Hello, and welcome to the Seadrill Third Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the conference over to Lydia Mabry, Director of Investor Relations. You may begin.

Welcome to Seadrill's third quarter 2024 earnings call. Today's call will feature prepared remarks from Simon Johnson, our President and Chief Executive Officer; Samir Ali, Executive Vice President and Chief Commercial Officer; and Grant Creed, Executive Vice President and Chief Financial Officer. Our comments include forward-looking statements that involve risks and uncertainties. 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. Our latest Forms 20-F and 6-K filed with the U.S. Securities and Exchange Commission provide a more detailed discussion of our forward-looking statements and the risk factors that affect our business. During the call, we will also reference non-GAAP measures. Our earnings release filed with the SEC and available on our website includes reconciliations with the nearest corresponding GAAP measures. Our 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 to Simon.

Thank you for joining us on our quarterly conference call. I will begin with a few comments on our quarterly performance before discussing our market outlook and strategy. Samir will then talk about tactics and contracting before Grant reviews our quarterly financial and operational performance and full year outlook. Our third quarter results exceeded expectations. We delivered $93 million in adjusted EBITDA, securing additional work and uncommitted capacity propels us above our previous full year guidance. Most notably, the Sevan Louisiana continued its existing contract with an independent operator in the U.S. Gulf of Mexico. We're now increasing our EBITDA guidance midpoint by 13% to $385 million. Our continued progress on Brazil projects minimizes the downside risk to guidance. Both the West Auriga and West Polaris are in country and going through the customer and regulatory acceptance process after clearing customs in record time. Our operations teams focused attention on these critical projects, meaning these rigs are on track to begin their new contracts in December and will then start generating meaningful EBITDA and cash flow. During the quarter, we stacked the West Phoenix to reduce operating capital expense in the absence of an immediate market opportunity. We're unwilling to spend valuable shareholder capital investing in a rig without a bedrock of continuous visible demand. We have released the crews and are actively reducing direct rig operational expenses. Following the completion of the West Capella and West Vela's recent contracts, we've now also reintegrated the four Aquadrill drillships back into the Seadrill fleet. In the 18 months since closing the transaction, we have successfully navigated complex, costly rig management agreements and exceeded all cost synergy targets. The Vela and Capella, along with the Auriga and the Polaris, are now managed to the crude to Seadrill standards and can reliably provide the safe, efficient, responsible operations customers expect from our organization. Now on to market outlook and strategy. We firmly believe underlying industry fundamentals remain intact. Characterized by the interaction between increasingly inelastic supply and inherently variable demand, the prevailing market question is when and where those lines intersect? In our view, the temporary imbalance between drillship supply and demand is not a true reflection of the fundamentals that support a sustained strong industry upcycle, but rather a reminder of the market's volatility. This volatility only deepens my conviction in our strategy, operating a floater-focused fleet that benefits from strong contract coverage, preserving a good balance sheet and maintaining a relentless and virtuous focus and continued efforts to strengthen and simplify our business. At the heart of our plan to win is operating the right rigs in the right regions. In our experience, most deepwater opportunities require dual-activity drillships with 15,000 BOPs and MPD capabilities. Rigs focused on achieving operational efficiency and endurance rather than exploring technical frontiers. Our fleet meets size requirements. All our drillships are dual-activity and dual BOP capable or equipped. Seventy-five percent of the drillships we operate are seventh generation. And in 2025, we expect eighty percent of our own drillships will have NPD as we focus on leading the industry in thought and practice in this important operational activity. We operate premium quality assets in the heart of the market. We cluster almost all our rigs in the Golden Triangle spanning the Gulf of Mexico, South America and West Africa, which represents the greatest concentration of deepwater drilling activity now and into the foreseeable future. We have secured seventy percent contract utilization for our market and managed fleet in calendar year 2025, a figure that is expected to improve with time as customer conversations convert to contracts. In addition to our contract coverage, we benefit from a strong balance sheet and our current cash position feels prescient in today's market. However, we recognize this does not completely insulate us from competitive market realities. We will not rest on our laurels. We will continue to evaluate better smarter ways of running our business. 2025 will be a year in which we focus increasingly on optimizing our operations. We want to be a lean, efficient, right-sized drilling contractor. We plan to reduce bureaucracy across the organization, empowering our senior leaders offshore to do what they do best; leading, supervising and mentoring their teams to the benefit of our customers who cannot ask every day to deliver safe, efficient, responsible operations. By doing right for our employees and our customers, we'll do right for our shareholders. We must remain agile. We will continue to evaluate opportunities to refine and grow our fleet, dynamically adjust our costs as our active rig count fluctuates and further solidify our formidable financial position. Now as ever, we're focused on what we can control, how we sign our contracts, how we operate our rigs and how we allocate our capital. Our commercial team continues working to secure contracts with terms that maximize each rig's earnings and cash flow. Our operations teams continue to keep drill bits turning to the right, operating costs low, keeping crews safe, and customers happy. And our leadership team endeavours to remain disciplined stewards of shareholder capital. We constantly evaluate our approach to capital allocation based on market conditions, outlook, and competitive positioning and the relative impact these decisions have on strengthening the Seadrill story. Clear examples of that capital stewardship have been our continued fleet refinement and an industry-leading share repurchase program. We were the first of our peers to pursue a meaningful buyback program and have reduced our issued share count by 19% since September twenty-three, improving our per share performance across key metrics. At Seadrill, we've continuously made decisions to simplify and strengthen our business for the benefit of our shareholders. And as we make our way through 2025, it should become increasingly clear that we've built a resilient business that can deliver real returns to shareholders through the cycle, especially once 2026 contract repricing comes more clearly into focus. With that, I'll pass the line to Samir.

