Q3 2025 Earnings Call: Contradictions Emerge on Deepwater Utilization, Exploration Timelines, and Debt Strategy

Date of Call: October 30, 2025

Financials Results

• Revenue: $1.03B contract drilling revenues in Q3 2025, average daily revenue ~$462,000; revenue slightly above guidance range

Guidance:

• Q4 2025: revenue $1.03B–$1.05B (fleet efficiency ~96.5%), includes $60M–$70M reimbursables; O&M $595M–$615M; G&A $45M–$50M; net cash interest ~$122M; CapEx $25M–$30M; cash taxes $18M; year-end liquidity slightly >$1.4B.
• FY2026: revenue $3.8B–$3.95B (≈89% firm; includes $230M–$270M reimbursables); O&M $2.275B–$2.4B; G&A $170M–$180M; cash interest ≈$480M; CapEx $125M–$135M; year-end liquidity $1.6B–$1.7B.

Business Commentary:

* Financial Strength and Debt Reduction: - Transocean reduced its debt by approximately $1.2 billion versus scheduled maturities of $714 million by the end of 2025. - This was achieved through capital markets transactions that advanced their deleveraging efforts and reduced annualized interest expense by approximately $87 million.

• Asset Strategy and Fleet Optimization:
• The company announced the intention to retire 9 rigs by mid-2026, including 4 drillships and 1 harsh environment semisubmersible from their stacked fleet.

• This decision was made to align the company with evolving customer needs and support a more balanced industry supply-demand dynamic.

• Contract Activity and Market Outlook:

• Transocean's customers exercised priced options, with BP extending the Deepwater Atlas contract until 2030 and Petrobras extending the Deepwater Mykonos term into early 2026.

• The company expects the number of contracted floaters to grow by approximately 10% in the next 18 months, driven by new contract awards and a projected increase in utilization.

• Operational Efficiency and Safety Performance:

• Transocean achieved revenue efficiency of 100% in September and 97.5% for the entire third quarter.
• This strong performance is attributed to rigorous procedural discipline and a high-performing team, showcasing their capability to deliver consistent standards of performance across their fleet.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a "strong third quarter," "strong free cash flow generation," and that they will have "reduced our debt by approximately $1.2 billion." They forecast improving floater utilization (~10% growth in contracted floaters over 18 months) and expect utilization to bridge above 90% into 2027, enabling upward pressure on dayrates.

Q&A:

• Question from Edward Kim (Barclays Bank PLC): Clarify timing and confidence in the increase in deepwater utilization (95%/100%) into 2027 and whether recent sub-$400k/day prints mean further rate weakness?
  Response: Management expects ultra-deepwater utilization to exceed ~90% entering 2027, which should create upward pressure on rates; near-term pricing is competitive but seventh‑generation rigs have shown resilience around $400k/day.

• Question from Edward Kim (Barclays Bank PLC): For four drillships (Skyros, Mikonos, KG2, Proteus) coming off contract early–mid next year, should investors assume ~1 quarter idle time and what's the follow-on timing/opportunity?
  Response: Company is in active discussions for all rigs; some may see short idle periods (possibly 1–2 rigs), but they expect to secure follow‑on work and add backlog.

• Question from Doug Becker (Capital One Securities, Inc.): Did Transocean participate in Petrobras one‑on‑one meetings about cost reductions and what was the outcome?
  Response: Yes — Transocean is engaged; Petrobras is targeting ~7%–8% cost reductions focused on contract cost‑basis items (crew/non‑essential items); Transocean views this positively as it can stimulate work without materially reducing activity.

• Question from Doug Becker (Capital One Securities, Inc.): Were discussions mainly about cost reductions outside of rates, or is Petrobras seeking price concessions/blend‑and‑extend?
  Response: Primary focus is on reducing the cost basis of existing contracts; term extensions could be explored, but rate concessions are not the main emphasis.

• Question from Doug Becker (Capital One Securities, Inc.): After many debt‑reduction steps in Q3, what are the next steps and is another equity raise possible?
  Response: Management expects to meet obligations from operating cash flow, will deploy excess cash to accelerate debt reduction, and does not plan an immediate equity raise given improved liquidity and maturities.

