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Transocean Ltd (NYSE:RIG)
Q3 2019 Earnings Call
Oct 29, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good day, and welcome to the Third Quarter Transocean Limited Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brad Alexander. Please go ahead, sir.

Bradley Alexander -- Vice President, Investor Relations

Thank you, David. Good morning and welcome to Transocean's third quarter 2019 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 and Contracts.

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 more information regarding our forward-looking statements, including the 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. During today's call, following those statements made by both Jeremy and Mark, we will conduct a question-and-answer session. During this time, to give more participants an opportunity to speak, please limit yourself to one initial question and one follow-up. Thank you very much.

I'll now turn the call over to Jeremy.

Jeremy Thigpen -- President and Chief Executive Officer

Thank you, Brad, and welcome to everyone participating in today's call. As reported in yesterday's earnings release, for the third quarter 2019, Transocean generated adjusted EBITDA of $245 million on $832 million in adjusted revenue. These results were once again driven by a combination of exceptional uptime across our global fleet, which resulted in revenue efficiency of 97% and performance bonuses, which serve as the ultimate acknowledgment that we continue to deliver safe and efficient drilling operations for our customers.

In spite of the challenges we have faced during this downturn, we have continued to focus on improving all aspects of our operations. Our consistently high uptime performance, continuously improving drilling efficiency and our industry best operating margins are a testament to this focus and to the hard work, dedication and professionalism of our valued team members at Transocean.

Looking more closely at our third quarter performance, as a whole, our fleet continues to meet and often exceed expectation. I'm especially proud of two of our rigs that began new campaigns during the third quarter. In July, the Transocean Norge began her maiden contract drilling for Equinor in the Snorre field offshore Norway. The Norge is one of the finest harsh environment semi-submersibles ever delivered. And as has become customary for the newbuild assets, Transocean is placed into the market over the past four years. The Norge has delivered a stellar uptime of 97% during her first three months of operation. This is again a great representation of what a customer can expect when they contract one of our newly delivered assets.

The same level of performance can also be expected by our customers from our legacy fleet. The Discover India commenced operations in early September for Parolas and has delivered uptime in her first two months of operation that exceeded 97%. This follows a successful campaign with CNRL in Ivory Coast after she was upgraded in 2017. With this track record performance, Parolas has already exercised its first contract option, and we are optimistic that Parolas will continue to exercise their options, which could extend her time in Egypt well into 2020 at progressively increasing day rate.

Looking at the next two rigs entering our active fleet, I'm pleased to report that both the Corcovado and the Mykonos, two at the high specification drilling rigs we acquired in the Ocean Rig transactions, have arrived in Brazil and are going through the final preparations before commencing operations on the respective contracts with Petrobras in the second half of November. These rigs were among the top performing assets for Petrobras before they were ultimately stacked after completing their contracts in early 2018. And given our thorough process and proven track record for reactivating and upgrading assets, we fully expect both rigs to quickly ascend to the top of Petrobras' rig ranking again.

While we're certainly pleased to be adding rigs to our active fleet, in early September, we announced our intention to remove the enterprise class ships from our fleet. These rigs are the Discover Enterprise, Discover Spirit and Discover Deep Seas. All three of these drillships commenced operations around the turn of the millennium, and at the time represented cutting-edge technology as they were the first ultra-deepwater drillships with dual activity capability. However, as we turn the clock forward approximately 20 years, the superior capabilities present on the more modern drillships in our fleet, combined with the estimated cost associated with reactivating and placing these older assets back into the market, have resulted in us now prudently electing to recycle these ships in an environmentally responsible manner.

Also in September, we took the decision to relinquish our interest in the Ocean Rig Santorini and the Ocean Rig Crete. These drillships were under construction in South Korea and the rights to these assets were acquired through last year's acquisition of Ocean Rig. Although all signs point to an improving market and both assets represent high specification ultra-deepwater floaters that would complement the other assets in our fleet, the approximately $1.1 billion of remaining commitments associated with completing and taking delivery of these assets make them cost prohibitive.

Sticking with the fleet, we continue to explore opportunities to enhance our existing assets to increase their marketability, profitability and sustainability. Earlier this month, we announced the deployment of the offshore drilling industry's first hybrid energy storage system aboard a floating drilling unit, which we installed on the Transocean Spitsbergen which is now drilling for Equinor at the Snorre field in Norway. This patented hybrid power technology better utilizes the rig's power plant by storing energy and batteries that are strategically placed around the rig. This stored energy is then used to power the thrusters as well as other critical components, thus reducing fuel consumption and enhancing the efficiency of our entire power distribution system.

The hybrid energy storage system also improves the reliability of a dynamically positioned rig's station-keeping, enabling operation under either diesel or battery power, providing additional redundancy, which is an added and important safety feature. As would be expected, the reduced use of fuel during normal operations both lowers the cost of operation and reduces nitric oxide and carbon dioxide emissions, thereby reducing the carbon footprint of the rig. The implementation of this system is consistent with the aspirational goals that we have outlined in our recently published sustainability report and furthers our desire to continue introducing efficient and sustainable technologies that deliver higher value wells to the industry.

Turning to our contracting activity since the second quarter call, in addition to the previously mentioned Parolas option exercised for the Discover India working in Egypt, we added four additional fixtures. Shell has committed to another well for its current program of Brunei using the Deepwater Nautilus.

