
Roddie Mackenzie, Senior Vice President
Yeah. I think I'd add to that just to say, look, this is why you're seeing the urgency and the very short turnaround on tenders and bids, because the recognition of which rigs are actually ready to go is that there's just not that many. And we're rapidly approaching a sole dive data itself of active rigs. And the next kind of paradigm is that, as Mark said, a lot of these rigs are not ready to go. So, they're going to require tens of million dollars to get ready. And that is really what's pushing the realization from the operators that they have to get their hands on the available hot rig. Otherwise the day rates required to bring those polar rigs out are substantial. As we've talked to a lot of the operators, many privately will admit that they fully expect rates to go beyond $400,000. So, nobody says that publicly, but certainly, the status of active rigs is driving prices down significantly and quickly.
Gregory Lewis, Analyst
Yeah. We can debate if it will happen later this year or next year. Continuing on that theme, I'm curious about the recent increase in activity. Is there a way to consider the duration of the types of work we're seeing? It appears to be mostly short-term work, which is beneficial for maintaining a tight market. Are we beginning to hear about longer-term projects, similar to the one in Brazil, that might justify some investment? Or are we still primarily in a short-term contract market, which contributes to the tightening process?
Jeremy Thigpen, CEO
No. So, that's a really interesting point. So, certainly, for short-term work, as you said, you're retaining optionality for an improving market. But I have to say that when we compare the average duration of bids in Q1 last year and where we are in Q1 this year, they've essentially doubled. So, duration is up. We've got several out there that are now multi-year or multi-rig contracts. So, we're seeing a kind of a phenomenon here where the operators are increasingly certain about their programs going forward, recognizing that they need multiple assets, but they need them for several years, and they're really pushing to get some fixtures now. Because of course, as things rise on the short-term market, locking in our best assets at lower rates, as you know, as we've said many times before, it is not wise. So, you're seeing a lot of increased activity for longer-term fixtures. And I think that's primarily operators trying to get ahead within the market that they are already seeing.
Gregory Lewis, Analyst
Okay. Perfect. Thank you all for the time.
Operator, Operator
We will take our next question from Mike Sabella with Bank of America.
Mike Sabella, Analyst
Good morning, everyone. Could you provide an update on the cold stack fleet? I understand you previously mentioned a cost of $50 million to $75 million to reactivate those rigs. Could you clarify what that entails? Is that capital cost just to make the rig ready for minimal bidding? If you were aiming to upgrade those rigs to match your current operating fleet technologically, what would the capital requirement be for that?
Jeremy Thigpen, CEO
So, Mike, yes. We've given the estimate of $50 million to $75 million on our fleet. I want to differentiate between our fleet and other rigs out there. Those numbers are all inclusive. So that is getting from being cold stacked to reactivated and mobilized to the new location. This would not include something like managed pressure drilling, because that's a customer-specific application and that would be above that. The same thing goes into Brazil; Brazil has certain requirements that are going to cost you an additional $10 million to $20 million. That would be in addition to our $50 million to $75 million. So, customer specific items set apart, those $50 million to $75 million, we stand behind it.
Mark Mey, CFO
And just to clarify on that, we are not bidding any stacked assets into the market.
Mike Sabella, Analyst
I understand that. I apologize if this has already been asked, but could we discuss M&A briefly? Has anything surprised you regarding the pace of consolidation since emerging from bankruptcy? What are your thoughts on the outlook for the rest of this year, and has Transocean changed its position on participating in that?
Jeremy Thigpen, CEO
Well, so if you look at what's transpired so far this year, not long after Noble and Pacific emerged from their processes, they ended up merging. So just within the last week or so I guess Valero and Diamond have just emerged as well. We would not be surprised at all to see more consolidation over the next few months. I don't know how quickly that'll all come together. But it makes sense. There is value to having a larger fleet of available rigs. There's quite an infrastructure that you need to provide the technical support, the supply chain, the operational support for these assets that are operating in some pretty challenging environments, and you have to have that support. So, if you can spread that support across more revenue-generating assets, it makes you more efficient as an organization. And so, we wouldn't be surprised at all to see more consolidation take place. You can obviously combine management teams and eliminate that expense. You can find boards and link that expense. So, we would expect more consolidation as we move through this year. And with respect to the transition, I think the other question. If there's a company out there with assets type backlog and we think visibility of future cash flows, that would be interesting to us. But quite frankly, we have enough really high-spec floating assets that are currently cold stacked; we don't need more.
Mike Sabella, Analyst
Understood. Thanks, everyone.
Operator, Operator
We will take our last question from Fredrik Stene with Clarksons Platou Securities.
Fredrik Stene, Analyst
Hey, guys, and thanks for taking my question, and congratulations on a very solid operating quarter here. I think many of my main points have been touched upon. But I wanted to dig a bit deeper into the dynamics that you're currently experiencing with your customers here. And obviously, you're painting a very constructive picture for the demand side. So, I was wondering around this urgency that you mentioned, is there a way to quantify that? And I guess my point too is that, have you seen any other type of behavior from those customers that they're trying to kind of accelerate programs further to put rigs to work faster, because they're seeing a wave maybe next year. I know that you mentioned a few opportunities coming this year already, or are you seeing that they're trying to contract rigs that start up quite some time out just to make sure that they have the capacity when they need it? So kind of any color you can give around those dynamics and how that currently compares to, for example, a year ago, that would be great. Thanks.