Thanks, Simon. By our estimation, there are about ninety-five competitive drillships in the global marketplace. Approximately twenty of these are inactive and require extensive investment to be put to work as they are either cold stacked or not so new builds with limited to no operating history. The slow contracting activity can make even a thin market seem temporarily oversupplied. Between now and the end of next year, around thirty competitive drillships will become available after completing their current contracts. Many of these rigs will find follow-on opportunities, but not all of them. The absence of visible demand to consume available capacity will soften the market. Drillship marketed utilization, a measure of market tightness, slipped below ninety percent in April after rising for over a year. It now hovers in the high eighties and will likely continue to trend lower. As more assets become available, it will put downward pressure on rates, leading us to believe 2025 will be increasingly competitive. Fortunately, we are relatively insulated. In 2025, we benefit from seventy percent market utilization across our fleet. Recent updates to existing drilling programs built some of the white space. For example, the Vela is now working through the third quarter of 2025 and the West Carina and the West Tellus are now committed fully through year-end and into early next year. We have the most market exposure next year in the Sevan Louisiana, the West Capella and the Sonangol drillships. As we've said before, Louisiana has a broad range of potential outcomes. Opportunities can appear and disappear quickly. Recent contracts suitable for the rig specifications have been shortened both their lead times and their duration which limits our ability to plan with an acceptable level of certainty. As time progresses, we may show less willingness to play the spot market, and we'll stack the rig. For the Capella, Gemini, Quenguela, and Libongos, our focus remains on securing contracts for the second half of the year. We believe all these rigs are competitively advantaged. They benefit from premium specification, proven work history, and deep customer relationships making us a preferred provider for customers who have chosen Seadrill time and time again. However, there is a scarcity of immediately available visible opportunities. We continue to see a slow pace of contracting tied to the market uncertainties and capital restraint. In Angola, for example, we're seeing indications of softening rig demand as the basin communitizes for capital across customers' global portfolios. We continue to make positive progress on recontracting and repricing the Jupiter, Carina, and Tellus seeing term contracts that provide visibility of earnings and cash flow. As we consider the market, we don't believe drilling contractors can create demand, and we're not willing to contribute to our own white space, ideally burning operational expenses waiting for the desired opportunities to emerge. With every decision we make, we consider cash flow per rig. We strive to achieve favorable economics across our individual units in our full fleet. When those economics are challenged, we will act decisively. We are dispassionate managers of valuable shareholder capital. As we navigate through near-term air pockets, we intend to remain disciplined with the way we've managed our fleet across the market; competitive choices will dictate financial outcomes. And with that, I'll turn it to Grant.