As was disclosed in our fleet status report, the day rate associated with the rig increased almost 50% from its prior contract and illustrates both the tighter market we are seeing and the bidding discipline we continue to maintain. It is also a testament to our continued strong performance with Shell globally and their confidence in Transocean's ability to consistently deliver safe, reliable and efficient operations.

In Angola, Sonangol contracted the Deepwater Orion for continuation activity that completed near the end of the third quarter. The rig is now available and we see a number of opportunities on the horizon in West Africa with starting dates beginning no later than the middle of 2020. In the North Sea, hurricane Energy awarded the Paul V Lloyd Jr, a three well plus completion program starting in February 2020 with a solid day rate that has significantly improved over previous contract.

And finally, I'm pleased to report Conocophillips just recently sign the Leiv Eriksson for 125 days at a healthy day rate in Norway, starting in August of 2020. In total, we added approximately $130 million in new backlog since our second quarter conference call. While this gross number makes things slightly lower than normal to some, it is the direct result of our commitment to remain disciplined in our approach, pushing day rates to levels that improve our cash flow from operations and are more reflective of the value that we bring to our customer drilling programs.

As a result of the downturn, for the past four-plus years, we understand the drilling contractors have often been operating ultra-deepwater asset at day rates approximating their cash breakeven costs. In fact, at numerous instances, we suspect contractors have entered into contracts that were guaranteed to generate negative cash flow simply to avoid the cost of stacking. Obviously that approach is not sustainable, and over the past several months, we have been purposefully executing a bidding strategy whereby we only enter into contracts that we know will generate positive cash flow. This approach especially apply to situations requiring the reactivation, mobilization or upgrade of our rigs. In those cases, as we said on the last call, we will not reactivate an asset without being compensated for the reactivation and start-up costs in the form of higher day rates, longer terms and or lump sum reimbursements.

Our execution of this strategy is yielding some very solid results, and although we do not disclose the details of conditional LOIs and LOAs until they become finalized contracts, we are very pleased to see that our first-class operational delivery and disciplined bidding strategy has been rewarded with several LOIs that place near-term ultra-deepwater fixture rates firmly in the mid-$200,000 per day range.

Turning now to the market, overall, the active floating rig count remained consistent with the prior quarter. Also in line with last quarter, the total number of floaters under contract remains near 160 assets, keeping overall marketed utilization at a level above 80%. Of note, when we look at the overall number of floating rig opportunities, we identify 90 likely programs spending approximately 64 rig years. These numbers have continued to grow throughout the year and, importantly, the average contract durations are lengthening.

We're announcing multiple markets in both the ultra-deepwater and harsh environment where the number of opportunities are either at or above the number of marketable rigs currently available. As such, we anticipate new contracts to reflect materially increased day rates, which will generate significantly improved cash flow. This may come as a surprise to many, but even with the dip we've seen in oil prices over the last couple of months, customer interest is now at a five-year high. I've discussed this previously, but what continues to drive this level of customer interest is both the reduction of breakeven levels that continue to materialize across the offshore space and the confidence in the sustainability of these improved project economics.

There's no question that the current macro uncertainty around energy demand is driving our customers to remain cautious in their investments, especially regarding longer cycle projects. However, their confidence in the superior economics they now expect from both our deepwater and harsh environment portfolios continues to keep their project teams engaged so that they can quickly green light [Phonetic] projects as the market recovers.

Data indicate that in addition to the improving economics we are experiencing offshore, the shale boom that has provided the majority of all incremental supply relative to demand over the past five years is much closer to its peak than was previously anticipated. Productivity from onshore wells appears to have topped out in 2017 and experienced declines in 2018, followed by further declines in 2019. Recent estimates indicate that oil prices need to average around $60 per barrel to support US onshore supply growth of approximately 0.5 million barrels per day.

As we look at contracting offshore, we are pleased to observe that the recovery is certainly upon us. While we would have preferred a more accelerated uptick by now, we are excited by the continued strengthening in the harsh environment market, and we're very encouraged by what we're seeing in the ultra-deepwater markets across multiple basins.

In the US Gulf of Mexico, we continue to have constructive discussions with multiple operators regarding the need for a second 20,000 PSI capable rig. As you'll undoubtedly know, the Deepwater Titan will be the world's first 20,000 PSI capable rig that will commence operations for Chevron in 2021. And because of a 3 million pound hook-load, the Titan sister rig, which is currently under construction, remains the industry's most obvious solution for the next 20,000 PSI commitment. It should also be noted that Transocean has invested heavily into 20,000 PSI capability, and as an experienced team that makes Transocean the low risk and preferred solution for our customers. And with some customers indicating a desired commencement of activity in late 2020, it's not unreasonable to expect a final investment decision to occur in the coming months.

In addition to the 20,000 PSI opportunity, a number of players continue to inquire about ultra-deepwater rig availability in the Gulf, largely for activity commencing in the first half of 2020. As I've stated many times over the last year, well economics in the Gulf continue to improve, which is driven largely by efficiencies that reduced project cost through short cycle times, thus derisking projects and making them more attractive options in our customers' respective portfolios.

In Mexican waters, positive results from early exploration activity has further heightened our confidence that activity in the market will increase. In addition to the expectation of further exploration work, we're encouraged that a number of development opportunities appear imminent.