• Question from Noel Parks (Tuohy Brothers Investment Research, Inc.): Given lead times and internal budget timing, when will customers start committing rigs for the exploratory drilling pickup in 2027–2028?
  Response: Customers are beginning planning now; some exploration will be added into 2026 contracted programs, while larger dedicated exploration rig commitments are expected for 2027–2028, and contracting conversations are already underway.

Contradiction Point 1

Deepwater Utilization and Day Rate Expectations

It involves differing expectations regarding deepwater utilization and day rate pressure, which are critical indicators for investors and stakeholders.

What is your confidence in the increase in deepwater utilization and potential negative day rate impacts? - Edward Kim (Barclays Bank PLC, Research Division)

2025Q3: We expect utilization to exceed 90% by the end of 2026 and potentially reach 95%-100% in 2027. Rate pressures will build as capacity is absorbed, with seventh gen units showing resilience. - Keelan Adamson(CEO)

Will increased idle rigs cause day rate pressure on upcoming contracts? - Eddie Kim (Barclays)

2025Q1: We believe there might be some near-term pressure for short-term work, but long-term rates should remain similar to current levels. The industry fleet's utilization is expected to increase by 2027. - Roddie Mackenzie(CMO)

Contradiction Point 2

Exploration Activity Timeline

It involves differing expectations regarding the timeline for increased exploration drilling activities, which impacts future demand and revenue projections.

What's the timeline for exploration drilling activities to pick up? - Noel Parks (Tuohy Brothers Investment Research, Inc.)

2025Q3: Conversations indicate more exploration activity from 2027. Customers are discussing significant exploration plans, influenced by reserve declines and the need to increase supply. - Keelan Adamson(CEO)

What might producers do if 2026 proves strong? - Noel Parks (Tuohy Brothers)

2025Q1: Majors are refocusing on oil and gas, showing increased exploration spending. We expect a 40% increase in deepwater CapEx by 2029. The fundamentals support positive activity and day rates. - Roddie Mackenzie(CMO)

Contradiction Point 3

Customer Demand and Exploration Activity

It reflects differing timelines and expectations for customer demand and exploration activity, which could affect revenue projections and strategic planning.

When will exploration drilling activities increase? - Noel Parks (Tuohy Brothers Investment Research, Inc.)

2025Q3: Conversations indicate more exploration activity from 2027. Customers are discussing significant exploration plans, influenced by reserve declines and the need to increase supply. - Keelan Adamson(CEO)

How are you approaching pricing discussions for 2026 and 2027 projects? - Kurt Hallead (Benchmark)

2024Q4: We're talking about high-specification rigs with customers who need them, and we're confident in pricing them accordingly. - Jeremy Thigpen(CEO)

Contradiction Point 4

Deepwater Utilization and Rate Expectations

It involves differing perspectives on the expected utilization rates and day rate pressures in the deepwater market, which could impact investors' understanding of contract awards and pricing strategies.

How confident are you in the increase in deepwater utilization and potential negative day rate impacts? - Edward Kim (Barclays Bank PLC, Research Division)

2025Q3: We expect utilization to exceed 90% by the end of 2026 and potentially reach 95%-100% in 2027. - Keelan Adamson(CEO)

Will there be a contract for a 7G drillship at $350,000/day in 2025? - Eddie Kim (Barclays)

2024Q4: We think it's unlikely that you'll see many fixtures at significantly lower rates. Customers are unlikely to sacrifice long-term deals for shorter-term ones. - Roddie Mackenzie(CMO)

Contradiction Point 5

Debt Reduction Strategy

It highlights differing approaches to debt reduction, which could impact the company's financial strategy and investor confidence.

What are the next steps for debt reduction? Could another equity raise occur? - Doug Becker (Capital One Securities, Inc., Research Division)

2025Q3: We aim to meet obligations with cash from operations. The decision to issue equity is complex, but we're focused on reducing debt with cash flow. No immediate plans for another equity raise. - R. Vayda(CFO)

Can you discuss the insurance recovery this quarter and its impact on 2025 O&M cost guidance? - Arun Jayaram (JPMorgan)

2024Q4: We have the ability to access capital markets if we wanted to do this to further reduce debt. We're very confident in the financial health of our company. - Thaddeus Vayda(CFO)