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Q & A Highlights

Q: Hi, good morning. I wanted to start off in Mexico. I think many were surprised that your 3 suspended rigs have now resumed operations, especially given the challenges in that market. Is this a sign that Pemex is finally getting their act together, or does it speak more to the quality of your rigs specifically? And separately, you have two of your Pemex jack-ups coming off contract by year-end this year. What's the likelihood that you think those will be extended beyond that period? A: Thank you, Eddie. It's a combination of factors. There's a strong realization in Mexico that low activity leads to a drop in production, prompting efforts to increase production by putting rigs back to work. Our rigs' quality and our history of efficient, low-cost well construction have positioned us favorably. Regarding contract extensions, discussions with Pemex are ongoing, and we expect good opportunities for extensions based on our performance.

Q: My follow-up is just on the uncertain market conditions you highlighted as the reason for suspension of the dividend. Could you expand on this a bit more? Are you seeing customers in certain regions getting increasingly more cautious about the outlook in your conversations with them? A: It's more of a macro situation. There are uncertainties around tariffs and global GDP, affecting oil demand. Customers are cautious, often opting for short contracts. However, for 2026 and beyond, larger work packages are being tendered. We are being cautious with cash, considering options like debt reduction, while remaining open to dividends when conditions stabilize.

Q: Thank you. Patrick, your commentary on Mexico sounds encouraging. Do you have any visibility on the option for the run to be exercised and then outside of Mexico, the prospector? A: Conversations with customers are encouraging, and there are opportunities outside the current customer for the rig in Mexico. We see potential work with IOCs that could extend the rig's operation into 2026. It's early days, but the outlook is favorable for continued work.

Q: So I want to touch a bit upon liquidity in general, because at least from the discussions that I've had with clients recently, I think it's very thematic and some of these ties to Mexico, Pemex, and the lack of payment visibility from them. How do you see your own liquidity situation going forward? A: We're in a good position with almost 80% of our days covered at solid day rates. We've received significant payments from Mexico, and expect regular payments to resume. We don't foresee needing to draw on the RCF, but it's available if needed. We also have alternative ways to monetize receivables if necessary.

Q: Morning everybody, or I guess good afternoon for you. Just, can you talk a little bit about the Saudi market? You mentioned on the long-term demand there, but we've been hearing about rates potentially being dropped. Can you help us understand what you're seeing and how that may be affecting the Saudi market and just other adjacent markets? A: Saudi activity levels are back to 2019 levels. There's interest in lump sum turnkey projects offshore, and they're securing long-term contracts for rigs. While activity reduction seems unlikely, we see signs of potential reversal. We'll monitor developments closely.

Q: And just, I appreciate all the commentary on liquidity and the urgency of suspending the base dividend. How should we think about share buybacks? Is that a possibility in this environment or is that also off the table? A: Share buybacks are a possibility, along with other options like retiring debt or dividends. We'll evaluate the best use of cash when we have better visibility on cash flow. All options are on the table to ensure the best interest of the company.

Q: Quick question about the backlog. How does the backlog work? Does it have a clause for termination for convenience? Can the customers just stop the contract? Are there any penalty payments? A: Most contracts include a termination for convenience clause with a payout equivalent to the backlog expectation. This protects us from losing profit expectations if a customer decides to terminate.

Q: Okay, and then one quick follow-up is around the CapEx per rig? Like, how do you guys think about it and how should we think about it, like average CapEx per week per year. Can you also please give some guidance around that? A: With no further growth CapEx, we're focused on maintenance CapEx, special periodic surveys, and long-term maintenance. We expect around $50 million in 2025, equating to about $2 million per rig, which is a good estimate for future modeling.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.