In the Caribbean, the continued success in the Guyana, along with budding [Phonetic] opportunities in neighboring Suriname and Trinidad is likely to continue absorbing ultra-deepwater capacity. Moving to Brazil, in addition to the six rigs that Petrobras recently contracted, we anticipate that they could contract a further three rigs by early next year. We also anticipate another handful of rigs are likely to be contracted through 2020 as a number of international players begin kicking off their pre-sell programs.

In West Africa, I'll start with Angola, where we continue to see a growing number of opportunities in addition to the awards made over the last few months. Consistent with this improved forward-looking utilization, the day rate levels are now increasing and appear to be comfortably above $200,000 a day for sixth generation ultra-deepwater drill ships. Additionally, we see a couple of IOCs looking to start campaigns in Nigeria along with opportunities in Ghana, Equatorial Guinea, Ivory Coast and Senegal.

In East Africa, we're encouraged by three IOCs looking to kick off their long anticipated projects that would further increase rig utilization. In Asia Pacific, we continue to successfully contract our rigs and anticipate further activity from a number of countries, including Brunei, Indonesia, Malaysia, Myanmar and Vietnam. The strongest market in that region remains Australia where awards continue to support day rates solidly in the mid to high $200,000 per day range, and we expect fixtures later in 2022 to push closer to the $300,000 per day mark as supply tightens.

Turning now to the harsh environment market. The Norwegian North Sea remains strong, and we look -- as we look into 2020, we see a number of programs on the horizon that will keep the market for the high specification assets at full utilization, which should support higher base day rates. In Canada, the Barents will be completing her current work with Suncor later this year and then kick off her next project with Equinor extending into the middle of 2020 if not longer, depending on the success of their program. As the Barents is clearly the highest specification asset in country, we will look to keep her in Canada following her work with Equinor. However, if we're unable to secure the activity in rates we believe are warranted, we will consider the option of returning her to Norway where we have exceptional confidence in the high specification harsh environment demand.

In summary, we remain pleased with the direction of the high specification harsh environment market where our top-tier assets are fully utilized and day rates for certain assets are approaching, and in some specialized cases exceeding $400,000 per day. And we're becoming increasingly encouraged by the ultra-deepwater market with the list of opportunities continues to grow rapidly and longer-term campaigns are beginning to surface. The combination of which will inevitably lead to higher day rates for our high-specification assets that are most coveted by our customers.

Strategically, from an asset backlog and balance sheet perspective, Transocean remains uniquely and exceptionally well prepared. We spent the last several years positioning ourselves by establishing the industry's largest and most technically capable fleet of floating rigs with the industry's most talented and experienced crews and shore-based support personnel.

We have the industry's largest and most profitable backlog providing us with unparalleled visibility to future cash flows and the manageable debt maturity schedule, along with an undrawn revolver providing continued financial flexibility. As we've consistently done, we will continue to actively manage our fleet removing assets we deem no longer marketable while continuing to monitor high specification assets available in the market. We will continue to explore opportunities to create an incident free environment with the ever-present goal of eliminating personal injuries, process safety event and unplanned downtime on our rigs.

We will continue to streamline and automate processes and activities while exploring and ultimately integrating new technologies to outperform our customer drilling plans and increase the number of economically viable targets within their respective portfolios. And we will accomplish this while prudently managing our liquidity runway to ensure that we have the cash that we need to responsibly invest in our assets, our workforce and the communities in which we operate. We're confident that these initiatives best position Transocean to capitalize on the recovery, which is now under way.

I'll now hand the call over to Mark.

Mark Mey -- Chief Financial Officer

Thank you, Jeremy, and good day to all. During today's call, I'll briefly recap our third quarter results and then provide updated guidance for the fourth quarter 2019. I will also share our first look at 2020. Lastly, I'll provide an update on our liquidity forecast through 2021.

As reported in our press release for the third quarter of 2019, we reported a net loss attributable to controlling interest of $825 million or $1.35 per diluted share. After adjusting for favorable tax items and unfavorable items associated with impairment charges related to the previously announced further retirements, we reported an adjusted net loss of $234 million or $0.38 per diluted share. Further details are included in our press release.

For the third quarter, we had operating and maintenance expense of $547 million. This $28 million favorable variance to our guidance is primarily timing related, and is not expected to be incurred in the fourth quarter. I will provide further guidance -- further detail when discussing our fourth quarter O&M expectations.

Looking now at our balance sheet and some strategic actions taken during the quarter. As Jeremy mentioned, during the third quarter, we decided to strip three of our fifth-generation ultra-deepwater floaters, the Discoverer Deep Seas, the Discoverer Spirit, and the Discoverer Enterprise. This resulted in a non-cash impairment charge of $580 million.

We will continue to assist the marketability of our fleet and take decision to recycle rigs when they were deemed to be no longer profitably marketable. Also during the quarter, we opportunistically repurchased approximately $250 million of near-dated debt in the open market saving us approximately $75 million in interest to maturity. As we've demonstrated over the prior several years, we will continue to take all necessary steps to extend our liquidity runway. prudently reduce leverage and proactively manage our near-dated maturities. In this regard, we anticipate using cash on hand to retire our remaining 2020 and 2021 debt at maturity.