Thanks, Samir. I'll review our third quarter performance before providing an updated outlook for the full year. In the third quarter, Seadrill owned $354 million in total operating revenues, down from $375 million in the prior quarter. Contract drilling revenues were effectively flat quarter-on-quarter at $263 million. The benefit of the Louisiana contributing a full quarter of revenue at a higher average rate complemented by higher economic utilization across the fleet was offset by the Phoenix and Capella contract completions. Management contract and leasing revenues declined sequentially. Our second quarter results included income related to retroactive adjustments to the management fee and bareboat charter income earned from our Sonadrill joint venture and BBC income from the Gulfdrill jack-up rigs we sold in June. Third quarter management contract revenues were $62 million, and leasing revenues were $9 million. Third quarter results provide a good indication of expected run rates for both these line items through the end of the Sonadrill current contracts. Additionally, we earned $20 million in reimbursable revenues, a $5 million sequential increase for the company by an equivalent increase in reimbursable expenses. In the third quarter, we incurred total operating expenses of $307 million, up from $290 million in the prior quarter. Vessel rig operational expenses increased by $7 million to $172 million, and management contract expenses increased by $4 million to $45 million. The timing of repair and maintenance expenses drove the increase. R&M is the second largest cost component on rig profit and loss accounts, so variances can have a meaningful operational expenses impact. SG&A was $27 million and included $2 million of costs related to the consolidation of our corporate office in Houston, which we consider a nonrecurring adjusting item from EBITDA. Third quarter adjusted EBITDA was $93 million. Adjusted EBITDA margin, excluding reimbursables, was 27.5%. In the third quarter, we spent $131 million in capital expenditures, including $78 million of long-term maintenance captured within operating activities in the cash flow statement and $53 million of capital upgrades captured in investing cash flows. In the third quarter, we continued our share repurchase program, completing $183 million of share repurchases under our current $500 million authorization. Now that we're no longer listed in Oslo, we intend to report repurchases on a quarterly basis in arrears. Since initiating our repurchase programs in September 2023, we have returned a total of $692 million to shareholders through the end of the third quarter and reduced our issued share count by 19%. Now on to our outlook for the rest of the year. As Simon mentioned earlier, we're increasing our full year guidance. For 2024, we now expect adjusted EBITDA of $375 million to $395 million on revenues of roughly $1.4 billion. And we're narrowing our full year guidance for capital expenditures to $420 million to $440 million. Our ability to secure additional work on the Louisiana is the primary driver behind the guidance range. The rig continued working from August into November and potentially through December, effectively lifting our full year EBITDA midpoint to $385 million. Our full year outlook implies lower run rate EBITDA for the fourth quarter, primarily attributable to lower operating activity. Specifically, the Phoenix being stacked following its most recent contract completion, the Capella finishing its latest job in September before starting new work in mid-December. The Neptune is spending approximately 50 days out of service while it undergoes its SPS and other upgrades. And lastly, the Vela incurring out-of-service time in October when it was reintegrated into the Seadrill fleet. In addition to this, on the cost side, we have expectations for increased operational expenses based on the timing of repairs and maintenance activity planned to take place in the fourth quarter. The Auriga and Polaris are on track to commence contracts in the fourth quarter. Precise timing of these start dates will impact Q4 results, and having these rigs working again will help drive run rate EBITDA higher in the New Year. Year-to-date, we have spent a total of $286 million on capital expenditures, and we anticipate a meaningful increase in Q4 as we complete Brazil contract preparation for the Auriga and Polaris. Looking into 2025, we believe it's too early to provide guidance. As contract discussions and negotiations for uncommitted capacity are ongoing and the outcome of which will materially affect our financial outlook. Back to you, Simon.