Roddie Mackenzie, Senior Vice President
There are several examples where tax incentives from certain governments are motivating operators to take action earlier, which is beneficial. We appreciate this trend, and I'm sure our competitors do as well. We often talk about supply and demand factors with our customers. More recently, we've had occasions where we conduct a thorough review with a customer considering a project, believing they will proceed. Following this review, we quickly receive a bid or tender, usually with a turnaround of a week or two. This indicates that many operators simply need external validation of market pressure. Others seem to have anticipated this; for instance, one customer acknowledged that the presentation we shared, which demonstrated a fully sold-out market in 2022, mirrored a presentation they had made to their executives six months earlier. They appear to be very aware of market conditions. As Jeremy and Mark have pointed out, the costs associated with reactivating dormant assets are significant, and the number of actively available rigs is very limited. Those looking to initiate their drilling programs in the near term are indeed making prompt arrangements.
Fredrik Stene, Analyst
Okay. Thanks. And just a quick follow-up on that. What you said about the cold stack assets, you said that you're not bidding any cold stack assets at this point, right? Just to confirm that.
Roddie Mackenzie, Senior Vice President
That's correct.
Jeremy Thigpen, CEO
Yeah. And so, who is going to pay either through capital injection at the beginning and mobilization cost or through higher day rates and longer term contracts that justify the reactivation. We will not be marketing cold stacked assets.
Fredrik Stene, Analyst
Yeah. Regarding that, I know that several tenders, particularly on the jackup side, have been setting age or stacking limits when tendering. Do you think they are currently sidelining 15-day rates and reactivation costs due to a hesitance among operators to use cold stacked assets later on, since these assets might be seen as riskier? Or do you believe that at some point they will have to consider using them anyway?
Roddie Mackenzie, Senior Vice President
I believe it's the latter. When there was an excess of available rigs, we saw many operators impose conditions. They typically preferred rigs that hadn't been stacked for too long and wanted the highest specification rigs since those were available. This gave them a lot of flexibility moving forward. However, now that the situation has tightened, and we anticipate that the supply of active rigs will be depleted in 2022, it raises the question of what comes next. If demand keeps rising as forecasts indicate, there will be significant pressure to reactivate cold assets. As Jeremy mentioned, free cash on balance sheets is no longer plentiful. The idea of proactively investing $75 million or more to reactivate an asset isn’t feasible for us, and it seems others in the industry share this sentiment. As we reach that point, expect mobilization fees to be substantial, and there will likely be little willingness to invest heavily in short-term opportunities. Instead, I think we’ll see longer commitments with more cash upfront. This aligns with our view, and we plan to maintain strict discipline in this area.
Fredrik Stene, Analyst
Great. Thanks. I'll get back in the queue.
Operator, Operator
We will take our last question from Karl Blunden with Goldman Sachs.
Karl Blunden, Analyst
Good morning, and thank you for the opportunity to speak. It seems that the market is tightening in various areas. Could you elaborate on the opportunities for additional 20K PSI work that may arise after Shenandoah? I’m not asking for detailed information, but I am curious about the potential for improved liquidity from secured financing on Titan. Additionally, as you evaluate your liquidity forecast for the coming years, do you think that previous secured financing on the Atlas could present a realistic expectation, especially considering the potential for follow-on work there?
Roddie Mackenzie, Senior Vice President
I'm not going to comment specifically on the Atlas or the Titan, but you are correct about follow-on work on 20K. There are several prospects in the Gulf of Mexico, as well as a couple overseas. We are observing high wellhead pressures that necessitate the use of 20K technology to complete the wells. In the Gulf of Mexico alone, there are multiple operators—around five or six—who have a good chance of transitioning to 20K in the next few years. When considering this and our advancing technology, we expect to deliver it soon. There is follow-on work ahead, and it will be interesting to gauge the demand for 20K in the future.
Jeremy Thigpen, CEO
Keep in mind, these assets wouldn't be restricted to 20K work. I mean, these are going to be the best assets in the industry with 3 million pounds workloads, enabling our customers to do some different things with their projects that 10,000 PSI mud pumps, large deck space for completions making more efficient to move material and equipment around. I mean, these will be the most sought-after rigs in the industry.
Karl Blunden, Analyst
If there are points to address, I’d like to follow up on liquidity, perhaps with insights from Mark. In the last call, you mentioned the possibility of equity-linked issuance. It seems that conditions are becoming more favorable, and you've enhanced liquidity through certain exchanges. Additionally, your CapEx forecast has changed compared to prior estimates. Could you discuss whether equity-linked issuance is still on the table and if your interest or likelihood of pursuing it has shifted? Lastly, regarding liquidity, it appears that debt has decreased more than we anticipated. I'm curious if you plan to use some of the excess liquidity for opportunistic debt reduction, similar to what you did in the first quarter, and your thoughts on that going forward.
Mark Mey, CFO
Thank you, Karl. In our previous call, I mentioned we would utilize various options like equity, equity-linked instruments, and possibly some cash. We have an opportunity that we can’t afford to miss. However, we won’t consider issuing equity while we are trading in the fleet. Therefore, we would need a stronger stock price to explore equity options creatively. If we do raise cash through equity, we would take a more aggressive approach to buy back or tender some of our debt. We are focused on this strategy, and as the stock market improves, which often leads the fundamental markets, we plan to capitalize on that.
Karl Blunden, Analyst
Appreciate it. Thanks.
Operator, Operator
That concludes today's question-and-answer session. At this time, I will turn the conference back to Lex May for any additional or closing remarks.
Lexington May, Manager of Investor Relations
Thank you, Shelby. And thank you everyone for your participation on today's call. If you have further questions, please feel free to contact me. We look forward to talking with you again when we report our second-quarter 2021 results. Have a good day.
Operator, Operator
This concludes today's call. Thank you for your participation. You may now disconnect.