Turning to our cash flows. We generated cash flow from operations of $91 million during the third quarter, a slight decrease sequentially the timing of receivables and interest payments. We ended the third quarter with total liquidity of approximately $3.2 billion, including cash and cash equivalents of $1.9 billion and approximately $1.3 billion from our undrawn revolving credit facility.

Let me now provide an update on our fourth quarter 2019 financial expectations. For the fourth quarter 2019, assuming revenue efficiency of 95% on our active fleet, we expect our adjusted contract drilling revenues to be approximately $825 million. Our forecast reflects the Deepwater Corcovado and Deepwater Mykonos commencing drilling campaigns in November with Petrobras in Brazil. We also have the KG2 to starting a contract in October with Chevron in Australia. Additionally, several rigs conclude their contracts during the fourth quarter, including in the Asgard, the Nautilus, the Barents, the Paul B. Loyd. the Transocean Leader and the Henry Goodrich. Except for the Asgard and the Henry Goodrich, all of these rigs begin new contracts in 2020. The Asgard is built on several US Gulf of Mexico tenders with early 2020 start dates while the Henry Goodrich is expected to go idle in Canada.

We expect fourth quarter O&M expense to be approximately $585 million. As previously mentioned, approximately $28 million forecast to be expensed in the third quarter will now be recognized in the fourth quarter. This includes $10 million associated with reactivation and mobilization of the Mykonos and Corcovado to Brazil, $5 million of shipyard expenses on the Spitsbergen, $5 million of SPS preparation cost for the Equinox, and $5 million to overhaul certain capital spares.

Additionally, fourth quarter O&M includes a further approximately $12 million for overhauling various capital spares, $9 million on the Paul B. Loyd Jr. consisting of 90 days of idle time between contracts and certain maintenance costs. We're also moving the remaining two cold-stacked rigs in Trinidad, the Deepwater Champion and Discoverer Americas to Greece at a total cost of about $10 million. This includes cluster removal and inventory offloading in Las Palmas.

The inventory being removed from these rigs will be made available for use by the rest of our active fleet. These rigs are being moved to Greece to benefit from a more favorable environmental conditions resulting in lower stacking costs. Early inspecting costs in Greece were nearly 50% lower than in Trinidad, translating into an annual saving of about $5 million.

We expect G&A expense for the fourth quarter to be approximately $47 million, generally in line with the third quarter. Net interest expense for the fourth quarter is expected to be approximately $160 million. This forecast includes capitalized interest of approximately $10 million and interest income of $6 million. Capital expenditures, including capitalized interest for the fourth quarter, are anticipated to be approximately $153 million. This includes approximately $47 million for the two Jurong drillships. Additionally, we expect maintenance capex of $106 million. Our cash taxes are expected to be approximately $8 million for the fourth quarter.

Turning now to projected liquidity at December 31, 2021, and including our $1.3 billion revolving credit facility, which matures in June 2023. At end of year 2021, liquidity is estimated to be between $900 million and $1.1 billion. This liquidity forecast estimated 2020 capex of $900 million and a 2021 capex of $900 million. The capex estimates include amounts to our two new build drillships at Jurong as well as fleet maintenance. Please note that our capex guidance excludes any future reactivations.

Now, turning our attention to 2020, for the full year, we expect to have adjusted revenue at or above 2019 adjusted revenue. Additionally, we expect operations and maintenance expense of around $2.1 billion, excluding any speculative reactivations. Furthermore, we anticipate G&A expense to be between $175 million and $185 million. We will update full-year 2020 guidance on our next earnings call in February. This concludes my prepared comments.

I will now turn the call back over to Brad.

Bradley Alexander -- Vice President, Investor Relations

Thank you, Mark. David, we're now ready to take questions. And as a reminder to all of our participants, please limit yourself to one initial question and one follow-up question.

Questions and Answers:

Operator

Thank you, sir. [Operator Instruction] And our first question will come from Greg Lewis with BTIG.

Greg Lewis -- BTIG -- Analyst

Yes. Thank you, and good morning, good afternoon, everybody.

Jeremy Thigpen -- President and Chief Executive Officer

Hey, Greg.

Greg Lewis -- BTIG -- Analyst

Jeremy, thank you for the -- you kind of went through each basin and talked about what you're seeing an the opportunities. I guess, more of a direct question, clearly you guys have been in the market trying to push pricing higher, you've had some successes, probably wish you had some more successes. As you're tracking the overall fleet and your competitors, how many like capable sixth-gen seventh-gen plus rigs are out there that are hot that kind of maybe we need to be chewed through before we can start to see pricing momentum maybe accelerate a bit? Is there any way to kind of quantify that?

Jeremy Thigpen -- President and Chief Executive Officer

I'll let Roddie take that one. He's smiling, he's ready for this question.

Roddie Mackenzie -- Senior Vice President, Marketing, Innovation and Industry Relations

Hey. When we look at the active sixth and seventh-gen high spec stuff that you're talking about, utilization looks like it's going to peak 95% by Q2 next year. So -- so there really isn't very much to burn through, as you say. So, I mean, that's basically it and that's kind of why we're seeing this real push on day rates. Projected day rates sitting at kind of anywhere between 170 to 260, we've obviously really on the high end of that. But yeah, that's basically exactly what's going to happen. That supply is going to dry up pretty quickly. It's really the first time since the start of the downturn we have multiple customers fighting over the same asset. And so that's a very good sign for us, and it's the reason we are really doing our best to push day rates upward.