Thanks, Grant. 2024 has been a significant year of transition for Seadrill. Amidst headwinds like idle time, inflation and required fleet investment that we identified and communicated early, we continue to progress our efforts to simplify and strengthen our business. We sold the Gulfdrill jack-ups, and we integrated the Aquadrill drillships. We delisted from the LSE. We maintained a healthy balance sheet, and we continued our industry-leading repurchase program. Throughout the year, we've consistently beat our peers in total shareholder return. We're recognized as a universal buyer across the sell side from Norwegian and U.S. analysts alike who recognize the continued value we're positioned to deliver as 2026 contract repricing comes into focus. We intend to run our business relative to the opportunities available in the marketplace, not the ones that we hope may materialize. We will not burn valuable shareholder capital praying for better weather. It's clear to us that in the past 18 months, too many rigs have been reactivated by our trade rivals without sustainable matching demand beyond initial contracts. I'm proud of what we've accomplished as an organization thus far and recognize there's more work to do as we continue to strengthen Seadrill to the benefit of our employees, our customers and our shareholders expect us to be disciplined as we seek to create meaningful value now and into the future. With that, we'll open the line for questions.

Thank you. Our first question comes from the line of David Smith with Pickering Energy Partners.

Hi. Good morning. Congratulations on the quarter and the increased guidance.

Thanks, David.

I know it's a little further out, but given the tenders out there and including one recently opened, I wanted to ask about your outlook for your drillships in Brazil specifically the Jupiter, Carina and Tellus?

Yes, sure. Let me kick off, and then maybe Samir can add some context at the end. I mean Brazil is the most important and the most resilient deepwater market on the planet. And as we've said before, recontracting our rigs in Brazil is a primary focus for the organization. As you know, we don't announce contracts until they're formally signed. So we have no specific news to share with you today on the status of those rigs. But as Samir pointed out in his prepared remarks, we continue to make meaningful positive progress with our customer in recontracting our rigs in Brazil. And we're pretty optimistic about the future of those rigs. Petrobras has recently recognized our performance by awarding us a drilling contractor of the Year, which was a nice honor to receive. And whereas some deepwater regions face near-term headwinds, Brazil has remained stable in terms of demand outlook, which we really like. We believe that yet again, we've made a prescient decision and bet on Brazil at the right time. So as an incumbent in Brazil, we will soon have five rigs working for Petrobras that we've deployed over the last two years. We're keenly aware of the advantage that confers when recontracting in the country, not just monetary factors and cost of entry. It's obviously also about schedule and regulatory risk. So there's a lot of talk about near-term turbulence in 2025. We're largely contracted in terms of rig days of '25. For us, Brazil is a key part of our story. Unlike our rivals, we're not recontracting rigs. We're not hot stacking rigs; our story is very, very simple. It's all about recontracting in Brazil. Anything to add, Samir.

No, I would just say we remain confident in our abilities to recontract those rigs and are making meaningful progress, but don't have any kind of news so there's nothing to announce at this point.

I appreciate all the color. If I could ask a follow-up. I noticed any of these orders this quarter included hook load upgrades to convert to sixth-gen drillships for seventh-gen capabilities. And I wanted to ask how you see the potential for additional sixth to seventh-gen upgrades and whether this might reshape, as Simon said, the applied demand balance going forward?

Yes. Great question. Look, I think the distinction between sixth and seventh generation is somewhat arbitrary. I mean, generally speaking, it's as much about delivery as anything. I think it's fair to say that there is a broad spectrum of technical capability across the sixth-gen fleet. Most sixth-gen units are midline now. So there's often a need to review obsolete systems and new marine coatings, particularly after the reduced investment associated with decade-long depressed market. So I'm presuming that's about $2.5 million hook load upgrades. Samir will have some comments on that, I'm sure.

Sure. So I'd say hook load is one factor between sixth and seventh, but it's not the only one. The rigs being upgraded have their own technical challenges beyond just hook load. And candidly, we're prudent with our shareholder capital, and we're not going to invest in an upgrade unless we can see a return on it. We are looking at other upgrades on our sixth-gen assets, but those are ones we can monetize, and we can actually generate a return on capital on those investments. And for whatever it's worth, our sixth gens are located in markets that have a proven track record; I think you really don't need the extra hook load. And so for us, we feel very comfortable with where our sixth gens are operated, and we don't see the need to upgrade them at this point.

Okay, I appreciate it.

Your next question comes from Kurt Hallead with Benchmark. Your line is open.