Greg Lewis -- BTIG -- Analyst

Okay, great. And then just another one. I guess, last month, you -- the company was able to get out of two drillship new builds. Just kind of as -- I guess couple of questions in there is, one, I mean, I want to say six to 12 months ago, there were active people, active drillers bidding for some of these new builds in these shipyards. I'm just kind of -- anything that you're hearing or seeing in terms of, is there appetite to take out any of these new builds at the shipyards? And the second question on that is, how many rigs at shipyards or drillships that we kind of think are stranded at this point.

Jeremy Thigpen -- President and Chief Executive Officer

I don't think there is any appetite from anyone to go and take one of these new builds out of the yard at this point in the cycle. I mean, if you think about just the cost to bring one of these out, you think that when things were ordered, it was back in the peak of the newbuild cycles of 2012-'13 and even into '14, and shipyards were offering 5% down, 15% along the construction process, and then 80% upon delivery. So there's still a big ticket to write at the end of all of this, plus to help it with critical spares and commissioning and mope, it's another $100 million on top of that. And so, in the current environment, and with the balance sheets of all of the offshore drillers stretchered pretty thin, I just can't see a scenario whereby you will see any of these rigs come out anytime soon.

Greg Lewis -- BTIG -- Analyst

Okay, perfect. Thank you for the time everybody.

Operator

Thank you. Our next question comes from Ian MacPherson with Simmons.

Ian MacPherson -- Simmons Energy -- Analyst

Hi, and thanks. Good morning.

Jeremy Thigpen -- President and Chief Executive Officer

Hi.

Ian MacPherson -- Simmons Energy -- Analyst

Jeremy, on the hybrid power system on the Spitsbergen, is that a -- I mean, you described all of the positive attributes of it. Is that an upgrade that nets positive economically to you on that rig and it's something that you would like to scale up across the fleet or...?

Jeremy Thigpen -- President and Chief Executive Officer

In this particular case, we received some reimbursement for the Norwegian government for lowering emissions. We have to demonstrate that we are lowering those emissions over the course of the next six to 12 months. And then, they will actually help fund reimburse some of the funding for that. But then also, as you look at the fuel savings that we will realize depending on the relationship, the contractual relationship with the customers, that either accrues to them or to us. And so, in the case with Equinor, the savings accrue to us because we're responsible for fuel consumption. So, it's going to be very interesting to see the value that we can create through the system over the course of the next six months. And our belief is that it will be material enough and attractive enough where customers will be willing to pay more installation on other assets across the fleet.

Mark Mey -- Chief Financial Officer

Yeah. I think, I'll also just add to that. The system was originally designed for benign environment because that's basically where you can make the greatest fuel savings. So, it's actually a very good situation where we're able to kind of protect the system in Norway where we receive a significant reimbursement and then take those lessons learned and push it into the benign environment, maybe in the US Gulf of Mexico or Africa. So, yes, watch this space, there's going to be more movement on that.

Ian MacPherson -- Simmons Energy -- Analyst

Thank you. Mark, on your guidance for next year just sort of falling behind a little bit with my pencil, I think I essentially netted out to a revenue guide for next year, you said up slightly and then if $2.1 billion for O&M expense that will be flat to down versus this year. So, is that the directional message?

Mark Mey -- Chief Financial Officer

Yes, that's correct. Yeah.

Ian MacPherson -- Simmons Energy -- Analyst

Got it.

Mark Mey -- Chief Financial Officer

Okay. Thank you.

Operator

Thank you. Our next question comes from Connor Lynagh with Morgan Stanley.

Connor Lynagh -- Morgan Stanley -- Analyst

Thanks. Good morning.

Jeremy Thigpen -- President and Chief Executive Officer

Good morning.

Connor Lynagh -- Morgan Stanley -- Analyst

You made a comment about the pipeline of opportunities, I think it was somewhere around 64 rig years. I was wondering if you could just give some color to how that's trended over the past, I don't know 12 to 18 months. Just trying to get a feel for how much of that's building up versus where we were at this time a year ago?

Mark Mey -- Chief Financial Officer

Yeah. When we look at that compared to a year ago, we're basically seeing about 45% increase in the number of rig years right there. Couple of things that probably point out, but that is fixture -- numbers are remaining slightly positive quarter-on-quarter. But most importantly, the duration is going up. So, when I look at what happened kind of across 2018, the average duration only being about kind of six months or so. We're now pushing up as an average beyond nine months, and in fact, the last quarter, it shows the average is about 11 months. So we kind of see a pretty sharp increase there. It's a 50% increase in the duration of the fixture. So, again, a really positive sign on that recovery.

Connor Lynagh -- Morgan Stanley -- Analyst

Yeah. And you sort of segue to this, so maybe I'll ask it. There has been some concern from some of your competitors and some market observers that we're in sort of a structurally lower contract duration environment than we have been in the past. Would you agree with that? Do you view it as a cyclical dynamic? Just your thinking around how that's going to trend over the next couple of years?

Mark Mey -- Chief Financial Officer

So we have the benefit of seeing all the tenders and things are -- direct negotiations are happening behind the scenes. And we can definitely say that durations are increasing, there's no doubt about that. Yeah, definitely longer than they had been in the last four years where we've been kind of going well to well type of opportunities. We're starting to see multi-year campaigns with options behind those. Now, are we going to get back to the 10-year terms? Probably not anytime soon, but we are seeing multi-year opportunities right now.

I think, as you look at the number of big FIDs that are going to be awarded in the next kind of six to 12 months, those are typically your own developments which attract longer durations. We have been focused a lot on short-term production work in a few exploration things and downturn, but there is no questions, especially in basins like New Mexico in the US. There was a big shift toward development drilling in the next 12 months.

Connor Lynagh -- Morgan Stanley -- Analyst

Got it. Thanks for the color.

Operator

Thank you. Our next question comes from Taylor Zurcher with Tudor, Pickering, Holt.

Taylor Zurcher -- Tudor, Pickering, Holt & Co. -- Analyst

Hey, good morning. I wanted to touch on the 20K PSI opportunity. You said it sounds like discussions there continue to move in the right direction. Just curious if you could frame the potential magnitude opportunity set for that type of rig moving forward. And then, for the one that the contract that seems to be -- our contract announcement that seems to be nearing, would you expect to get -- assuming that whoever that wins the contract or whoever wins the contract, would you expect to get similar economics as to what you got for the Deepwater Titan?

Roddie Mackenzie -- Senior Vice President, Marketing, Innovation and Industry Relations

Yeah. So I'd say that I think the number of operators into this, there's probably three or four very serious, and we think that two of them are getting closer and closer to making award. And as Jeremy alluded to there, one could actually be this year for the precursor award to that. So, certainly activity moving in the right direction there. In terms of day rates, I imagine that they should be at least if not better than what we saw on the site, we can't speak to what our competitors are doing, but certainly we are instituting that-are reasonable economics follow that particular fixture.

Taylor Zurcher -- Tudor, Pickering, Holt & Co. -- Analyst

Okay, got it. And maybe a question on the Gulf of Mexico. For a while, we've heard a lot of positive commentary coming out of Brazil and even West Africa, but the Gulf of Mexico on the US side seems to have been lagging a bit. The outlook commentary and prepared remarks is pretty encouraging there. When you talk about incremental conversations you're having today, are these primarily extensions with some of the big IOCs that are already there, big independents that are contracting incremental rigs or any more color there would be helpful.

Jeremy Thigpen -- President and Chief Executive Officer

So it's a mixture of everything. And in fact there's kind of less of the expansions and more of the kind of new work. So there are several players that have been relatively quiet of the downturn. There's also a couple of new players. But the US side of the Gulf of Mexico is very interesting, more active than it's been probably four, five years. And on the Mexico side of things, I mean, stuff is really picking up. People are making discoveries. I know that the focus is no shifting from a lot of exploration work, and everyone's now thinking about what they're going to do to develop and monetize these discoveries. So, certainly a lot of good stuff following there, and that's say really helping up -- soak up that additional supply that we have seen this year, so it's going to be super tight 2020, I believe.

Taylor Zurcher -- Tudor, Pickering, Holt & Co. -- Analyst

Great. Thanks, guys.

Operator

Thank you. Our next question comes from Justin How with Citigroup.

Justin Robinson-Howe -- Citigroup -- Analyst

Hey. Morning guys. Justin here on behalf of JD. Thanks for taking my question. So, I know you guys mentioned the Barents possibly moving that over to Norway -- back to Norway, but I'm just wondering with the Goodrich set to roll off next month, it looks like it's going to be idle. Why wouldn't that be considered an opportunity to send over?

Roddie Mackenzie -- Senior Vice President, Marketing, Innovation and Industry Relations

Yes. There is an opportunity to send the rig over to UK in that environment. But to be honest, the stacking cost of the rig in Canada are very cost effective. So, until we see a significant opportunity, we probably keep the rig there for now and see it through the winter and then think about moving it over there.

Justin Robinson-Howe -- Citigroup -- Analyst

Okay, great. And then, regardless of which -- one of those ships, If you guys were to send it over, would that be a -- would you be looking for a paid mode or would you guys be willing to take that investment in that order [Phonetic]?

Mark Mey -- Chief Financial Officer

Yeah, I think we'd be looking for the paid mope or perhaps a paid demo, but certainly any movement of the assets, as Jeremy had alluded to before, we're looking for a payback on those. I mean, we're not moving rig speculatively. We're not trying to guess ourselves [Indecipherable] lead time for those economics to pay forward.

Justin Robinson-Howe -- Citigroup -- Analyst

Okay. And then, just last one for me. You guys mentioned that you guys saw increased revenue be on guidance from a performance bonuses. Just wondering if that's something you guys been more successful in your ability to negotiate in your contracts.

Mark Mey -- Chief Financial Officer

Yeah. I think -- so we've always said that. I see throughout the downturn that we are very interested in performance bonuses kind of putting your money [Indecipherable]. And I will say, our operations team have executed extremely well. So we continue to see that as being a good lever to demonstrate our willingness to perform, and that's what I put -- so far so there's no reason we wouldn't continue to do. It's very much customer specific. Some customers just prefer the flat day rate, others are willing to enter into performance contracts. And so it's totally dependent on the contract. We remain flexible on that front.