Good morning, everybody. I always appreciate the color commentary. So I guess as we look out into next year, a couple of things got my attention with respect to the prepared commentary. So I was just looking for maybe a little bit more context around it. And the first was, I think, Samir, you referenced that the market dynamics are such that in 2025, any contracts that get booked will be price competitive. And at the same time, you referenced that you are looking to kind of maximize the cash margin dynamics. So maybe give us some context around that? And maybe are you seeing some opportunities to despite maybe some price competitiveness to maintain cash margins about where they are on existing contracts? And are there some regional differences we need to consider?

Yes, definitely, Kurt. When it comes to bidding work, our primary focus is on generating cash. While the headline day rate is important, our main concern is whether we can actually generate cash flow. Each market has its own characteristics, and operational expenses and capital requirements can vary. Therefore, we aim to maximize our cash flow when placing bids. Currently, seventy percent of our fleet is contracted for next year, with most opportunities arising in the latter half of the year. We are actively discussing options for all of these assets set to roll off during that time. We are confident in our ability to secure new contracts at favorable rates. Ultimately, our emphasis is less on the headline day rate and more on the generation of cash flow.

Just to add there, Kurt, to a couple of extra points. I mean, as you would nicely experience commentator on the business, I mean, there are material economies of scale to be harvested by industry participants. And many of these are a function of how many rigs you have in the discrete geography, choosing the right markets in the first place. There are material differences in cost across different markets. As a management team, we are really committed to dealing with market realities, and we're determined to operate a franchise that flexes overhead, operational expenses, and capital expenses dynamically to reflect the business environment. And we'll adjust these individual elements to continue to deliver superior margins to our shareholders. That's always been a feature of Seadrill through time and a core proposition to our investors.

You have been very proactive in returning capital, and you are likely on track to buy back about $500 million worth of stock this year. Considering you are currently only seventy percent booked on your contracts and the pricing environment appears somewhat soft, do you believe there will be an opportunity to buy back as much stock in 2025 as you did in 2024?

Kurt, it's Grant. Look, I mean, of course, I can't comment specifically on how much we're going to buy back next year. All I'd say is, consistent with prior calls, when we look at the buybacks, we're really going through our financial policy framework. And beginning with the outlook in future years. And of course, that goes hand in hand with the 2025 comments that Samir was talking about and the seventy percent contracting. To the extent that firms up, then that gives us a lot more confidence to lean into capital returns and uses of capital. Just to reiterate the financial policy, we're looking at 1x net leverage paying our maintenance capital expenditures and then thereafter looking at accretive uses of capital, and that accretive use of capital can be buying other assets, and it could be returning capital to shareholders and really just weighing up those two. And at the end of the day, what's going to be more accretive for our shareholders.

Actually, I got one more, if I may, maybe on Simon for this one. Given the, again, a little bit of a lull that we have in opportunities in the first part of 2025. And you guys have always mentioned that you're agnostic as to whether or not you buy assets or wind up being on the other end of that. But in the context of potentially looking at some assets, has this lull presented some opportunities that maybe didn't exist earlier in the year?

I expect that this will become more of a characteristic of a prolonged turbulent period. Our balance sheet is ready to respond if the right opportunity arises. We've previously discussed the strict criteria any potential acquisition must meet regarding returns and accretion analysis. Currently, there isn't anything on the horizon, but there are definitely several players in the industry that may not survive an extended period of difficulty. We continue to monitor the situation, and I believe our Board is very supportive of growth opportunities of this nature.

Great, appreciate all that, thanks.

Cheers, Kurt. Thank you.

Your next question comes from the line of Fredrik Stene with Clarksons Securities. Your line is open.

Hey Simon and team. Hope you are well and thank you for taking my question. So, I think the first one that I'd like to ask is just on the geographical spread of your fleet currently. You have a meaningful number of rigs in Brazil, particularly with the Auriga and the Polaris coming on to their contracts now shortly, and you're otherwise well covered in the Gulf of Mexico and West Africa. But then you have the Capella, for example, in Southeast Asia. How do you feel about the placement of that single rig? Are you confident that you can get opportunities in the region it's already in? Or do you think, or talk about potential relocation of any of your assets?

As you know, Fredrik, we have a declared strategy of posturing rigs wherever possible. We've only recently taken control of the Capella. And as the market has become a little bit challenging and more competitive in the near term, we're focused mainly on opportunities in the region where it's currently operating. So, I think at this point, we're content to chase the work that we see in that area. But in the medium term, we would hope to secure a contract that will permit the relocation of that rig intern area, where we already have a preexisting competitive position. But Samir can probably give you a bit more color.