Justin Robinson-Howe -- Citigroup -- Analyst

Okay, great. I'll turn it over. Thanks.

Operator

Thank you. Our next question comes from Mike Sabella with Bank of America.

Mike Sabella -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning, guys.

Jeremy Thigpen -- President and Chief Executive Officer

Good morning.

Mike Sabella -- Bank of America Merrill Lynch -- Analyst

So, one of your biggest customers just recently floated a pretty long duration tender down in Brazil. You guys work for them in other parts of the world but not down there. Can you talk us through kind of on whether your relationship you have developed of north is [Phonetic] helpful on the bidding process or the markets are just kind of too different?

Jeremy Thigpen -- President and Chief Executive Officer

No, I think, the relationship speaks for itself. I mean, if you look back five years ago, we had no work with them. And now, we're the largest drilling contractor, and we operate globally for them. And so, I think this has been a very effective partnership, good relationships on the commercial side and then an excellent operational performance across the active fleet. So, no, we would certainly like our chances to expand that relationship into other markets.

Mike Sabella -- Bank of America Merrill Lynch -- Analyst

Great. And then, if we could kind of circle back to the 20K BOP, you all sound like there is potentially the market for a couple of more of these rigs. Can you talk about your willingness to go out and maybe get in contact with one of the shipyards and stranded assets if it came to that, and then talk about the difference between the new build versus upgrading an existing rig with 20K BOP?

Roddie Mackenzie -- Senior Vice President, Marketing, Innovation and Industry Relations

Yeah. To be clear, we think the market needs another 20K PSI, we're not sure about multiple more after that. And so, I think it is a -- it's an awfully big upgrade in a very big check to write for a drilling contractor and operator. And so, we do believe that there is a market for at least one more 20,000 PSI. And if there is a market for more and the customer is willing to pay for it, OK, sure, we could look at a stranded asset or one of our existing assets to see if the upgrade made sense.

Mike Sabella -- Bank of America Merrill Lynch -- Analyst

Great, thanks.

Operator

Thank you. Our next question comes from Kurt Hallead with RBC.

Kurt Hallead -- RBC Capital Markets -- Analyst

Hey. Good morning.

Jeremy Thigpen -- President and Chief Executive Officer

Hey, Kurt.

Kurt Hallead -- RBC Capital Markets -- Analyst

Hey. Thanks to -- thanks for all that color. It seems like things are headed in the right direction. The question I had was just on the follow-up, Jeremy, in your initial comment in -- answer in one of the earlier questions was, ultra-deepwater utilization hit 95% by second quarter 2020. Then you talked about kind of day rate range somewhere between 170 to 260. So on the day rate range, you just kind of curious was that 170 to 260 by rates that have already been signed or is that your kind of indication of what some future signings may be as you get out into second half of 2020. Can you give us some color on that?

Jeremy Thigpen -- President and Chief Executive Officer

Yeah, sure. So, I mean, we've seen a few signatures in that 170 range unfortunately. We mentioned the LOI that we are sitting on are-firmly in the mid-200s. So It gives you an indication of where we see those things coming out in the very, very near future. The 170 to 260 range is actually into our number, that number from like Bentleys [Phonetic] and Arctic and some of the industry commentators. And if we actually look at our range in a [Indecipherable] one or two of our competitors from that, in fact actually one specifically, then that range will -- the bottom end of that range immediately jumped up 20%. So, I mean, even though there's unfortunately one or two, I think there's still in the hundreds, we're seeing everything going forward, it's going to be minimum 200 pushing up to mid-200s.

Kurt Hallead -- RBC Capital Markets -- Analyst

Okay. Appreciate that additional color. Then Mark, on the outlook into kind of 2020, you mentioned you're paying down the '20 and '21 debt numbers, how does this all translate into or does it translate into any need to kind of tap into that revolver into 2020 or into 2021, can you provide some perspectives on that?

Mark Mey -- Chief Financial Officer

Sure, good. We don't see us using the revolver at all until late 2021 if at all. There are a few things that we have to do in the interim, including putting unsecured financing on the Deepwater Titan. So, once we accomplish that, there's no need to tap into the revolver at all. But as you know, we can't do that until the rig gets delivered, which won't be until late 2021.

Kurt Hallead -- RBC Capital Markets -- Analyst

Okay, great. And then, just one last follow-up just on housekeeping. Mark, any sense on how we should think about the quarterly depreciation going into fourth quarter and then into next year?

Mark Mey -- Chief Financial Officer

I think I'll take it offline. Thanks.

Kurt Hallead -- RBC Capital Markets -- Analyst

Okay. Thanks, Mark.

Operator

Thank you. Our next question comes from Sean Meakim with JPMorgan.

Sean Meakim -- JPMorgan -- Analyst

Thanks. Jeremy, I was hoping you can maybe just characterize those rig years that you're looking at in terms of 2020 versus '21 versus '22 or beyond. And are you willing to maybe to share the types of floor as you consider from a day rate perspective when bidding for term work across those years?