Yes. So to Simon's point, we are chasing opportunities both in that region and outside. But if we can secure work that generates meaningful cash flow in that region, we'll happily keep the rig out there, but the eventual plan would be to cluster it either into an existing region or develop Southeast Asia as a new region for ourselves as well.

Okay. That's very helpful. And then I guess, briefly touching upon the high-level fleet composition. I'm thinking about your assets, particularly now that you've decided to stack the West Phoenix. How do you think about that move and, for example, the Aquarius and the Eclipse in terms of potential pecking order if they were to be reactivated? Is there now a higher likelihood of you guys actually scrapping one of the two?

We don't have any immediate plans in that regard. What I'd say is that the Phoenix and the Aquarius are both easier to reactivate than the Eclipse. The Eclipse definitely will have a larger capital ask and would require a larger body of work to underwrite its reactivation. So, I mean, the way we think about it is that we need a material contribution to defray that capital reactivation cost and we need to be comfortable that there will be a sustaining market after that initial reactivation contract to keep the rig busy.

But we continue to market both the Phoenix and Aquarius. And if we find the right opportunity that justifies the investment, we'll do it. But it's a tall order, right? For us, we need to find a job that justifies the investment in those rigs. But of the three, the Phoenix and the Aquarius are probably the more capable rigs and we'd look at reactivating those first.

Thank you very much. Actually, just one quick one, and I think this goes to Grant. On the share repurchase side, I think in the current $500 million authorization, you have a $200 million tranche to begin with, which should suggest about tranches almost used up. Should we expect that new tranche to be opened or is it already? I'm just a bit unsure now that you don't have the same disclosures around it as you were listing on Oslo.

Yes. Thanks, Fredrik. Good question. And yes, just to remind on that, now we're delisted from the Oslo Stock Exchange. We no longer have certain disclosure requirements with respect to the buyback. Those sort of sub-authorization like the $200 million is no longer required. And so, we will not be announcing sub-authorization. We've got the blanket authorization from our Board of $500 million, which was provided by a Board in the second quarter. Remember the $200 million you're referring to was a sub-authorization within that. That was a Norwegian disclosure requirement. And you're correct. We are now essentially through that $200 million; we've spent $192 million of the $200 million by the end of the third quarter. And we can continue to buy back shares under the blanket $500 million authorization, which is going to extend over a two-year period from Q2 this year to Q2 2026.

Perfect. Thank you so much, all of you. Have a good day.

Your next question comes from Hamed Khorsand with BWS Financial. Your line is open.

Good morning. Could you just talk about a little bit of the negotiation talk process that you have with potential customers? Are they just holding off and just saying wait or is this more about their own supply chains and their timing because of the price of oil?

It's uncertainty. So, what's happening with commodity price, what's happening with their own supply chains? It's also a reallocation of their portfolios. Most of our clients have global portfolios. So, some are saying they'd rather invest in one region versus another. And then it's also their return of capital to their own shareholders. So, it's this big pot of uncertainty that's leading them to defer decisions, and it is a deferral. We're seeing things get pushed into 2026 from 2025.

All right. And then the other question is, are you done with your special surveys for 2025? Or are they being pushed into the actual contracts?

I mean we do have one scheduled survey that we've spoken to before, that scheduled for 2025. We are currently doing an SPS on the West Neptune. And that may drift into next year depending on how things go in terms of some of the cost of that. And then also, when you're contemplating out of service time, Hamed, I'd encourage you to think there's a number of potential causes of that. SPS and five-year surveys are one potential ingredient, but another one is contract preparation costs. And as we think about the opportunities in front of us and our fleet, there may well be some time required to prepare for long-term contracts in other markets and things like that. Does that help?

Yes, it does. Thank you.

Excellent. Thanks, Hamed.

Your next question comes from Josh Jayne with Daniel Energy Partners. Your line is open.

Thanks. Good morning. In Simon's prepared remarks, he mentioned that the company is optimizing operations for 2025. Could you provide more details on that, including any goals you've established and how you're approaching it for next year?

Yes, sure. I mean obviously, we're facing some near-term headwinds and early 2025, maybe through the middle of the year, potentially is showing some difficulties in the re-contracting effort. We've recently cold stacked the West Phoenix and released the crews there. So I think one of the things that are really important to us is how we manage rigs that don't have contracting opportunities in front of them. And what we're going to be doing is taking our medicine if we're not able to secure work. The turbulence in that market, we believe that at this point that's going to be short-term, but we need to make difficult decisions as quickly as we can and adjust our cost base and our capital programs in order to reflect the business environment. So increasingly, what I was signalling in the prepared comments is increasingly is that we're going to do that in real time. This is a very tough business. And what I have learned in my sort of almost thirty years is that it's really important to manage the cost base at all points in the cycle, not just when times are bad. So as an organization, we're very focused on being agile, lean and rightsizing the organization to make sure we have enough people and that we assemble our assets, our human resources, our software, if you like to be able to respond to the needs that are in front of us we don't have much appetite for excess capacity.

Understood. Thanks. And for my follow-up, just given the market's importance to Seadrill and your number of assets there and how you're likely to be a player going forward. I wanted to ask follow-up on the Gulf of Mexico. And if you expect to see any change in the near to intermediate term in that market just as a result of the new administration.

That's an interesting question. Perhaps let me start, Josh, and then I'll pass to Samir. I mean I think it's fair to say that we don't really care who's in the White House. We're driven by shareholder returns. What I will say is that we think the offshore barrel will win in the longer term. All forty-eight production is really about a law of diminishing returns, whereas offshore has the volumes, has reservoir upside, has the blue sky. And our customers are telling us that, that is where the new production is coming from. And onshore is important, but it's pinching out. So it's in the deep blue season where we'll be replacing production going forward. Samir...

Yes, it's not about politics; it's about fundamentals. The geology remains constant regardless of who is in power. Ultimately, those barrels will be drilled. They are more economical, lower in carbon emissions, and cheaper to produce than elsewhere. Therefore, we anticipate that production will continue over time.

Thanks for taking my questions. I will turn it back.

Your next question comes from Noel Parks with Tuohy Brothers Investment Research. Your line is open.

Hi. Good morning. Following your last comment, I was considering exploration and the fact that the barrels will eventually be drilled. At this stage in the cycle, do you think there has been any shift in your perspective on exploration results as different areas are being explored? There seems to be a general agreement that funding needs to be directed toward offshore efforts, at least to address the decline in global production. What are your thoughts on this?

Yes. Look, I think we sort of hinted at it before. We believe it's in the offshore is where we're going to be replacing productions. That's where we can achieve rates of delivery that can't be matched onshore. Certainly, as we think about the customers who have exposure to both onshore and offshore basins, we've noticed a shift in their investment activities. And there's certainly a lot more activity coming down the pipeline we believe that's somewhat muted by the fact that all of our customers have such a short-term outlook and expenditure on exploration generally speaking is at the bottom of their capital allocation priority list.

If I consider our portfolio of rigs as a small example, we are beginning to see some exploration. Two years ago, there was almost no exploration at all. Now, we are starting to incorporate one exploration well for every ten or twelve wells in our long well program. While this progress is occurring, it remains relatively limited in terms of impact.

Got it. Thanks. That's helpful perspective. And I mean, is it so I mean if customers then due to oil price or whatever are sort of deprioritizing steady operations by hanging onto a rig just based on their own capital discipline, is that sort of part of the shift that's happening then?

Yes, absolutely. There's real start-up costs and switching costs. Putting a rig down and then starting it up has meaningful costs, but what we shared with our client base is they're pushing that cost out further and further and saying, we're going to preserve cash in the near term for either returning it to shareholders or reallocating it to different parts of their portfolio. And when you ask them privately, they'll say, yes, we acknowledge that there will be an incremental cost to pick this rig up in 2026. But it's a twenty-six problem, not a twenty-four, twenty-five problem.

Okay. Wow. So that is definitely more sort of short-term thinking than we're used to in the deepwater for sure. So, thanks. Helpful.

Excellent. Thank you so much.

With no further questions, this will end our Q&A session as well as today's conference call. We thank you for joining. You may now disconnect your lines.