Jeremy Thigpen -- President and Chief Executive Officer

I'll take that, the first one about the duration. So, as an illustration, if you look at the sixth, seventh-gen drillships, in 2018, we had about 15 rig years awarded. In 2019, year-to-date, we're already 28. So, we're seeing a doubling of that. Our projections on 2020 and '21 and '22 are really based upon project sanctioning. So project sanctioning as we look at those movements are basically increased at least 50%, 60% between '18 to '19, and we think that increases another 20% into '20 and then onto '21. So that's kind of the range that you will see things continue to grow. In terms of day rate floors, I mean obviously I can't give that. Certainly we see rates increasing from where they are today. I think you'll see some interesting fixtures in the next month or two, certainly before the end of this year that will support that. And then we would expect that things would continue to improve from there.

Sean Meakim -- JPMorgan -- Analyst

Fair enough. I appreciate that. Could you maybe just -- thinking about Brazil, could you maybe give us a bit of a contrast in terms of timing, magnitude, and maybe type of rig demand as you look at Petrobras against the other IOCs that acquired acreage maybe thinking about activity post-sell versus pre-sell?

Jeremy Thigpen -- President and Chief Executive Officer

Yeah, fair enough. I think, coming up as the next pre-sell bidding round number six, and I had understood there are 17 different oil companies have been qualified for that, which is the largest number ever clear to participate in the Brazilian bidding round. You mentioned Petrobras, so Petrobras have been super aggressive, originally they came out for a tender -- for a tender that was expected to contract two units. They went ahead and contracted six. We also see that Petrobras has just launched another tender for multiple rigs, and that's in the Santos Basin, so that's pretty interesting.

And then, as somebody had mentioned before, you've got some of the IOCs. They're already out to tender and expect to make awards. So, I think, just add to that, if you think back, Petrobras has already awarded six contracts to some of the local players and so absorbs some of that capacity. And so as you look-if you look at the future, they have at least a few more contracts that they're going to award here over the next several months. And then, you've got the IOCs that are coming in and tendering. And my guess is, a lot of the local capacity is going to be consumed and the international players are going to win higher-spec assets in that market anyway. And so I think that opens up the door for us to grow our presence there.

Mark Mey -- Chief Financial Officer

Yeah. And Sean, actually the stuff that we know that's under negotiation at the moment would basically place all of the rigs that are in country under contract. So, there's no more local supply available that you'd have to bring rigs from outside.

Sean Meakim -- JPMorgan -- Analyst

Got it. Very helpful. Thank you.

Operator

Thank you. Our final question will come from Vebs Vaishnav with Howard Weil.

Vebs Vaishnav -- Howard Weil -- Analyst

Hey. Good morning and thank you for taking my questions. I guess, just thinking about the floater count, it has -- we started off with working count of about 100-105. We went to about 120, and now we are back below 115. I just wanted to see if there is some seasonality that you guys, I think, is going on and this could be like a transition number and then from here on we keep going upwards. Any color would be helpful.

Jeremy Thigpen -- President and Chief Executive Officer

Yeah. I think if you look at any given moment that may fluctuate by a little bit, but we're seeing that progression has pushed up to 130 rigs working almost 160 on the contract. And actually we're not going to see a whole lot more than that, just simply from the point of view that they cost a lot of money to bring the rig -- to reactivate or to bring it from shipyard. So, what we think happens now is that this active fleet that you have at the moment is basically going to increase in its utilization level, it's going to support solid day rates. And once those day rates are high enough perhaps in the 300 and beyond range, then you're going to see that can move up again. But that's going to be because of reactivating units, which -- as we've kind of stated, from our point of view, that would have to be paid forwards.

Bradley Alexander -- Vice President, Investor Relations

And Vebs, if you look at just conflicted rigs, that's been up over the last three years. So, I think you see in rigs much sooner now for work starting further into the future.

Vebs Vaishnav -- Howard Weil -- Analyst

Okay. And related follow-up maybe for Mark. So when you guys guide about $25 million of drilling revenues, that excludes the, call it, $45 million of amortized revenues or contract intangibles. So when you actually report it, would be -- we should think about $825 million plus that $45 million, is that fair?

Mark Mey -- Chief Financial Officer

No. Our contract drilling revenue would be $778 million in our adjusted contract revenue.

Vebs Vaishnav -- Howard Weil -- Analyst

Got it. That's very helpful. That's all for me.

Operator

Thank you. Ladies and gentlemen, that concludes our allotted time for questions and answers. I would now like to turn it back to Mr. Alexander for closing comments.

Bradley Alexander -- Vice President, Investor Relations

Yes. Thank you very much, David, and thank you to all of our participants on today's call. If you have further questions, please feel free to contact me either today or later in the week. Look forward to talking with you again when we report our fourth quarter and full year 2019 results. Have a nice day.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Bradley Alexander -- Vice President, Investor Relations

Jeremy Thigpen -- President and Chief Executive Officer

Mark Mey -- Chief Financial Officer

Roddie Mackenzie -- Senior Vice President, Marketing, Innovation and Industry Relations

Greg Lewis -- BTIG -- Analyst

Ian MacPherson -- Simmons Energy -- Analyst

Connor Lynagh -- Morgan Stanley -- Analyst

Taylor Zurcher -- Tudor, Pickering, Holt & Co. -- Analyst

Justin Robinson-Howe -- Citigroup -- Analyst

Mike Sabella -- Bank of America Merrill Lynch -- Analyst

Kurt Hallead -- RBC Capital Markets -- Analyst

Sean Meakim -- JPMorgan -- Analyst

Vebs Vaishnav -- Howard Weil -- Analyst

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